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<P align="right"><FONT size="2"><B>As filed with the Securities and Exchange Commission on June&nbsp;13, 2003</B></FONT>

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<DIV align="center"><FONT size="4"><B>SECURITIES AND EXCHANGE COMMISSION</B>
</FONT></DIV>
<DIV align="center"><FONT size="3"><B>Washington, DC 20549</B>
</FONT></DIV>
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<P align="center"><FONT size="5"><B>FORM 20-F</B>
</FONT>

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<P align="center"><FONT size="3"><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</B>
</FONT>

<DIV align="center"><FONT size="2"><B>For the fiscal year ended December&nbsp;31, 2002</B>
</FONT></DIV>
<P align="center"><FONT size="2"><B>Commission file number: 001-14487</B>
</FONT>

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<P align="center"><FONT size="6"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B>
</FONT>

<DIV align="center"><FONT size="2"><B>(Exact Name of Registrant as Specified in Its Charter)</B>
</FONT></DIV>
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    <TD align="center" valign="top"><FONT size="2"><B>Tele Norte Leste Holding Company<BR>
(Translation of Registrant&#146;s Name into English)</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>The Federative Republic of Brazil<BR>
(Jurisdiction of Incorporation or Organization)</B></FONT></TD>
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<P align="center"><FONT size="2"><B>Rua Humberto de Campos, 425/8&#176; andar-Leblon<BR>
22430-190 Rio de Janeiro, RJ, Brazil<BR>
(Address of Principal Executive Offices)</B>
</FONT>

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<P align="center"><FONT size="2"><B>Securities registered or to be registered pursuant to Section&nbsp;12(b) of the Act:</B>
</FONT>

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    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
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    <TD nowrap align="center"><FONT size="1"><B>Title of Each Class</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Name of Each Exchange On Which Registered</B></FONT></TD>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
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    <TD align="left" valign="top"><FONT size="2">Preferred Shares, without par value*<BR>
American Depositary Shares, each<BR>
representing 1,000 Preferred Shares</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
New York Stock Exchange<BR>
New York Stock Exchange</FONT></TD>
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    <TD width="100%"><FONT size="2">*&nbsp;&nbsp;Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.</FONT></TD>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Securities registered or to be registered pursuant to Section&nbsp;12(g) of the
Act: None</B>
</FONT>
<P align="center"><FONT size="2"><B>Securities for which there is a reporting obligation pursuant to Section&nbsp;15(d) of the Act: None</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Indicate the number of outstanding shares of each of the Issuer&#146;s classes
of capital or common stock as of the close of the period covered by this Annual
Report:</B>
</FONT>
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    <TD valign="top" align="center"><FONT size="2">127,948,562,088 Common Shares, without par value<BR>
255,897,123,174 Preferred Shares, without par value</FONT></TD>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
Registrant was required to file such reports) and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days.</B>
</FONT>
<P align="center"><FONT size="2">Yes&nbsp;&nbsp;[X]&nbsp;&nbsp; No
[&nbsp;&nbsp;]
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Indicate by check mark which financial statement item the Registrant has
elected to follow.</B>
</FONT>
<P align="center"><FONT size="2">Item&nbsp;17&nbsp;&nbsp;[&nbsp;&nbsp;]&nbsp;&nbsp;Item&nbsp;18
[X]
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<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

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<TR><TD colspan="9"><A HREF="#000">PRESENTATION OF INFORMATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#001">FORWARD-LOOKING INFORMATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="#002">PART I</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#003">Item&nbsp;1. Identity of Directors, Senior Management and Advisers</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">Item&nbsp;2. Offer Statistics and Expected Timetable</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">Item&nbsp;3. Key Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;4. Information on the Company</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;5. Operating and Financial Review and Prospects</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;6. Directors, Senior Management and Employees</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">Item&nbsp;7. Major Shareholders and Related Party Transactions</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;8. Financial Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;9. The Offer and Listing</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;10. Additional Information</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;11. Quantitative and Qualitative Disclosures about Market Risk</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">Item&nbsp;12. Description of Securities other than Equity Securities</A></TD></TR>
<TR><TD colspan="9"><A HREF="#015">PART II</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#016">Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#018">Item&nbsp;15. Controls and Procedures</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">Item&nbsp;16B. Code of Ethics.</A></TD></TR>
<TR><TD colspan="9"><A HREF="#020">PART III</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#021">Item&nbsp;17. Financial Statements</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#022">Item&nbsp;18. Financial Statements</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#023">Item&nbsp;19. Exhibits</A></TD></TR>
<TR><TD colspan="9"><A HREF="#024">Technical Glossary</A></TD></TR>
<TR><TD colspan="9"><A HREF="#025">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w1w1.txt">BY-LAWS</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w2w2.txt">AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w2w3.txt">AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w4w3.txt">STATEMENT OF AUTHORIZATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w4w4.txt">STATEMENT OF AUTHORIZATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w4w5.txt">STATEMENT OF AUTHORIZATION</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w4w6.txt">CERTIFICATIONS</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w8w1.txt">LIST OF THE SUBSIDIARIES</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w10w1.txt">CERTIFICATIONS</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87274exv99w11w1.txt">CODE OF ETHICS</A></TD></TR>
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<P align="center"><FONT size="2"><B>TABLE OF CONTENTS</B>
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    <TD nowrap align="center"><FONT size="1"><B>Page</B></FONT></TD>
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    <TD valign="top" colspan="3"><FONT size="2">Presentation of Information</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">ii</FONT></TD>
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<TR valign="bottom">
    <TD valign="top" colspan="3"><FONT size="2">Forward-Looking Information</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">iii</FONT></TD>
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    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>PART I</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;1.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Identity of Directors, Senior Management and Advisers
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">1</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;2.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Offer Statistics and Expected Timetable
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">1</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;3.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Key Information
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">1</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;4.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Information on the Company
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">13</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;5.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Operating and Financial Review and Prospects
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">46</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;6.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Directors, Senior Management and Employees
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">75</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;7.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Major Shareholders and Related Party Transactions
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">82</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;8.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Financial Information
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">86</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;9.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
The Offer and Listing
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">93</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;10.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Additional Information
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">96</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;11.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Quantitative and Qualitative Disclosures about Market Risk
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">110</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;12.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Description of Securities other than Equity Securities
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">111</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>PART II</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;13.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Defaults, Dividend Arrearages and Delinquencies
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">112</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;14.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Material Modifications to the Rights of Security Holders and Use of Proceeds
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">112</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;15.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Controls and Procedures
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">112</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;16B.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Code of Ethics
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">112</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>PART III</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;17.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Financial Statements
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">113</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Item&nbsp;18.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Financial Statements
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">113</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;19.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Exhibits
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">113</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top" colspan="3"><FONT size="2">Technical Glossary</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">114</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" colspan="3"><FONT size="2">Consolidated Financial Statements</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">F-1</FONT></TD>
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<P align="center"><FONT size="2">i</FONT>
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<!-- link1 "PRESENTATION OF INFORMATION" -->
<DIV align="left"><A NAME="000"></A></DIV>
<P align="center"><FONT size="2"><B>PRESENTATION OF INFORMATION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have prepared our financial statements as of December&nbsp;31, 2001 and 2002
and for the years ended December&nbsp;31, 2000, 2001 and 2002 and the notes thereto
(the &#147;Consolidated Financial Statements&#148;) in conformity with accounting
principles established under Brazilian corporate law, referred to herein as
&#147;the Brazilian Corporate Law&#148; or &#147;Brazilian GAAP,&#148; as required by the <I>Comiss&#227;o
de Valores Mobili&#225;rios</I>, the Brazilian Securities Commission, or &#147;CVM.&#148; The
Brazilian Corporate Law when applied to us differs in certain important
respects from generally accepted accounting principles in the United States
(&#147;US GAAP&#148;). See &#147;Item&nbsp;3. Key Information &#150; Selected Financial Data &#150;
Brazilian Corporate Law and US GAAP,&#148; &#147;Item&nbsp;5. Operating and Financial Review
and Prospects &#150; Presentation of Information&#148; and Note 30 to the Consolidated
Financial Statements for a summary of the differences between the Brazilian
Corporate Law and US GAAP, Notes 31 and 32 for a reconciliation to US GAAP of
net income (loss)&nbsp;for the years ended December&nbsp;31, 2000, 2001 and 2002 and
shareholders&#146; equity as of December&nbsp;31, 2001 and 2002 and Notes 33 through 35
for presentations of results of operations and changes in shareholders&#146; equity
prepared in accordance with, and other disclosures required by, US GAAP.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this annual report, except where otherwise specified, &#147;TNL,&#148; the
&#147;Company,&#148; &#147;we,&#148; &#147;us&#148; and &#147;our&#148; refer to Tele Norte Leste Participa&#231;&#245;es S.A.
and its subsidiaries. Telemar Norte Leste S.A., our fixed-line subsidiary, is
referred to as &#147;Telemar,&#148; and our wireless telecommunications subsidiary, TNL
PCS S.A., is referred to as &#147;Oi.&#148; Our majority shareholder Telemar
Participa&#231;&#245;es S.A. is referred to as Telemar Participa&#231;&#245;es. References to the
Company&#146;s businesses and operations are references to the businesses and
operations of its subsidiaries and/or TNL, as the case may be. References to
&#147;US dollars,&#148; &#147;US$,&#148; &#147;US$&#148; or &#147;$&#148; are to the lawful currency of the United
States, and references to &#147;<I>real</I>,&#148; &#147;<I>reais</I>&#148; or &#147;R$&#148; are to the lawful currency of
Brazil. Any discrepancies in tables between totals and sums of the amounts
listed are due to rounding.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report is presented in <I>reais</I>. On June&nbsp;12, 2003, the
commercial selling rate for <I>reais </I>was R$2.862 to US$1.00.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;References in this annual report to &#147;Preferred Shares&#148; and &#147;Common Shares&#148;
are to the preferred shares and common shares, respectively, of TNL.
References to &#147;American Depositary Shares&#148; or &#147;ADSs&#148; are to American Depositary
Shares, each representing 1,000 Preferred Shares. The ADSs are evidenced by
American Depositary Receipts (&#147;ADRs&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain terms are defined the first time they are used in this annual
report. Technical terms are defined in the Technical Glossary that begins on
page 115.
</FONT>

<P align="center"><FONT size="2">ii</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<!-- link1 "FORWARD-LOOKING INFORMATION" -->
<DIV align="left"><A NAME="001"></A></DIV>
<P align="center"><FONT size="2"><B>FORWARD-LOOKING INFORMATION</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report contains forward-looking statements. We may also make
forward-looking statements in press releases and oral statements. Statements
that are not statements of historical fact, including statements about our and
our management&#146;s beliefs and expectations are forward-looking statements. Many
of the forward-looking statements contained in this annual report are
identified by the use of forward-looking words such as &#147;anticipate,&#148; &#147;believe,&#148;
&#147;could,&#148; &#147;expect,&#148; &#147;should,&#148; &#147;plan,&#148; &#147;estimate,&#148; and &#147;potential,&#148; among others.
These statements appear in a number of places in this annual report and include
statements regarding our intent, belief or current expectations with respect
to, among other things,
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the competition in the Brazilian telecommunications sector;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the cost and availability of financing;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the performance of the Brazilian economy in general;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the levels of exchange rates between Brazilian and foreign currencies; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the Brazilian Government&#146;s telecommunications policy.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 assume any obligation to update them in light
of new information or future developments.
</FONT>

<P align="center"><FONT size="2">iii</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<!-- link1 "PART I" -->
<DIV align="left"><A NAME="002"></A></DIV>
<P align="center"><FONT size="2"><B>PART I</B>
</FONT>

<!-- link2 "Item&nbsp;1. Identity of Directors, Senior Management and Advisers" -->
<DIV align="left"><A NAME="003"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;1.</B>&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Identity of Directors, Senior Management and Advisers</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "Item&nbsp;2. Offer Statistics and Expected Timetable" -->
<DIV align="left"><A NAME="004"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;2.</B>&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Offer Statistics and Expected Timetable</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "Item&nbsp;3. Key Information" -->
<DIV align="left"><A NAME="005"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;3.</B>&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Key Information</I></B>
</FONT>
<P align="left"><FONT size="2"><B>Selected Financial Data</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected financial information presented below should be read in
conjunction with the Consolidated Financial Statements. The Consolidated
Financial Statements have been audited by PricewaterhouseCoopers Auditores
Independentes, and their report on the Consolidated Financial Statements
appears elsewhere in this annual report. The selected financial information
as of December&nbsp;31, 1998, 1999 and 2000 and for the years ended December&nbsp;31,
1998 and 1999 has been derived from the Company&#146;s consolidated financial
statements, which are not included elsewhere in this annual report.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following paragraphs discuss important features of the presentation of
the selected financial information and the Consolidated Financial Statements.
These features should be kept in mind in evaluating the selected financial
information and in reading &#147;Item&nbsp;5. Operating and Financial Review and
Prospects.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Brazilian Corporate Law and US GAAP</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Consolidated Financial Statements have been prepared in accordance
with the accounting principles established under the Brazilian Corporate Law.
Brazilian Corporate Law differs in certain material respects from US GAAP. See
Note 30 to the Consolidated Financial Statements for a summary of the
differences between Brazilian Corporate Law and US GAAP, Notes 33 and 35 for a
reconciliation to US GAAP of shareholders&#146; equity as of December&nbsp;31, 2001 and
2002, and Notes 31 and 32 for net income for the years ended December&nbsp;31, 2000,
2001 and 2002.
</FONT>

<P align="left"><FONT size="2"><B>Accounting Consequences of the Breakup of Telebr&#225;s</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;22, 1998 following a general shareholders&#146; meeting,
Telecomunica&#231;&#245;es Brasileiras S.A. or &#147;Telebr&#225;s&#148; was restructured to form twelve
new holding companies (the &#147;New Holding Companies&#148;). TNL is one of the New
Holding Companies. The shareholders established the shareholders&#146; equity of
each of the New Holding Companies, which was formed as a result of the breakup
of Telebr&#225;s, and allocated to each a portion of the retained earnings of
Telebr&#225;s. Telebr&#225;s kept sufficient retained earnings to pay certain dividends
and other amounts. The balance of Telebr&#225;s&#146; retained earnings was allocated to
each of the New Holding Companies in proportion to the total net assets
allocated to each such company. The retained earnings thus allocated do not
represent the historical retained earnings of the New Holding Companies. The
retained earnings thus allocated to us resulted in an increase of R$1,906.7
million in relation to the historical retained earnings of Telemar. The amount
of distributable retained earnings of TNL includes retained earnings allocated
to TNL in the breakup of Telebr&#225;s.
</FONT>

<P align="left"><FONT size="2"><B>Effects of Down-stream Merger</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 1999 our management approved and implemented a restructuring
plan that resulted in the transfer to TNL of goodwill (the &#147;Goodwill&#148;) in the
amount of R$2,464.8&nbsp;million paid by Telemar Participa&#231;&#245;es in connection with
the acquisition of shares representing control of TNL. For a description of
the Goodwill see Note 1(d) to the Consolidated Financial Statements.
As</FONT>
<P align="center"><FONT size="2">&nbsp;</FONT>
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</FONT>

<P align="left"><FONT size="2">of
December&nbsp;31, 1999, we had recorded Goodwill on TNL&#146;s balance sheet as permanent
assets to be amortized some 5&nbsp;years and as a special reserve goodwill under
shareholders&#146; equity.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2001, the CVM issued a new rule amending the way we could account
for the Goodwill. The new rule required us to write-down the Goodwill to the
amount of the future tax benefit expected to be generated by the amortization
of such Goodwill, retroactively to January&nbsp;1, 2000. As a result, we reduced
the amount of the Goodwill, as of January&nbsp;1, 2000, by R$1,599.6&nbsp;million, and
the resulting amount of R$824.1&nbsp;million was reclassified on the consolidated
balance sheet as current and non-current recoverable taxes. At the same time,
the special reserve goodwill under shareholders&#146; equity was also reduced by
R$1,599.6&nbsp;million. In 2001 and 2002, we registered Goodwill amortization of
R$493.0&nbsp;million in each year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For more complete information about the corporate restructuring and the
effects of the Goodwill amortization, see &#147;Item&nbsp;4. Information on the Company
&#151; Corporate Restructuring Plan,&#148; &#147;Item&nbsp;5. Operating and Financial Review and
Prospects &#151; Down-stream Merger&#148; and &#147;Statements of Operations for 2000, 2001
and 2002 &#151; Operating (Expenses) Income, Net&#148; and Note 1(d) to the Consolidated
Financial Statements.
</FONT>

<P align="left"><FONT size="2"><B>Effects of Corporate Reorganization</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Up to August 2001 we provided fixed-line telecommunications services
through 16 fixed-line subsidiaries, one in each state of Maranh&#227;o, Piau&#237;,
Cear&#225;, Rio Grande do Norte, Para&#237;ba, Pernambuco, Alagoas, Sergipe, Bahia,
Roraima, Amap&#225;, Amazonas, Par&#225;, Rio de Janeiro, Minas Gerais and Esp&#237;rito Santo
in Brazil (&#147;Region I&#148;) (excluding an area in the state of Minas Gerais where
Companhia de Telecomunica&#231;&#245;es do Brasil Central, a company that was not part of
Telebr&#225;s, continues to operate independently). In August 2001, our 16
operating fixed-line subsidiaries were reorganized through the merger of 15
fixed-line subsidiaries into Telecomunica&#231;&#245;es do Rio de Janeiro S.A.
(&#147;TELERJ&#148;), the surviving fixed-line subsidiary. The corporate name of TELERJ
was changed to Telemar Norte Leste S.A.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purpose of the merger was to simplify our operations by consolidating
them into one single company and, therefore (i)&nbsp;increase our productivity and
efficiency of the services provided; (ii)&nbsp;obtain higher synergies among our
operations; (iii)&nbsp;reduce our operating costs and tax burdens associated with
inter-company transactions; (iv)&nbsp;enhance efficiency and the capacity of our
subsidiaries to obtain funding and (v)&nbsp;increase the value and liquidity of the
shares for Telemar&#146;s shareholders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the merger, shareholders of the 15 fixed-line subsidiaries received
common shares of TELERJ, in exchange for common shares held by them. Holders
of preferred shares of those subsidiaries received preferred shares Class &#147;A&#148;
of TELERJ. The exchange ratios were established according to the economic
values of each subsidiary, calculated on a stand-alone basis, plus a 12%
premium offered to shareholders who agreed to exchange their shares to TELERJ
shares. The total payment made to the dissenting shareholders of these
subsidiaries, who exercised their redemption rights, amounted to R$185.9
million. The valuation of the subsidiaries&#146; assets was based on the
subsidiaries&#146; net book values derived from the balance sheets of March&nbsp;31,
2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the merger, and beginning in September, 2001, only the shares of
Telemar Norte Leste S.A. are traded on the <I>Bolsa de Valores de S&#227;o Paulo</I>
(&#147;BOVESPA&#148;) (the S&#227;o Paulo Stock Exchange). The new shares started trading on
the BOVESPA under the trade name of Telemar NL,
under the symbol TMAR3 (common shares), TMAR5 (preferred shares class A)
and TMAR6 (preferred shares class B). There was no change of trade name
(Telemar) or ticker symbol for TNL&#146;s shares on the BOVESPA (TNLP3 and TNLP4) or
of its ADSs on the New York Stock Exchange (TNE). In addition to the above
described consequences, all the assets, rights and liabilities of our 15
fixed-line subsidiaries were transferred to TELERJ, which had its share capital
increased from R$3,816&nbsp;million to R$7,088.1&nbsp;million. The reorganization,
defined as <I>Incorpora&#231;&#227;o</I>
<P align="center"><FONT size="2">2</FONT>
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</FONT>

<P align="left"><FONT size="2">under Brazilian Law, was implemented in accordance to
Brazilian Corporate Law and Brazilian Securities Law.
</FONT>
<P align="left"><FONT size="2"><B>TNL PCS S.A.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2000 we established a wholly-owned subsidiary under the
name TNL PCS S.A. to participate in the public auction for a license to provide
wireless telecommunications services in Region I utilizing a frequency band
referred to as &#147;Band D,&#148; which was commercially launched under the brand name
&#147;<I>Oi</I>.&#148; Oi was the successful bidder and on March&nbsp;12, 2001 Oi signed the
corresponding agreement of authorization with Agencia Nacional de
Telecomunica&#231;&#245;es, the Brazilian telecommunications regulatory body (&#147;Anatel&#148;),
and agreed to pay approximately R$1.1&nbsp;billion in exchange for the license.
Pursuant to the terms of the license, Oi began providing wireless
telecommunications services in Region I on June&nbsp;26, 2002.
<P align="center"><FONT size="2">3</FONT>
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<P align="center"><FONT size="2"><B>Selected Financial Information</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(thousands of reais, except per share data)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Income Statement Data:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Brazilian Corporate Law</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,158,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,222,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,126,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,873,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,008,628</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,527,392</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,294,442</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,806,635</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,152,445</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,149,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,694,913</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,832,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,296,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,721,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,880,837</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,597,021</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,593,384</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,666,205</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,313,008</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income before interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">268,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,892</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,239,164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">630,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,408,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">213,117</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">494,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense <SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(151,863</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(255,446</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323,113</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(918,754</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,345,573</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income from operations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">279,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,563</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,190,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(552,602</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net non-operating income (expense)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(196,356</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,508</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,120</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees&#146; profit share</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,844</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,767</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64,831</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28,410</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(130,893</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before taxes and minority interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,712</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,141,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(655,054</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax and social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(174,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76,646</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(257,216</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(56,685</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(131,856</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">176,165</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95,686</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income per thousand shares (in <I>reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.53</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends per thousand Preferred Shares
(in <I>reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends per thousand Common Shares
(in <I>reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares outstanding at the balance sheet date
(in thousands)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">334,399,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">334,399,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">369,752,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">369,469,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">383,845,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>US GAAP</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before taxes and minority
interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">161,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(199,829</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,588,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(390,515</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,384,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;applicable to each class of
shares:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">633,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60,734</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(932,945</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">328,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,321</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(459,592</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;per thousand shares:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares&#151;Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares&#151;Diluted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares&#151;Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares&#151;Diluted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average shares outstanding:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares&#151;Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,369,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,543,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,768,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120,154,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,170,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares&#151;Diluted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,369,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,543,506</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,768,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120,154,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,170,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares&#151;Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,457,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">209,689,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">239,924,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">248,880,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,029,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares&#151;Diluted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,457,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">209,689,764</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">234,959,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,815,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">252,305,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP>For 1998, interest expense allocable to continuing operations.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">4</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1999</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(thousands of reais, except per share data)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balance Sheet Data:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Brazilian Corporate Law</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,646,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,031,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,199,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,146,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,842,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,748,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,054,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,471,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,766,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,461,584</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share capital and capital reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,741,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,217,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,004,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,013,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,013,507</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Divisional equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,214,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,470,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,331,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,023,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,163,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>US GAAP</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,997,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,119,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,242,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,616,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD align="right"><FONT size="2">17,176,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,163,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,304,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,350,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,702,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,561,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,006,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,785,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share capital and additional paid in capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,907,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,721,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,121,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,290,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,457,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Divisional equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,710,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,302,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,977,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,503,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,785,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"> Includes dividends and interest on capital, which is an alternative
method under the Brazilian Corporate Law to distribute dividends to
shareholders. See &#147;Item&nbsp;10. Additional Information&#151;Taxation&#151;Distribution of Interest on Capital.&#148;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Exchange Rates</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL, the holding company, will pay any cash dividends or interest on
capital and make any other cash distributions with respect to Preferred (and
Common) Shares in Brazilian currency. Accordingly, exchange rate fluctuations
will affect the US dollar amounts received by the holders of ADSs on conversion
by The Bank of New York, as depositary (the &#147;Depositary&#148;) of dividends and
distributions in Brazilian currency on the Preferred Shares represented by the
ADSs. Fluctuations in the exchange rate between the Brazilian currency and the
US dollar will also affect the US dollar equivalent of the price of the
Preferred Shares on the Brazilian stock exchanges. Exchange rate fluctuations
may also affect our results of operations. The Company signed hedging
agreements to cover foreign exchange rate risks related to its US dollar and
Yen denominated debts. See &#147;Item&nbsp;5. Operating and Financial Review and
Prospects &#151; Foreign Exchange and Interest Rate Exposure.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are two principal foreign exchange markets in Brazil:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the &#147;commercial rate exchange market,&#148; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the &#147;floating rate exchange market.&#148;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most trade and financial foreign-exchange transactions are carried out on
the commercial rate exchange market. These transactions include the purchase
or sale of shares or the payment of dividends or interest with respect to
shares. Foreign currencies may only be purchased through a Brazilian bank
authorized to operate in these markets. In both markets, rates are freely
negotiated but may be strongly influenced by interventions of the Brazilian
Central Bank (&#147;Central Bank&#148;). In 1999, the Central Bank unified the exchange
positions of the Brazilian banks in the floating rate exchange market and
commercial exchange market, which led to a convergence in the pricing and
liquidity of both markets. Since February&nbsp;1, 1999, the floating market rate
has been the same as the commercial market rate. However, there is no
guarantee that the rates will continue to be the same in the future. Despite
the convergence in the pricing and liquidity of both markets, each market
continues to be regulated differently.</FONT>
<P align="center"><FONT size="2">5</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From its introduction on July&nbsp;1, 1994 through March 1995, the <I>real</I>
appreciated against the US dollar. In 1995, the Central Bank announced that it
would intervene in the market and buy or sell US dollars, establishing a
bandwidth in which the exchange rate between the <I>real </I>and the US dollar could
fluctuate. This policy resulted in a gradual devaluation of the <I>real </I>relative
to the US dollar. On January&nbsp;13, 1999, the bandwidth was set between R$1.20
and R$1.32 per US$1.00. Two days later, on January&nbsp;15, 1999, due to market
pressures, the Central Bank abolished the bandwidth system and allowed the
<I>real</I>/US dollar exchange rate to float freely. As a result, the exchange rate
dropped to R$2.1647 per US$1.00 on March&nbsp;3, 1999. Since then, the <I>real</I>/US
dollar exchange rate has been established by the interbank market, and has
fluctuated considerably. In the past, the Central Bank has intervened
occasionally to control unstable movements in the foreign exchange rate. It is
not possible to predict whether the Central Bank will continue to let the <I>real</I>
float freely or whether the <I>real </I>will remain at its present level.
Accordingly, it is not possible to predict what impact the Brazilian
government&#146;s exchange rate policies may have on us. The Brazilian government
could impose a bandwidth system in the future or the <I>real </I>could devalue or
appreciate substantially. For more information on these risks, see &#147;Risk
Factors &#151; Risks Relating to Brazil.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the noon buying rate expressed in r<I>eais </I>per
US dollar for the periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Average for</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Period</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Period-end</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Period</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1998</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.2085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.1640</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.2090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.1160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1999</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.8090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.8640</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.2000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.2074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.9510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.8350</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.9840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.7230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.3120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.3530</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.7880</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.9380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9983</FONT></TD>
    <TD nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.8949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.3236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.6300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.7950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.4390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">January 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.4383</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.6590</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.2650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">February 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5907</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.6640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">March 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.3320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.4469</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.5700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.3320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.1090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.3290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">May 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.0200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">June (through June&nbsp;12, 2003 )</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.9770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="98%"><FONT size="2">Average of the rates on the last day of each month in the period.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><I>Source</I>: Federal Reserve Bank of New York.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;12, 2003 the noon buying rate was R$2.8650 to US$1.00.
</FONT>

<P align="left"><FONT size="2"><B>Risk Factors</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following factors should be carefully considered in addition to the
other information presented in this annual report.
</FONT>

<P align="left"><FONT size="2"><u><B><I>Risks Relating to
Brazil</I></B></u>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Brazilian economic and political environment has been unstable at
times in the past. Any future economic or political instability may adversely
affect our results of operations and the value of our securities.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian political and economic conditions have a direct impact on our
business and the market price of our securities. Brazil has had periods of
economic and political instability that have negatively affected the business,
results of operations and financial condition of Brazilian companies and the
value of Brazilian securities. These include:
</FONT>

<P align="center"><FONT size="2">6</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">restrictions for six months in 1989 and 1990 on the conversion of Brazilian currency to foreign currencies and on the
remittance of payments to foreign investors;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a period of hyper-inflation from the mid-1980s through June 1994, reaching a peak, annualized rate of approximately 2,700%
during 1994;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">frequent changes in currency, including the introduction of six different currencies from 1986 through 1994;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the resignation of a President in 1992 due to charges of corruption that nearly led to his impeachment;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">public threats by two state governors in 1999 to default on state indebtedness;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">opposition by various political parties to free-market and privatization reforms enacted some the past eight years;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">frequent changes in tax rates and tax policies; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a volatile exchange-rate environment.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any events similar to these were to continue or recur in the future,
they could adversely affect our business, our results of operations, our
financial condition, and the market price of our securities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian monetary policy has resulted in unstable exchange rates and
interest rates in recent years. In particular, the government has allowed the
<I>real </I>to devalue and has managed interest policy in an effort to achieve stable
inflation rates and stable growth rates. Future currency devaluations and
future fluctuations in exchange rates could adversely affect the economic
environment in Brazil and our business. Any such conditions could also
increase our borrowing costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Company cannot predict what effect the policies of
President Luiz In&#225;cio Lula da Silva&#146;s administration, which took office in
January 2003, may have on Brazilian economic conditions or on the Company&#146;s
financial conditions or results of operations. The Lula administration has
announced that it expects to reform the Brazilian social security and welfare
systems to address underfunding. To date, no significant legislative or
regulatory changes have been made by the Brazilian government. The failure of
the Brazilian government to reform its social security and pension plan systems
may have an adverse effect on Brazilian economic conditions, which in turn may
have an adverse effect on the Company&#146;s financial condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian government also intends to enact a tax reform bill
principally designed to reduce the public deficit by making the Brazilian tax
framework more efficient and by reducing the tax burden on industry. The
Brazilian government submitted proposals to tax and social security reforms on
April&nbsp;30, 2003, which have yet to be voted on. While the exact results of the
tax reform bill, if enacted, are still uncertain, the amount of taxes we have
to pay may increase.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Developments in other countries may affect the market price of Brazilian
securities. These developments could also make it more difficult or expensive
for us to obtain additional financing.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The securities of Brazilian issuers have been influenced by economic and
market conditions in other countries, especially other emerging-market
countries. Although economic conditions differ in each country, investors&#146;
reactions to developments in one country may affect the value of securities of
issuers in other countries, including Brazil. During the second half of 2001,
volatility in the Brazilian securities markets appeared to be exacerbated by
threats of terrorism in the United States, together with a recession in the US
Currently, Argentina is in the midst of an economic and
</FONT>

<P align="center"><FONT size="2">7</FONT>
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<P align="left"><FONT size="2">political crisis following the abrupt devaluation of its currency in
January 2002, its refusal to service its public debt and its granting
protections to private companies that fail to meet their obligations.
Argentina has historically been one of Brazil&#146;s largest trading partners and
the Argentine crisis may affect the perception of risk in Brazil by foreign
investors. Furthermore, the market price volatility of Brazilian securities
has increased significantly since the outbreak of the war between the United
States and Iraq in March 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to obtain additional financing on acceptable terms or at all
and the market value of our securities may be adversely affected by these or
other events outside of Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Brazil has recently experienced an energy crisis. Such a crisis, were it
to reoccur, could result in cost increases and/or a decrease in demand for our
services.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, Brazil experienced a crisis in the electric-energy sector due to
the combination of under-construction of new generation facilities, some
dependence on hydroelectric energy generation and lack of rainfall. As a
result, Brazilian industrial, commercial and residential customers in certain
regions experienced energy rationing from June 2001 to March 2002, which
negatively affected economic growth for the country as a whole in 2001<I>. </I>Under
this energy rationing program we were required to reduce our energy
consumption. While energy rationing has ended, electricity tariffs have been
raised to compensate electricity utilities for these losses during the crisis.
We have reduced our energy consumption by adopting several measures to save and
replace outside sources of electric energy. Although we currently have a lower
dependence, we continue to rely on outside sources of electric energy to
provide telecommunications services. Should it reoccur, future electricity
rationing could adversely affect our principal activities and therefore,
negatively impact our business, results of operations and financial condition.
</FONT>

<P align="left"><FONT size="2"><u><B><I>Risks Relating to Our
Business</I></B></u>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The telecommunications industry may not continue to grow or may grow at a
slower rate.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derive most of our revenue from our fixed-line telecommunications
services. As a result, we depend on the continuing development and growth of
the market for fixed-line telecommunications services in Brazil. Our ability
to increase our business depends partially on continuing economic development
in Brazil. In March 2001 we acquired a license to provide wireless
telecommunications services in Region I at a cost of R$1.1&nbsp;billion, the last
installment of which, R$610&nbsp;million, was paid in February 2002. In 2001, we
built our wireless network at a capital cost of approximately R$1.2&nbsp;billion,
and on June&nbsp;26, 2002, we launched our wireless telecommunications services,
through Oi. In 2002, our revenue from Oi&#146;s wireless services represented 3% of
the Company&#146;s total revenue. Our ability to build and grow our wireless
subscriber base and revenues from wireless services depends on the continuing
development and growth of the wireless telecommunications industry in Brazil.
Continuing growth of the wireless telecommunications market depends on many
factors beyond our control, including the continuing introduction of new and
enhanced wireless devices and services as well as consumer preferences.
Further, any economic, technological or other developments resulting in a
slowdown in growth or a reduction in demand for fixed-line and wireless
telecommunications services may harm our business and revenues.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Brazilian telecommunications industry is competitive. Competition may
lead to a reduction in revenues and an increase in capital expenditure
requirements.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until 2000, we were the sole fixed-line local service provider in the
region in which we are authorized to provide telecommunications services,
Region I. In 2000, Vesper S.A. began offering local and intra-regional
fixed-line services in the region. Until 2002 we had two other competitors,
Embratel Participa&#231;&#245;es S.A. (&#147;Embratel&#148;) and Intelig Telecomunica&#231;&#245;es Ltda.
(&#147;Intelig&#148;) in the
</FONT>

<P align="center"><FONT size="2">8</FONT>
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</FONT>

<P align="left"><FONT size="2">market for intra-regional, inter-regional and international long-distance
services. The Brazilian government continues to open the telecommunications
market to new competitors. In 2002, Embratel was authorized to provide local
services in the region. Telecomunica&#231;&#245;es de S&#227;o Paulo S.A. (&#147;Telesp&#148;) also
received authorization to provide local, domestic and international
long-distance services. We believe that both Embratel and Telesp started to
offer services in our region as of the end of the first quarter of 2003. Such
competition for local and long-distance customers may require us to increase
our marketing expenses and our capital expenditures and/or reduce our rates,
and may cause a decrease in our market share of local and long-distance
services, in each case leading to a reduction in our profitability.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the market for wireless telecommunications services, we compete
primarily with four other telecom groups that provide such services in Region
I. These groups consist of the following companies: (i)&nbsp;a joint venture
between Telefonica and Portugal Telecom (marketing under the new brand name
<I>Vivo</I>) which is present in all of Region I, except in some Northern states and
in the state of Minas Gerais, (ii)&nbsp;the Telecom Americas Group, controlled by
the Mexican Am&#233;rica M&#243;viles, which is present in all of Region I, except in
some Northern states and in the state of Minas Gerais, (iii)&nbsp;TIM Brasil, a
subsidiary of Telecom Italia Mobile, which is present in all of Region I and
(iv)&nbsp;Telemig Celular in the state of Minas Gerais and Tele Norte Celular in
some of the Northern areas of Region I, both of which are controlled by Banco
Opportunity, a private Brazilian investment bank, and by several Brazilian
pension funds. Competition for wireless telecommunications customers may
require us to increase our costs and marketing expenses or provide services at
lower rates than those we currently expect to charge for such services.
According to market research, more than 50% of our mobile clients are derived
from our competitors. These, and other factors, could affect our business,
results of operations and future condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to stimulate increasing competition in local services, Anatel
also requires that we unbundle our local network allowing other companies to
offer services using our platform. We have presented a price proposal to our
competitors, such as Embratel and Telesp, to effect such a use. If Anatel
requires us to charge our competitors at rates that we consider to be
inadequate to recoup the investments we have made to reach the universal
service targets, there is a risk that competition for our high-end customers
could increase substantially and adversely affect our business and results of
operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in data transmission services is not subject to regulatory
restriction. The market is open to a great number of competitors. Increasing
competition in data services may lead to rate reductions in this segment, also
affecting the revenues we generate in this business.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We depend on other telecommunications services providers. We may not be
able to enter into favorable interconnection agreements.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to receive or send calls from or to customers of other fixed-line
and wireless Brazilian networks and international networks we must interconnect
with the networks of our competitors. The Brazilian General Telecommunications
Law requires all telecommunications service providers to interconnect their
networks with those of other providers on a non-discriminatory basis. The
rates to be paid by one network operator to the other for the use of each
other&#146;s network are currently regulated by Anatel. Starting July 2004
interconnection rates for wireless operators will be freely negotiated so that
if Telemar or Oi are not able to negotiate favorable interconnection agreements
in the future, our operating and financial results may be adversely impacted.
<P align="center"><FONT size="2">9</FONT>
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Our business is highly regulated. Changes in regulations or our failure
to meet obligations set forth in our concession or the extension of our
concession may adversely impact our business.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our industry is highly regulated by Anatel. Anatel regulates our tariffs,
quality of service, and network expansion, as well as competition between
carriers. Changes in laws and regulations, grants of new concessions or
licenses or the imposition of additional costs of network expansion, among
other factors, may adversely affect our operations and financial results.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been granted a concession to operate fixed-line telecommunications
services in Region I (excluding an area in the state of Minas Gerais where
Companhia de Telecomunica&#231;oes do Brasil Central operates), which initial term
is scheduled to expire on December&nbsp;31, 2005. We have the right to extend our
concession for another 20&nbsp;years, beginning January&nbsp;1, 2006. However, there
will be new conditions set forth in a new General Plan on Quality and a new
General Plan on Universal Service and new terms set forth in the extension to
our concession agreement, dated as of June&nbsp;2, 1998 (the &#147;Concession
Agreement&#148;). Anatel distributed drafts of these plans and such extension
agreement to the general public in December 2002 and asked for comments by
March&nbsp;17, 2003. We publicly provided our comments to these drafts on March&nbsp;17,
2003 and continue to privately negotiate the conditions and terms of extending
our current concession with Anatel. We disagree substantially with a number of
the conditions and terms being proposed in these drafts because they do not
take into account the current cost and investments already made in order to
achieve the targets established in the concession contract, including changes
in how local traffic is to be measured, reductions in interconnection fees and
the number of local areas, and the spin-off of local and long distance
businesses into different companies. We also disagree with the possibility of
new universal service targets being financed at the expense of the incumbent
companies, and with the possibility of eliminating the mechanism of annual
tariff adjustment to reflect increases in inflation, as measured by the <I>&#205;ndice
Geral de Pre&#231;os &#151; Disponibilidade Interna </I>(&#147;IGP-DI&#148;), an inflation index
developed by the <I>Funda&#231;&#227;o Get&#250;lio Vargas</I>, a private Brazilian economic research
organization. All of these proposed changes could in each case alter the
financial equilibrium of the Concession Agreement and adversely affect our
business and results of operations. Anatel is expected to finalize the
extension to our Concession Agreement and the new General Plan on Quality by
June 2003. The President of Brazil is expected to execute a decree finalizing
the new General Plan on Universal Service also by June 2003 but the execution
of such a decree may be delayed until the second half of June. On June&nbsp;10,
2003 the President of Brazil issued a decree setting forth a number of changes
in the regulation of Brazil&#146;s fixed-line telecommunications sector. See &#147;Item
4. Recent Developments.&#148; We are required to inform Anatel whether we intend
to extend our current concession by June&nbsp;30, 2003. We intend to respond
affirmatively but may continue to litigate against the implementation of some
of the proposed changes, either at the administrative level with Anatel or
within the Brazilian court system. However, if the proposed changes are
approved, we can provide no assurances that we will be able to successfully
litigate against the implementation of any of the proposed changes. In
addition, Anatel may terminate our concession upon the occurrence of an
extraordinary situation in which the public interest is in jeopardy and certain
other events described in our Concession Agreement. In the event that our
concession expires or is terminated, we can no longer provide fixed-line
telecommunications services and Anatel would have the right to occupy our
properties and use equipment and our employees that are necessary to provide
such services, provided that we would have the right to receive an indemnity
for the value of such properties and equipment. If our concession expires or
is terminated, our business, results of operations and financial condition will
be adversely affected.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a discussion of our concession and other regulations that apply to us,
see &#147;Item&nbsp;4. Information on the Company &#151; Regulation of the Brazilian
Telecommunications Industry.&#148;
</FONT><P align="center"><FONT size="2">10</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our concession requires us to meet certain network expansion and quality
of service obligations in each of the states in Region I. In the event of
non-compliance with the Anatel targets in any one of the states, Anatel can
establish a date for the regularization of the services, impose penalties, and,
in extreme situations, terminate our concession for the non-complying state.
See &#147;Item&nbsp;4. Information on the Company &#151; Regulation of the Brazilian
Telecommunications Industry.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our concession established the initial maximum tariffs which we could
charge for various fixed-line telecommunications services. These maximum rates
are readjusted annually in accordance with a formula established in the
concession that takes into account inflation and productivity which are
predetermined in the Concession Agreement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We are controlled by one major shareholder, Telemar Participa&#231;&#245;es.
Telemar Participa&#231;&#245;es has had and is expected to continue to have a significant
influence on our success.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, Telemar Participa&#231;&#245;es owned 52.96% of our
outstanding common stock. Through its ownership of our stock, Telemar
Participa&#231;&#245;es appoints the majority of our Board of Directors and influences
our business strategy. Further, we have entered into a management services
agreement with Telemar Participa&#231;&#245;es that requires Telemar to pay them a fee in
exchange for monthly management services that they provide. For the year 2002,
we paid them a management fee of R$57.7&nbsp;million. For a description of the
management services agreement see &#147;Item&nbsp;7. Major Shareholders and Related Party
Transactions &#151; Related Party Transactions &#151; Telemar Management Services
Agreement.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The telecommunications industry is subject to rapid and constant changes
in technology. Our ability to remain competitive depends on our ability to
implement new technology, and it is difficult to predict how these changes will
affect our business</B><B><I>.</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The telecommunications industry is subject to rapid and constant changes
in technology. Such rapid changes in technology may render our equipment,
services and technology inefficient, uncompetitive or obsolete. There can be
no assurance that we will be able to remain competitive by adopting, in a
timely fashion, such new technologies as they are developed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The wireless telecommunications industry is in particular experiencing
significant technological development, ongoing improvements in the capacity,
quality and data transmission speed of digital technology, shorter development
cycles for new cycles and changes in end-user needs and preferences.
Alternative technologies may be developed that are superior to those Oi is able
to provide today. In addition, Anatel is expected to auction 3G wireless
telecommunications licenses in 2005 or 2006, which will allow purchasers of
such licenses to adopt technology platforms that will offer more advanced
wireless services than Oi&#146;s current 2.5G GSM technology platform. If we are
unable to respond to market changes in technology, the network infrastructure,
handsets or services that are necessary to operate our existing technology may
be discontinued by the third parties we currently rely upon as they may shift
their emphasis to supplying and servicing new dominant technologies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We have a substantial amount of existing debt, which could restrict our
financing and operating flexibility and have other adverse consequences.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we had a total debt of R$10.7&nbsp;billion and a ratio
of debt to equity of 1.18.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our existing level of indebtedness and the requirements and limitations
imposed by our debt covenants could have important adverse consequences,
including:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">reducing our ability to satisfy our obligations with respect to our debt obligations;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">11</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">requiring us to divert a substantial portion of our cash flow to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">limiting our ability to refinance our debt obligations or incur new debt needed to finance our working capital, capital
expenditure or other requirements;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">limiting our flexibility in reacting to and planning for changes in our business and the industry in which we operate;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">placing us at a competitive disadvantage compared to some of our competitors;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">limiting our ability to make investments; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">limiting our ability to merge, consolidate or dispose of assets.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If our growth in revenues slows or declines in significant manner, for any
reason, we may not be able to continue servicing our debt. If we are unable to
meet our debt service obligations or comply with our debt covenants, we could
be forced to restructure or refinance our indebtedness, seek additional equity
capital or sell assets. We may be unable to obtain financing or sell assets on
satisfactory terms, or at all. For more information regarding the covenants of
our loan agreements, see &#147;Item&nbsp;13. Defaults, Dividend Arrearages and
Delinquencies.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We are subject to delays and delinquency on accounts receivable and to
legal and administrative claims.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, we recorded provisions for doubtful accounts and write-offs of
accounts receivable in the amount of R$616.0&nbsp;million, primarily due to
subscribers&#146; delinquency. Strict regulation from Anatel prevents us from
implementing certain policies to restrain delinquency, such as restrictions
based on credit record and offers of customized services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are unable to implement policies to limit subscriber delinquencies
or otherwise select our customers, persistent subscriber delinquencies and bad
debt can adversely affect our financial results.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to several legal and administrative proceedings. Based on
advice from our external legal consultants we classify our risk of loss from
such proceedings as &#147;probable,&#148; &#147;possible&#148; and &#147;remote.&#148; We make provisions
for probable claims but do not make provisions for possible and remote claims.
We have currently provisioned R$1,772.6&nbsp;million for probable claims. The
possible claims amount to R$890.0&nbsp;million as of December&nbsp;31, 2002. If our
liability from such claims exceeds the provisioned amount, our financial
condition may be adversely impacted. See &#147;Item&nbsp;8. &#151; Financial Information &#151;
Legal Proceedings.&#148;
</FONT>

<P align="left"><FONT size="2"><B><I><U>Risks Relating to the
Preferred Shares and ADSs</U></I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Holders of Preferred Shares have limited voting rights.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of our two classes of capital stock outstanding, only our Common Shares
have full voting rights. Except in certain limited circumstances, our
Preferred Shares will be entitled to vote only in the event that we fail to pay
the minimum dividends for a period of three consecutive years. As a result,
holders of our Preferred Shares generally will not be able to influence any
corporate decision requiring a shareholder vote, including the declaration of
dividends.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Holders of ADSs are not entitled to attend shareholders&#146; meetings and may
only vote through the Depositary.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian law, only shareholders registered as such in our corporate
books may attend shareholders&#146; meetings. All Preferred Shares underlying the
ADSs are registered in the name
</FONT>

<P align="center"><FONT size="2">12</FONT>
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<P align="left"><FONT size="2">of the Depositary. A holder of ADSs, accordingly, is not entitled to
attend shareholders&#146; meetings. A holder of ADSs is entitled to instruct the
Depositary as to how to vote the Preferred Shares represented by ADSs, in
accordance with procedures provided for in the Deposit Agreement, but a holder
of ADSs will not be able to vote the underlying Preferred Shares directly at a
shareholders&#146; meeting or to appoint a proxy to do so.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Holders of ADSs or Preferred Shares in the United States may not be entitled
to participate in future preemptive rights of offerings.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian law, if we issue new shares for cash as part of a capital
increase, we generally must grant our shareholders the right to purchase a
sufficient number of shares to maintain their existing ownership percentage.
Rights to purchase shares in these circumstances are known as preemptive
rights. We may not legally be permitted to allow holders of ADSs or Preferred
Shares in the United States to exercise any preemptive rights in any future
capital increase unless we file a registration statement with the Commission
with respect to that future issuance of shares or the offering qualifies for an
exemption from the registration requirements of the U.S. Securities Act of
1933, as amended. At the time of any future capital increase, we will evaluate
the costs and potential liabilities associated with filing a registration
statement with the Commission and any other factors that we consider important
to determine whether to file such a registration statement. We cannot assure
the holders of ADSs or Preferred Shares in the United States that we will file
a registration statement with the Commission to allow them to participate in a
preemptive rights offering. As a result, the equity interest of such holders
in us may be diluted proportionately.
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>If you exchange ADSs for Preferred Shares, as a result of Brazilian
regulations you may risk losing the ability to remit foreign currency
abroad.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian custodian for the Preferred Shares must register with the
Central Bank of Brazil to remit US dollars abroad. If you decide to exchange
your ADSs for the underlying Preferred Shares, you will be entitled to continue
to rely, for five business days from the date of the exchange, on the
custodian&#146;s registration. Thereafter, you may not be able to obtain and remit
US dollars abroad unless you obtain your own registration. Obtaining your own
registration will result in expenses and may cause you to suffer delays in
receiving distributions. See &#147;Item&nbsp;10. Additional Information &#151; Exchange
Controls.&#148;
</FONT>
<!-- link2 "Item&nbsp;4. Information on the Company" -->
<DIV align="left"><A NAME="006"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;4. </B>&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Information on the Company</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Overview</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are the largest provider of fixed-line telecommunications services in
South America, which we market under our <I>Telemar </I>brand name.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have concessions from the Brazilian Government to provide fixed-line
telecommunications services in Region I, which consists of sixteen states,
including the state of Rio de Janeiro, Minas Gerais, Bahia, and Cear&#225; (but
excluding an area in the state of Minas Gerais where Companhia de
Telecomunica&#231;&#245;es do Brasil Central operates). Region I covers approximately 64%
of the country, has a population of 93&nbsp;million and produces approximately 40%
of the country&#146;s GDP. As of December&nbsp;31, 2002 we had approximately 17.5
million lines installed, of which 98.5% have been digitized, and 15.1&nbsp;million
fixed lines were in service. Anatel certified the early attainment by Telemar
of the universal service targets for 2003 set forth in the 1998 Concession
Agreement, and, as a result, starting July&nbsp;20, 2002 Telemar began offering
inter-regional, and through our subsidiary Oi, international long-distance
services initiated in the areas
that are covered by our concession. See &#147;Our Strategy &#151; Increase
Revenues from Inter-regional and International Long-Distance Services.&#148;
</FONT>

<P align="center"><FONT size="2">13</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we acquired a license to provide wireless telecommunications
services in Region I on the GSM technology platform, and we launched our
wireless telecommunications services in Region I on June&nbsp;26, 2002, operating
under our <I>Oi </I>brand name. As of December&nbsp;31, 2002 we had 1.4&nbsp;million
subscribers. See &#147;Our Strategy - Increase Revenues from Wireless
Telecommunications Services.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Norte Leste Participa&#231;&#245;es S.A, or TNL, is a corporation (<I>sociedade
an&#244;nima</I>) incorporated in May 1998 and organized under Brazilian law. TNL&#146;s
headquarters are located at Rua Humberto de Campos, 425/8&#176; andar
- Leblon,
22430-190, Rio de Janeiro, RJ, Brazil, its telephone number is &#043;(55 21)
3131-1314 and its fax number is &#043;(55 21) 3131-1155. Our agent in the United
States is Puglisi &#038; Associates, with offices at 850 Library Avenue, Suite&nbsp;204,
P.O. Box 885, Newark, Delaware.
</FONT>

<P align="left"><FONT size="2"><B>Our Strategy</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our aim is to be one of the major companies in the market of integrated
fixed-line and wireless telecommunication services in South America by
providing our corporate and residential customers with the highest quality
local, long-distance, wireless and data services. Key elements of this
strategy include the following:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Increase Revenues from Inter-Regional and International Long Distance
Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The early attainment of our universal access and expansion targets for the
year 2003 enabled us to commence providing inter-regional and international
long-distance services in July 2002. We intend to increase revenues from
inter-regional and international long-distance services through the retention
and expansion of our customer base by offering more competitive plans, offering
quality and special services, and increasing our marketing efforts through
advertising campaigns such as &#147;Global 31.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Increase Revenues from Wireless Telecommunication Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we acquired a license to provide wireless telecommunications
services in Region I. We began providing wireless telecommunications services
on the GSM technology platform through our subsidiary Oi on June&nbsp;26, 2002. By
the end of December 2002, the coverage of our wireless telecommunications
services encompassed some 400 cities in 14 states, covering approximately 68%
of the urban population in Region I, and we had 1.4&nbsp;million wireless
subscribers. We intend to increase our revenues from wireless
telecommunications services through marketing efforts that focus on market
segmentation and corporate businesses, increasing demand for text messaging and
other wireless data services, realizing synergies with our fixed-line
telecommunications company and offering competitive service plans.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Expansion to New Corporate Markets</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to expand our voice and data transmission services to
corporations and assume a leadership position in the corporate market. We
intend to focus our marketing efforts on both large corporate clients and
small- to medium-sized corporations. In pursuit of our strategy of providing
nationwide services to the corporate market, Telemar first acquired control of
and then the remaining equity in December 2002 and February 2003, respectively,
of Pegasus Telecom S.A. (&#147;Pegasus&#148;). Pegasus is a broadband data transmission
provider that serves mainly corporate clients and is present in 25 of the major
cities in South and Southeast of Brazil. Because Pegasus&#146; fiber optic and
radio (wireless)&nbsp;network is 100% compatible with the technology used in
Telemar&#146;s
existing data network, we are able to offer fully integrated data
transmission services to substantially meet the requirements of our corporate
clients on a nationwide basis.
</FONT>

<P align="center"><FONT size="2">14</FONT>
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Cost Reduction</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost reduction is also a significant part of our strategy. In this
respect, several steps were taken:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">deployment of our long distance network and participation in the
project of a satellite launching;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">centralization of administrative and financial tasks such as
accounting, human resources and supply management;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">centralization of our network management center;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">process standardization;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">outsourcing of network maintenance services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">optimization of call centers and data processing centers;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">implementation of new billing and customer relationship management systems;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">development of the &#147;educational telemarketing&#148; program, to advise
customers on the proper use of products available and effectively
handling their telecommunications service expenses;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">centralization of clients and interconnection bills; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">reduction in the number of Telemar&#146;s employees.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>Our History and Development</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the merger of Telebr&#225;s in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebr&#225;s and its operating subsidiaries acquired almost all the other
telephone companies in Brazil and thus achieved a monopoly in providing public
telecommunications services in almost all areas of the country. Beginning in
1995, the Brazilian Government undertook a comprehensive reform of Brazil&#146;s
telecommunications regulatory system. In July 1997, Brazil&#146;s National Congress
adopted the <I>Lei Geral de Telecomunica&#231;&#245;es</I>, the Brazilian General
Telecommunications Law, and together with the regulations, decrees, orders and
plans on telecommunications issued by Brazil&#146;s executive branch, the
Telecommunications Regulations, which provided for the establishment of a new
regulatory framework, the introduction of competition and the privatization of
Telebr&#225;s and its subsidiaries. The General Telecommunications Law established
Anatel, an independent regulatory agency.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Privatization of Telebr&#225;s</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 1998, in preparation for the restructuring and privatization,
Telebr&#225;s spun-off its wireless telecommunications operations from the existing
integrated operations (fixed-line and wireless) into separate companies. In
May 1998, Telebr&#225;s was restructured to form, in addition to Telebr&#225;s, twelve
New Holding Companies by means of a procedure under Brazilian corporate law
called <I>cis&#227;o</I>, or split-up. The New Holding Companies were allocated virtually
all the assets and liabilities of Telebr&#225;s, including Telebr&#225;s&#146; interest in its
operating subsidiaries.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Holding Companies consist of:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">eight wireless service providers, operating in one of the
regions into which Brazil has been divided for purposes of wireless
telecommunications services in the frequency range called &#147;A Band,&#148;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">15</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">three regional fixed-line service providers including TNL,
each initially providing local and intra-regional long-distance
service in one of the three regions into which Brazil has been
divided for purposes of fixed-line telecommunications, and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">a holding company which controls Embratel, which provides
domestic (including interstate and inter-regional) long-distance
service and international long-distance service throughout Brazil.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL is one of the New Holding Companies. In the restructuring and
privatization of Telebr&#225;s, TNL was allocated all the share capital held by
Telebr&#225;s in the operating subsidiaries that provided fixed-line
telecommunications service in Region I. In July 1998, the Brazilian Government
privatized Telebr&#225;s by selling all its voting shares of the New Holding
Companies, including TNL, to private-sector buyers. The Brazilian Government&#146;s
shares of TNL, which amounted to approximately 52% of TNL&#146;s voting shares, were
purchased by Consortium Telemar, a consortium comprising Construtora Andrade
Gutierrez S.A., Inepar S.A Ind&#250;stria e Constru&#231;&#245;es, Macal Investimentos e
Participa&#231;&#245;es Ltda., Fiago Participa&#231;&#245;es S.A., Brasil Ve&#237;culos Companhia de
Seguros and Companhia de Seguros Alian&#231;a do Brasil. Consortium Telemar paid
R$3.43&nbsp;billion for the Brazilian Government&#146;s shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Acquisition by Telemar</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the interest in TNL held by the members of Consortium Telemar was
acquired by Telemar Participa&#231;&#245;es, a privately held Brazilian company, in July
1999, in exchange for cash, capital stock of Telemar Participa&#231;&#245;es and the
assumption of certain debts. The sole purpose of Telemar Participa&#231;&#245;es is to
hold shares of TNL. For a discussion of the entities that own interests in
Telemar Participa&#231;&#245;es, see &#147;Item&nbsp;7. Major Shareholders and Related Party
Transactions.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Corporate Restructuring Plan</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 1999 we implemented a restructuring plan, which resulted in
the transfer from Telemar Participa&#231;&#245;es to TNL of the Goodwill, in the amount
of R$2,464.8&nbsp;million, which was recorded in the books of Telemar Participa&#231;&#245;es
in connection with this acquisition of TNL shares from Consortium Telemar. The
restructuring plan enabled us to generate cash flow by allowing us to use tax
credits generated by the amortization of the Goodwill. See &#147;Item&nbsp;3. Key
Information &#151; Effects of Down-stream Merger.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Corporate Reorganization</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following its formation, TNL provided fixed-line telecommunications
services through sixteen separate operating subsidiaries which provided
telecommunications services in the 16 respective states in Region I. In August
2001, we implemented a corporate reorganization which resulted in the operating
subsidiaries being merged into a single operating company called Telemar Norte
Leste S.A., our Fixed-Line Subsidiary. See &#147;Item&nbsp;3. Effects of Corporate
Reorganization.&#148;
</FONT>


<P align="center"><FONT size="2">16</FONT>



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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Significant Subsidiaries</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our shareholding, direct or indirect, in
each of our significant subsidiaries as of December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Holding Company Ownership</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>% of share</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>% of voting</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Subsidiary</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar Norte Leste S. A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNL Net Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNext S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">HiCorp Comunica&#231;&#245;es Corporativas S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNL PCS S.A - Oi</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNL.Acesso S.A</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contax S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pegasus Telecom S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Telemar Norte Leste S.A.</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar is a corporation <I>(sociedade an&#244;nima), </I>organized and incorporated
in Brazil and controlled by TNL. Telemar provides telecommunications services
through a public switched telephone network. Such services are described in
detail under &#147;Our Operations&#151;Fixed-Line Services&#148; below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A large part of TNL&#146;s assets consist of shares in Telemar. TNL relies
almost exclusively on dividends (also in the form of interest on capital) from
Telemar and interest on loans to its subsidiaries to meet its needs for cash,
including cash to pay dividends to its shareholders. See &#147;Item&nbsp;5. Operating
and Financial Review and Prospects&#151;Liquidity and Capital Resources.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>TNL PCS S.A.</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2000 we established a wholly-owned subsidiary under the
name TNL PCS S.A., or Oi, to participate in the public auction for a license to
provide wireless telecommunications services in Region I utilizing a frequency
band referred to as &#147;Band D.&#148; Oi was the successful bidder and on March&nbsp;12,
2001, Oi signed the corresponding agreement of authorization with Anatel and
agreed to pay approximately R$1.1&nbsp;billion in exchange for the license. Oi
began providing wireless services on June&nbsp;26, 2002. In May 2003, the sale of
all of TNL&#146;s shares in Oi to Telemar was approved by the board of directors of
both TNL and Telemar and consummated. See &#147;Item&nbsp;7. Major Shareholders and
Related Party Transactions.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Pegasus Telecom S.A.</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;27, 2002 Telemar acquired 93.27% of the shares in Pegasus
Telecom S.A., including preferred shares held by TNL that represented 24.4% of
Pegasus&#146; share capital. On February&nbsp;19, 2003 Telemar acquired the remaining
6.73% of Pegasus&#146; shares, and accordingly holds now 100% of its share capital.
Historically, Pegasus&#146; primary purpose was the operation, marketing, project
development, execution and rendering of data transmission services in the
states of Rio Grande do Sul, Santa Catarina, Paran&#224;, Mato Grosso, Mato Grosso
do Sul, Goi&#224;s, Tocantins, Acre, Rondonia, Distrito Federal (&#147;Region II&#148;) and
S&#227;o Paulo (&#147;Region III&#148;). We expect that our acquisition of Pegasus will
enable us to expand our corporate market share, by offering data transmission
services in Brazil on a nationwide basis.
</FONT>

<P align="center"><FONT size="2">17</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Subsidiaries Providing Ancillary Telecommunications Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide certain ancillary telecommunications services such as network
management and data centers, as well as, corporate communication and Internet
access to third parties, through the following wholly-owned subsidiaries:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">TNext S.A., which started operations in October 2000,
offers hosting services and the placement of clients&#146; applications
on hardware and software platforms. After the merger with Contax
S.A., TNext S.A. changed its name to TNL Contax S.A.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">Contax S.A., which started operations in December 2000, is
a contact center, which manages the total relationship between
businesses and their clients, including logistics and billing,
through multiple interactive means such as e-mail, fax, voice via
IP and chats. On February&nbsp;3, 2003, this company was merged into
TNext S.A. and continues its operations under the combined company
of TNL Contax S.A.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">HiCorp Comunica&#231;&#245;es Corporativas S.A., which started
operations in November 2000, provides outsourcing of corporate
communication services, including the implementation, operation,
management and quality of service assurance.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">TNL.Acesso S.A., which started operations in February 2001,
encompasses Internet businesses, including access providers (acting
in the access provider market, services and e-marketplaces).</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Investments</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through TNL Net Participa&#231;&#245;es, we hold indirectly shares representing
17.5% of the total equity of Internet Group do Brasil Ltda. (iG), owner of the
iG portal. iG is an entertainment, services and content portal and is also the
first free Internet access provider in Brazil. iG started operations on
January&nbsp;9, 2000 and is the second largest portal in terms of access volume in
Brazil.
</FONT>

<P align="left"><FONT size="2"><B>Region I</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our concession and license from the Brazilian Government authorizes us to
provide fixed-line and wireless telecommunications services<B>, </B>respectively, in
Region I, which consists of sixteen states of Brazil located in the northern,
northeastern and southeastern regions of Brazil, excluding an area in the state
of Minas Gerais where Companhia de Telecomunica&#231;&#245;es do Brasil Central, a
company that was not part of Telebr&#225;s, continues to operate independently. The
excluded area in Minas Gerais represents approximately 3.2% of total lines
installed and 1.9% of the total population of Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Region I covers an area of 5.4&nbsp;million square kilometers, representing
approximately 64% of the country&#146;s total area and generates approximately 40%
of Brazil&#146;s gross domestic product. The population of Region I is
approximately 92.7&nbsp;million, representing 53.4% of the total population of
Brazil. Region I has 102 municipalities with populations in excess of 100,000
inhabitants. In 1999 (the last year for which official data are available),
per capita income in Region I was approximately R$4,193 per year, varying from
R$1,402 in the State of Maranh&#227;o to R$7,946 in the State of Rio de Janeiro.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth key economic data, compiled by the
<I>Instituto Brasileiro de Geografia e Estat&#237;stica </I>(the &#147;IBGE&#148;), for the states in
which Telemar operates.
</FONT>

<P align="center"><FONT size="2">18</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B>Key Economic Data on the States of Region I</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Population</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>% of gross</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Population</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>per square</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>national</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Per capita</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(million)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>kilometer</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>product</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>income</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>State</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(2000)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(2000)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(1999)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>R$(1999)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rio de Janeiro</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">327.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,946</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minas Gerais</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Bahia</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cear&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pernambuco</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,279</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Esp&#237;rito Santo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.93</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Par&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,705</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rio Grande do Norte</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,757</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amazonas</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maranh&#227;o</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,402</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Alagoas</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Piau&#237;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,660</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Para&#237;ba</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sergipe</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.56</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amap&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Roraima</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Source: IBGE.
</FONT>
<P align="center"><FONT size="2"><B>Map of Region I</B>
</FONT>

<P align="center"><FONT size="2"><IMG src="y87274y8727400.gif" alt="(MAP OF REGION I)">
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business, financial condition, results of operations and prospects
depend in part on the performance of the Brazilian economy and the economy of
Region I, in particular. See &#147;Risk Factors&#151;Risks Relating to Brazil.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Our Operations</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-Line Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fixed-line telecommunications services consist of
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">local services, including installation, monthly subscription, measured service, collect calls and supplemental local
services,</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">19</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">intra-regional long-distance services within Region I, inter-regional long distance services, primarily between Region
I and Region II and III, and international long-distance services primarily from Region I, placed through fixed
telephones using our long-distance access code, CSP 31 (<I>C&#243;digo de sele&#231;&#227;o de prestadora</I>),</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">connection of calls placed from fixed-line telephones in Region I to mobile telephones or &#147;fixed-to-mobile services,&#148;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">usage of our network to complete calls initiated by customers of other telecommunications service providers, or network
usage,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">advanced voice services, to corporate customers, such as 0800 services,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">public telephone services, and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">data transmission services, comprising the lease of dedicated digital and analog lines to corporate customers,
telecommunications service providers and Internet service providers, Internet Protocol (IP), ADSL and other data
transmission services.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Local Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Local services include installation, monthly subscription, measured
service, collect calls and supplemental local services. Measured service
includes local calls that originate and terminate within a single local area in
Region I. Until February 1999, we were the only authorized supplier of local
fixed-line and intrastate telecommunications services in Region I. In February
1999, Anatel, pursuant to the Brazilian Telecommunications Regulations, awarded
V&#233;sper S.A. an operating license to provide local fixed-line and intra-regional
long-distance telecommunications services in Region I. Embratel is also
beginning to sell lines under a local fixed-line project, pursuant to
authorization granted by Anatel on August&nbsp;9, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Local services also include additional and value added services such as
ISDN lines, which allow voice, data, image and sound transmission supported by
two digital lines permitting the user to use simultaneously, for example, voice
transmission and the Internet. We also offer in-dialing service (direct
transmission of external calls to extensions) to corporate clients. For
corporate clients in need of a large quantity of lines, we offer digital trunk
services, increasing the speed and optimizing the client&#146;s telephone system.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide a variety of other supplemental local services that include
voice and fax mailboxes, call waiting, call forwarding, conferencing, speed
dialing and caller ID.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;7, 2002, Telemar was granted authorization to provide local
services in Regions II and III, however; as of May 2003, it had not yet started
providing such services in those regions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Intra-regional (Intrastate and Interstate) Long-Distance Service</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each state in Region I is divided into a number of local areas. Calls
from one local area in Region I to another are referred to as &#147;intra-regional
long-distance&#148; calls. Intra-regional long-distance services include intrastate
long-distance calls (non-local calls within a given state) and interstate
long-distance calls (calls between states in Region I). Prior to the formation
of the New Holding Companies, fixed-line operating subsidiaries within each
state were the exclusive providers of intrastate long-distance service in each
state. At that time, Embratel was the exclusive provider of interstate
long-distance service and was not authorized to provide intrastate
long-distance service. However, Anatel implemented a numbering plan to promote
competition between providers of fixed-line long-distance services by requiring
the caller to choose a service provider for each long-distance call by
prefacing the call with numbers that identify the provider (CSP). In July 1999
in conjunction with the implementation of the numbering plan, Embratel began
providing intrastate
</FONT>

<P align="center"><FONT size="2">20</FONT>
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<P align="left"><FONT size="2">long-distance services throughout Brazil, including within
the states in Region I, and we began providing interstate long-distance
services between the states in the Region. For a discussion of the Numbering
Plan, see &#147;Competition &#150; Intra-regional Long Distance.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Inter-regional and International Long-Distance Service</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inter-regional long-distance services consist of calls between a point
within Region I and a point within Region II or Region III. International
long-distance services consist of calls between a point within Region I, Region
II or Region III and a point outside of Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon meeting certain universal service targets in the second quarter of
2002, Telemar commenced providing inter-regional long distance services
originating from Region I in July 2002. For that purpose we entered into
interconnection agreements mainly with Telesp and Brasil Telecom to
interconnect directly with their networks.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the Company commenced providing international long-distance
services originating from Region I in July 2002 using the wireless
telecommunications services license granted to Oi, even though our fixed-line
customers access these services through the use of CSP 31. For that purpose we
concluded several international agreements to interconnect our network with
those of the main telecommunication services providers worldwide.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2003 we began to offer fixed-line inter-regional and international long
distance services originating in Regions II and III using the same wireless
telecommunications services license granted to Oi.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-to-Mobile Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed-to-Mobile services consist of calls from our fixed-line customers to
wireless telephone customers of the wireless service providers operating in
Region I. Such services also include collect calls made by customers of the
wireless service providers operating in Region I to our fixed-line customers.
For a discussion of how we bill for Fixed-to-Mobile services see
&#147;Rates&#151;Fixed-to-Mobile Rates.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Public Telephone Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own and operate public telephones through Region I. As of December&nbsp;31,
2002 we had approximately 716,000 public telephones installed, which are all
operated by a prepaid card.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Data Transmission Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide a variety of customized, high-speed data transmission services
to our corporate customers. Our data transmission services include
interconnectivity between local area networks at data transmission speeds of 34
Mbps and 155 Mbps, videoconferencing, video/image transmission and multimedia
applications. We lease dedicated lines to other telecommunications service
providers, Internet service providers (&#147;ISPs&#148;) and corporate customers. Other
telecommunications service providers, particularly wireless service providers,
lease trunk lines from us for use within their stand-alone networks. ISPs
lease lines for access to the world wide web, and many of our large corporate
customers lease lines for use in private networks that link different corporate
web sites. We offer high-speed Internet access and other data transmission
services using ADSL technology to residential customers as well as small and
medium-sized business customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide these data transmission services using Telemar&#146;s region-wide
data transmission network and multi-service network platform and Pegasus&#146;
nationwide fiber optic and radio network.
</FONT>

<P align="center"><FONT size="2">21</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect the Internet access market to be a priority for our future
expansion as competition from cable operators and other telecommunications
service providers increases. We provide broadband Internet access services
using ISDN and ADSL technology in the primary cities in Region I. We began
offering ISDN lines to residential customers in January 2000 and began offering
ADSL subscriptions to small and medium-sized business customers in April 2001.
As of December&nbsp;31, 2002 we had sold 68,000 ISDN accesses and 45,000 ADSL
subscriptions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The ADSL technology allows the transmission of voice and data signals, at
high speed, on a single copper pair in the access network. In 2002, a Telemar
focused on a service denominated &#147;Velox&#148; as Internet access mechanism in the
retail segment, a broadband product allowing high-speed access to the Internet.
Since voice transmission through telephone lines uses only one of many
possible frequency bands, the remaining frequency bands are available for data
transmission. An ADSL modem is installed at the customer&#146;s conventional line
which, in turn, is connected to a DSLAM (Digital Subscriber Line Access
Multiplexer) equipment at the switching station. Customers can use the
telephone line simultaneously with the internet. Customers pay a subscription
rate for the modem board and a fixed monthly subscription rate, irrespective of
the length of connections to the Internet. Revenues from Velox increased by
435%, from R$7&nbsp;million in 2001 to R$35&nbsp;million in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Wireless Telecommunications Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, Oi had a presence in some 400 cities, and in 14
of the 16 states of Region I (the states where Oi is not present are Roraima
and Amap&#225;), covering 68% of the urban population. As of December&nbsp;31, 2002,
approximately 16% of the 93&nbsp;million inhabitants in Region I were users of
mobile telephones. Revenues from wireless telecommunications services arise
from (i)&nbsp;usage fees for outgoing calls made and value-added services such as
access to the internet, data transmission, short messages, call forwarding,
call waiting, and call blocking; (ii)&nbsp;monthly subscription; (iii)&nbsp;roaming; (iv)
interconnection fees received from other operators on incoming calls; and (v)
sales of handsets. The average customer base of Oi is divided into 80% under
prepaid plans, and 20% under postpaid plans. Postpaid services include
mailbox, caller ID, conference, follow-me, calls on hold, and special services,
depending on the type of handset, such as WAP and GPRS. Prepaid services offer
reduced rates at certain times of the day. As of December&nbsp;31, 2002, Oi had
1,400,892 subscribers, with an estimated market-share of 8.7%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Postpaid service customers pay a monthly subscription fee and are billed
on a monthly basis for services already provided, while prepaid service
customers buy cards whose price varies according to the amount of minutes of
usage allowed. Such cards are valid for a stated period following entitlement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile telecommunications services in Brazil are offered on a &#147;calling
party pays&#148; basis, under which subscribers pay only for calls that they
originate, in addition to roaming charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rates vary according to the service plan subscribed to, the call origin,
destination and length. Subscribers pay for at least 30 seconds, even though
the call lasts for less than 30 seconds. After the first 30 seconds of the
call, users are billed for every additional 6 seconds. Under Oi postpaid
plans, customers pay subscription fees in addition to usage fees. During 2002,
monthly subscription fees accounted for 31% of service revenues.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depending on the handset model, customers have access to the GPRS service,
available in the main cities of Region I. This service allows for wireless
access to the Internet through mobile telephones, laptops or palm pilots. It
enables customers to simultaneously use voice and data services because the
equipment remains connected to the Internet even when the customer is speaking
on the phone. This means that the customer can remain continuously online and,
at the same time, place or receive calls.
</FONT>

<P align="center"><FONT size="2">22</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The WAP portal is a service and contents channel available to our
customers. Some of its features include: sending and receiving e-mails,
forming contact groups, accessing banks, and buying tickets. The WAP portal
can also be used on the Web, for instance to schedule personal activities and
join or initiate contact groups, according to their preferences.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also receive revenues from roaming agreements with other local and
international mobile telephone operators. When a subscriber to another
wireless operator originates a call within Region I, the other wireless
operator pays us the applicable rate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Usage Services</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications service providers that provide interconnection services
are required to provide such services on a nondiscriminatory basis. Subject to
certain regulatory requirements, they are free to negotiate the terms of their
interconnection agreements. Such agreements are submitted to Anatel for review
and certification. If the parties fail to reach an agreement, upon the request
of one of the parties, Anatel will establish the terms of interconnection
through arbitration. If Anatel does not approve any of the provisions of the
agreement, Anatel may require amendments to the agreement as a condition to
certification. See &#147;Regulation of the Brazilian Telecommunications Industry.&#148;
The terms of interconnection, particularly the pricing and technical
requirements, may affect the results of our operations, our competitive
environment and our capital expenditure requirements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 1998, Embratel began paying us fees on a per minute basis for
long-distance calls carried by Embratel that were originated or completed using
our network. In March 1999, we entered into an interconnection agreement with
Embratel to formalize this network usage arrangement. Until June&nbsp;30, 2001, we
received from Embratel a supplemental per-minute fee called <I>Parcela Adicional
de Transi&#231;&#227;o </I>(&#147;PAT&#148;). PAT was introduced with a view to offset the impact
caused by the elimination of the shared revenue system between the Company and
Embratel. PAT has since been discontinued. See &#147;Inter-regional and
International Long-Distance Service.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2000, we also entered into interconnection agreements with
V&#233;sper and Intelig Telecomunica&#231;&#245;es Ltda. (a provider of inter-regional and
international long distance services), as well as with certain operators of
trucking services and with each of the mobile companies operating in Region I,
which define the terms and conditions of use of each network by the respective
parties.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At year-end 2002, Oi&#146;s wireless telecommunications services network
covered some 400 cities. This network is directly interconnected to the
national and international long-distance fixed-line telephone networks of all
companies operating in Region I and all wireless operators of Bands A, B and E
in Region I, and Band D in Regions II and III, thus providing our customers
with automatic access to roaming services when traveling to Brazilian areas
where mobile telecommunications services are available on GSM technology. For
the most part, revenues arising from the growth in the prepaid service customer
base consist of interconnection fees charged when customers of other fixed-line
or mobile operators use the network to complete a call to our customers in
Region I.
</FONT>

<P align="left"><FONT size="2"><B>Rates</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rates for fixed-line telecommunications services that we provide are
subject to comprehensive regulation. Our concessions from the Brazilian
Government establish a price-cap mechanism for annual rate adjustments, which
places an upper limit for interconnection charges and on weighted averages of
the rates for each of the baskets of local and long-distance services. The
basket includes installation and subscription fees and measured usage fees for
local, long-distance and public telephone services. Subject to certain limits,
the rates for individual services within the basket may be increased by up to
9% above the limit, so long as the weighted average rate for the entire basket
does not exceed the limit. Our concessions provide for the price cap to be
adjusted
</FONT>

<P align="center"><FONT size="2">23</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">periodically to take account of inflation and productivity gains.
Finally, rates may be adjusted annually in order to reestablish the economic
balance of the concessions. See &#147;Regulation of the Brazilian
Telecommunications Industry-Rate Regulation.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Local Rates</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues from local services consist principally of monthly
subscription charges, measured service charges and installation charges.
Monthly subscription charges are fixed amounts charged in connection with the
use of fixed-line services. The charges vary depending on whether the use is
residential, commercial or PBX. The monthly subscription includes the use of
100 pulses per month, which will be charged regardless of whether the actual
local usage is lower. If this limit is exceeded, the customer will incur
measured service charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Users of measured service, both residential and nonresidential, pay for
local calls depending on usage. Usage is measured in pulses. Pulses occur
system-wide every four minutes for most local calls. These system-wide pulses
are recorded independently of when individual calls are actually made. In
addition to system-wide pulses, the system records one pulse for every call
when the call is connected. After the first pulse, only system-wide pulses are
used in determining the charge for a call. As a result, the time between the
first pulse and the second (system-wide) pulse may vary. For example, for a
call being charged using four-minute pulse increments, the time between the
first pulse and the second (system-wide) pulse may vary between one second and
four minutes. Since September 1999, in conjunction with the Numbering Plan, we
began measuring usage for certain non-local calls between municipalities within
the same area code in terms of minutes rather than pulses. For information on
the Numbering Plan see &#147;Competition&#151;Intra-regional Long Distance.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Local call charges for normal weekday calls are determined by multiplying
the number of pulses by the charge per pulse. For calls being made any day
between midnight and 6:00 a.m., on Saturdays between 2:00 p.m. and midnight and
all day Sunday and holidays, a caller is charged for only one pulse regardless
of the duration of a call. Measured service charges are the same for all
customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth selected information on our subscription
charges and measured service charges for local telephone service for the
periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(nominal reais)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average rates for local telephone service:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly subscription:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Residential</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Commercial</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PBX</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Measured service (per pulse)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP>Average of monthly rates, net of taxes.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We charge an average installation fee of R$42.04 and an average fee of
R$130.84 when a customer changes addresses, including value-added taxes. These
charges approximate the cost of services provided.
</FONT>

<P align="center"><FONT size="2">24</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-to-Mobile Rates</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile telecommunications service in Brazil, unlike in North America, is
offered on a &#147;calling party pays&#148; basis under which subscribers pay only for
calls that they originate (in addition to roaming charges paid on calls made or
received outside the subscriber&#146;s home registration area). Under the &#147;calling
party pays&#148; policy, a mobile service subscriber generally pays mobile usage
charges only for calls made by the mobile service subscriber and not for calls
received. Besides the &#147;calling party pays&#148; system there is also the
possibility of making collect calls, in which the party receiving the call will
pay. Calls received by a mobile service subscriber are paid for by the party
that places the call, in accordance with a rate based on mobile per-minute
charges. We charge our fixed-line service customers per-minute charges based
on either VC1, VC2 or VC3 rates when a fixed-line service customer calls a
wireless subscriber within Region I. In turn, we pay the wireless service
provider a charge for the use of the mobile network in completing the call.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective February&nbsp;8, 2003, upon authorization received from Anatel, we
increased our fixed-to-mobile service rates by an average of 24.4%. In
contrast to previous years, Anatel decided to align the fixed to mobile rates
with the interconnection rates charged by the mobile companies: beginning in
February 2003, a fixed-line customer now has different fixed-to-mobile rates,
which are measured by the wireless operator which terminates the call. That
means that the higher the interconnection charged by a specific wireless
operator, the higher the fixed-to-mobile rate charged on calls carried by that
operator will be.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the average per-minute rates that we
charged for fixed-to-mobile services during the years indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(nominal reais)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Per-minute charges for calls made to
wireless telephones:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">VC1</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">VC2</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">VC3</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.84</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP>The amounts represent an annual average of rates, net of taxes.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Intra-regional Long-Distance Rates</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rates for intra-regional long-distance calls (intrastate as well as
interstate) are computed on the basis of the time of day, day of the week, as
well as duration and distance of the call and vary depending on whether special
services, such as operator assistance, are used. The following table sets
forth selected information on our domestic long-distance rates during the
periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(nominal reais)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Domestic long-distance rates<SUP>(2)</SUP>:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">0 to 50 km</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">50 to 100 km</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.25</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">100 to 300 km</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Some 300 km</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP> Average of monthly rates, net of taxes.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="96%"><DIV style="margin-left:20px; text-indent:-20px"><FONT size="2"><SUP>(2)</SUP> Per minute rates for a domestic long-distance call, between the hours of
9 a.m. and noon and 2 p.m. and 6 p.m. (peak hours) on weekdays.</FONT></DIV></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">25</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>




<P align="left"><FONT size="2"><B><I>Network Usage Rates</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues from network usage rates consist primarily of payments on a
per-minute basis from:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Long-distance service providers to complete calls originating or ending on our network; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Mobile service providers operating to complete calls ending on our network.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The network usage rate varies depending on whether the telecommunications
service provider uses our local or long distance network. We pay other
telecommunications service providers a network usage charge for the use of
their networks.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the average per-minute rates we charged for
the use of our fixed-line network during the years indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="67%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(nominal reais)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Network usage rate (local)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.051</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Network usage rate (long-distance)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.076</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP>The amounts represent an annual average of monthly rates, net of taxes.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, Anatel approved a rate increase for network usage, TU-RL
(&#147;local network usage rate&#148;) and TU-RIU (&#147;intercity network usage rate&#148;)
retroactive to June&nbsp;25, 2002, using the IGP-DI to calculate the adjustment of
1.65% for TU-RL and 5.02% for TU-RIU.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, since the adjustment was authorized by Anatel only in December
2002 instead of June 2002, we understand that network usage rates should have
been adjusted according to the IGP-DI index accumulated from the last
adjustment, authorized in May 2001, implying adjustments of 16.33% and 23.85%
for TU-RL and TU-RIU, respectively. To enforce this right, Telemar has
requested a preliminary injunction against Anatel in order to adopt these
higher rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to Oi, we charge the service provider on whose network the
call originated a rate per each minute of usage of our wireless network. On
February&nbsp;6, 2003, the wireless network usage rate, or interconnection rate,
charged by Oi was adjusted from the previous rate effective in 2002 of R$0.2921
per minute to R$0.3462 per minute, net of taxes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Data Transmission Rates</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rates in the data transmission segments are wholly market-driven and
outside of the usual public regime regulatory purview of Anatel. See
&#147;Competition-Data Transmission Services.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The majority of revenue from data transmission services is generated by
monthly line rental charges for private leased circuits to corporate customers,
Internet service providers and other telecommunications service providers.
These revenues are based on contractual arrangements for use of part of our
network. Other telecommunications service providers, such as providers of
trucking and paging services, may use our network to connect a central
switching station to our network. Some wireless service providers use our
network to connect wireless central switching stations to wireless radio base
stations. We also lease transmission lines, certain infrastructure and other
equipment to other providers of telecommunications services. The balance of
such revenues consists mainly of charges for access to the data transmission
network and measured service charges based on the amount of data transmitted.
</FONT>

<P align="center"><FONT size="2">26</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth selected information about our average
monthly line rental charges for private leased circuits service during the
indicated years.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">

<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001<SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002<SUP>(1)</SUP></B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(nominal reais)</B></FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average rates for monthly line rental per leased circuit:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local Circuit:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4.8 Kbps / 14.4 Kbps as of 2000 (2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">240.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">240.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">9.6 Kbps / 19.2 Kbps as of 2000 (2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">202.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">240.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">64 Kbps</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">322.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">344.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">358.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2 Mbps</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,920.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,677.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,953.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long Distance Circuit <SUP>(3)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="1"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4.8 Kbps / 14.4 Kbps as of 2000 (2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">587.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">9.6 Kbps / 19.2 Kbps as of 2000 (2)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">794.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">64 Kbps</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,336.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">942.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,043.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2 Mbps</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,200.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,029.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,435.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP> Average of monthly rates, net of taxes.</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(2)</SUP> 4.8 and 9.6 Kbps speed services have been discontinued in year 2000 for
long-distance circuits.</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD width="96%"><FONT size="2"><SUP>(3)</SUP> Assuming a transmission distance between 300 and 500 kilometers and a
three-year contract.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Wireless Rates</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wireless telecommunications service providers are authorized to price
services at their option, provided that offers are part of a service plan
approved by Anatel. The maximum price is adjusted at least on an annual basis,
according to the IGP-DI index, as set forth in the service plans, taking into
account a productivity rate established by Anatel. Providers must offer their
users the Basic Service Plan, which is highly regulated by Anatel, and may
offer nondiscriminatory alternative plans. Although subscribers cannot be
forced to migrate to new plans, existing plans may be discontinued as long as
all subscribers receive a notice to that effect and migrate to new plans within
6&nbsp;months.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth selected information about rates for some
of our most popular retail service plans as of December&nbsp;31, 2002, net of taxes.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">

<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Name of Service Plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Oi &nbsp;&nbsp;40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Oi &nbsp;&nbsp;80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Oi 160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Oi 300</FONT></TD>
</TR>


<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minutes included in Service
Plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly Rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$18.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$31.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$54.68</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$75.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional Minutes (Local
Rate)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$&nbsp;&nbsp;0.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$&nbsp;&nbsp;0.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$&nbsp;&nbsp;0.34</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$&nbsp;&nbsp;0.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also offer wireless telecommunications services to our customers on a
prepaid basis, charging an average of R$0.62 per minute on local calls.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxes on Telecommunications Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of telecommunications services to customers includes a variety of
taxes. The gross revenue that we receive from our customers includes our
charges for our services and the State and Federal taxes that we are required
to bill for and collect from customers. The average rate of all such taxes, as
a percentage of our gross operating revenues, was 29.9% in 2002. The principal
tax is a state value-added tax, the <I>Imposto sobre Circula&#231;&#227;o de Mercadorias e
Servi&#231;os (&#147;ICMS&#148;), </I>which the Brazilian states impose at varying rates on
revenues from telecommunications
</FONT>

<P align="center"><FONT size="2">27</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">services. The rate for domestic
telecommunications services is currently 25% in all states in Region I, except
in the states of Par&#225; and Rio de Janeiro (30%), Bahia (27%) and Pernambuco
(28%).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other taxes on gross operating revenues include two federal taxes, the
<I>Programa de Integra&#231;&#227;o Social </I>(&#147;PIS&#148;) and the <I>Contribui&#231;&#227;o para Financiamento
da Seguridade Social </I>(&#147;COFINS&#148;), which are based on the gross operating
revenues, calculated at a combined rate of 2.65% until February 1999, and 3.65%
from March 1999 to present, only for telecommunications services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 1998, the governments of the individual Brazilian states approved
an agreement to interpret existing Brazilian tax law to apply the ICMS to
certain services, including installation and monthly subscription fees, to
which it had not previously been applied. See &#147;Item&nbsp;8. Legal Proceedings&#151;Tax
and Administrative Proceedings.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Billing and Collection</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-Line Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar sends each customer a monthly bill covering all the services
provided during the prior period. The customers are grouped in billing cycles
based on the date their bills are issued. The telephone bill separately
itemizes local calls, long-distance calls, calls terminating on a wireless
network, 800 services and other services such as call waiting, voice mail and
call forwarding. Customer payments are effected under agreements with various
banks, either by debiting the customer&#146;s checking account or by direct payment
to a bank.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments are due within an average of 15&nbsp;days of the billing date. We
charge late-payment interest at a rate of 1% per month plus a one-time late
charge of 2% of the amount outstanding. As of December&nbsp;31, 2002, 20.8% (25.2%
in 2001) of all accounts receivable were outstanding for more than 30&nbsp;days, and
8.93% (13.6% in 2001) were outstanding for more than 90&nbsp;days. We may restrict
a customer from making outgoing calls when an account is 30&nbsp;days or more past
due, restrict a customer from making outgoing and receiving incoming calls when
an account is 60&nbsp;days or more past due and disconnect a customer completely
when an account is 90&nbsp;days or more past due, provided that, in each case, we
have given the customer 15&nbsp;days advance notice. The disconnection process thus
comprises several stages, from customer acquisition, through credit analysis,
to the removal of equipment due to nonpayment.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">

<TR valign="bottom">
    <TD width="24%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>DAYS SOMEDUE</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>COLLECTION ACTION</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2">10 to 90&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Notification by voicemail</FONT></TD>
</TR>


<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2">20, 45 and 70&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Collection letter</FONT></TD>
</TR>


<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2">30&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Partial restriction</FONT></TD>
</TR>


<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2">60&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Full restriction</FONT></TD>
</TR>


<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2">90&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Removal</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Notification to credit protection organizations</FONT></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
Referral to collection firms</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Usage Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are remunerated by Embratel and Intelig for each call carried by them
to or from another fixed-line carrier that originates or terminates on our
network. Until December 1999, when a long-distance call carried by another
telecommunications provider was originated on our network, we billed that
provider&#146;s customer, retained any access fee for use of our network and
transferred the balance to the long-distance carrier. The long-distance
carrier was then responsible to transfer
</FONT>

<P align="center"><FONT size="2">28</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">the appropriate amount to the other
fixed-line carrier where such call was terminated. Since January 2000,
Embratel and Intelig have begun billing customers directly, and each party
collects its respective revenues and pays each respective interconnection fee
under a separate agreement. However, in the second quarter of 2001, we reached
an agreement with Intelig to provide billing services, and in the second
quarter of 2002, a similar agreement was reached with Embratel.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have also started to be remunerated directly by Telesp for calls which
originated in Region III and terminated in our network since July 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also receive revenues from wireless service providers that interconnect
with our network and on a monthly basis, we reconcile the amounts owed to us by
each wireless service provider (fixed and mobile network usage rates and any
fees owed on a contractual basis).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Wireless Communications Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oi bills its wireless customers on a monthly basis and itemizes charges in
the same manner as Telemar bills its fixed-line customers. See &#147;Fixed-Line
Services.&#148; In addition, the monthly bills also provide details regarding
minutes used and national and international roaming charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The collection policy adopted by Oi, in line with the rules established by
Anatel, provides that when a bill is more than 15&nbsp;days overdue and the customer
takes no action after receiving the notification requesting payment, services
will be partly suspended until full payment of all amounts due. The policy
also determines that all incoming and outgoing calls will be restricted when
bills are more than 30&nbsp;days overdue. Services will be cancelled when the bills
are more than 75&nbsp;days overdue, and in this event the subscriber&#146;s name will be
recorded by the credit protection organizations until such time as the
subscriber negotiates the debt. The collection system used by Oi allows for
accessing delinquent subscribers according to their payment profile. Such
profile can take into account the length of the subscription, bill amount,
greatest delays, etc. Oi has also implemented an information tool to partially
control bills, designed to warn subscribers of high outstanding amounts.
Warnings range from text messages to educational calls to the customer.
</FONT>

<P align="left"><FONT size="2"><B>Network and Facilities</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-Line Network</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our fixed-line network includes installed lines and exchanges, a network
of access lines connecting customers to exchanges, trunk lines connecting
exchanges and long-distance transmission equipment. As of December&nbsp;31, 2002,
the access network connected approximately 17.5&nbsp;million fixed-telephone lines,
200,000 ISDN basic rate and 2,340 ISDN primary rate access lines, 57,000 leased
lines and 81,000 installed ADSL lines. Our installed network decreased by 3%
as compared to 2001, as a result of several measures taken during the year to
optimize investments made and the disconnection of analog terminals in order to
reduce infrastructure and network maintenance costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our PSTN is almost fully digitalized and connects homes and businesses in
more than 8,100 cities, towns and villages to around 20,000 digital telephone
switches and concentrators across our coverage area. Another 8,400 villages
are attended by public telephones. Our transmission infrastructure connects
these digital switches to two international gateway switches. Additionally,
our network supports advanced services, including pre-paid and toll-free
products.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have deployed an expanded range of satellite-based services to continue
our commitment to the rural and remote areas of northern Brazil, including the
Amazon rainforest region. Around 300 towns are reached through small satellite
earth stations and other 500 small villages are reached through public
telephones satellite stations. These satellite services may include access to
the internet and corporate data applications.
</FONT>

<P align="center"><FONT size="2">29</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth selected information about our fixed-line
network at the dates and for the years indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">

<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>At and for year ended</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>December 31,</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Installed access lines (millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Access lines in service (millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Average access lines in service for year
ended (millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Lines in service per 100 inhabitants</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Percentage of installed access lines
connected to digital exchanges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">89.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees per 1,000 access lines installed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Public telephones in service (thousands)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">428.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">723.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">716.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local call pulses for year ended (billions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Domestic long-distance call minutes for
year ended (billions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.8</FONT></TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.1</FONT></TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.2</FONT></TD>
    <TD><FONT size="2">*</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">International call minutes for year
ended (millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.8</FONT></TD>
    <TD><FONT size="2">*</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR valign="top">
    <TD align="left"><FONT size="2">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Includes only our own traffic, as Embratel and Intelig began recording and
billing their own long-distance traffic on January&nbsp;1, 2000. Nevertheless, the
long distance traffic carried by Embratel and Intelig (from and to Region I)
passes through our switches.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002 we had approximately 68,000 ISDN accesses in use. In
addition, we began providing ADSL services in April 2001 and by December&nbsp;31,
2002 we had 45,000 ADSL subscriptions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When we were privatized following the breakup of Telebr&#225;s our
long-distance network consisted primarily of the transmission facilities that
the 16 operating subsidiaries used to support intrastate transmission. During
2000, in order to provide interstate long-distance service between the states
in Region I, we began to integrate the intrastate transmission facilities of
Telemar by investing in an inter-state network. The deployment and expansion
of the interstate backbone required an investment of approximately R$954
million and involved the installation of approximately 21,000 km of new fiber
optic cables connecting the major capitals and large cities located in Region
I. Fiber optic lines provide greater transmission capacity. By significantly
reducing the fading of signals and requiring less frequent amplification,
fiber-optic cable reduces the cost of providing service, increases traffic and
network reliability, and enables the provision of long-distance broadband
services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The long-distance network consists of approximately 31,500 km of fiber
optic cable (including some existing cable) and is equipped with SDH and DWDM
transmission systems. It has an initial capacity of 17.5 Gbps and is comprised
of &#147;self-healing rings&#148; with a control system that guarantees a high level of
availability and flexibility for configuration and provisioning. This
transmission infrastructure has the capacity to accommodate customers&#146; demand
for long-distance, Internet and data transmission services and other
telecommunications providers&#146; demand for transmission facilities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2000, we began implementation of the land-based segment of a
satellite network in order to extend transmission to remote areas in the states
of Par&#225;, Amazonas, Amap&#225; and Roraima,
</FONT>

<P align="center"><FONT size="2">30</FONT>
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<P align="left"><FONT size="2">as well as to other areas with limited
access due to geographical conditions. The satellite network comprises 300
satellite earth stations located in lesser-populated rural areas as well as hub
stations in the cities Manaus, Boa Vista, Macap&#225;, Bel&#233;m, Fortaleza, Salvador
and Rio de Janeiro. This new satellite network uses digital technology and
began operating in August 2000. The optical and satellite backbones are
interconnected in Bel&#233;m, Fortaleza, Salvador and Rio de Janeiro (located in the
states of Par&#225;, Cear&#225;, Bahia and Rio de Janeiro, respectively). The
integration of this land-based segment of the satellite network allows us to
service our subscribers in any area in Region I, enabling us to integrate
customers into our multi-service platform.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Telecommunications Regulations, if we meet the 2003 universal
targets ahead of schedule we will be permitted to begin offering additional
services, such as long distance voice and corporate data services nationwide
after receiving certification and authorization from Anatel. See &#147;Regulation
of the Brazilian Telecommunications Industry &#150; Public Regime &#150; Service
Restrictions.&#148; By the end of March 2002, we met or exceeded each of the 2003
network expansion and modernization targets that we were required to meet under
the Brazilian Telecommunications Regulations, and in June 2002 we were
certified by Anatel in that respect. See &#147;Regulation of the Brazilian
Telecommunications Industry &#150; Obligations of Telecommunications Companies&#148; and
&#147;Regulation of the Brazilian Telecommunications Industry &#150; Network
Expansion&#151;General Plan on Universal Service.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until December 2001, the Company had ten network management structures.
From January through April 2002 a national network operations center (&#147;NOC&#148;)
was completed in Rio de Janeiro to centralize Telemar&#146;s network remote
monitoring activities. Network monitoring and configuration platforms, located
at our NOC in Rio de Janeiro, perform failure monitoring, configuration
management, performance analysis and tariff engineering for the entire network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Data Transmission Network</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our data transmission network is an integration of various sub-networks
that support a variety of data transmission services and includes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our satellite network, which utilizes VSAT technology;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our IP and Data networks, which covers 300 locations, with
200 points of presence and some 185 active dial-in access gates;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our ATM network, which provides broadband services, and our
Frame Relay network, which is available in more than 300 locations,
with approximately 360 points of presence;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our TDM/SDH network, which provides dedicated lines with some
600 points of presence; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our Pegasus network, a metroplitan and long-distance optical
backbone stretching from Porto Alegre to Curitiba to S&#227;o Paulo and
to Bras&#237;lia, utilizes SDH and DWDM transport platforms and the same
IP, ATM and Frame Relay platforms used by Telemar in Region I.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Wireless Network</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oi&#146;s wireless network covers some 400 cities, or 68% of the urban
population in Region I, consisting of 19 switching and control stations, 71
controllers of radio base stations, 4 signaling transfer points and 2,522 radio
base stations. The network is directly interconnected to the national and
international long-distance fixed-line telephone network of all companies
operating in Region I and all mobile operators of Band A, B and E in Region I,
and band D in Regions II and III, thus
</FONT>

<P align="center"><FONT size="2">31</FONT>
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<P align="left"><FONT size="2">providing our customers with automatic
access to roaming services when traveling in Brazilian areas where mobile
telecommunications services are available on GSM technology. Most
interconnections between our switching stations and the fixed and mobile
telephone networks and the connections linking our radio base stations and
switching stations are made through resources leased from Telemar. Our
switching stations have capacity to serve approximately 2&nbsp;million subscribers,
and our radio base stations have capacity for approximately 2.5&nbsp;million
subscribers. Nokia, Siemens and Alcatel are the major suppliers of our network
equipment.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The network quality indicators established by Anatel are subject to
constant monitoring by the Company.
</FONT>

<P align="left"><FONT size="2"><B>Quality of Service</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have made significant investments in modernizing the network, replacing
analog switches with digital switches, increasing the supply and quality of
services provided to the clients as well as reducing maintenance costs.
Beginning in 1997, all new lines that we installed have been connected to
digital exchanges. Through the replacement of analog switches, the percentage
of installed lines connected to digital switching centers increased from 89.5%
at year end 2000 to 97.1% by year-end 2001 and 98.5% by year-end 2002.
Compared to the older analog technology, digital systems improve the quality
and efficiency of the network, accommodate higher traffic levels, require less
maintenance and permit us to offer a broad range of value-added services, such
as voice, text and data applications.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, the Company also established our NOC located in Rio de Janeiro to
improve network monitoring and quality of our services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We must also comply with the provisions of the General Plan on Quality and
with the terms of our respective concession. See &#147;Regulation of the Brazilian
Telecom Industry&#151;Obligations of Telecom Companies&#148; and &#147;Regulation of the
Brazilian Telecom Industry&#151;Quality of Services&#151;General Plan on Quality.
</FONT>

<P align="left"><FONT size="2"><B>Competition</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Overview</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The implementation of the Brazilian Telecommunications Regulations brought
dramatic changes in the marketplace for Brazilian telecommunications services
as of 1999. In general, the increasingly competitive marketplace has resulted
in decreasing prices for telecommunications services driven by increasing
competition, implementation of new technology and regulatory oversight. Until
July 1999, we were the only supplier of public local fixed-line and intrastate
telecommunications services in Region I, and until January 2000 we were the
only supplier of local fixed-line services. In January 1999, Intelig
Telecomunica&#231;&#245;es Ltda., presented the winning bid to provide intrastate and
interstate long-distance services in Region I to compete with Embratel and us.
In February 1999, V&#233;sper S.A. presented the winning bid to provide local and
intra-regional long distance services in Region I in competition with us. In
July 1999, Embratel began competing with us by providing intrastate
long-distance services in Region I, and we began providing interstate
long-distance services in competition with Embratel. In January 2000, V&#233;sper
began providing local fixed-line services in Region I, bringing them into
competition with us, and V&#233;sper and Intelig began providing interstate and
intrastate long-distance services in Region I in competition with each other,
Embratel and us. Telesp, which was granted authorization to provide
intra-regional and inter-regional long-distance services in April 2002, also
began providing such services during the first quarter of 2003. In addition,
companies authorized to provide limited specialized services have begun to
compete with us in the provision of data services for corporate customers.
</FONT>

<P align="center"><FONT size="2">32</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Local</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with its winning bid in February 1999 for the operating
license to provide local and intra-regional long-distance fixed-line services
in Region I, V&#233;sper paid R$60&nbsp;million, the minimum price set by the Brazilian
government. V&#233;sper also agreed with Anatel to carry out a yearly network
expansion plan. In order to allow effective competition in public local
telecommunications services, Anatel allowed V&#233;sper to use wireless local loop
technology (&#147;WLL&#148;), an alternative technology system that connects subscribers
to the public switched telephone network using radio signals instead of copper
cables, speeding up installation and expansion procedures. Additionally, WLL
is an alternative tool for reaching remote areas where cable access is limited
or unfeasible. We use WLL technology in a very limited capacity, specifically
in only some neighborhoods of Rio de Janeiro, among the various technologies
deployed by us. In January 2000, V&#233;sper began operations initially serving the
main cities in the Region I, including all 16 state capitals and 13 other
municipalities. We believe that as of December&nbsp;31, 2002, V&#233;sper had
approximately 400,000 fixed lines.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, both Embratel and Telesp were authorized by Anatel to start
providing local fixed line services in Region I. Although we do not know if it
is a priority for Embratel and Telesp to target residential customers, we do
believe that competition will increase in local fixed line services to
corporate clients. Brasil Telecom is currently waiting for Anatel&#146;s
certification with regard to the early attainment of its network expansion and
universal service targets. Upon being granted such certification, we expect
that Brasil Telecom will begin providing local services in Region I primarily
to corporate clients.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to stimulate increasing competition in local services, Anatel is
requiring that we unbundle our local network allowing other companies to offer
services using our platform. We have presented a price proposed to our
competitors, such as Embratel and Telesp, to effect such a use. &#147;See
Regulation of the Brazilian Telecom Industry&#151;Interconnection.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-to-Mobile</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in fixed-to-mobile services is directly related to competition
in local telephone services, since local calls represent the majority of the
revenues derived from fixed-to-mobile services. With regard to long-distance
fixed-to-mobile services, Anatel has issued new rules governing the migration
of Band A and Band B wireless operators to a new status as SMP providers.
Mobile operators that choose to migrate to the new SMP system will be required
to allow their subscribers to choose among different long-distance operators,
which will enhance competition in a segment in which we currently have a
limited market share.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Intra-regional Long Distance</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Embratel, Intelig and Telesp are authorized to provide intrastate
long-distance services in Region I. Embratel began providing intrastate
long-distance services in July 1999, Intelig in January 2000 and Telesp in
March 2003. Brasil Telecom may also be authorized to provide such services in
2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Embratel is controlled by MCI Worldcom, a global telecommunications
company with revenue of more than US$30&nbsp;billion and established operations in
some 65 countries. Intelig, which was awarded licenses to provide
long-distance services throughout Brazil in competition with Embratel in
January 1999, is controlled by National Grid, the owner and operator of the
electricity transmission network in the United Kingdom, and by France Telecom,
one of the world&#146;s leading telecommunications carriers. Telesp is controlled
by Telefonica S.A., a global telecommunications company with revenue of more
than US$28&nbsp;billion and established operations in some 50 countries.
</FONT>

<P align="center"><FONT size="2">33</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also in July 1999, we were authorized to provide interstate long-distance
services between the states within Region I in competition with Embratel,
Intelig and V&#233;sper. In conjunction with the opening of competition in the
interstate long-distance market, Anatel implemented a numbering plan to promote
competition between providers of fixed-line long-distance services by requiring
the caller to choose a service provider for each long-distance call by
prefacing the call with numbers that identify the carrier. Following the
implementation of such numbering plan, we began to compete with Embratel in
intrastate and interstate long-distance services and, since January 2000, we
have been competing with V&#233;sper in local, intrastate and interstate
long-distance services and with Intelig in intrastate and interstate
long-distance services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, we provided some 65% of the total intrastate and interstate
long-distance fixed-line traffic within Region I. We measure our market share
according to the information available from our own switches, given that the
vast majority of the long-distance calls originated in a company&#146;s line go
through our switches even when the caller chooses Embratel or Intelig to
provide the service. Calls originated from V&#233;sper&#146;s lines are not routed to
our stations and therefore are estimated in the determination of our market
share.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Inter-regional and International Long Distance</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The regional fixed-line companies, such as Telemar, are generally not
permitted to offer inter-regional or international long-distance services until
December&nbsp;31, 2003. However, because Anatel certified our early attainment of
certain network expansion and universal service targets for year 2003, we
started providing such services in July 2002. Inter-regional long-distance
services originated in Region I and terminated in Regions II and III represent,
according to our estimates, 2.5% and 5%, respectively, of the total
long-distance traffic in Brazil. Embratel and Intelig are our main direct
competitors in these traffic routes. In addition, since March 2003, Telesp
also started to compete in these traffic routes. In July 2002, we also began
offering international long-distance services through Oi using our wireless
telecommunications services license. In March 2003, using the same license, we
began to provide inter-regional long distance services originating in Regions
II and III. Our main competitors are the same as in other services; however,
new players may arise because Anatel has also granted other wireless
telecommunications services operators the right to acquire a license for
domestic and international long-distance services. At least two groups have
already stated an intention to do this, including: TIM (a subsidiary of Telecom
Italy) and Telecom Am&#233;ricas (a subsidiary of Telmex).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-line Services vs. Wireless Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar is also subject to competition from wireless service providers,
including Oi, our wireless telecommunications services subsidiary. See
&#147;Wireless Services.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The competition from wireless service providers is increasing but it is
still limited by the fact that tariffs for wireless calls are currently much
higher than tariffs for calls on our fixed-line network. We also face
competition from wireless service providers in the low end of the market,
through the offer of prepaid plans by such wireless providers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Usage Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the provision of local network usage services is limited.
However, there can be no assurance that our current local competitor, V&#233;sper,
as well as potential new entrants in the local market, such as Embratel and
Telesp, will not attempt to challenge our leading position in this market in
the future.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover, prices for network usage services are expected to decline as a
result of price regulation by Anatel, in particular as a result of the
application of deemed productivity gains as
</FONT>

<P align="center"><FONT size="2">34</FONT>
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<P align="left"><FONT size="2">measured by the &#147;K-factor.&#148; See
&#147;Regulation of the Brazilian Telecommunications Industry&#151;Rate Regulation.&#148;
Another factor that will affect this market is that long distance
interconnection prices may decrease more quickly than local rates, particularly
if long-distance carriers build out their own intrastate long-distance
backbones.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Data Transmission Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in data transmission services is not subject to regulatory
restrictions other than restrictions aimed at assuring that such services do
not interfere with the provision of public switched telephone services. We
offer data services under the private regime through Telemar and Pegasus;
hence, we are subject, in respect of data transmission services, to much less
stringent regulations. The market is open to a great number of competitors,
including the fixed-line companies and specialized services companies, which
are competing in a high-growth market primarily dedicated to large and
medium-size business customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorized specialized services companies, such as AT&#038;T Latin America
(controlled by AT&#038;T), MetroRED (controlled by Fidelity Ventures and Boston
Ventures and having among its shareholders Brasil Telecom, with a 19.9% stake)
and Impsat (controlled by the Pescarmona Group and Morgan Stanley Private
Equity Funds) are also competing with us in the provision of data services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Data transmission, which includes transport network and Internet services,
represents 6% of our total revenues. However, data and Internet-related
services have grown rapidly in Brazil as they have elsewhere, and accordingly
we are preparing for expansion in this market sector. Along with growth in
volume and increasing demand for broadband capacity, we anticipate significant
price reductions in data transmission services as competitors expand their
networks. We also anticipate a shift in competition towards value-added
services provided some IP platforms. Operational since January 2000, our
multi-service network platform is capable of handling various IP-based
applications offering reliable and safe high-speed connectivity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Wireless Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete primarily with four other groups that provide wireless
telecommunications services in Region I. These groups consist of the following
companies: (i)&nbsp;a joint venture between Tel&#233;fonica and Portugal Telecom
(marketing under the brand name <I>Vivo</I>), which is present in all of Region I,
except in some Northern states and in the state of Minas Gerais, (ii)&nbsp;the
Telecom Americas Group, controlled by the Mexican Am&#233;rica Moviles, which is
present in all of Region I except in some Northern states and in the state of
Minas Gerais, (iii)&nbsp;TIM Brasil, a subsidiary of Telecom Italia Mobile, which
has a presence in all of Region I, and (iv)&nbsp;Telemig Celular in the state of
Minas Gerais and Tele Norte Celular in some of the Northern areas of Region I,
both of which are controlled by Banco Opportunity, a private Brazilian
investment bank, and by several Brazilian pension funds (Sistel, Telos, Petros
and Previ).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Almost all of our competitors have decided to migrate to the SMP system,
with the exception of the companies controlled by the Opportunity Group.
Currently, Vivo&#146;s network is based on the CDMA technology platform, while TIM
Brasil and Telecom Am&#233;ricas have already decided to migrate their respective
TDMA networks to the GSM technology platform. Telemig Celular and Tele Norte
Celular, which have not decided yet to migrate to the SMP system, are still
based on the TDMA technology platform.
</FONT>

<P align="center"><FONT size="2">35</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Effects of Competition</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There can be no assurance that the continuing entry of new competitors and
the new deregulation as of 2002 will not have a material adverse effect on our
business, financial condition, results of operations or prospects. We expect
that the combined effect of the entry of additional competitors into the market
for local and long-distance service in Region I will adversely affect our
related revenues. We anticipate, however, that growth in the Brazilian market
will eventually help generate higher revenues, especially when we are able to
offer long distance and data services on a nationwide basis. We expect that
local traffic per line will continue to decline as we expand our network to
lower-income customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any adverse effects on our results and market share from competitive
pressures will depend on a variety of factors that cannot now be assessed with
precision, some of which are beyond our control. Among such factors are the
technical and financial resources available to our competitors, the business
strategies and capabilities of the competitors, prevailing market conditions,
the regulations applicable to new entrants and us, and the effectiveness of our
efforts to prepare for increased competition.
</FONT>

<P align="left"><FONT size="2"><B>Marketing</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 we incurred R$138.8&nbsp;million primarily to market our fixed-line and
wireless products under the brand names <I>Telemar </I>and <I>Oi.</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to the wireline services, Telemar&#146;s marketing expenses
totaled R$83.8&nbsp;million. The main objective was the promotion of our fixed-line
products - such as the long distance access code CSP 31 which started to be
used for long distance calls nationwide and the educational campaign to
increase the usage of fixed telephone calls, by emphasizing its low cost per
call - and to advertise the early attainment of our 2003 universal service
targets in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sell our fixed-line products and services through the following marketing channels:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our direct sales force, which focuses mainly on large corporate customers;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">the Telemar network channel comprised of non-exclusive
commissioned commercial agents dedicated mainly to small and
medium-sized businesses;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">our call and contact center, operated through Contax; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="92%"><FONT size="2">the Internet.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to our wireless services, Oi incurred R$65.3&nbsp;million
primarily to promote the launching of our services and its brand name and to
develop specific campaigns to promote customized products addressed to certain
market segments, such as <I>Oi-MTV</I>.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our wireless telecommunications services through a network of
some 1,300 third party retail outlets, our call and contact center and through
the Internet.
</FONT>

<P align="left"><FONT size="2"><B>Research and Development</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct independent research and development in areas of
telecommunications services but do not independently develop new
telecommunications hardware. We primarily depend on suppliers of
telecommunications equipment for the development of new hardware.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the privatization of Telebr&#225;s, our operating companies
in each state were required to contribute in aggregate a maximum of R$154.4
million during the three years ending July 2001 to the <I>Funda&#231;&#227;o Centro de
Pesquisa e Desenvolvimento das Telecomunica&#231;&#245;es </I>(the &#147;Center&#148;), a research and
development center formerly operated by Telebr&#225;s. As part of the agreement
with the Center, we had access to telecommunications software developed by the
Center and other technological services provided by the Center such as
equipment testing as well as
</FONT>

<P align="center"><FONT size="2">36</FONT>
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<P align="left"><FONT size="2">consulting and training services. The Center also
provided services to third parties on a fee-for-service basis. Our research
and development expenses, including our contribution to the Center, were R$45.9
million in 1999, R$47.4&nbsp;million in 2000 and R$34.4&nbsp;million in 2001. See Note 5
to the Consolidated Financial Statements. In March 2002, we signed a new
contract with the Center, to provide software development and IT services to
us, in the amount of R$60.0&nbsp;million.
</FONT>
<P align="left"><FONT size="2"><B>Capital Expenditures</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2002 annual capital expenditures reached approximately R$2,031.0
million. Of this amount, 31.4% was allocated to fixed-line network expansion
and modernization, 46.5% to deployment of our wireless telecommunications
services infrastructure, 16.1% for communications systems, and 6% to others.
All of our capital expenditures were funded through internal cash flow
generation and a credit facility arranged by ABN AMRO Bank and other financing,
mostly linked with equipment purchased by Telemar.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our capital expenditures for the three-year
period ended December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>(millions of reais)<SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operational investments<SUP>(2)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">411.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">866.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">285.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telephone equipment:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exchanges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">931.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,918.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">130.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transmission</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">335.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">997.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Infrastructure</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">External plant</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">761.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,245.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">241.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">262.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data transmission equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">231.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">498.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Wireless network and systems</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,172.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">945.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Call and contact center</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total capital expenditures.</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>2,804.0</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>10,060.0</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>2,031.0</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP> Columns may not add due to rounding.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><DIV style="margin-left:13px; text-indent:-13px"><FONT size="2"><SUP>(2)</SUP> Operational investments include investments to replace plant equipment
and other fixed assets generally, without altering the capacity of the
asset replaced, and certain investments in operational and technical
support such as telecommunications management network
systems.</FONT></DIV></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our current 2003 annual capital expenditure budget totals approximately
R$1,800&nbsp;million. We plan to finance our capital expenditures by a generation
of operating cash flow and supplier credits in connection with the purchase of
equipment. Our management intends to allocate 40% of the 2003 annual capital
expenditure to the wireless services business 55% to the fixed-line business,
and 5% to the call center business.
</FONT>

<P align="left"><FONT size="2"><B>Dependence on Patents, Licenses or Contracts</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The telecommunications industry is highly regulated by the Brazilian
Government through its agency, Anatel. Telemar and Oi operate under a
concession from Anatel that authorizes them to provide specified services and
sets forth certain obligations. See &#147;Regulation of the Brazilian
Telecommunications Industry&#148; and &#147;Our Operations&#151;Wireless Telecommunications
Services.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Seasonality</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our main activity, which is to provide fixed-line telecommunications
services, is generally not affected by seasonal variations. Our wireless
telecommunications services are affected by a seasonal increase in mobile
handset sales during the fourth quarter.
</FONT>

<P align="center"><FONT size="2">37</FONT>
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<P align="left"><FONT size="2"><B>Property, Plant and Equipment</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal properties consist of management, retail and customer
service offices located in sixteen states of Region I and network
infrastructure sites located throughout Region I. We currently own
approximately 5,359 properties, of which 94% are operational sites. We also
rent properties from 107 units and to 160 units third parties. Our plant and
equipment consist of transmission equipment (including outside plant and trunk
lines), exchange equipment and switching equipment and radio base stations.
Switches include local switches, mobile switches, &#147;transfer&#148; switches that
connect local switches to long-distance transmission facilities and &#147;tandem&#148;
switches that connect local switches with each other and with &#147;transfer&#148;
switches.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, plant and equipment related to switching stations
represented approximately 31% of the net book value of our total fixed assets,
transmission equipment represented 16%, construction in progress represented
approximately 3%, buildings, underground equipment and lines represented
approximately 40% and other fixed assets represented approximately 10%. As of
December&nbsp;31, 2002, the net book value of our property, plant and equipment was
R$16,842.9&nbsp;million (18,146.6&nbsp;million in 2001). All property and equipment
which are essential in providing the services described in the Concession
Agreement, are considered reversible assets. Upon expiration of the Concession
Agreement, these assets will automatically revert to Anatel. There are no other
encumbrances or environmental issues that may affect the utilization of our
property and equipment. For more details see Note 14 to the Consolidated
Financial Statements.
</FONT>

<P align="left"><FONT size="2"><B>Insurance</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the concession period, Telemar and Oi must maintain the following
insurance policies in accordance with contractual terms: all risks insurance,
insurance covering the economic conditions required to continue providing the
service, and insurance to meet the obligations relating to the quality and
universal coverage. We believe that we have adequate insurance to meet our
obligations under our concession.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our assets are covered by property insurance. We hold insurance policies
which guarantee coverage for material damage and loss of revenue arising from
damage. Our management considers the insured amount to be sufficient to assure
protection of its net worth and operational continuity. For more details see
Note 29 to the Consolidated Financials.
</FONT>

<P align="left"><FONT size="2"><B>Regulation of the Brazilian Telecommunications Industry</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business, including the services it provides and the rates it charges,
is subject to comprehensive regulation under the Brazilian General
Telecommunications Law and various administrative enactments thereunder.
Telemar operates under licenses that allow it to provide specified services and
sets forth certain obligations (See &#147;Concessions and Licenses&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel is the regulatory agency for telecommunications under the General
Telecommunications Law and the October 1997 <I>Regulamento da Ag&#234;ncia Nacional de
Telecomunica&#231;&#245;es, </I>(the &#147;Anatel Decree&#148;). Anatel is administratively
independent and financially autonomous. Anatel is required to report on its
activities to the Ministry of Communications and to the Brazilian Congress.
Any proposed regulation of Anatel is subject to a period of public comment, and
Anatel&#146;s decisions may be challenged only in the Brazilian courts.
</FONT>

<P align="center"><FONT size="2">38</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Concessions and Licenses</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar operates under two concessions (PSTN local and PSTN domestic
long-distance) which grant it the right to offer local and domestic long
distance services in Region I. In addition, Telemar is authorized to provide
Transport Telecommunication Network Service (SRTT), and Multimedia
Communication Service (SCM)&nbsp;through its subsidiary Pegasus Telecom.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Besides that, Oi has authorizations granted by Anatel to provide wireless
services (SMP)&nbsp;in Region I, international long distance services (PSTN
international long-distance) nationwide and domestic long distance services
(PSTN domestic long-distance) in Regions II and III.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Concessions to provide telecommunications services are granted under the
public regime, while such services are provided through authorizations under
the private regime.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to Telemar, the companies that operate in the public regime in
Brazil (&#147;public regime companies&#148;) include two other regional fixed-line
service providers, Embratel and certain other local operators. The four
primary public-regime companies (consisting of Telemar, the two other regional
fixed-line service providers and Embratel) are the primary providers of
fixed-line telecommunications services in Brazil, including local services and
intra-regional, interregional and international long-distance service. All
other telecommunications service providers, including the other companies
authorized to provide fixed-line services in Region I, operate in the private
regime (&#147;private regime companies&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the terms of Article&nbsp;13 of the Brazilian Telecommunications
Service Regulations, public regime companies are subject to certain obligations
as to quality of service, continuity of service, universality of service,
network expansion and modernization. Public-regime companies are also subject
to Anatel&#146;s supervision in regard to the tariffs that they may charge. On the
other hand, private regime companies are generally not subject to the
requirements as to universality of service or modernization, but they are
subject to certain network expansion and quality of service obligations set
forth in their licenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Public-regime companies, such as Telemar, also often offer certain
services in the private regime, of which the most significant are data
transmission services. Wireless services are offered by Oi, under the private
regime, according to a license acquired by the Company on February&nbsp;13, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Termination of the Concession</I></B>
</FONT>
<P>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
are five possible ways that a public-regime company&#146;s concession
may terminate:</FONT>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Non-renewal upon the expiration of the concession;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">An extraordinary situation in which the public interest is in
jeopardy, during which time the Brazilian government may operate the
company, in which case the Brazilian government must be
legislatively authorized to terminate the concession and
indemnification must be paid to the company;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Termination by the company (by agreement with Anatel or
through legal proceedings) as a consequence of an act or omission of
the Brazilian government that makes the rendering of the services
excessively burdensome to the company;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Annulment of the concession due to a contractual term, which
is deemed by subsequent law to be illegal.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The occurrence of:</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">a split-up, spin-off, amalgamation, merger, capital
reduction or transfer of the company&#146;s corporate power without
Anatel&#146;s authorization,</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">39</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the transfer of the concession without Anatel&#146;s authorization,</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the dissolution or bankruptcy of the company or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">an extraordinary situation where Brazilian government
intervention, although legally possible, is not undertaken since
such intervention would prove to be inconvenient, unnecessary or
would result in unfair benefits for the company. In the event a
concession is terminated, Anatel may occupy the company&#146;s
properties and use its employees in order to maintain the
rendering of the services.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-Line Services&#151;Public Regime</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each public-regime company operates under a concession that expires in
2005. Each public-regime company may extend its current concession for an
additional 20-year period. However, there will be new conditions set forth in
a new <I>Plano Geral de Outorgas </I>(&#147;General Plan on Quality&#148;) and a new <I>Plano
Geral de Metas de Universaliza&#231;&#227;o </I>(&#147;General Plan on Universal Service&#148;) and
new terms set forth in the extension to our Concession Agreement, in each case
to be determined by Anatel or the Ministry of Communications, as the case may
be. The Brazilian government publicly proposed drafts of the terms and
conditions for extending the current concessions in December 2002 and is
expected to finalize them in 2003. The concessions may also be revoked prior
to expiration. Every second year during the 20-year renewal period,
public-regime companies will be required to pay biannual renewal fees equal to
2% of annual net revenues from the provision of telecommunications services
(excluding taxes and social contributions) during the immediately preceding
year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-Line Services&#151;Private Regime</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian Telecommunications Regulations provide for the introduction
of competition in telephone services in Brazil by requiring the Brazilian
Federal Government to authorize four private-regime companies&#151;one to provide
local services and intra-regional long-distance service in each of the three
fixed-line regions and one to provide intra-regional, interregional and
international long-distance service throughout Brazil. Anatel has already
granted to a private-regime operator, V&#233;sper S.A., the licenses to operate in
Region I. Anatel has also granted to two other private regime companies the
licenses to operate in each of the other fixed-line regions and to another
private-regime company the licenses to provide intra-regional, interregional
and international long-distance service in competition with Embratel.
Concessions and authorizations have been granted in each fixed-line region for
regional fixed-line companies to provide local services, fixed-line companies
to provide intra-regional long-distance service and other companies to provide
interregional long-distance and international long-distance service. Since
2002, there is no more limitation with regard to the number of authorizations
which can be given by the Brazilian Federal Government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Obligations of Telecommunications Companies</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like other telecommunications service providers, we are subject to
obligations concerning quality of service and network expansion and
modernization. The public-regime companies are also subject to a set of
special restrictions regarding the services they may offer contained in the
General Plan of Concessions and Licenses, and special obligations regarding
service quality, network expansion and modernization contained in the General
Plan on Universal Service and the General Plan on Quality. In December 2002,
Anatel distributed for public comment drafts of a new General Plan on Universal
Service and a new General Plan on Quality. The new General Plan on Quality is
expected to be finalized by June 2003. On June&nbsp;5, 2003 Anatel proposed a final
version of the new General Plan on Universal Service which has yet to be
adopted. See &#147;Recent Developments &#150; New General Plan on Universal Service.&#148;
</FONT>

<P align="center"><FONT size="2">40</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Public Regime&#151;Service Restrictions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Public regime companies are subject to certain restrictions on alliances,
joint ventures, mergers and acquisitions, including:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Mergers between regional fixed-line services providers and wireless
services providers are prohibited (a prohibition that also applies to
private-regime companies); and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Companies offering telephone services are prohibited from offering
cable television (unless they offer cable television pursuant to a
public auction to provide such services in the relevant region in
which no other bidder participates).</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Expansion&#151;General Plan on Universal Service</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our main network expansion and
modernization obligations as provided in the List of Obligations at the times
indicated and our performance with respect to each category of obligation at
December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="65%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Company status</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>at December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2004</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2005</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minimum number of installed lines
(millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line service available to all
communities larger than:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">600.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD nowrap><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maximum waiting time for installation
of a line (weeks)<SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minimum number of public telephones
in service (thousands)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">716.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minimum number of public telephones
per 1,000 inhabitants</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minimum public telephones as a
percentage of fixed-lines</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">n.</FONT></TD>
    <TD width="96%"><FONT size="2">a.: Not available</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">n.</FONT></TD>
    <TD width="96%"><FONT size="2"><SUP>(1)</SUP> Applies only to areas where fixed-line service is fully available.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Quality of Services&#151;General Plan on Quality</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each regional public and private regime company must comply with the
provisions of the General Plan on Quality and also with the terms of its
respective concessions, licenses and authorizations. All costs related to the
fulfillment of the quality goals established by the General Plan on Quality
must be exclusively borne by the respective telephone service provider. The
General Plan on Quality establishes minimum quality standards with regard to:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Responses to repair requests;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Availability of services to users;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Quality of public telephones;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Operator availability;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Personal services to users;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Issuance of bills;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Responses to requests for address changes;</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">41</FONT>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Modernization of the network; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Responses to mail received from users.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The quality standards are measured according to the definitions and
quality indicators established by Anatel. The companies are obliged to report
monthly to Anatel in regard to the quality goals. Additionally, the companies
are obligated to provide Anatel an in-depth report and analysis in regard to
each quality goal that is not achieved. Anatel may also collect such data from
the companies at any time and without prior notice.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Companies that fail to achieve the Anatel quality goals may be subject to
warnings, fines, intervention by Anatel, temporary suspensions of service or
cancellations of concessions and authorizations. See &#147;Fines and Penalties.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information regarding our obligations at
year-end 2001 through 2005 and our performance with respect to each category of
obligation at year-end 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Company status</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>By December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><FONT size="1"><B>at December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2004</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2005</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dial tone within 3 seconds (% of cases)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Call completion rate during peak periods (%
of calls attempted) <SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">66.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maximum number of uncompleted calls due to
network congestion
(% of calls attempted) <SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maximum monthly repair requests (% of lines
in service)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maximum monthly public telephone repair
requests (% of public telephones in service)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Residential repair response speed (% within
24 hours)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Nonresidential repair response speed (%
within 8 hours)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Public telephone repair response speed (%
within 8 hours)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operator availability during peak periods (%
response within 10 seconds)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">94.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Billing complaints (per thousand bills issued)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minimum digitalization level of network (%)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Credit issued within one billing cycle for
claimed inaccuracies (% of cases)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" noshade width="15%" align="left">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">For local and domestic long-distance calls.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel measures the performance of Telemar in each state individually. As
a result, our performance in any particular state may not meet one or more
quality performance targets even if our performance overall satisfies the
targets set forth in the table. Therefore, we could be subject to fines or
penalties as a result of our failure to meet the quality performance targets in
one or more states. See &#147;Regulation of the Brazilian Telecommunications
Industry&#151;Obligations of Telecommunications Companies&#148; and &#147;Regulation of the
Brazilian Telecommunications Industry&#151;Quality of Service&#151;General Plan on
Quality.&#148;
</FONT>

<P align="center"><FONT size="2">42</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fines and Penalties</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Failure to meet the network expansion and modernization obligations in the
List of Obligations may result in fines and penalties of up to R$50&nbsp;million as
well as potential revocation of the concessions. Failure to meet the quality
of service obligations in the List of Obligations may result in fines and
penalties of up to R$40&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interconnection</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General rules regarding interconnection are described in the <I>Regulamento
Geral de Interconex&#227;o</I>, promulgated by Anatel. All operating companies
providing public-interest services are required, if it is technically feasible
to do so, to make their networks available for interconnection on a
nondiscriminatory basis, whenever such a request is made by any other
telecommunications provider. Anatel currently sets and adjusts the
interconnection rates between two fixed-line networks as well as between
fixed-line and wireless networks. Anatel has stated its plans to allow
fixed-line and wireless network operators to freely negotiate interconnection
rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Unbundling of Local Network</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel currently requires public regime regional fixed-line services
providers to unbundle network elements and services. 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
infrastructure sharing.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002, the Company signed a Letter of Agreement with Anatel, for
the unbundling of our local network and elaborated a standard agreement, which
is available for review by interested parties.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Rate Regulation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The concessions of the regional fixed-line companies and Embratel,
including our concessions, provide for a price-cap mechanism to set and adjust
rates on an annual basis. The price-cap mechanism consists of a maximum
amount, or price cap, established by Anatel, that may be charged for a
particular service and a weighted average rate for a basket of basic services.
The basket of local services covered by the price cap include all of the
services in the basic service plan, such as installation charges, monthly
subscription fees and switched local services (traffic). Other services
covered by the price cap include long-distance services and network usage fees.
The main baskets for the regional fixed-line companies are for local services,
including installation charges, monthly subscription fees and measured usage
charges and for long-distance services, which are determined based on five
rates that vary with the time of day and the distance called.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial price cap established by Anatel in the concessions was based
on previously existing tariffs. The initial price cap is adjusted on an annual
basis under a formula contained in the concessions. The formula allows two
adjustments to the price cap. First, the price cap is revised upward to
reflect increases in inflation by multiplying the price-cap by (1&#043;y), where y
represents the rate of inflation as measured by the IGP DI. The K-factor is
applied by Anatel to the tariffs of the regional fixed-line companies in order
to provide an incentive to the regional fixed-line companies to increase their
efficiency for the benefit of consumers of telecommunications services. In the
period 2000 to December&nbsp;31, 2005, our tariffs and the other regional fixed-line
companies will be adjusted downward, in real terms, as follows:
</FONT>

<P align="center"><FONT size="2">43</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>K-Factor Annual Productivity Adjustments</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2003</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2004</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2005</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line companies&#151;local (services)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line companies&#151;local (interconnection)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line companies&#151;intra-regional
long-distance and long-distance
interconnection</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tariffs for individual services within the basket may be increased to
the extent that the weighted average tariff for the entire basket of basic
services does not exceed the price cap. We may increase the tariff for any
individual service by up to 9% for local services and 5% for long-distance
services, 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 other prices are adjusted downward to ensure that the
weighted average tariff increase does not exceed the inflation- and
productivity-adjusted price cap.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may also offer alternative plans in addition to the basic service plan.
Alternative plans must be submitted to Anatel for approval, but are not
currently subject to a price cap.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Companies holding personal mobile services (SMP)&nbsp;licenses are allowed to
freely price their wireless services provided they are linked to existing
service plans authorized by Anatel. Price-caps are adjusted annually, based on
the IGP-DI. The interconnection rates are also subject to price-caps fixed by
Anatel and adjusted on an annual basis, up to June 2004, when the values will
start to be freely negotiated between the parties.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For information on our current tariffs and service plans, see &#147;Rates.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Regulation of SMP Wireless Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September 2000, Anatel promulgated regulations regarding SMP wireless
telecommunications services. The new rules allow companies to provide wireless
telecommunications services under SMP authorizations. The SMP authorizations
allow new entrants in the Brazilian telecommunications market to compete with
existing telecommunications service providers. The SMP regulations divide the
Brazilian territory into three separate regions, each of which is equal to the
regions applicable to the public regime fixed-line telephone service providers.
SMP services may be provided within the 1800 MHz band, which contains Bands
C, D and E. Accordingly, in addition to the conversion of the Band A and Band
B service providers to SMP authorizations, up to three SMP authorizations may
be granted in each SMP region. Anatel held auctions for SMP authorizations
during 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The SMP license sets forth certain obligations and targets that must be
met by a SMP subsidiary. Under these obligations, SMP subsidiary is required:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To cover an area equivalent to at least 50% of the urban area
in 50% of the state capitals and cities with more than 500,000
inhabitants by March&nbsp;12, 2002;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To cover all state capitals and all cities with more than
500,000 inhabitants by March&nbsp;12, 2003;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To cover an area equivalent to at least 50% of the urban area
in 50% of the cities with more than 200,000 inhabitants by March&nbsp;12,
2004;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To cover all cities with more than 200,000 inhabitants by March&nbsp;12, 2005; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">To cover all cities with more than 100,000 inhabitants by March&nbsp;12, 2006.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">44</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A locality is considered &#147;covered&#148; when the covered area contains, at
least, 80% of total urban area. The failure to meet these targets may result
in the penalties established in the regulations and, in extreme circumstances,
in termination of our PCS license by Anatel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002 we received authorization from Anatel to begin providing
wireless telecommunication services. Our license to provide wireless
telecommunications services is valid for fifteen years and may be renewed for
another fifteen years. If the authorization is renewed, Oi will, as
consideration for such renewal, be required to pay, upon renewal and on every
second anniversary of the renewal, an amount equal to 2% of the prior year&#146;s
net revenue.
</FONT>

<P align="left"><FONT size="2"><B><I>Recent Developments</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Presidential Decree</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;10, 2003 the Brazilian government promulgated a presidential
decree (the &#147;Decree&#148;) setting forth a number of changes in the regulation of
Brazil&#146;s fixed-line telecommunications sector. The Decree still needs to be
implemented by Anatel. The Decree sets forth general declarations of policy
regarding, among other things, universal access to telecommunications services,
stimulation of employment and development of Brazilian industry in the
telecommunications sector, promotion of competition and adoption of tariff
readjustment policies and take into account Brazilian socioeconomic
considerations and the financial equilibrium of the existing concession
agreements. It also defines that the implementation of such changes should be
reflected in the terms of each concession agreement to be achieved as of
January&nbsp;1, 2006. We are in the process of analyzing the directives of the
Decree in order to further understand its requirements and the impact they will
have on our business, results of operations and our financial condition.
Accordingly, we cannot currently determine what effect the Decree will have on
our business, results of operations and financial conditions in the future.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>New General Plan on Universal Service</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A new General Plan on Universal Service has been proposed which will
require fixed-line telecommunications services providers to achieve certain
targets as of January&nbsp;1, 2006. The purpose of the plan is to afford access to
PSTN for use by all Brazilians regardless of location or socio-economic status.
The costs related to meeting the targets contemplated by the plan are to be
paid for solely by the incumbent telecommunications services providers pursuant
to terms stipulated in each provider&#146;s respective concession agreement. Anatel
may revise the universal service targets, pursuant to the concession
agreements, as well as propose additional targets and an acceleration of the
plan. The plan applies to local, domestic and long-distance service providers
in varying degrees.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services providers will be required to implant the PSTN
to individual access targets with individual accesses of residential,
non-residential and &#147;trunk&#148; classes in areas with more than 300 inhabitants.
Priority must be given to requests for individual access made by regular
educational establishments, health institutions, public security
establishments, public libraries and museums, judiciary agencies, federal
public prosecutor&#146;s agencies, and consumer protection agencies. Special care
and equipment must also be provided for the hearing and speech impaired.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services providers will be required to activate public
telephones (&#147;TUP&#148;), which make it possible for any person to use the PSTN
collective access, regardless of subscription or registration with the carrier,
in enough numbers to ensure that the density of TUPs per general license plan
sector is equal to or over 6.0 TUPs per group of 1,000 inhabitants. This
requirement is less stringent than the targets established under the current
General Plan on Universal Service, of 7.5 per 1,000 persons for year-end 2003
and 8.0 per 1,000 persons set for year-end 2005 and we believe this will have a
favorable impact on our costs and capital
</FONT>

<P align="center"><FONT size="2">45</FONT>
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<P align="left"><FONT size="2">expenditures. Activation of TUPs must take place so that there are at
least three TUPs per group of 1,000 inhabitants evenly distributed over the
service area. Of the total number of TUPs installed in a service area, 50%
must be in areas that can be accessed twenty-four hours a day and 2% must be
adapted for every kind of physical impairment. Local services providers are
responsible for achieving targets for areas that are at a distance equal to or
less than thirty kilometers from any other service area; domestic and
international long-distance providers must be in compliance for those serving
areas at a distance equal to or more than thirty kilometers from any other
serving area.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications services providers of local service will be required to
activate telecommunications services stations (&#147;PST&#148;), which are facilities for
collective use maintained by the service provider, in each general license plan
sector in varying numbers determined by population measured annually from 2007
to 2011. The PSTN incumbent services providers must also activate one PST per
general license plan sector in rural areas in cooperative service stations
(&#147;UAC&#148;), which service a community with services such as storage, packaging,
refrigeration and credit facilities, depending on the size of the communities
in 2007 and 2008, and in all communities in 2009.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors of Anatel also approved the installation of a
public hearing with respect to the creation of a special individual access
(&#147;AICE&#148;). The goal of AICE is to meet the needs of lower income classes of
households not yet serviced by the PSTN, and shall have its offer, utilization,
rates, payment conditions, call treatment, network usage remuneration and
taxation differentiated from those of regular residential telephone. Requests
for installation must be met after the subscriber&#146;s registration and
subscription payment within twelve months. The proposal also establishes that
the AICE will be accessed via prepaid cards, which could be used in any type of
telecommunications services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telephone message box service (SCPT), or voice mail, must be also
universally provided at cost within two weeks after a request, and regulations
regarding such service will be established by Anatel.
</FONT>

<!-- link2 "Item&nbsp;5. Operating and Financial Review and Prospects" -->
<DIV align="left"><A NAME="007"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;5. </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Operating and Financial Review and Prospects</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Overview</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations are significantly affected by the following
factors, such as the:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="90%"><FONT size="2">Brazilian political and economic environment
and effects of inflation and foreign exchange rate
devaluation;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">early attainment of the universal targets set
for completion by 2003 by Anatel and investments in new
business sections; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">general trends of the telecommunications
services industry.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Brazilian Political and Economic Environment and the Effects of Inflation
and Devaluation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been affected by the economic, political and social conditions in
Brazil. Most notably our operations have been impacted by the devaluation of
the <I>real </I>and the increases in interest rates by the Brazilian government in its
efforts to control inflation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2000, the <I>real </I>devaluated by 9.3% against the US dollar while the
Brazilian Central Bank&#146;s average interest rate (SELIC)&nbsp;was 15.8%. In 2001, the
<I>real </I>devaluated another 18.7% and the interest rate was increased to 19%. In
2002, various factors had a negative impact on the Brazilian economy including
the uncertainties relating to the political and economic future of Brazil
and the political and economic uncertainties of other South American
counties including Argentina and Venezuela. These factors were influential in
the increased unpredictability of the markets in
</FONT>

<P align="center"><FONT size="2">46</FONT>
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<P align="left"><FONT size="2">Brazil, the decreases in the ability to obtain credit and decreased investor
confidence in the Brazilian marketplace.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is affected by the effects of these conditions. As of
December&nbsp;31, 2002, 72.6% of our indebtedness was in foreign currency. Even
though we have derivate instruments for hedging purposes in order to limit the
negative impacts (mainly agreements to swap the foreign exchange rate variation
to CDI interest rate variation) we were negatively affected by the increase in
the Brazilian interest rate. Further increases in interest rates and continued
devaluation of the real would likewise negatively affect the need for
telecommunications services. Continued devaluation would negatively impact the
purchasing power of our clients, which could negatively impact our results.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows the GDP growth, the inflation rate, the US
dollar exchange rate devaluation and the interest rate for the three-year
period ended December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">GDP growth <SUP>(1)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">IGP-DI Inflation rate % <SUP>(2)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">IPCA Inflation rate % <SUP>(3)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">U.S. dollar exchange rate devaluation % <SUP>(4)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SELIC % <SUP>(4)</SUP></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR noshade size="1" width="15%" align="left">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Source</I>: <I>Instituto Brasileiro de Geografia e Estat&#237;stica </I>(IBGE)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(2)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Source</I>: <I>Funda&#231;&#227;o Get&#250;lio Vargas</I></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(3)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Source</I>: Consumer Price
Index - IBGE</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(4)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Source</I>: Central Bank of Brazil</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Early attainment of universal targets set for 2003 and investments in new
business segments</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the early attainment of the universal service targets established in
the Concession Agreement with Anatel for 2003, we started providing wireless
telecommunications services, long-distance inter-regional and international
services, as well as nationwide operations in the corporate data market.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to attain these targets, we greatly increased our capital
expenditures, maintenance and installation costs, as well as financial expenses
due to the loans and financing obtained to accomplish these targets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 2001 and 2002 results were significantly impacted by increases in
capital expenditures and indebtedness caused by our expansion into wireless
telecommunications services. In addition, we have been providing wireless
telecommunications services since July 2002 and have expanded the operations of
our contact-center segment since the last quarter of 2001, which have resulted
in corresponding increases in personnel costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General trends of the telecommunications services industry</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the privatization, huge capital expenditures have been made to
expand our local last-mile fixed-line network, mainly in order to attain
Anatel&#146;s universal service targets. However, the new fixed-lines in service
are in low-income areas, reducing our return on invested capital. The
following table demonstrates the estimated penetration of fixed-line services
per economic class, compiled by the <I>Associa&#231;&#227;o Brasileira das Prestadoras de
Servi&#231;o Telef&#244;nico Fixo Comutado </I>(ABRAFIX) (Brazilian Association of PSTN
Companies).
</FONT>

<P align="center"><FONT size="2">47</FONT>
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<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1998</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">A (Higher)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">94</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">B</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">C</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">D/E (Lower)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(According to ANEP &#150; Associac&#227;o Nacional de Empresas de Pesquisa, there
are 7 income classes, as follows, with their respective average monthly income:
A1 &#150; R$7,793; A2 &#150; R$4,648; B1 &#150; R$2,804; B2 &#150; R$1,669; C &#150; R$927; D &#150; R$424;
and E &#150; R$207)
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1998, Brazil had 20.0&nbsp;million fixed-line telephones and by the close of
2002 there were 38.8&nbsp;million. Meanwhile, wireless subscribers increased from
7.4&nbsp;million in 1998 to 34.9&nbsp;million in 2002, according to Anatel. We are
observing a decrease in the growth of the fixed-line telecommunications
services, while the wireless telecommunications services segment of our
industry is demonstrating a constant increase. The growth of the wireless
telecommunications services industry is an important issue in the United States
and Europe. From trends in those regions we are aware of the necessity to
invest in our wireless telecommunications services segment in order to be able
to offer fixed-line and wireless telecommunications services, as well as data
transmission, as an integrated business.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not expect future material increases in the number of installed
fixed-lines and revenues from basic fixed-line telecommunications services;
however, we do expect an increase in revenues from wireless telecommunications
services. From owning both wireless and fixed-line telecommunications services
networks we will be able to minimize the interconnection costs for outgoing
calls and maximize interconnection revenues from incoming calls.
</FONT>

<P align="left"><FONT size="2"><B>Presentation of Information</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion of our consolidated financial condition and
results of operations for the three-year period ended December&nbsp;31, 2002 should
be read in conjunction with the Consolidated Financial Statements, which are
included at the end of this annual report.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Consolidated Financial Statements have been prepared in accordance
with the Brazilian Corporate Law, which differs in certain significant respects
from US GAAP. See Note 30 to the Consolidated Financial Statements for a
summary of the differences between the Brazilian Corporate Law and US GAAP,
Note 31 for a net income (loss)&nbsp;reconciliation of the differences between the
Brazilian Corporate Law and US GAAP for the years ended December&nbsp;31, 2000, 2001
and 2002, Note 32 for a shareholders&#146; equity reconciliation as of December&nbsp;31,
2001 and 2002 and Notes 33 through 35 for presentations of statements of
operations, changes in shareholders&#146; equity and additional disclosures prepared
in accordance with US GAAP.
</FONT>

<P align="left"><FONT size="2"><B>Critical Accounting Policies and Estimates</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our significant accounting policies are described in Note 1e to the
Consolidated Financial Statements included elsewhere in this annual report. In
preparing the Consolidated Financial Statements, we have relied on estimates
and assumptions derived from historical experience and various other factors
that we deemed reasonable and relevant. &#147;Critical accounting policies&#148; are
those that are important to the portrayal of our financial condition and
results and utilize management&#146;s most difficult, subjective or complex
judgments, estimates and assumptions. The application of these critical
accounting policies often requires judgments made by our management regarding
the effects of matters that are inherently uncertain on the carrying value of
our assets and liabilities and the results of our operations. Our results of
operation and financial condition may differ from those set forth in the
Consolidated Financial Statements, if our actual experience differs from
management&#146;s assumptions and estimates. In order to provide an understanding
of our critical accounting policies, including some of the variables and
assumptions underlying the estimates, and
</FONT>

<P align="center"><FONT size="2">48</FONT>
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<P align="left"><FONT size="2">the sensitivity of those assumptions and estimates to different parameters
and conditions, set forth below is a discussion of our critical accounting
policies relating to:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Revenue recognition and accounts receivable;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Provision for doubtful accounts;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Depreciation of property, plant and equipment;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Contingencies; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Derivatives.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Revenue recognition and accounts receivable</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenue recognition policy is significant because our revenue is a key
component of our results of operations. Management&#146;s determination of price,
collectibility and the rights to receive certain revenues for the use of our
network are based on judgments regarding the nature of the fee charged for
services rendered, the price for products delivered and the collectibility of
those revenues. Should changes in conditions or discussions cause management to
determine that these criteria are not met for certain transactions, accounts
receivable could be adversely affected. In addition, we follow both on
guidelines issued by Anatel and in measuring revenue.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from the usage of our network are recorded based on a formal
document of declared traffic and service rendered, the <I>Documento de declara&#231;&#227;o
de tr&#225;fego e presta&#231;&#227;o de servi&#231;o </I>(&#147;DETRAF&#148;), issued by a third party.
Although the DETRAF provides a methodology for determining network usage, there
is extensive negotiation and debate among operators regarding values, volumes
and who has the rights to certain revenues. In many instances, the Company
decides to register and maintain accounts receivable based upon information
obtained in the course of discussions with other parties, from the opinions of
legal counsel, and from matters discussed with Anatel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Provision for doubtful accounts</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for doubtful accounts is stated in an amount that we
consider sufficient to cover any probable losses on realization of our accounts
receivable from our customers and is included in selling expenses. Our
accounting policy for establishing the provision is consistent with our billing
and collection process.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This provision is established in order to recognize probable losses on
accounts receivable, taking into account the actions we take to limit service
provided to clients with past-due accounts and to collect delinquent accounts,
beginning when the account is 60&nbsp;days past due, and increasing progressively
thereafter, as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>% loss</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Outstanding bills</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Service Restriction/collection process</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>provided for</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Between 30 and 60&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Restrict outgoing calls
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">0</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Between 61 and 90&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Restrict incoming and outgoing calls
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">40</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Between 91 and 120&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Disconnect after 15&nbsp;days advance notice
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">60</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Between 121 and 150&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Judicial collection
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">80</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Approx. 151&nbsp;days</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Judicial collection
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">100</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We include government entities, corporate clients and other
telecommunications service providers in the calculation base of the provision.
We have also entered into agreements with certain clients to collect past-due
accounts, including agreements allowing clients to settle their
</FONT>

<P align="center"><FONT size="2">49</FONT>
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<P align="left"><FONT size="2">delinquent accounts in installments. The amounts that we actually fail to
collect in respect of these accounts may differ from the amount of the
provision established.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Depreciation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depreciate property, plant and equipment using the straight-line method
at rates we judge to be compatible with the useful lives of the underlying
assets, principally 5 to 10&nbsp;years for network and equipment, 10&nbsp;years for
furniture and fixtures and 5&nbsp;years for hardware and software. Depreciation
rates are adjusted, and may vary between fixed-line, wireless and data
segments, to take account of changes in estimated useful lives based on
technical obsolescence and assessment by outside experts. Impairment tests are
applied annually, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance and repair costs are capitalized when, in the judgment of
management, such maintenance or increase installed capacity or useful life. We
have not capitalized any material costs during the three-year period ended
December&nbsp;31, 2002, since most of our maintenance costs do not represent an
actual increase of useful life, and obsolescence is a major factor in
determining useful lives.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Contingencies</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of our financial statements requires us to make estimates
and assumptions regarding contingencies that affect the valuation of assets and
liabilities at the date of the financial statements and the revenues and
expenses during the reported period. Such contingencies include the legal
proceedings discussed in Note 21 of the Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise required by changes in accounting standards and
practices, we will continue to record liabilities in connection with these
contingencies in the same manner as we do currently, based on our assessment of
the risk of loss at each date of preparation of the financial statements. As
discussed in Note 1e to our Consolidated Financial Statements, we record as a
liability our estimate of the costs of resolution of such claims when we
consider loss of our claim to be probable. It may be possible that our
assumptions and therefore estimates of loss in respect of any given contingency
will change in the future based on changes in the related situation. This may
therefore result in changes in future provisioning for legal claims. We record
liabilities in connection with pending litigation based on estimates of the
amounts of probable losses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Labor claims</I>. Brazilian employment and labor legislation is extensive and
complex, giving rise to many claims from current and former employees. These
relate principally to unsafe working conditions, premium, equalization of
salary scales, salary differences, dismissals and other matters. Our
management estimates the potential losses on outstanding labor claims based on
the advice of external legal counsel regarding the likelihood of unsuccessful
outcome. We record provisions for losses that are deemed probable in
connection with any given case.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tax claims</I>. The complexity of the Brazilian corporate tax system often
results in disputes on a number of different taxes. We are currently involved
in tax proceedings regarding, and have filed claims to avoid payment of,
certain taxes that we do not believe are constitutional. The tax
contingencies, which relate primarily to value-added tax, service tax and taxes
on revenue, are described in detail in Note 21 to our Consolidated Financial
Statements. We record provisions for probable losses in connection with these
claims in consultation with external legal counsel and are based upon an
analysis of potential results, assuming a combination of litigation and
settlement strategies. We do not believe these proceedings will have a
material adverse effect on our financial position. It is possible, however,
that future results of operations could be materially affected by changes in
our assumptions, and the effectiveness of our strategies with respect to these
proceedings.
</FONT>

<P align="center"><FONT size="2">50</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Civil claims</I>. We are currently involved in many claims brought by
Embratel regarding issues related to former resellers of pre-paid calling cards
and subcontractors, among others. We record provisions for probable losses
based on the opinion of our external legal counsel regarding the probable
outcome and estimated value involved.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Unrecognized exposures</I>. We have not recorded a provision for every labor,
tax or civil exposure, but only for those in connection with which an
unfavorable outcome, based on external legal advice, is probable. We have
estimated the total value of the unrecorded exposures of claims considered as
possible losses to be R$890.0&nbsp;million as of December&nbsp;31, 2002 (R$887.0&nbsp;million
at December&nbsp;31, 2001). We believe that our estimates are based on reasonable
assumptions and assessments of external legal counsel. In accordance with the
Brazilian Corporate Law and US GAAP, we do not record provisions in connection
with &#147;possible&#148; (as opposed to &#147;probable&#148;) losses on contingencies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the moment, we do not have material contingent assets, where an inflow
of economic benefit is probable. Nevertheless, we periodically verify our past
and present tax procedures, in light of recent tax decisions in Brazilian
courts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Derivatives</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We employ financial risk management strategies using a variety of
derivatives, including foreign currency and interest rate swaps, forwards and
options. Our financial risk management strategy is designed to protect against
adverse changes in foreign currency exchange rates and foreign currency
interest rates. We do not enter into derivatives transactions for any other
purposes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Results from swap operations are determined and recorded on a monthly
basis by comparing contractual exchange rates to month-end exchange rates, when
applicable, regardless of the terms of settlement in the applicable derivatives
contract. Gains on &#147;options&#148; and &#147;forward&#148; contracts are recorded as a
reduction in interest expense only when they are realized at the time the
contracts expire, while unrealized losses are recorded currently against
income. Under the options contracts, which relate to the purchase and sale of
US currency, we pay for and receive premium upon signing the option contract.
The premiums are recorded in the results for the year on the accrual basis from
the date of signing through the contract maturity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the reconciliation of the Brazilian Corporate Law to US
GAAP, as of January&nbsp;1, 2001, we are applying SFAS 133 &#147;Accounting for
Derivative Instruments and Hedging Activities.&#148; Since our transactions do not
qualify for hedge accounting under this standard, derivatives are recorded at
fair value. Therefore, we eliminate the gains and losses not yet financially
realized. Fair values are based on pricing models that take into account
current market and contractual prices for the underlying financial instruments
or commodities, as well as time value and yield curve or volatility factors
underlying the positions. If we maintain these instruments to maturity, the
unrealized gains and losses will substantially offset financial expenses due to
foreign exchange rate variations. As an example, our financial results for the
year-ended December&nbsp;31, 2002, were impacted by a 52.2% US dollar exchange rate
variation, mainly due to long-term indebtedness in foreign currency, while the
gains of these instruments are mostly not recognized, generating a difference
in the US GAAP income statement of R$1,401.3&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the reconciliation of the Brazilian Corporate Law to US
GAAP, derivatives are recorded at fair value, and unrealized gains and losses
are reflected in the statement of operations as interest income and expense.
Fair values are based on pricing models that take into account current market
and contractual prices for the underlying financial instruments or commodities,
as well as time value and yield curve or volatility factors underlying the
positions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pricing models and their underlying assumptions impact the amount and
timing of unrealized gains and losses recognized, and the use of different
pricing models or assumptions
</FONT>

<P align="center"><FONT size="2">51</FONT>
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<P align="left"><FONT size="2">could produce different financial results. Changes in the fixed income,
equity, foreign exchange and commodity markets will impact our estimates of
fair value in the future, because some of these contracts will become due for
significant periods of time potentially affecting interest income and expenses.
</FONT>
<P align="left"><FONT size="2"><B>Effects of Changes in Rates and Structure of Revenues and Expenses</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain changes in telecommunications rates and the structure of our
revenues affected our results in 2000, 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Elimination of Embratel revenue sharing</I>. Until April 1998, we received
a fixed percentage of revenue from interregional and international
long-distance calls carried by Embratel that originated in Region I. This
revenue-sharing arrangement ended effective April&nbsp;1, 1998. Since then, we have
received interconnection fees from Embratel on a per-minute basis for
interregional and international calls which are carried by Embratel and are
initiated or completed on our fixed-line network. In 1998, we began receiving
from Embratel a supplemental per-minute charge called the PAT, in order to
reduce the impact of the discontinuation of the revenue-sharing arrangement.
The PAT began at an average rate of R$0.018 per minute and was phased out by
June&nbsp;30, 2001. See &#147;Item&nbsp;4. Information on the Company&#151;Services&#151;Interregional
and International Long-Distance Service&#148; and &#147;Network Usage Services.&#148; These
changes had a substantial adverse impact on revenues in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Network usage fees</I>. We have been receiving network usage fees from
wireless operators and, since April 1998, from Embratel and other fixed-line
service providers. The growth of wireless telecommunications and an increase
in long-distance usage volumes have resulted in substantial growth of the
network usage revenues in 2000, 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Rate increases</I>. On June&nbsp;22, 2000, we were authorized by Anatel to
increase the average rate for the basic service plan by 14.1%. Monthly
subscription charges increased by 21.5%, while measured service charges
increased by 6.7%. In order to reduce the impact of this increase on
residential clients, we increased the number of pulses included in the monthly
subscription charge from 90 to 100. Long-distance rates were also increased by
11.9%. On June&nbsp;21, 2001, Anatel authorized us to increase our monthly
subscription charges by an average of 17%. In February 2002, Anatel authorized
us an average increase of 10.7% in the maximum interconnection rates charged by
wireless operators in Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel also authorized an average increase of 10.7%, valid as of
February 2002, in the maximum interconnection rates charged by the wireless
operators in Region I. These maximum authorized rates, which we pay to
wireless operators to complete calls from our fixed-line and wireless units to
wireless units in their network, range from R$0.2190 per minute to R$0.3161 per
minute, net of indirect taxes.
</FONT>

<P align="left"><FONT size="2"><B>Political, Economic, Regulatory and Competitive Factors</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion should be read in conjunction with the
&#147;Information on the Company&#148; section included in Item&nbsp;4 in this Annual Report.
As set forth in greater detail below, our financial condition and operations
are significantly affected by Brazilian telecommunications regulations,
including rate adjustments. See &#147;Item&nbsp;4. Information on the
Company&#151;Regulation of the Brazilian Telecommunications
Industry&#151;Rate
Regulation.&#148; Our financial condition and results also have been, and will
continue to be, affected by the economic and political environment in Brazil.
See &#147;Item&nbsp;3. Key Information&#150;&#150;Risk Factors&#150;&#150;Risks Relating to Brazil.&#148; In
particular, our financial performance will be affected by
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">economic growth in Region I and its impact on demand for telecommunication services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the cost and availability of loans and financing;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">52</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">foreign currency exchange rates; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the granting by Anatel of certain authorizations, certifications and licenses.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until February 1999, we were the only authorized provider of local
fixed-line and intrastate telecommunications services in Region I. In February
1999, two licenses were auctioned to permit competitors to provide local
fixed-line and intra-regional long-distance telecommunications services in
Region I in competition with us. In July 1999, we were authorized and began to
provide interstate long-distance services between the states in Region I. By
March 2002, we attained our universalization targets of December&nbsp;31, 2003, and
were authorized to provide inter-regional and international long distance
services in our region. Since July 2002, we are providing these services, and
are particularly interested in providing inter-regional long-distance services
between Region I and Region II and Region III. There is no assurance that the
entry of new competitors in the local market, in the long distance market or
the other markets in which we compete will not have a material adverse effect
on our business, financial condition, results of operations or prospects. Any
adverse effects on our results and market share from competition will depend on
a variety of factors that cannot now be assessed with precision, some of which
are beyond our control. Among such factors are the technical and financial
resources available to our competitors, their business strategies and
capabilities, prevailing market conditions, the regulations applicable to us
and to the new entrants, including those pertaining to providers of wireless
telecommunication services, and the effectiveness of our efforts to prepare for
increased competition. For further information see &#147;Item&nbsp;4. Information on
the Company&#151;Competition.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Foreign Exchange and Interest Rate Exposure</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal foreign exchange risk we face arises from the incurring part
of our indebtedness and capital expenditures in foreign currency while our
revenues are earned almost entirely in <I>reais. </I>As a result of this mismatch,
increased revenues may not compensate for increases in our financing expenses
or capital expenditures arising from currency fluctuations. At December&nbsp;31,
2002, R$7,410.9&nbsp;million (R$5,381.5&nbsp;million at December&nbsp;31, 2001), representing,
72.6% (57.6% at December&nbsp;31, 2001) of our indebtedness (including debentures)
was denominated in foreign currency (US dollars, Japanese Yen and a mix of
currencies determined by Banco Nacional de Desenvolvimento Econ&#244;mico e Social
(&#147;BNDES&#148;). As of December&nbsp;31, 2002 the indebtedness in foreign currency, taking
into account the results of swap agreements, showed a gain (thus reducing the
foreign currency indebtedness) of R$1,445.4&nbsp;million and a loss (thus increasing
the foreign currency indebtedness) of R$575.4&nbsp;million as of December&nbsp;31, 2001.
Under US GAAP these results are recognized at fair value calculated at
year-end, altering significantly the net income (loss)&nbsp;of these years. These
loans and financing totaled US$2,507.3&nbsp;million and US$2,072.9&nbsp;million at
December&nbsp;31, 2002 and 2001, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consequently, we are exposed to foreign currency exchange rate risks that
may adversely affect the results of operations and financial position, as well
as our ability to meet our debt obligations. Devaluation of the <I>real </I>resulted
in exchange losses on foreign-currency indebtedness of R$2,551.8&nbsp;million in
2002 (R$127.9&nbsp;million in 2001). Net of hedging results, the losses totaled
R$876.4&nbsp;million in 2002 and R$394.5&nbsp;million in 2001. Under US GAAP the results
of derivative transactions are accounted for required by Financial Accounting
Standard (&#147;FAS&#148;) No.&nbsp;133 &#147;Accounting for Derivative Instruments and Hedging
Activities,&#148; resulting in a loss of R$1,401.3&nbsp;million in 2002 and a gain of
R$204.8&nbsp;million in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have used derivatives contracts (swaps, options and forwards) to limit
the risk of increases in our liabilities (expressed in <I>reais</I>) on our on foreign
currency debt as a result of currency fluctuations. The majority of the
derivatives contracts consist of currency swaps under which an obligation
denominated in foreign currency is exchanged for a real-dominated obligation
</FONT>

<P align="center"><FONT size="2">53</FONT>
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<P align="left"><FONT size="2">bearing interest at the CDI rate. The gain (loss)&nbsp;of swap transactions
recorded under Brazilian Corporate Law reducing or increasing the foreign
currency indebtedness will be effective if we maintain these agreements until
their maturity, in disregard of the fair-value at the year-ended.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, we had loans and financing subject to floating
interest rates based on the Brazilian long-term interest rate (TJLP)&nbsp;or
Interbank Deposit Certificate rates (CDI), in the case of real-denominated
debts, and based on LIBOR, in the case of US dollar-denominated debts. As of
December&nbsp;31, 2002, we had derivatives agreements in order to swap obligations
under contracts bearing interest of LIBOR &#043; 3% to 5.5% per annum, which totaled
85% of the total debt, to fixed rates, reducing our exposure to changes in
LIBOR to 64.7% of the total debt.
</FONT>

<P align="left"><FONT size="2"><B>Downstream Merger</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 1999, our shareholders approved a restructuring plan under
which a premium of R$2,464.8&nbsp;million paid by Telemar Participa&#231;&#245;es S.A. in
connection with the acquisition of shares representing control of TNL was
transferred to us in exchange for shares in the Company. As of December&nbsp;31,
1999, we had recorded the premium as a permanent asset, to be amortized in 5
years, and as a share premium reserve under shareholders&#146; equity. The
objective of the down-stream merger was to assure realization of the tax
benefit arising from the amortization of the Goodwill paid some book value by
Telemar Participa&#231;&#245;es by transferring to the Company the tax benefit arising
from the amortization of the goodwill.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2001, CVM issued a new rule that amended the accounting
principles for this downstream merger premium. The new rule required us to
write down the premium to the amount of the future tax benefit expected to be
generated by the amortization of such premium, retroactively to January&nbsp;1,
2000. As a result, at January&nbsp;1, 2000, we reduced the amount of the premium by
R$1,599.6&nbsp;million and reclassified the resulting amount of R$824.1&nbsp;million on
our consolidated balance sheet as current and non-current tax credits. At the
same time, we reduced the share premium reserve under shareholders&#146; equity by
R$1,599.6&nbsp;million to R$824.1&nbsp;million. In addition, we reversed R$325.4&nbsp;million
of amortization that had been recorded during 2000 in connection with the
portion of the premium that was reduced retroactively as of January&nbsp;1, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We record the amortization of the goodwill in a manner that reduces our
taxable income, generating a tax benefit. The amortization of the provision is
not taxed, as it has already been reduced to the amount of the tax credit. See
Notes 5 and 7 to the Consolidated Financial Statements. Under the CVM rule,
the tax benefit generated by the amortization of goodwill may revert to the
benefit of Telemar Participa&#231;&#245;es. Based on this rule, in April 2000 we
increased TNL&#146;s share capital by R$13.4&nbsp;million, and in May 2001 by R$167.6
million. We also increased our capital in April 2002 by R$167.6&nbsp;million, which
represents the tax benefit derived from the amortization of goodwill in 2001.
In April 2003, we increased our capital by R$167.6&nbsp;million. See &#147;Item&nbsp;3. Key
Information&#151;Effects of Downstream Merger&#148; and Note 1(d) to the Consolidated
Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount recorded as deferred and recoverable taxes and as share
goodwill reserve may be adjusted by us as it corresponds to a future
expectation of tax benefits that will be realized only if we have taxable
income. We expect to continue generating taxable income in 2003 and 2004 and
therefore expect that the amortization of the goodwill will reduce our income
tax obligations, and thus increase our cash flow.
</FONT>

<P align="left"><FONT size="2"><B>Network Expansion Obligations</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We began offering inter-regional and international long-distance services
and Oi began offering wireless telecommunication services upon Anatel&#146;s
certification that we had met our network expansion and universal service
targets for December&nbsp;31, 2003 for each state ahead of
</FONT>

<P align="center"><FONT size="2">54</FONT>
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<P align="left"><FONT size="2">schedule and its authorization for us to provide such services, all of
which took place in June and July 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to achieve the targets, we carried out a comprehensive investment
program, which resulted in the installation at 5.3&nbsp;million lines in 2001. This
number is similar to the number of lines that were installed from 1997 to 2000.
This growth in line installations produced a substantial increase in our
revenues, operating costs, selling expenses and capital expenditures in 2001.
Because we had met our 2003 network expansion targets by the end of March,
2002, our capital expenditures for 2002 were significantly lower than in 2001,
and we expect our capital expenditures in 2003 to continue at levels similar to
those experienced in 2002.
</FONT>

<P align="center"><FONT size="2">55</FONT>
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<P align="left"><FONT size="2"><B>Statements of Operations for 2000, 2001 and 2002</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain components of our statements of
operations, as well as the percentage change compared to the prior year, for
the three-year period ended December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="17"><FONT size="1"><B>% Change</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="17"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>2000 v. 2001</B></FONT></TD>
    <TD nowrap align="center" colspan="9"><FONT size="1"><B>2001 v. 2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD colspan="9"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>(millions of reais) (1)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,127.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,874.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of services, handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,294.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,806.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,152.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,832.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,296.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,721.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating (expenses)&nbsp;income, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,593.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,666.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,313.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income (loss)&nbsp;before interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,239.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">630.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,408.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">494.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(22.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(918.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,345.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">155.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,190.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(552.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(82.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(368.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net non-operating income (expense)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(113.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,452.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees&#146; profit share</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(130.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(56.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">360.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before taxes and
minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,141.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(655.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(84.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(473.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax and social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(174.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(112.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1611.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(257.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(56.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(131.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(78.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">132.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(80.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(396.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR noshade size="1" width="15%" align="left">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Columns may not add due to rounding.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">56</FONT>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2"><B><I>Comparison of Revenues in 2000, 2001 and 2002</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain components of our operating
revenues, as well as the percentage changes, for the years indicated.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>


</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>

</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000-2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001-2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

<TD nowrap align="center" colspan="11"><FONT size="1"><B>(millions of
<I>reais</I>) (1)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>% Change</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenues:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telephone services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Installation charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">157.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">359.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">128.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly subscription fees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,517.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,606.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,581.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-to-mobile calls VC1</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,116.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,680.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,753.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pulses &#150; measured services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,889.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,026.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,247.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Collect call revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other local services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(85.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(52.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total local services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,816.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,792.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,851.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intrastate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">695.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">835.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,110.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interstate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">399.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interregional</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">58.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">International</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-to-mobile calls VC2 and VC3</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">346,9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">459.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">482.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total long distance services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,264.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,568.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,066.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Other fixed-line services:</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Public telephones</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">570.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">668.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advanced voice</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">115.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">259.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value-added services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">229.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">302.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,882.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,366.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,148.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Remuneration for the use of the fixed-line network:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line to fixed-line network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,071.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,251.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,248.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mobile to fixed-line network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">244.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">248.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total use of the network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,278.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,495.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,497.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Remuneration for use of the mobile network:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Use of mobile-mobile network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Use of fixed-line to mobile network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mobile telephone services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly subscription fees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Originating calls</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">National roaming</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">International roaming</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">455.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data network services (fixed-line):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dedicated digital line services &#150; SLD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">251.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">275.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">275.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Industrial dedicated line services &#150; EILD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">339.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">344.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">373.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">IP services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">92.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">57</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>

</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000-2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001-2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data transmission services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other data services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">439.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total Transport network services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">678.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">787.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">905.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">463.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total gross operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,850.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,659.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,091.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value added and other indirect taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,629.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,466.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,071.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(146.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,127.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,874.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><SUP>(1)</SUP></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Columns may not add due to rounding.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Financial highlights by business segment</I></B>
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The table on the following page sets forth certain financial highlights by
business segment for the years ended December&nbsp;31, 2002 and 2001. We have
segmented our business analysis and results with the start-up of Oi, with
separate presentations of actual results, budgets, targets, and business plan.
We are not presenting segmented information regarding year ended December&nbsp;31,
2000, since it was mainly the fixed-line business segment.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">58</FONT>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<DIV align="left"></DIV>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Fixed-line</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Wireless</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Contact-Center</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenues:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,851.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,792.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-distance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,066.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,568.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Use of the network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,504.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,495.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sale of handset and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data transmission</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">967.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">824.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contact center</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,235.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,006.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,625.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,687.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">529.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value added and other indirect taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,988.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,463.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(80.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(124.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(22.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,495.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,133.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">442.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">211.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">145.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of sales:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inteconnection</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,401.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,334.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,254.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,726.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(84.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(414.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,663.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,568.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(129.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(173.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(114.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third-party services and advertising</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(585.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(568.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(162.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(614.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(925.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(230.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(231.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(883.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(806.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">258.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,527.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(679.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(418.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating results, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">261.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(216.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">698.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">295.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(738.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,526.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,140.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">291.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,636.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,831.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,913.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.012.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,562.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,254.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,632.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,388.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">
<P align="right"><FONT size="2">&#091;Additional columns below&#093;</FONT>
<P align="left"><FONT size="2">&#091;Continued from above table, first column(s) repeated&#093;</FONT>


<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Other segments</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Intercompany</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>And holding</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>eliminations</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Consolidated</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenues:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,905.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,792.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-distance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,066.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,568.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Use of the network</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(52.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,524.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,495.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sale of handset and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data transmission</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(209.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(130.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">905.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">787.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contact center</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(182.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(152.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,254.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,015.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">104.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(450.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(284.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,091.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,666.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value added and other indirect taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,071.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,466.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(146.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(424.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(254.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,874.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of sales:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inteconnection</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,369.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,334.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,362.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,737.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(414.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(178.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(154.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">102.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,006.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,734.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third-party services and advertising</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">319.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(431.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(409.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(616.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(925.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(259.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(235.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(70.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,014.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(869.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,023.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,292.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(785.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,056.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">494.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,178.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,312.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">785.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,075.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,345.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(918.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating results, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(104.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(225.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(459.9</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(207.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(77.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,724.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,145.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">214.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">273.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,842.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,146.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,231.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,004.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,973.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,037.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,453.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,619.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">


<P align="center"><FONT size="2">59</FONT>




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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2"><B>Fixed-line services (Telemar)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Local services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues from local services increased 29% from R$6,816.0&nbsp;million in
2000 to R$8,792.7&nbsp;million in 2001. The growth of our revenue from local
services in this period resulted primarily from a 27.5% increase in the average
number of lines in service, from 10.2&nbsp;million in 2000 to 13.0&nbsp;million in 2001,
as well as from an increase in monthly subscription charges of 17% at the end
of the first half of 2001. The increase in the average number of lines
installed did not represent a similar increase in the average volume of pulses
since we are increasingly rendering services to lower income customers who
usually stay within the allowance of 100 pulses included in the monthly
subscription charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, our revenues from local services increased 12%, totaling R$
9,851.6&nbsp;million. The growth in revenue from local services in this period
resulted primarily from a 8.4% increase in the average number of lines in
service, from 13.0&nbsp;million in 2001 to 14.1&nbsp;million in 2002, and also to a 14%
increase in monthly subscription fees and 15% in non residential subscription
fees during the second half of 2002. The 9% reduction in the number of
canceled lines, from 3.2&nbsp;million in 2001 to 2.9&nbsp;million in 2002, also
contributed to the increase in revenues. During 2002, we focused on customer
relationships to reduce cancellations on account of nonpayment, by developing
consumer educational products.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Installation fees. </I>Our revenues from installation fees increased 128.1%
from R$157.6&nbsp;million in 2000 to R$359.5&nbsp;million in 2001. This increase was
principally due to a 126.1% increase in the number of lines installed, from 2.1
million in 2000 to 5.3&nbsp;million in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from installation charges decreased by 60.7% to R$141.3
million. This decrease resulted principally from a 40% decrease of the
reduction in the number of new lines installed during the year and the
partial-year effect of a 40% reduction in June 2002 in the per-line
installation fee. The number of new lines installed declined 40.4% from 5.2
million in 2001 to 3.1&nbsp;million in 2002, due to the Company&#146;s de-emphasis on
installing new lines following the accomplishment of the Anatel targets for
2003 in late 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Monthly subscription charges</I>. Our revenues from monthly subscription
charges increased by 43.3% from R$2,517.1&nbsp;million in 2000 to R$3,606.8&nbsp;million
in 2001. The increase was due principally to a 27.5% increase in the average
number of lines in service in 2001 as well as to the partial-year effect of a
17% increase in subscription rates that went into effect in late June 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, our revenues from monthly subscription charges increased 27% to
R$4,581.1&nbsp;million, due principally to the full-year effect of the June 2001
rate increase and the partial-year effect of a further 14.1% increase in
monthly rates that went into effect in June 2002, as well as an 8.4% increase
in the average number of lines in service.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>VC1 services. </I>Revenues in this category consist of charges for the calls
from fixed-line to mobile telephones, which are billed per minute at different
rates depending on the location of the caller and the distance of the call.
Calls within the same registration area (generally the same city) are billed at
the lowest rate (VC1) and accounted for as local services. Calls to a
different city within the same state, which are billed at a higher rate (VC2),
and interstate calls, billed at an even higher rate (VC3), are accounted for as
long-distance services. Approximately 92% of our fixed-line to mobile traffic
consists of VC1 calls. See &#147;Item&nbsp;4. Information on the Company &#150; Rates-
Fixed-to-mobile Rates.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from fixed-line to mobile VC1 calls increased 26.6% from
R$2,116.8&nbsp;million in 2000 to R$2,680.5&nbsp;million in 2001, due to an increase in
traffic of 12.6%, from 5,658.9&nbsp;million to 6,373.7&nbsp;million minutes, and a 9.8%
increase in average rates in February 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from VC1 calls increased only 2.7% to R$2,753.8&nbsp;million,
due principally to an average rate increase of 9.9% in February 2002, which was
partially offset by a 7.4% decrease in the
<P align="center"><FONT size="2">60</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

</FONT>

<P align="left"><FONT size="2">volume of traffic, to 5,904.8
million minutes, attributable to campaigns to educate our clients about the
higher cost of placing calls to mobile telephones.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Pulses &#150; measured services. </I>Pulse-based revenues increased 7.2%, from
R$1,889.7&nbsp;million in 2000 to R$2,026.5&nbsp;million in 2001, due primarily to a
27.5% increase in the average number of lines in service and the full-year
effect of a 6.7% increase in rates that became effective in June 2000.
Pulse-based revenues increased at a lower rate than the average number of lines
in service because most of the new lines installed were for lower-income
customers who usually stay within the allowance of 100 pulses included in the
monthly subscription charges. As a result, the total volume of pulses increased
2.2%, from 21,246&nbsp;million in 2000 to 21,719&nbsp;million pulses in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 pulse-based revenues increased by 10.9% to R$2,247.2&nbsp;million, due
principally to the partial-year effect of an average rate increase of 9.7% as
of June 2002, and another 5.5% increase in the average volume of pulses, which
totaled 22,998&nbsp;million in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Collect-call revenues</I>. Local collect-call revenues grew 31.6% in 2001 to
R$112.1&nbsp;million from R$85.2&nbsp;million in 2000. This increase was primarily due
to a 27.5% growth in the average number of lines in service and to a 33.3%
increase in the number of wireless users in Region I, which was concentrated
among users of pre-paid plans (who are frequent users of collect-call services
due to the lower per-minute rates for fixed-to-mobile calls than for pre-paid
mobile-to-fixed calls) and to the effect of an increase in January 2001 of a 9%
increase in collect-call rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 collect call revenues grew 11.4% to R$124.9&nbsp;million, due mainly to
the expansion of the pre-paid mobile client base in Region I and the
partial-year effect of a 12% rate adjustment effective as of June 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other local services</I>. Revenues from other local services consist
primarily of charges for special services such as changes of address and
installation of extension telephones for existing customers, as well as the
rental of telephone lines and equipment. Revenues from other local services
decreased 85.5% from R$49.6&nbsp;million in 2000 to R$7.2&nbsp;million in 2001. This
decrease was mainly due to a change in the manner of charging for virtual PBX
services, from rental of equipment to monthly subscription charges, resulting
in a decrease of R$38.0&nbsp;million in revenue from other local services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from other local services decreased 52.8% to R$3.4&nbsp;million in
2002. Such decrease was mainly due to a reduction in revenues from equipment
rentals.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Long distance services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from long-distance services increased 24.1% in 2001, from
R$1,264.1&nbsp;million in 2000 to R$1,568.4&nbsp;million in 2001, due primarily to an
average 2.2% increase in long-distance traffic, as well as to an average rate
increase of 7.6% in long distance services in June 2001 and to a 32.4% increase
in revenues from VC2 and VC3 calls, which represented an average of 28.5 % of
long distance services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 revenues from long distance services increased 31.7% to R$2,066.3
million, due principally to an 18.8% increase in traffic, the partial-year
effect of an average rate increase of 8.8% in June 2002 and the effect on our
revenues of the start-up of interregional and international long-distance
services, beginning in July 2002. VC2 and VC3 revenues increased only 5% in
2002 due to our campaigns to reduce this traffic.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Intrastate long distance. </I>Revenues from intrastate long distance calls
increased 20.2% in 2001, from R$695.0&nbsp;million in 2000 to R$835.1&nbsp;million in
2001, due to an average rate increase of 7.6% in June 2001 and a 16.1% increase
in traffic.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from intrastate long distance increased 33% in 2002 to R$1,110.6
million, due to a 17.7% increase in traffic resulting primarily from an
estimated increase of 10% in market share, and the partial-year effect of an
average 8.5% rate increase in June 2002.
</FONT>

<P align="center"><FONT size="2">61</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interstate long distance. </I>Revenues from interstate long distance services
increased 23.3%, from R$222.3&nbsp;million in 2000 to R$274.0&nbsp;million in 2001, due
mainly to a 10.7% increase in traffic, the full-year effect of an average 4%
rate increase in June 2000 and the partial-year effect of an average 7.6% rate
increase in June 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from interstate long distance increased by 45.9%, from
R$274.0&nbsp;million in 2001 to R$399.9&nbsp;million, due mainly to a 23.6% increase in
total traffic, the full-year effect of the June 2001 rate increase and the
partial-year effect of an 8.5% rate increase in June 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>VC2 and VC3 services. </I>Revenues from VC2 and VC3 calls from fixed-line to
mobile units services increased 32.4% from R$346.9&nbsp;million in 2000 to R$459.3
million in 2001, due principally to an 19.3% increase in traffic and an average
rate increase of 9.8% in February 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from VC2 and VC3 calls increased 5%, to R$482.1&nbsp;million,
due mainly to an average rate increase of 9.9% in February 2002, which was
partially offset by a 1.9% decrease in traffic.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Inter-regional</I><B><I>. </I></B>We commenced providing inter-regional long distance
services on July&nbsp;20, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>International</I>. Through the use of CSP 31 and the license acquired by Oi,
we began offering international long-distance services from Region I on July&nbsp;6,
2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other fixed-line services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Public telephones</I>. Revenues from the use of public telephones increased
24.5% from R$458.3&nbsp;million in 2000 to R$570.4&nbsp;million in 2001. This increase
was primarily due to the full-year effect of an increase, effective in June
2000, of 6.5% in per-unit public telephone rates as well as the partial-year
effect of a 12% increase in per-unit public telephone rates that became
effective in June 2001, and a 9% increase in sales of public telephone cards.
In 2001, we increased the number of public telephones by approximately 68.7%,
as part of our commitment to reach 2003 targets ahead of schedule.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from the use of public telephones increased 17.3% to
R$668.9&nbsp;million, due mainly to the full-year effect of a 6.5% rate increase in
June 2001 and the partial-year effect of the 8% increase in June 2002. In
addition, sales of public telephone cards increased by 6.5%, reflecting
improved distribution of telephone cards and greater usage of our access code,
CSP 31, for long distance calls. Actions taken by Telemar to fight fraud, in
particular in long-distance calls, also contributed to this performance.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Advanced voice services</I>. Advanced voice services consist of &#147;0800,&#148;
&#147;0300&#148; and &#147;0500&#148; services providing businesses a number with agreed fees,
which may be charged to the caller or to the client. Revenues from these
services increased 53.9%, from R$115.4&nbsp;million in 2000 to R$ 177.6&nbsp;million in
2001, due to marketing campaigns and promotions to increase usage and the
increase in the average number of lines in service.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 these revenues totaled R$259.5&nbsp;million, representing a 46.1%
increase compared to 2001, mainly due to new contracts signed during the year
with the main Brazilian TV &#147;<I>Rede Globo</I>&#148; for interactive shows.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Value-added Services</I><B><I>: </I></B>Value-added services consist primarily of services
such as directory assistance, caller ID, call waiting, voice mail and call
forwarding. Revenues from value-added services increased 12.6%, from R$229.0
million in 2000 to R$257.8&nbsp;million in 2001, due primarily to higher demand for
such services through marketing campaigns and special promotions, and the
increase in the average number of lines in service.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 these revenues increased 17.3% to R$302.5&nbsp;million, due principally
to an increase in the number of calls to our &#147;102 information (directory
assistance) center,&#148; influenced by marketing campaigns included in our
invoices.
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Remuneration for the use of the network</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remuneration for the use of the network is charged depending on the volume
of usage of our local and long distance network and therefore, increases with
increases in market share and customer base as well as of both fixed-line and
wireless competitors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fixed-line network use</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues relating to fixed-line network use includes revenues received
from other telecommunication operators for the use of our fixed-line network in
completing local and long-distance calls, as well as, up to June 2001, the
&#147;PAT,&#148; a supplemental per-minute charge that we received from Embratel in order
to reduce the impact of the termination of the revenue-sharing arrangement
between us. See &#147;Item&nbsp;4. Information on the Company&#151;Our Operation&#151;Network
Usage Services.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Fixed-line to fixed-line network use</I>. Revenues from fixed-line to
fixed-line network use increased 16.8% from R$1,071.5&nbsp;million in 2000 to
R$1,251.2&nbsp;million in 2001, due to a 16.1% growth in traffic, the full year
impact of the 14.1% increase in network usage rates in late June 2000, and the
partial&#150;year effect of 8% average rate increase in June 2001. Such increases
were partially offset by the phasing out of the PAT, which decreased revenue
from R$84.5&nbsp;million in 2000 to R$18.6&nbsp;million in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 fixed-line-to-fixed-line network use revenues decreased 0.2% to
R$1,248.9&nbsp;million, due to the final phase-out of the PAT, as well as to a
decrease in traffic in our network as our long-distance competitors made
investments in their own networks. With these investments, our competitors
have increased their points of presence in Region I, thereby reducing the
demand for the use of our network. In 2002 there was also a delay in the rate
increase conceded by Anatel, and only in December 2002 were we allowed an
increase of 1.7% in the local network usage and 5% in the long-distance usage
rate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mobile-to-fixed-line network use</I>. Revenues in this category consist
primarily of amounts paid by wireless telephone service providers for the use
of our network for completing calls initiated on their networks. Such revenues
increased 18.1%, from R$206.7&nbsp;million in 2000 to R$244.2&nbsp;million in 2001, due
primarily to growth in traffic, which resulted from an increase of 27.6%, from
10.5&nbsp;million to 13.4&nbsp;million in the number of wireless telephone subscribers in
Region I and the partial-year effect of a 8% increase in rates in June 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 revenues from mobile-to-fixed-line network use increased 1.7% to
R$255.0&nbsp;million, due to the full-year effect of the 8% rate increase in June
2001 which were almost completely offset by a decrease in traffic. The decline
in such revenues was also influenced by Oi&#146;s achieving an approximate 9% share
of the market for wireless services in Region I in 2002, as a result of which
part of our revenues from other wireless carriers were replaced by revenues
from Oi, which are eliminated upon consolidation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mobile network usage</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This item, which includes revenues received from both fixed-line and
wireless telecommunication operators for the use of our wireless network in
completing calls since the start-up of Oi&#146;s in July 2002, represented
approximately 13.9% of our total wireless revenues, totaling R$27.4&nbsp;million, in
the first six-month period of Oi&#146;s operations. Based on the best estimates
available in December 2002, Oi&#146;s market share within Region I was approximately
8.9%, while the penetration rate in this market is estimated at 17%. During
the six-month period of operations in 2002, we registered an average 84 minutes
per user.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mobile-to-mobile network usage</I>: Since Oi&#146;s start-up in July 2002, these
revenues totaled R$19.8&nbsp;million, mainly from the other mobile operators in the
main capitals in Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mobile to fixed-line network usage</I>: These revenues totaled R$53.7&nbsp;million
during Oi&#146;s six months of operations during 2002, apart from R$45.9&nbsp;million
from Telemar that was eliminated in the Consolidated Financial Statements.
<P align="center"><FONT size="2">63</FONT>
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mobile telephone services (Oi)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Wireless services grew strongly throughout the first six months of
operations, with gross revenues of R$455.8&nbsp;million, including R$388.0&nbsp;million
in sales of handsets and accessories. Revenues from six months of wireless
telephone services operations accounted for 2.8% of gross consolidated
revenues.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile telecommunications services in Brazil are offered on a &#147;calling
party pays&#148; basis, under which subscribers pay only for calls that they
originate, in addition to roaming charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rates vary according to the service plan subscribed to, the call origin,
destination and length. Each call is billed for at least 30 seconds&#146; duration
(for calls lasting 30 seconds of less) and thereafter for every additional 6
seconds. Under Oi&#146;s postpaid plans, customers pay subscription charges in
addition to usage charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oi&#146;s average number of users grew from 278 thousand in the third quarter
to 869 thousand in the fourth quarter of 2002, and totaled approximately 1.40
million at December&nbsp;31, 2002. Of this total, approximately 80% were users of
prepaid plans and 20% of postpaid plans, with an average revenue per user
(ARPU)&nbsp;of R$33.00. ARPU for prepaid users was R$23.90, and for postpaid,
R$66.90 in the six-month period of operations in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Monthly subscription charges</I>. Postpaid users pay a monthly subscription
charge and are billed on a monthly basis, varying according to the service plan
subscribed to. Subscription revenues totaled R$20.8&nbsp;million in the six-month
period of operations, and the average subscription charge was R$24.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Originating calls</I>. Postpaid users are billed monthly based in their usage,
while prepaid service customers buy cards whose price varies according to the
number of minutes of usage allowed. Such cards are valid for a stated period
following activation. The revenues of these cards are only recognized when
used. These revenues totaled R$33.2&nbsp;million in the six-month period of
operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales of handsets and accessories</I>. These revenues totaled R$388.0&nbsp;million,
of which R$259.9&nbsp;million represented revenues from sales of prepaid handsets
and R$101.0&nbsp;million represented revenues from sales of postpaid handsets. The
remaining revenue of R$27.1&nbsp;million was related to sales of &#147;sim cards&#148; (chips
containing information relating to the user&#146;s account, enabling the user to
change the handset used in connection with the account). We subsidize both
postpaid and prepaid handsets, and defer the subsidy of the postpaid handsets
for twelve months because the postpaid handsets do not have any value apart
from the future service contracts, whereby the subsidies are considered part of
the customer acquisition cost. Accordingly, we defer and amortize these
subsidies of the postpaid customers
during the minimum twelve-month contractual period. We do not defer the
subsidy of the prepaid customers because there is no early cancellation fee
under prepaid plans. The average price we charged in 2002 for a prepaid
handset was R$231.00, and for a postpaid handset, R$363.00.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>National and international roaming. </I>We receive revenues from roaming
agreements with other local and international wireless operators. When a
subscriber of another wireless operator&#146;s services originates a call within
Region I, the other wireless operator pays us for the call at the applicable
rate. Roaming revenues totaled R$8.6&nbsp;million, in 2002, of which international
roaming accounted for R$8.1&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Additional services. </I>In 2002 revenues from additional services totaled
R$5.1&nbsp;million, mainly from GPRS (data), WAP (protocol for wireless data
networks) and SMS (short message). Combined revenues from these three services
amounted to R$4.2&nbsp;million. GPRS service allows for wireless access to the
Internet through mobile telephones, laptops or palm pilots and permits
customers to use voice and data services simultaneously. The WAP portal is a
service and contents channel that permits customers to
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</FONT>

<P align="left"><FONT size="2">send and receive
e-mails, form contact groups, access bank accounts and buy tickets. Short
message services permit users to send messages, as well as to receive news,
sports information, horoscopes, jokes and other messages, with revenues based
on the volume of usage. Outgoing messages, used by 77% of our subscribers,
account for the bulk of revenues in this category
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Data Transmission Services.</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dedicated digital line services &#150; SLD</I>. Revenues from dedicated digital
line services consist of payments for the rental of dedicated digital lines for
data transmission, which are utilized primarily by corporate clients. Such
revenues increased 9.7% from R$251.1&nbsp;million in 2000 to R$275.4&nbsp;million in
2001. This increase was due to a migration from lower to higher speed (higher
cost) lines, which was partially offset by a reduction of the number of leased
lines.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 such revenues totaled R$275.6&nbsp;million, as a result of revenue
increases from upgrades of speed and bandwidth, which was partially offset by a
price reduction in this segment and increasing offer by long distance
operators.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Industrial dedicated digital line services &#150; EILD</I>. Revenues in this
category consist of payments for leases of dedicated data-transmission lines by
providers of telecommunication services, primarily wireless telephone
companies, which use such services to link their radio base stations to their
switching centers. Such revenues increased 1.3%, from R$339.9&nbsp;million in 2000
to R$344.3&nbsp;million in 2001. The increase resulted from the replacement of
low-speed data transmission lines to higher-bandwidth, higher-cost data
transmission lines, which was almost totally offset by a decrease in the number
of lines leased from us by wireless carriers, as they set up their own
networks. The impact of increasing competition in metropolitan area networks
also resulted in a reduction in prices, especially for higher-bandwidth lines.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, EILD revenues increased 8.4% to R$373.3&nbsp;million, due to greater
demand for higher bandwidth. During 2002 we developed a product for data
transmission with speed greater than 2Mbps, denominated &#147;Superlink,&#148; which
stimulated demand on the part of wireless operators. The increase of revenues
was partially offset by price reductions resulting from greater competition in
Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internet protocol (&#147;IP&#148;) services</I>. IP services consist of dedicated and
dial-up access to the Internet for Internet service providers, as well as
virtual private network (&#147;VPN&#148;) services that enable companies to set up
networks such as intranets and extranets. Revenues from IP services increased
17.1%, from R$46.8&nbsp;million in 2000 to R$54.8&nbsp;million in 2001, due to increases
in the amount of services provided, such as dial-up and dedicated VPN IP
services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from IP services increased by 67.9% to R$92.0&nbsp;million
due to continuous sales efforts to increase our share of this market segment,
including promotion of our product &#147;TC IP Connect,&#148; through which we offer
higher speed and lower prices for long-term contracts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Data transmission services</I>. Revenues from data transmission services
increased 101.2% in 2001 from R$32.2&nbsp;million in 2000 to R$64.8&nbsp;million in 2001,
due to increasing sales of new switched-packet and frame-relay services to
small and medium&#150;sized businesses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, revenues from data transmission services increased 34.7% to
R$87.3&nbsp;million, due to continuous sales efforts of frame-relay services, market
acceptance of which has increased significantly.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other data services. </I>Revenues from other data services consist principally
of the rental of dedicated data-transmission lines and circuits, including ADSL
lines for high-speed access to the Internet.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, revenues from other data services increased 444.3% from R$8.8
million in 2000 to R$47.9&nbsp;million in 2001, due to the reclassification of
revenues from digital trunk and ISDN lines (R$29.6&nbsp;million in 2000) to this
line item, which were previously recorded as monthly subscription charges.
</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Such revenues increased 61.8% to R$77.5&nbsp;million in 2002, due primarily to
an increase of 435% in the revenues of ADSL (Velox), from R$6.6&nbsp;million to
R$32.9&nbsp;million in 2002, as a result of our focus on increasing the penetration
by Velox of the Internet market. Velox is a broadband product launched April
2001, allowing for high-speed Internet access. The number of Velox
subscriptions increased 393.5% from 9,119 in December 2001 to 45,000 in
December 2002. The performance of Velox reflects the implementation of actions
such as the expansion of our network into new locations and specific marketing
and sales promotion efforts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other services, including contact center</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues recorded in this line item in 2001 and 2002 relate principally to
contact center services. Through 2000, revenues recorded in this line item
related primarily to publication of telephone directories and to billing and
collection services provided to other telecommunications operators. In 2000,
these other operators (mainly Embratel) began implementing their own billing
systems, as a result of which our revenues from such services declined.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We established our Contax contact center in late 2000 in order to offer
integrated telecommunications services, to attract business from corporate
clients, as another source of traffic revenue from the high volume required to
improve the quality of our services and to reduce our costs. Another purpose
of establishing Contax was to take advantage of significant growth
opportunities in the Brazilian market for outsourced call centers. The recent
increased use of remote contact channels between companies and their clients,
driven by the globalization of telephone services, significantly enhances the
prospects for growth in this market.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April 2002 Contax launched its S&#227;o Paulo call center, which is one of
Latin America&#146;s most advanced, accounting for 57% of the Brazilian contact
center market. In June 2002, in an attempt to acquire clients in the government
sectors, Contax established a branch in Brasilia. Its first client in that city
is Correios (Brazil&#146;s federal postal services agency).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contax began rendering services in December 2000, recording revenues of
R$1&nbsp;million in the first month of operations, all from Telemar (which are
eliminated upon consolidation).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contax&#146; revenues increased 43.7% from R$158.8&nbsp;million in 2001 to R$228.2
million in 2002, mainly due to a 34.3% increase in the number of client service
positions, from approximately 6,000 in December 2001 to 8,055 in December 2002.
Of these revenues, a significant proportion (95.8%, or R$152.2&nbsp;million in 2001,
and 71.2%, or R$162.4&nbsp;million in 2002, represented services rendered to Telemar
and 8.1%, or R$18.4&nbsp;million, to Oi).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the expansion in client service positions, in 2002 Contax
consolidated its leadership in its original operating areas, in addition to
ranking second in terms of outsourced contact centers, with a 20% market share.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Cost of Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of services increased 28.6%, from R$5,294.4&nbsp;million in 2000 to
R$6,806.6&nbsp;million in 2001, and by 19.8% in 2002 to R$8,152.4&nbsp;million. The
following table sets forth certain components of our cost of services, as well
as the percentage change compared to the prior year.
</FONT>
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    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000 v.2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001 v.2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(millions of reais)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,427.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,737.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,362.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interconnection</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,634.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,334.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,369.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third-party services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">479.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">705.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">932.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">397.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">440.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">195.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">263.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">414.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and insurance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">220.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">390.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total cost of services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,294.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,806.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,152.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Depreciation and amortization</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization cost increased 12.8%, from R$2,427.1&nbsp;million
in 2000 to R$2,737.3&nbsp;million in 2001 due to the increase in the amount of our
depreciable assets resulting from capital expenditures made throughout 2001,
particularly in the second half of the year, in connection with our expansion
to meet Anatel&#146;s targets. In 2001 our average book value of property, plant
and equipment increased by R$7,027.9&nbsp;million, reflecting our efforts to achieve
Anatel&#146;s targets and to launch our mobile services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation increased 22.9% to R$3,362.8&nbsp;million in 2002 (of which Oi
accounted for R$84.8&nbsp;million), due in part to a 4.6% increase in the average
cost of property, plant and equipment between 2001 and 2002. The depreciation
costs of switching and transmission equipment will decline in 2003 and
thereafter because the useful life of this equipment was changed to five years
in the beginning of 1999, after the privatization.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interconnection</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interconnection costs until 2001 consisted primarily of payments to
wireless service providers for the completion of calls originating on our
fixed-line network and terminating on wireless networks, and as of mid-2001 we
had increased costs due to the increased fixed-line and long-distance services
competition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interconnection service expenses increased 42.8% from R$1,634.7&nbsp;million in
2000 to R$2,334.6&nbsp;million in 2001, due primarily to a 12.6% increase in the
volume of calls from fixed-line to wireless units, which resulted from a 27.5%
increase in Telemar&#146;s lines in service, a 27.6% increase in the number mobile
subscribers in Region I and an average rate increase in mobile interconnection
rates of approximately 20% in the fourth quarter of 2000. Some of the cost
increase was also due to agreements signed between V&#233;sper and Internet service
providers in Region I, increasing fixed-line competition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interconnection costs increased only 1.5% to R$2,369.2&nbsp;million, despite
further growth of both the fixed and wireless networks and an average 12% rate
increase in February 2002. These increases were offset by our clients&#146;
reductions in their volume of fixed-line to wireless calls, mainly due to our
campaigns to educate our clients about the higher cost of placing calls to
mobile telephones, which resulted in an increased number of our fixed-line
clients requesting us to restrict fixed-to-wireless calls. We were also able to
sign contracts with Internet service providers in Region I, increasing our
traffic against that of our competitors. Increased interconnection costs were
also offset by the migration of calls from fixed-line to mobile calls to
mobile-to-mobile calls, thus reducing our VC revenues and interconnection
costs.</FONT>
<P align="center"><FONT size="2">67</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Third-party services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third-party services consist primarily of third-party &#147;technical plant&#148; services, principally:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="91%"><FONT size="2">installation services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">maintenance and repair of terminal equipment and infrastructure;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">producing, publishing and distributing telephone directories; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the measurement of traffic between the networks of
telecommunication services providers.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of third-party services increased 47.2%, from R$479.4&nbsp;million in
2000 to R$705.8&nbsp;million in 2001, due principally to an increase of R$193.3
million in network maintenance and installation expenses as a result of the
41.4% growth in our number of installed lines, as a consequence of our
expansion to meet Anatel&#146;s targets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of third-party services increased by 32.1% to R$932.3&nbsp;million in
2002, driven primarily by the growth of network maintenance expenditures
resulting from the growth of the network and Oi&#146;s start-up, the latter totaling
R$61.0&nbsp;million and an increase of R$9.9&nbsp;million in such costs incurred by
Contax, related to the increase in client service positions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Personnel</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Personnel expenses recorded under cost of services reflect expenses for
personnel involved in network maintenance, installation and repair. Personnel
expenses increased by 32.3% from R$397.2&nbsp;million in 2000 to R$525.4&nbsp;million in
2001. The increase was attributable to the increase of our average number of
employees and outsourced personnel, due to our expansion to meet Anatel&#146;s
targets, from an average of 39,461 in 2000 to 45,542 in 2001, an increase of
15.4%. In 2001, we began headcount reductions following the achievement of
Anatel&#146;s targets, and as a result incurred total layoff costs of R$94.6
million, and increase of 111% some 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Personnel expenses decreased by 16.2% to R$440.4&nbsp;million in 2002, as a
result of headcount reductions, mainly involving employees engaged in
installation of the network. The R$114.3&nbsp;million reduction in personnel costs
was partially offset by a R$41.2&nbsp;million increase in personnel costs at Contax,
reflecting the expansion of its services and an increase from 11,938 employees
in December 2001 to 18,082 in December 2002. Oi accounted for R$5.5&nbsp;million in
personnel costs in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Materials</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Materials expense increased 34.7%, from R$195.4&nbsp;million in 2000 to R$263.2
million in 2001. The increase in materials costs in 2001 was related to:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance materials for the network, the cost of which increased by
82.5%, from R$77.6&nbsp;million to R$141.1&nbsp;million, during the year, due to the
growth in line installations in 2001 (5.3&nbsp;million lines, compared to 2.1
million lines in 2000); and
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Phone cards, the cost of which increased 20%, due to an 8.9% increase in
the number of cards purchased and a 10% increase in costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 the costs of materials decreased 21.5%, to R$206.7&nbsp;million, due to
a decrease in the number of line installations to 2.13&nbsp;million. The reduction
in the cost of materials was partially offset by an increase in costs of
fixed-line network maintenance, which grew throughout the year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Materials costs incurred by Oi and Contax totaled R$0.8 and R$2.8&nbsp;million,
respectively.
</FONT>

<P align="center"><FONT size="2">68</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Rental and Insurance</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental and insurance costs consist primarily of insurance and fees paid to
third parties as well as equipment rental for our network. These costs
increased 49.9%, from R$147.0&nbsp;million in 2000 to R$220.4&nbsp;million in 2001,
mainly in connection with the expansion of the network to meet Anatel&#146;s targets
and cost increases for several rental items, such as telephone and light poles,
satellite transponders, industrial dedicated line services and vehicles and
buildings.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental and insurance costs increased 77.2% to R$390.6&nbsp;million in 2002,
principally as a result of increased fixed line rentals resulting from an
increased need for dedicated line services as Telemar rendered long-distance
services and the expansion of the network, which resulted in higher costs
regarding rights of way.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oi incurred R$48.4&nbsp;million in rental costs in 2002, mainly for radio base
stations and spaces to install its antennas.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other costs of services consist primarily of certain taxes, in particular
a tax imposed by Anatel on providers of telecommunication services, referred to
as <I>Taxa de Fiscalizac&#227;o de Telecomunica&#231;&#245;es </I>(&#147;FISTEL&#148;), which is a fee for the
inspection of switching stations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other costs increased 46.3% from R$13.6&nbsp;million in 2000 to R$19.9&nbsp;million
in 2001, reflecting the increase in FISTEL fees resulting from the expansion of
our network to meet Anatel&#146;s targets. In 2002, other costs increased by 81.9%,
to a total of R$36.2&nbsp;million, mainly due to network growth.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Oi recorded R$3.7&nbsp;million in other costs of services in 2002. The FISTEL
fee for activation of postpaid and prepaid subscribers (R$26.83 per subscriber)
is being deferred as prepaid expenses and amortized some 24&nbsp;months. As of
December&nbsp;31, 2002, R$34.1&nbsp;million of such costs was recorded on the balance
sheet as prepaid expenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net Operating Expenses</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net operating expenses include selling, general and administrative and
other operating income (and expenses). Total net operating expenses increased
67.3%, from R$1,593.4&nbsp;million in 2000 to R$2,666.3&nbsp;million in 2001 and
decreased by 13.2% in 2002, totaling R$2,313.1&nbsp;million. The following table
sets forth certain components of our net operating expenses, as well as the
percentage change compared to the prior year.
</FONT>

<P align="center"><FONT size="2">69</FONT>
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<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>&nbsp;</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>&nbsp;</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000-2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001-2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>(millions of reais)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>% Change</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating (expenses)&nbsp;income:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(885.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,571.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,307.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(835.8</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(869.7</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,014.6</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other net operating income
(expense)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">128.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(225.5</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(144.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(276.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(36.0</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other non-recurring
extraordinary income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total net operating (expenses)
income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,593.4</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,666.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,313.1</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13.2</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Selling Expenses</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling expenses increased 77.4% from R$885.7&nbsp;million in 2000 to R$1,571.1
million in 2001, due mainly to an increase in the provisions for doubtful
accounts, which grew 323.2% or R$706.9&nbsp;million, reaching R$925.6&nbsp;million and
secondarily to an increase in marketing expenditures, from R$150.0&nbsp;million in
2000 to R$180.2&nbsp;million in 2001. The increase in bad debt provisions resulted
from several factors, including: the increase in sales to lower-income
customers, the Brazilian economic slowdown in 2001, and the implementation of
an integrated accounts receivable system and improvement in information, which
resulted in a more rigorous analysis of outstanding accounts receivable during
the year. Additionally, we increased our provisions for doubtful accounts by
R$344.0&nbsp;million to include certain government agencies, corporate customers and
other telecommunications service providers that could present some collection
risk especially in light of the increasing number of competitors offering
services in Region I. Selling expenses decreased 16.8% to R$1,307.4&nbsp;million in
2002, due principally to a 33.4% reduction in provision for doubtful accounts
in 2002, which declined from R$925.6&nbsp;million in 2001 to R$616.0&nbsp;million in
2002, the reduction being attributable to the measures taken by management
throughout the year aimed at bringing down delinquency levels. The decline in
provision for doubtful accounts was partially offset by Oi&#146;s incurrence of
R$181.2&nbsp;million in selling expenses, related mainly to call center, sales
commission and advertising costs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The decline in selling expenses in 2002 was also due in part to a
reduction of R$41.4&nbsp;million, in marketing expenses, due principally to a
reduction by Telemar of its marketing expenses by R$93.9&nbsp;million, reflecting
decreased competitive pressure in the Region, which was partially offset by
marketing expenses of Oi, which spent R$65.3&nbsp;million to launch its brand name.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General and Administrative Expenses</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses increased 4.1% from R$835.8&nbsp;million in
2000 to R$869.7&nbsp;million in 2001. The increase in 2001 was mainly due to
additional spending on consultancy, legal advisory and data processing
expenses, all related to the corporate restructuring process, as well as
systems integration and support for our corporate data processing center.
General and administrative expenses increased by 16.7% to R$1,014.6&nbsp;million in
2002, due principally to an increase of R$53.6&nbsp;million in third-party services,
mainly consultancy, the incurrence by Oi of R$50.8&nbsp;million of personnel and
third-party services costs and a R$22.7&nbsp;million in increased personnel expenses
of Telemar.
</FONT>

<P align="center"><FONT size="2">70</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Net Operating Income (Expense)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other net operating income (expense)&nbsp;includes revenues from fines
collected for late payments by customers, technical and administrative services
(such as billing, computer services and similar) rendered by us to third
parties (principally wireless companies), expenses for research and development
provisions for contingencies and miscellaneous.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded other net operating income of R$128.1&nbsp;million in 2000,
compared to net operating expense of R$225.5&nbsp;million in 2001. Other net
operating income recorded in 2000 resulted mainly from the reversal of certain
provisions for contingencies, which had been established to cover probable
losses from lawsuits based on reports of our external legal consultants that
exceeded the amount of losses incurred, as well as from fines applied on late
payments.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in other operating expenses in 2001, from R$128.1&nbsp;million in
income in 2000 to R$225.5&nbsp;million in expenses, was due primarily to the
constitution of additional provisions for contingencies based on probable
losses, which went from a gain of R$57.3&nbsp;million in 2000 (from reversals of
contingencies) to an expense of R$316.9&nbsp;million in 2001. This change resulted
from a number of significant new and outstanding lawsuits, monetary
restatements of existing provisions for contingencies based on the reports of
our external legal consultants and the constitution of additional provisions
for interest accrued on the amount of tax claims and monetary restatement of
civil and labor claims. Interest on the amount of tax claims is accrued based
on the market rate (SELIC). Other operating expenses in 2001 were partially
offset by an increase in other operating revenue from fines applied on late
payments increased from R$75.3&nbsp;million in 2000 to R$102.0&nbsp;million in 2001 and
by the total amortization of R$175.4&nbsp;million of negative goodwill in connection
with our August 2001 corporate restructuring.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other net operating expenses declined by 36% to R$144.3&nbsp;million in 2002.
The decline resulted principally from the reduction, from R$316.9&nbsp;million to
R$38.7&nbsp;million in our provisions for contingencies and from the variation of
total amortization of the negative goodwill in 2001, totaling R$174.5&nbsp;million.
The extraordinary income refers to the reversal of R$153.2&nbsp;million of
provisions for tax contingencies under the <I>Funda&#231;&#227;o Sistel de Seguridade Social</I>
(&#147;SISTEL&#148;) defined contribution pension plan pursuant to a settlement agreement
with Brazil&#146;s Federal Government.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interest Income</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income increased 80.3% from R$274.2&nbsp;million in 2000 to R$494.4
million in 2001. The increase in interest income in 2001 was due primarily to
an improvement in our cash position, which was substantially higher (22.6% on
average) than in 2000, as well as to an increase in average interest rates
throughout the year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest income decreased 22.2% to R$384.5&nbsp;million in 2002, due
principally to a 9% decline in our average cash position, as well as to an
increase of R$64.3&nbsp;million in option premium payments on hedging instruments.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interest Expense</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased by 184.4% from R$323.1&nbsp;million in 2000 to
R$918.8&nbsp;million in 2001, which resulted principally resulted from an increase
of 197.9% in our average level of gross debt, which increased from R$2,801.4
million at year-end 2000 to R$8,344.5&nbsp;million at year-end 2001, devaluation of
28.5% of the Brazilian currency in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense increased 155.3% to R$2,345.6&nbsp;million in 2002, as a
result of increases in domestic interest rates and an average 24.7%
depreciation of the currency throughout 2002. It should be noted that,
although a large portion of the foreign debt had been hedged via swap contracts
or call spread options, the cost of renewing such transactions in Brazil rises
substantially particularly during periods of
<P align="center"><FONT size="2">71</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">uncertainty, as occurred in 2002. In addition, in 2002 we recorded as
interest expense R$418.4&nbsp;million of start-up costs of Oi, which had to be
recognized in June 2002 as Oi began its operations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Non-operating income (expense), net</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net non-operating expenses under the Brazilian Corporate Law consist
principally of equipment disposal in connection with the modernization of the
network, and gains and losses on equity investments in unconsolidated
companies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we had non-operating expenses of R$2.1&nbsp;million, compared with
R$15.9&nbsp;million of non-operating income in 2000. The expense in 2001
principally reflects the write-off of equipment in connection with the
modernization of the network, which was partially offset by gains in the
percentage of interest in share capital of subsidiaries.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded R$28.4&nbsp;million of non-operating income in 2002, principally as
a result of R$15.0&nbsp;million in gains in the percentage of interest in share
capital of subsidiaries and R$28.7&nbsp;million in gains from the assignment to a
satellite company of a right that we were granted by Anatel, free of charge on
the execution of the Concession Agreement, to place a geostationary C Band
satellite. This assignment was effected through the execution of a partnership
agreement between Telemar and Hispamar Sat&#233;lites S.A., a subsidiary of Hispamar
Ltda., under which we obtained an ownership interest in Hispamar Sat&#233;lites S.A.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Employees&#146; Profit Sharing</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of our employee profit sharing is now determined entirely by
negotiations between us and our employees or the labor unions representing
them. Our employees&#146; profit sharing totaled R$64.8&nbsp;million in 2000, R$28.4
million in 2001 and R$130.9&nbsp;million in 2002. The variation in employees&#146;
profit sharing as a percentage of net income is due primarily to variability in
the income of our subsidiaries, which is the basis for calculating employees&#146;
profit sharing, as well as variability of the targets that we have negotiated
with them.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income Tax and Social Contribution</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The composite statutory rate of income taxes was 34% in all three years.
We recorded income and social contribution tax expense of R$174.6&nbsp;million in
2000 and a tax benefit of R$21.7&nbsp;million in 2001, due primarily to a decline,
from R$1,141.3&nbsp;million in 2000 to R$175.4&nbsp;million in 2001, in income before
taxes, which is the primarily determinant of tax expense. In 2001 we recorded
write-off of accounts receivable in the total amount of R$147.4&nbsp;million, which
is not tax deductible, which effectively increased the amount of our income tax
expenses by R$50.1&nbsp;million. With the merger of the subsidiaries we recorded
another tax loss of R$61.5&nbsp;million, since the merged companies may not maintain
tax loss carry-forwards. Despite these negative effects, a tax benefit of
R$110.7&nbsp;million resulted from the amortization of the Goodwill, see &#147;Item&nbsp;3.
Key Information - Effects of Downstream Merger.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002 we recorded a tax benefit of R$371.3&nbsp;million, mainly due to a
R$655.1&nbsp;million of loss before income tax. Furthermore, we recorded in 2002 a
tax benefit of R$227.2&nbsp;million due to the payment of interest on capital, which
is tax deductible, instead of dividends.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Minority Interests</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded minority interest expense of R$257.2&nbsp;million, R$56.7&nbsp;million
and R$131.9&nbsp;million in 2000, 2001 and 2002, respectively, which reflects the
participation of the Telemar&#146;s minority shareholders in the net income or loss.
The variations reflect fluctuations in Telemar&#146;s net income.
</FONT>

<P align="center"><FONT size="2">72</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net Income</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the above, we had net income R$709.4&nbsp;million in 2000 and
R$140.4&nbsp;million in 2001, and a net loss of R$415.6&nbsp;million in 2002.
</FONT>

<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Uses of funds</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal use of funds is for capital expenditures and payments of
dividends to shareholders of TNL and Telemar. The Company is scheduled to make
approximately R$1.8&nbsp;billion in capital expenditures in the course of 2003, of
which about 55% will be used by Telemar, essentially for network maintenance,
service improvements and new product development (ADSL, Dial IP, EILD, etc.),
approximately 40% will be used by Oi, mainly for network expansion and IT
systems development; and the remainder will be used by Contax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital expenditures totaled R$2,936.8&nbsp;million, R$10,042.0&nbsp;million and
R$2,013.4&nbsp;million for the years ended December&nbsp;31, 2000, 2001 and 2002,
respectively. The expenditures were primarily related to the expansion of our
network to meet Anatel&#146;s targets and to build a network for Oi. See &#147;Item&nbsp;4.
Information on the Company&#151;Capital Expenditures.&#148; The large amount of capital
expenditures in 2001 compared with 2000 and 2002 primarily reflects
expenditures made to meet Anatel&#146;s targets. In addition, we paid dividends and
interest on capital in the amount of R$315.0&nbsp;million, R$386.5&nbsp;million and
R$386.6&nbsp;million in 2000, 2001 and 2002, respectively. At our annual
shareholders&#146; meeting held on March&nbsp;31, 2003, the distribution of dividends and
interest on capital of R$668.4&nbsp;million in respect of 2002 income were approved.
</FONT>

<P align="left"><FONT size="2"><B>Sources of funds</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL relies almost exclusively on dividends and interest on capital from
Telemar to meet its needs for cash, including the payment of dividends to its
shareholders. TNL controls the payment of dividends and interest on capital by
Telemar, subject to limitations under the Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary source of funds is cash flow generated from continuing
operations of Telemar, net of taxes applicable to both continuing and
discontinued operations. Cash flow provided by operating activities was
R$3,063.3&nbsp;million in 2000, R$4,928.3&nbsp;million in 2001 and R$4,172.3&nbsp;million in
2002. We consider that the cash flows provided by our operating activities
will be sufficient for our expected cash requirements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also obtain cash through bank debt and other forms of financing.
Disregarding the effects of our hedging agreements, we had R$12,219.8&nbsp;million
of total indebtedness at December&nbsp;31, 2002, compared with R$8,344.5&nbsp;million of
total indebtedness at December&nbsp;31, 2001. The principal source of the
indebtedness is bank debt. We also have issued R$1.3&nbsp;billion in debentures
issued in the domestic market and have approximately R$0.5&nbsp;billion in
supplier&#146;s credits. Net of our current cash position, our debt amounted to
R$9,121.0&nbsp;million at December&nbsp;31, 2002, up 18.4% from R$7,703.3&nbsp;million at
year-end 2001. This increase resulted principally from the taking of new bank
debt and suppliers&#146; credits to finance expenses associated with the start-up of
Oi.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 72.5% of our total financing at December&nbsp;31, 2002 was
denominated in foreign currency (compared with 57.6% at December&nbsp;31, 2001).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The average annual rate of interest on local currency debt, which totaled
R$3,363.5&nbsp;million (including debentures) at the end of 2002, was approximately
18.5%, determined based on CDI at 25% per annum. The average cost of foreign
currency debt, which totaled R$8,856.4&nbsp;million, is LIBOR plus 5% per annum, for
US dollar loans and 1.7% per annum for Japanese Yen loans. As of December
2002, approximately 84.8% of our financing bore interest at floating
rates.</FONT>
<P align="center"><FONT size="2">73</FONT>
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taking into account the effects of our hedging agreements, our total debt
as of December&nbsp;31, 2002, including debentures, was R$10,774.4&nbsp;million, net of
swap operations in the amount of R$1,445.4&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2000, we renegotiated our bridge loan with BNDES, increasing
the available credit from R$400&nbsp;million at December&nbsp;31, 1999 to R$2,700&nbsp;million
at December&nbsp;31, 2000, of which R$1,001&nbsp;million had been disbursed at the end of
2000. In 2001, an additional R$1,869&nbsp;million was disbursed by BNDES. The
difference between the amount disbursed and the total R$2,700&nbsp;million amount of
the facility is due to monetary adjustments. The BNDES facility, 30% of which
denominated in foreign currency, provides for repayment in equal monthly
installments, beginning in January 2002 through the final maturity of the
facility in January 2008. The interest rate on the local currency portion of
the loan is the floating long-term interest rate of BNDES (TJLP)&nbsp;plus 3.85% per
year, and, on the foreign currency portion, a currency basket rate determined
by BNDES. Both interest rates are determined quarterly by BNDES. Our loan
agreement with BNDES requires that we comply with the following financial
covenants: (a)&nbsp;current assets divided by current liabilities (AC/PC) must be
equal to or greater than 1.20; and (b)&nbsp;EBITDA divided by current liabilities
(EBITDA/PC) must be equal to or greater than 1.20. As of December&nbsp;31, 2001 and
2002, the Company had not met the AC/PC ratio. Banco Ita&#250; S.A. and Banco do
Brasil S.A., as leaders of a syndicate of lenders, and BNDES, granted the
Company a waiver, by formal letters increasing the agreement&#146;s interest rate
from 3.85% per annum to 4.40% per annum.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An extraordinary General Shareholders&#146; Meeting of TNL held on April&nbsp;30,
2001 approved the issuance of R$1,300&nbsp;million of five-year non-convertible
debentures in the domestic market, bearing a six-month floating interest rate
of CDI plus 0.7% per annum. The debentures were issued on June&nbsp;1, 2001. We
accrued R$139.1&nbsp;million and R$245.3&nbsp;million of interest on the debentures in
2001 and 2002, respectively
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;10, 2001, Oi, as issuer, and TNL as guarantor, signed a Note
Purchase Facility Agreement in the amount of R$1,040&nbsp;million with Oi&#146;s main
suppliers Nokia, Siemens and Alcatel and with ABN AMRO Bank N.V as
administrative and participation agent and as arranger, together with seven
other international banks. This facility has a five-year term of amortization
from August 2004 to final maturity in August 2009, and bears a floating
interest rate of three-month LIBOR plus 3.3% to 5.5% per annum. We drew down
R$1,153.2&nbsp;million under this facility in 2001. In addition, Oi drew down
R$417.0&nbsp;million, R$319.0&nbsp;million and R$168.0&nbsp;million in February, May and
August 2002 under new facilities, on the same terms, negotiated with ABN AMRO.
As of December&nbsp;31, 2002, our total indebtedness under these ABN AMRO facilities
amounted to R$3,131.5. This facility also restricts the amount of liens that
can be placed on equipment to be no more than the total amount drawn down.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2001, TNL entered into a Loan Agreement with the Japan Bank for
International Cooperation (JBIC)&nbsp;for up to the Yen equivalent of US$300&nbsp;million
(&#165;41&nbsp;billion) to finance the expansion of TNL&#146;s telecommunications network in
an effort to meet Anatel&#146;s 2003 targets by the end of 2001. Outstanding
principal amounts under the JBIC Facility bear interest at 1.25% per annum,
payable semi-annually. Along with other covenants customary for financings of
this type, the JBIC facility requires that TNL&#146;s ratios of total consolidated
debt to consolidated EBITDA not exceed 4.5 to 1, and that TNL&#146;s ratio of
consolidated EBITDA to consolidated interest expense exceeds 1.75 to 1.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL has also entered into a number of smaller vendor financing
arrangements to support the purchase of equipment and services needed for the
continuous expansion of its telecommunications network. Like the facilities
described above, these vendor financings contain typical financing covenants,
such as restrictions on liens (similar to the restrictions described above),
sales of assets and mergers as well as the requirement to meet the financial
covenants described above. For additional information on our defaults see
&#147;Item&nbsp;13 Defaults, Dividend Arrearages and Delinquencies.&#148;
<P align="center"><FONT size="2">74</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we strongly believe this will not occur, in the case that credit
lines cease to be available, we will need to reduce our investments in order to
use our cash flow from operating activities. The Company does not have any
material off-balance sheet transactions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows our known contractual obligations:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Payments due by period</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="19"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Less than</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>More than</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1 year</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>1-3 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>3-5 years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>5 years</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Short term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,747,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,747,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,705,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,064,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,683,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">957,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital lease
obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,755</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,904</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,540</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating lease</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">137,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">137,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,321,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,136,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,112,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,080,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,985,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">957,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>US GAAP Reconciliation</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have presented our Consolidated Financial Statements in accordance with
Brazilian Corporate Law, which differs in significant respects from US GAAP.
The differences are described in Note 30 to the Consolidated Financial
Statements. In 2000, US GAAP net income was R$962.4&nbsp;million compared to
Brazilian Corporate Law net income of R$709.4&nbsp;million. In 2001, US GAAP net
loss was R$90.1&nbsp;million compared to a Brazilian Corporate Law net income of
R$140.4&nbsp;million. In 2002, US GAAP loss was R$1,392.5&nbsp;million compared to
Brazilian Corporate Law loss of R$415.6&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2000, shareholders&#146; equity under US GAAP was R$10,977.2
million, compared to R$10,331.4&nbsp;million under the Brazilian Corporate Law.
Shareholders&#146; equity under US GAAP was R$10,503.1&nbsp;million on December&nbsp;31, 2001,
compared to R$10,023.3&nbsp;million under Brazilian Corporate Law. As of December
31, 2002, shareholders&#146; equity under US GAAP was R$8,785.7&nbsp;million compared to
R$9,163.2&nbsp;million under the Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The differences between Brazilian Corporate Law and US GAAP that have the
most significant effects on net income and shareholders&#146; equity are the
inflationary accounting methodology and indices, the treatment of the corporate
reorganization, pension and other post-retirement benefits, funds for
capitalization, capitalization and depreciation of capitalized interest,
development stage subsidiaries (deferred charges), down-stream merger, earnings
per share and income taxes and social contribution.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effect in 2002 refers to the fair value adjustment of derivative
transactions, required by FAS No.&nbsp;133. The main derivative transactions refer
to swaps agreements that protect the Company from foreign exchange rate
variations. This adjustment, totaling R$1,401.3&nbsp;million in 2002 will actually
offset the financial expenses from foreign currency indebtedness if we maintain
these agreements to maturity.
</FONT>

<!-- link2 "Item&nbsp;6. Directors, Senior Management and Employees" -->
<DIV align="left"><A NAME="008"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;6. </B><B><I>Directors, Senior Management and Employees</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Board of Directors</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL is managed by a Board of Directors <I>(Conselho de Administra&#231;&#227;o) </I>and a
Board of Executive Officers <I>(Diretoria). </I>The Board of Directors is currently
made up of eleven regular members and eleven
alternates serving for a term of three years. The Board of Directors
holds a regular meeting once a month and holds special meetings when called by
the Chairman or by two members of the Board of Directors.
</FONT>

<P align="center"><FONT size="2">75</FONT>
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</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the members of the Board of Directors and their
respective positions.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Carlos Francisco Ribeiro Jereissati</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chairman</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Fersen Lamas Lambranho</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Celso Fernandes Quintela</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Roberto Timotheo da Costa</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Jos&#233; Fernandes Pauletti</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Mauricio Borges Lemos</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Luiz Eduardo Franco de Abreu</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eloir Cogliatti</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are brief biographies of the members of the TNL Board of
Directors:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Carlos Francisco Ribeiro Jereissati, </I>born on June&nbsp;21, 1946, is the
Chairman of the Board of Directors. He was elected chairman in November 2002.
He has served as a member of the Board of Directors since August 1998 and was
Chairman of the Board of Directors from August 1998 to August 2000. He is an

Executive Officer and has been a member of the Board of Directors of Telemar
Participa&#231;&#245;es S.A. since 1998. He served as Chairman of the Board of Telemar
from November 1998 to September 2000. He served as member of the Board of
Directors of the S&#227;o Paulo Stock Exchange, as Vice Chairman of the Board of
Directors of Companhia Vidra&#231;aria Santa Marina (Saint Gobain Group) and as
President of the Executive Council of ABRASCE (Brazilian Association of
Shopping Malls). He currently serves as the Chief Executive of the Jereissati
Group (La Fonte/Iguatemi) and is a member of the Consultant Council of SECOVI
(Union of the Companies engaged in the Purchase, Sale, Rental and Management of
Residential and Commercial Real Estate of S&#227;o Paulo). He holds a degree in
economics from Mackenzie University of S&#227;o Paulo.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Fersen Lamas Lambranho</I>, born on October&nbsp;11, 1961, was elected substitute
member of the Board of Directors of the Company in August 1999, and was
appointed a regular member in August 2001. From August&nbsp;29, 2001 to November&nbsp;1,
2002, he served as the Chairman of the Board of Directors. He has also served
as a member of the executive board of Telemar Participa&#231;&#245;es S.A. since August
25, 1999. He is also partner of GP Investmentos S.C. Ltda. and member of the
Board of Directors of many companies such as Playcenter S.A., ABC Supermercados
S.A., Lojas Americanas and S&#227;o Carlos Participa&#231;&#245;es e Investimento. Before
being appointed to the TNL Board of Directors he served in several positions at
Lojas Americanas S.A., including the CEO from 1996 to 1998. He holds a BSc. in
Engineering and an MBA from COPPEAD (Instituto de P&#243;s Gradua&#231;&#227;o e Administra&#231;&#227;o
de Empresas), both from Universidade Federal do Rio de Janeiro and also an OPM
(Owner&#146;s President Management Program) from Harvard Business School in 1996.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Celso Fernandez Quintella, </I>born on January&nbsp;29, 1944, has served as a
member of the Board of Directors since April 1999. He has been a director of
Construtora Andrade Gutierrez and of Andrade Gutierrez S.A. (the AG group
holding company) since 1991. He has also served as a member of the Board of
Directors since August 1999 and a Chief Executive Officer since November 2002
of Telemar Participa&#231;&#245;es S.A. He was a member of the Board from Flexibr&#225;s
Tubos Flex&#237;veis from 1986 to 1989 and member of the Board of Companhia
Eletromecanica (CELMA)&nbsp;from 1991 to 1995. He holds a degree in Engineering
from Universidade Federal do Rio de Janeiro and an OPM (Owner&#146;s President
Management Program) from Harvard Business School.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Roberto Timotheo da Costa</I>, born on May&nbsp;14, 1945, was appointed to the
Board of Directors of the Company on February&nbsp;26, 2003. Mr.&nbsp;Costa holds a
degree in Civil Engineering and a MSc in Economic Engineering (Catholic
University &#151; Rio/1972), he took specialization courses in Business
Administration (London Business School/1978), MBA Executivo (COPPEAD)
Instituto de P&#243;s
Gradua&#231;&#227;o em Administra&#231;&#227;o de Empresas/1994 and Finance and Capital
Markets (Funda&#231;&#227;o Get&#250;lio Vargas/EPGE/1997). A retired employee of Banco
Nacional de Desenvolvimento Social &#150; BNDES,
<P align="center"><FONT size="2">76</FONT>
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</FONT>

<P align="left"><FONT size="2">Mr.&nbsp;Costa held several executive
positions at the bank, including head of Information and Budget department,
superintendent of AA and FAPES. As of January 2003, he rejoined BNDES in the
capacity of officer in charge of Administration and Finance. His prior
activities include: chief financial officer of FINEP; assistant general
secretary of the Ministry of Home Affairs; coordinator of the chief of staff of
the Brazilian President; chief executive officer of Cia. Nacional de &#193;lcalis,
and Alcanorte; and general superintendent of Comiss&#227;o de Valores Mobili&#225;rios.
He is also a member of FAPES&#146; Deliberative Board, as a representative of
participants in 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Jos&#233; Fernandes Pauletti</I>, born on February&nbsp;17, 1949, has served as a member
of the Board of Directors since December 2001. He had previously served as the
acting CEO from July 2001 to January 2003, before which he had been the Chief
Operations Officer, a position he was elected to on May 5 1999. He has served
as Chairman of the Board of Directors of Telemar Norte Leste S.A. since July
2001. Before that, he also served as a top executive officer at Embratel, STC,
Elebra, Digital Equipment Corporation and Promon. He holds a degree in
Business Administration from the Universidade de Caxias do Sul- RS and an MBA
from Funda&#231;&#227;o Get&#250;lio Vargas S&#227;o Paulo.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maur&#237;cio Borges Lemos</I>, born on April&nbsp;14, 1951, was appointed to the Board
of Directors of the Company on February&nbsp;26, 2003. Mr.&nbsp;Lemos holds a degree in
Economics from the Federal University of Minas Gerais. He received his MSc.
and PhD. in Economics from the State University of Campinas (Unicamp) in 1977
and 1988, respectively. Mr.&nbsp;Lemos has been a professor of the Economics School
at the Federal University of Minas Gerais (Face/UFMG) since 1991. He was a
professor of economics in the Social Sciences Basic Course of UFMG in 1976, and
member of the faculty of Centro de Desenvolvimento e Planejamento Regional
(Regional Development and Planning Center &#151; Cedeplar) of this university from
1977 to 1981. He was a professor of the Masters course of Cedeplar in 1982, in
1986-1991 and in 2000. In 2003, he joined Banco Nacional de Desenvolvimento
Econ&#244;mico e Social as officer in charge of the Industrial Area. In 2002, he
served as Secretary of Government, Planning and General Coordination of the
Municipality of Belo Horizonte, State of Minas Gerais, where he also held other
positions as a Municipal Secretary (Social Policy Coordinador, from 2001 to
2002, and Planning, from 1993 to 2000).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Luiz Eduardo Franco de Abreu</I>, born on May&nbsp;4, 1960, was appointed to the
Board of Directors of Telemar Participa&#231;&#245;es S.A. and Tele Norte Leste
Participa&#231;&#245;es S.A. on February&nbsp;26, 2003. Mr.&nbsp;Abreu has been Vice-President of
Finance, Capital Markets and Investor Relations with Banco do Brasil since
January&nbsp;29, 2003. He served as a member of the Audit Committee of ITA&#218;SA
Investimentos Ita&#250; S.A., Chairman of the Boards of Directors of Cart&#245;es BRB
S.A. and BRB Banco de Bras&#237;lia S.A., member of the Board of Directors of
CIBRASEC, member of the Deliberative Board of ABECIP and the Executive Board of
Federa&#231;&#227;o Brasileira de Bancos (FEBRABAN). His prior positions include Chief
Executive Officer of BRB Banco de Bras&#237;lia S.A., Financeira and Distribuidora
de T&#237;tulos e Valores Mobili&#225;rios (DTVM), Chief Operations Officer of ORMEC
Engenharia Ltda., Chief Finance Officer of GFC Global Finance Consulting S.C.
Ltda., and Chief Operations Officer of Pacific do Brasil Com&#233;rcio Exterior
Ltda. Mr.&nbsp;Abreu holds a B.A. in Business Administration from the Universidade
Federal do Rio de Janeiro, with a specialization in Finance from Instituto
Brasileiro de Mercado de Capitais (IBMEC)&nbsp;and a degree in Business
Administration from Duke University.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Eloir Cogliatti</I>, born on November&nbsp;30, 1955, served as deputy member of
the Board of Directors of Tele Norte Leste Participa&#231;&#245;es S.A. from April 2001
to February 2003, when he was appointed as a full member, as well as member of
the Board of Directors of Telemar Participa&#231;&#245;es S/A. An employee of Banco do
Brasil S.A., Mr.&nbsp;Cogliatti held several positions (financial transaction desk
Manager (GEROF-ADJOP), Executive Manager of Capital Markets and Executive
Superintendent of Capital Markets) prior to November 2001, when he was
appointed to his current position of Director of Capital Markets and
Investments. He served as a member of the Board of Directors of Sociedade
Operadora de Mercado de
Ativos &#150; SOMA from November 1999 to December 2000, member of the Audit
Committee of PRONOR Petroqu&#237;mica S.A. from April 1999 to April 2000. He has
been Chairman of the Board of Directors of
<P align="center"><FONT size="2">77</FONT>
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</FONT>

<P align="left"><FONT size="2">Kepler Weber S.A. since May 2000,
member of the Board of Directors of TNL PCS since October 2001, member of the
Board of Directors of Guaraniana Participa&#231;&#245;es since April 2002, and deputy
member of the Board of Directors of COELBA &#151; Cia de Eletricidade do Estado da
Bahia since April 2002. Mr.&nbsp;Cogliatti holds a degree in Economics from the
Catholic University of Petr&#243;polis RJ (1980)&nbsp;and took a post-graduate course at
Funda&#231;&#227;o Get&#250;lio Vargas EPG MBA. Management &#150; Forma&#231;&#227;o de Gerentes e Diretores,
which he completed in February 2002.
</FONT>
<P align="left"><FONT size="2"><B>Board of Executive Officers</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Executive Officers of TNL consists of two Superintendent
Directors (CEOs), and three other Directors, with one acting as the CFO, and
the third position being currently vacant. The Executive Officers are elected
by the Board of Directors for a term of three years and may be removed from
office at any time.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the Executive Officers and their respective positions.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Ronaldo Iabrudi dos Santos Pereira</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Superintendent Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Luis Eduardo Falco Pires Corr&#234;a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Superintendent Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Marcos Grodetzky</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Julio Cesar Pinto</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Ronaldo Iabrudi dos Santos Pereira, </I>born on May&nbsp;14, 1955, was elected
Superintendent Director in October 2002 after being elected Vice-President of
Operations (COO)&nbsp;in December 2001. He has a degree in Psychology from the
Catholic University of Minas Gerais (1976)&nbsp;and has Masters degrees in
Organizational Management from the Universit&#233; de Paris-Sorbonne (1981), and in
General Management from the Universit&#233; de Paris-Dauphine (1982), where he also
received a Ph.D. in Organizational Change (1984). He has worked at Acesita
(1974), at the Funda&#231;&#227;o Dom Cabral (1984), and at the Gerdau Group for 11
years, as a member of the Executive Committee, and at the Centro-Atlantic
Railway where he was appointed CEO in October 1997. He joined TNL in November
1999 as Managing Director of the Northern Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Luiz Eduardo Falco, </I>born August&nbsp;13, 1960, was elected Superintendent
Director in October 2002 after being elected President of Oi in October 2001.
He previously worked at Transportes A&#233;reos Marilia &#150; TAM, where he held several
positions such as Production Manager, Director of Technology and Vice President
of Marketing and Sales. He received a degree in aeronautical engineering from
Instituto Tecnol&#243;gico da Aeron&#225;utica &#150; ITA and has taken continuing education
courses in marketing and finance at Funda&#231;ao Get&#250;lio Vargas.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Marcos Grodetzky</I>, born on November&nbsp;24, 1956, was elected to the Board of
Executive Officers on October&nbsp;2, 2002, when he also became responsible for the
Company Treasury and was elected Investor Relations Officer. Since March&nbsp;24,
2003, he has been CFO of the Company, a position that is held at the same time
with the CFO position at Telemar. Mr.&nbsp;Grodetzky holds a degree in Economics
from UFRJ, and from 1979 to 1991 was a financial executive with Citibank, where
he held several positions and was eventually appointed Vice-President. Prior
to this, he was Vice-President in the financial area of Banco
Nacional/Unibanco, Banco Safra and a partner in MJ Partners, a management
consultancy firm.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>J&#250;lio Cesar Pinto</I>, born on October&nbsp;7, 1951, was elected to the Board of
Directors on October&nbsp;2, 2002, when he also assumed responsibility for the
Company Controllership. Mr.&nbsp;Pinto held several positions in the financial area
of large companies such as MRS Log&#237;stica, ATL &#151; Algar Telecom Leste, Globex
Utilidades, Aracruz Celulose, Xerox do Brasil, and Minera&#231;&#245;es Brasileiras
Reunidas. He holds a
degree in Accounting from Faculdade Moraes J&#250;nior, and took several
additional courses in the US,
<P align="center"><FONT size="2">78</FONT>
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</FONT>

<P align="left"><FONT size="2">including the Stanford University Financial
Management Program Xerox Corporation Middle Management Program, and Citibank
N.A. The Bourse Game.
</FONT>
<P align="left"><FONT size="2"><B><I>Conselho Fiscal</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <I>Conselho Fiscal </I>of TNL consists of five effective members and five
alternates, elected pursuant to a shareholders&#146; meeting for a term of one year.
The <I>Conselho Fiscal </I>meets once every three months, on a regular basis, and
whenever necessary, in case of extraordinary circumstances. The <I>Conselho
Fiscal </I>operates according to the relevant provisions set forth in the by-laws
of the company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the Members of the <I>Conselho Fiscal</I>.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Position</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Pedro Wagner Pereira Coelho</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Effective Member</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Allan Kardec de Melo Ferreira</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Effective Member</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Fernando Linhares Filho</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Effective Member</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Carlos Fernando Costa</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Effective Member and Representative of
Holders of Preferred Shares</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Adelay Bonolo</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Effective Member and Representative of
Minority Shareholders</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>Compensation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the year ended December&nbsp;31, 2002, the aggregate amount of compensation
paid by TNL to all directors and executive officers of TNL was approximately
R$16.0&nbsp;million<B>. </B>This amount includes pension, retirement or similar benefits
for officers and directors of TNL.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL does not provide special pension, retirement (or similar benefits) to
its directors or senior management. Rather, TNL sponsors pension plans for the
benefit of all its employees. See &#147;Pension Benefit Plans.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to TNL&#146;s by-laws, the aggregate amount of compensation paid to
each effective member of the audit committee equals 10% of the average
compensation of TNL&#146;s executive officers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL is not required under Brazilian law to disclose, and has not otherwise
disclosed, the compensation of its directors and officers on an individual
basis.
</FONT>

<P align="left"><FONT size="2"><B>Options to Purchase Securities from TNL</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2000, May and October 2001, we established stock option plans
whereby 250.3&nbsp;million, 1,449.3&nbsp;million and 1,196.6&nbsp;million TNL Preferred Shares
were respectively reserved for a selected group of our executives. The options
are exercisable at varying dates, on a cumulative basis up to 5&nbsp;years, limited
to 18% a year. Options become fully exercisable after the fifth year. See
Note 22(g) to the Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2"><B>Share Ownership</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Common and Preferred Shares held by our directors and members of the
administrative, supervisory or management bodies, including the outstanding
options, do not exceed 1% of either type of outstanding shares of TNL. For
information about our stock option plan, see &#147;Compensation&#148; and &#147;Options to
Purchase Securities from TNL.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Pension Benefit Plans</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>SISTEL</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SISTEL is a private non-profit social security institution with several
sponsors. SISTEL was created by Telebr&#225;s in November 1977 with the objective of
supplementing the benefits assured and
<P align="center"><FONT size="2">79</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">provided by the Federal Government to employees of the former Telebr&#225;s
System. Since 1991, SISTEL has also provided its members with health insurance
(medical and hospital care).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All operating telecommunications companies that formerly belonged to the
Telebr&#225;s System, including Telemar sponsor private pension and health insurance
plans, which are administered by Sistel. We sponsor two defined benefit private
pension plans (PBS Telemar and PB-CT) and one defined contribution plan
(TelemarPrev), all of which are administered by SISTEL. See Note 25 to the
Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PBS Telemar</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of the SISTEL restructuring, the PBS-Telemar was introduced
and the rights established in the previous SISTEL plans (&#147;PBS-A&#148;) were
maintained. In addition to the monthly income supplementation benefit, medical
care is provided to retired employees and their dependents, on a shared cost
basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PBS Telemar had total assets of approximately R$148.8&nbsp;million as of
December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This plan is being discontinued as no new members are being admitted. In
March 2001, the final period for motivated migrations, 96% of active members
had migrated to the TelemarPrev plan.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PB-CT</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar sponsors the Plano de Benef&#237;cios Complementados (&#147;PB-CT&#148;), a
defined benefit private pension plan. This plan was created to carry out the
charges, obligations and liabilities set forth in agreements related to former
employees of the sponsors which belonged to the former Companhia Telef&#244;nica
Brasileira - CTB and to the former Companhia Telef&#244;nica de
Pernambuco - CTP.
There were 722 beneficiaries of this plan as of December&nbsp;31, 2002. On November
21, 2002, the Secretary of Supplementary Pensions approved the merger of PB-CT
into <I>Plano de Previd&#234;ncia Privada </I>(&#147;Telemar Prev&#148;). See Note 26(a)(ii) of the
Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>TelemarPrev</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September 2000, we began sponsoring TelemarPrev a defined
contribution private pension plan administered by SISTEL.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The members of TelemarPrev have two categories of benefits: (i)&nbsp;risk
benefits: funded according to the defined benefit method, and (ii)&nbsp;programmable
benefits: funded according to the defined contribution method. During the year
ended December&nbsp;31, 2002, our contributions to the plan totaled R$3.87&nbsp;million.
</FONT>

<P align="left"><FONT size="2"><B>Employees</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we had a total of 29,047 employees of which
10,044 worked for Telemar. All our employees are employed on a full-time
basis, divided into the following functions: plant operation, maintenance,
expansion and modernization, sales and marketing and administrative support,
corporate management, budget and finance. This breakdown relates to employees
of Telemar. As of December&nbsp;31, 2002, the other relevant subsidiaries had
19,003 full-time employees: 18,082 at Contax (our call center subsidiary), 846
at Oi and 75 employees in the other relevant subsidiaries (TNext, Hicorp and
TNL Acesso).
</FONT>


<P align="center"><FONT size="2">80</FONT>



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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides our breakdown of
employees by main category of activity and geographic location in TNL as of the
dates indicated:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total number of employees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,090</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of employees by category of activity:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Plant operation, Maintenance, Expansion and Modernization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales and Marketing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,027</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative Support</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Corporate Management, Budget and Finance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,157</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contact Centers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,816</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of employees by geographic location:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rio de Janeiro</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Regional Minas:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minas Gerais</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,793</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Esp&#237;rito Santo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">360</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Regional Bahia:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Alagoas</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sergipe</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">143</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">108</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Bahia</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,758</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,077</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Regional Pernambuco:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rio Grande do Norte</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Para&#237;ba</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">394</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pernambuco</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,366</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,957</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Regional Cear&#225;:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amazonas</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">221</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Roraima</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Par&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">503</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">295</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amap&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maranh&#227;o</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Piau&#237;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cear&#225;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,644</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">S&#227;o Paulo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, our primary target in relation to our employees has been to
focus employee efforts and loyalty toward the collective objectives of the
business and operations of TNL as a whole instead of the objectives of any
specific subsidiary. We invested approximately R$10.6&nbsp;million in education and
training of our employees during 2002 and created the Telemar University
Project to train and motivate our employees.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 24% of all employees are members of state labor unions
associated either with the <I>Federa&#231;&#227;o Nacional dos Trabalhadores em
Telecomunica&#231;&#245;es</I> (&#147;Fenattel&#148;) or with the <I>Federa&#231;&#227;o Interestadual dos
Trabalhadores em Telecomunica&#231;&#245;es</I> (&#147;Fittel&#148;). Some employees in particular job
categories are affiliated with other unions specific to such categories. We
negotiate separate collective agreements for each of the states in Region I and
for each subsidiary. New collective agreements are negotiated every year with
the local union. These negotiations are carried out under our supervision and
guidance on the one hand, and in each local labor union on the other.
Telemar&#146;s collective bargaining agreement will expire on November&nbsp;30, 2003.
See &#147;Item&nbsp;8. Financial Information &#151;Legal Proceedings-Labor Proceedings.&#148; We
have never experienced a strike that had a material effect on our operations.
</FONT>

<P align="left"><FONT size="2"><B>Employee Benefits</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide our employees medical and dental assistance, pharmacy and
prescription drug assistance, group life insurance and meal and food
assistance. The costs of these benefits are covered by
</FONT>

<P align="center"><FONT size="2">81</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="left"><FONT size="2">the employees and us on
a shared basis. The meal and food assistance program has been implemented
under the Workers&#146; Food Program (<I>Programa de Alimenta&#231;&#227;o do Trabalhador</I>). Our
contribution to the meal and food assistance program varies from 80% to 95%,
depending on the employee&#146;s salary level.
</FONT>
<P align="left"><FONT size="2"><B>Profit Sharing Plan</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The profit sharing plan was implemented in 1999 as an incentive for
employees to pursue our goals and to ultimately benefit the shareholders. The
plan is effective upon achievement of the following goals:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Achievement of economic value added targets; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">An increase in net cash to reduce indebtedness.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, Telemar distributed R$64.8&nbsp;million to 18,146 employees. In 2001,
the profit sharing amounted to R$28.4&nbsp;million, which was paid to 11,500
employees and in 2002, the profit sharing amounted to R$130.9&nbsp;million, which
was paid to 9,103 employees.
</FONT>

<P align="left"><FONT size="2"><B>Career and Salary Plan</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our career and salary plan is organized following the Hay Methodology.
The plan is structured so as to take into account the employees&#146; knowledge,
problem solving abilities and accountability with a view to increase the
competitiveness of the salary in the market and attract and retain skilled
employees, consistent with our cost management policies.
</FONT>

<!-- link2 "Item&nbsp;7. Major Shareholders and Related Party Transactions" -->
<DIV align="left"><A NAME="009"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;7. <I>Major
Shareholders and Related Party Transactions</i></B>
</FONT>

<P align="left"><FONT size="2"><B>Major Shareholders</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two classes of share capital outstanding, Common Shares and
Preferred Shares. Only the Common Shares have full voting rights. The
Preferred Shares have limited voting rights. See &#147;Item&nbsp;10. Additional
Information&#151;Organization&#151;Voting Rights.&#148; As of December&nbsp;31, 2002, Telemar
Participa&#231;&#245;es owns 52.96% of the Common Shares. Accordingly, Telemar
Participa&#231;&#245;es is able to control the election of TNL&#146;s Board of Directors, its
direction and future operations. See &#147;Telemar Participa&#231;&#245;es Shareholders&#146;
Agreements.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information concerning the ownership of
Common Shares by Telemar Participa&#231;&#245;es and by other shareholders holding five
percent or more of the Common Shares as of December&nbsp;31, 2002. Except for the
shareholders listed below, we are not aware of any other shareholder of TNL
owning more than five percent of the Common Shares.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percentage of</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Holding Company</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common Shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Outstanding</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Shareholder</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Owned</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common Shares</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,760,384,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52.96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Caixa de Previd&#234;ncia dos Funcion&#225;rios do Banco do Brasil-PREVI</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,731,214,191</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.26</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">82</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information concerning the ownership of the
common voting stock of Telemar Participa&#231;&#245;es as of December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Percentage</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Outstanding</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Telemar Participa&#231;&#245;es Shareholder</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares Owned</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common Shares</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Shares</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BNDES Participa&#231;&#245;es S.A. &#150; BNDESPar</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">429,112,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fiago Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">341,573,661</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">AG Telecom Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">229,432,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Asseca Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">229,432,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Lexpart Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">229,432,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Brasilcap Capitaliza&#231;&#227;o S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,822,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Brasil Veiculos Companhia de Seguros</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,822,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">L.F. Tel S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,822,528</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a brief description of the major shareholders of Telemar
Participa&#231;&#245;es as of December&nbsp;31, 2002:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AG TELECOM PARTICIPA&#199;&#213;ES S.A. is a company of the Andrade Gutierrez Group,
which manages telecommunications business of the Group. Currently, the Group
is focusing on four core businesses: (a)&nbsp;heavy construction throughout Brazil,
Portugal, and other Latin America countries; (b)&nbsp;public concessions in Brazil
(primarily highways and water treatment); (c)&nbsp;telecommunications in Brazil and
(d)&nbsp;real estate enterprises in Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ASSECA PARTICIPA&#199;&#213;ES S.A. is a company of the Macal group, which holds
shares in several companies, principally in the telecommunications area,
including Mcom Wireless S.A. (trunking and radio services), Shoptime S.A. (a
television sales channel), Multicanal Participa&#231;&#245;es S.A. (cable television) and
Almax Alum&#237;nio S.A.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BNDES PARTICIPA&#199;&#213;ES S.A. &#151; BNDESPar is a subsidiary of BNDES, a federal
public bank linked to the Brazilian Ministry of Development, Industry and
External Trade, dedicated to offering long-term financing to developmental
entrepreneurial activities. BNDESPar is dedicated to strengthening the capital
structure of private companies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BRASIL VE&#205;CULOS COMPANHIA DE SEGUROS is a company created in March 1997
from the association of Banco do Brasil &#151; Banco de Investimento S.A. and Sul
Am&#233;rica, the corporate purpose of which is to engage in automobiles insurance
business. This partnership allowed Banco do Brasil to participate in the
insurance market. Brasilve&#237;culos is ranked eighth in the Automobile Sector
National Ranking par group with a 4.1% market share.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BRASILCAP CAPITALIZA&#199;&#195;O S.A. is a Company established in 1995 from the
association of Banco do Brasil, Sul Am&#233;rica Capitaliza&#231;&#227;o, Icatu Hartford and
Companhia de Seguros Alian&#231;a da Bahia. The company has been a market leader
since its second year of operation: the company has already sold seven million
account certificates (t&#237;tulos <I>de</I> capitaliza&#231;&#227;o), distributing in the last seven
years more than R$280&nbsp;million in prizes in connection with such certificates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FIAGO PARTICIPA&#199;&#213;ES S.A. is a holding company controlled by the pension
funds PREVI, TELOS, FUNCEF, SISTEL and PETROS, formed to hold certain equity
investments of those funds.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LEXPART PARTICIPA&#199;&#213;ES S.A. is a company of the Inepar group, which
operates in Brazil and in other countries in Latin America. The Inepar group
offers telecommunications, energy and construction services.
</FONT>

<P align="center"><FONT size="2">83</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;L.F. TEL S.A is a subsidiary of La Fonte Telecom S.A., a holding company
that is part of the Jereissati Group. The Jereissati Group has investments in
the commercial real estate sector in Brazil. It partially owns and manages
nine shopping malls in the South and South-eastern regions of the country. In
1997, the group entered the telecommunications sector by acquiring a small
stake in B and B Wireless Operators, Americel and Telet, which were sold in
2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights of the shareholders Fiago and Lexpart to appoint members of our
Board of Directors and Board of Executive Officers are temporarily suspended by
Anatel pending resolution of administrative proceedings related to limitations
to cross-holding of telecommunications companies in Brazil. See &#147;Item&nbsp;8.
Financial Information&#151;Legal Proceedings&#151;Tax and Administrative Proceedings.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Telemar Participa&#231;&#245;es Shareholders&#146; Agreements</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;28, 1999, the shareholders of Telemar Participa&#231;&#245;es signed a
shareholders&#146; agreement. The shareholders&#146; agreement outlines the (i)
requirements in regard to the exercise of the right of first refusal and the
preemptive rights of the shareholders in the case of an assignment and
subscription of shares of Telemar Participa&#231;&#245;es; (ii)&nbsp;conditions which would
constitute a burden on the shares or subscription right; and (iii)&nbsp;appraisal
rights in the case of an assignment of shares of Telemar Participa&#231;&#245;es in the
event of a transfer of control of the shareholder.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;3, 1999, the shareholders of Telemar Participa&#231;&#245;es signed a
second shareholders&#146; agreement. The second shareholders&#146; agreement outlines
the (i)&nbsp;rules in regard to voting rights during the general meetings of Telemar
which deal with subjects related to the management of Telemar Participa&#231;&#245;es;
(ii)&nbsp;special procedures and quorum requirements for the approval of certain
corporate resolutions by the management; (iii)&nbsp;holding of meetings among the
shareholders prior to shareholders&#146; meetings and meetings of the Board of
Directors of Telemar Participa&#231;&#245;es, TNL and Telemar; (iv)&nbsp;installation of the
executive committee responsible for giving support to the Board of Directors;
(v)&nbsp;rules for the reelection of the members of Board of Directors and Board of
Executive Officers and (vi)&nbsp;guidelines for transactions entered into between
and among Telemar Participa&#231;&#245;es, TNL and its subsidiaries.
</FONT>

<P align="left"><FONT size="2"><B>Record Holders of ADSs</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of May&nbsp;31, 2003, we had 107,855,975 outstanding ADSs, held by 206
record holders, representing 107,855,975,000 Preferred Shares. As of such
date, the number of Preferred Shares represented by ADSs constituted 41.4% of
the total amount of Preferred Shares outstanding and 27.6% of TNL&#146;s total
capital.
</FONT>

<P align="left"><FONT size="2"><B>Related Party Transactions</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below is a description of the related party transactions that
are material to TNL and of the loans made by TNL to its subsidiaries. Related
party transactions refer to any loans receivable, accounts receivable from
services rendered and any other debts with our shareholders, subsidiaries,
unconsolidated affiliates or shareholders. For further information about
transactions with related parties, see Note 24 to the Consolidated Financial
Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Telemar Management Services Agreement</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At an extraordinary general meeting of the shareholders of TNL held on
November&nbsp;30, 1999, holders of the Common and Preferred Shares approved a
management services agreement between the 16 former operating subsidiaries in
each state in Region I and Telemar Participa&#231;&#245;es, as contemplated by the
Concession Agreement. The management services agreement is effective until
December&nbsp;31, 2003, and
its term may be extended. Telemar Participa&#231;&#245;es&#146; remuneration for
providing management services under the management services agreement is a
percentage of consolidated net revenues of Telemar, determined in accordance
with Brazilian Corporate Law, as follows: 1% in the period from August 1998 to
December&nbsp;31, 2000, 0.5% in 2001 and 2002 and 0.2% in 2003. As of December&nbsp;31,
2002, the payment</FONT>
<P align="center"><FONT size="2">84</FONT>
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<P align="left"><FONT size="2">due to Telemar Participa&#231;&#245;es under the management services
agreement for the year 2002, in the amount of R$57.7&nbsp;million, was recorded as
general and administrative expenses. See Note 5 and Note 3 to the Consolidated
Financial Statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Loans between TNL and the Subsidiaries</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL makes loans to the subsidiaries to provide them with working capital
for their operating activities. The loans bear the same costs that TNL bears
in its own loans and have terms and conditions generally similar to loans made
by TNL to unrelated third parties.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, the aggregate indebtedness of TNL&#146;s subsidiaries
to TNL, was R$3,691&nbsp;million, the majority of which was represented by a R$1,371
million loan to Telemar and by a R$1,862&nbsp;million loan to Oi.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Pegasus Telecom S.A.</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;27, 2002 Telemar acquired 93.27% of the shares in Pegasus
Telecom S.A., including preferred shares held by TNL that represented 24.4% of
Pegasus&#146; share capital. On February&nbsp;19, 2003 Telemar acquired the remaining
6.73% of Pegasus&#146; shares, and accordingly holds now 100% of its share capital.
Historically, Pegasus&#146; primary purpose was the operations, marketing, project
development, execution and rendering of data transmission services in Regions
II and III. We expect that our acquisition of Pegasus will enable us to expand
our share in the corporate market by offering data transmission services in
Brazil on a nationwide basis. See Note 1(b) to the Consolidated Financial
Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Loan Agreement with BNDES</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 1999, some of the former fixed-line operating subsidiaries
which are now consolidated into Telemar, also referred to as the PSTN
Subsidiaries, entered into loan agreements with BNDES, the controlling
shareholders of BNDESPar, which holds 25% of Telemar&#146;s voting capital. The
total amount of these loans was R$400.0&nbsp;million, with maturity in December 2000
and accruing interest based on the Selic base rate plus 6.5% per year. In
December 2000, these loan agreements were renegotiated and replaced by two new
loan agreements between the same parties, guaranteed by TNL. The new loan
agreements provide a credit line of up to R$2,700&nbsp;million, with floating
interest rate based on the TJLP and on the variation of the exchange rate,
depending on the source of funds, plus 3.9% per annum, and is payable in equal
monthly installments with final maturity in January 2008. As of December&nbsp;31,
2002, a total of R$2,869.7&nbsp;million had been borrowed from BNDES. During 2002,
no withdrawals were made from this line, which started to be amortized, with
R$2829.9&nbsp;million outstanding as of December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of this total, 30% of the credit line was disbursed directly from BNDES
and the other 70% was disbursed by a group of Banks. Banco Ita&#250; and Banco do
Brasil led the group of banks formed by Bradesco, Banco Alfa, Unibanco,
Citibank, Safra, Votorantim, Sudameris and Santander.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Investment and Agreement with iG</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through our subsidiary TNL.Net Participa&#231;&#245;es S.A, we hold indirectly
shares representing 17.5% of the total equity of Internet Group do Brasil Ltda.
(iG), owner of the iG Internet portal, which has among its shareholders some
related parties with major shareholders of Telemar, such as Global Internet
Investment (related to Asseca Participa&#231;&#245;es) and Andrade Gutierrez Contractors
(related to AG Telecom
Participa&#231;&#245;es). The iG Internet portal is the second largest portal in
access volume in Brazil. In February 2001, through our subsidiaries TNext and
TNL.Acesso, we signed an agreement with iG pursuant to which we agreed to
operate the entire access infrastructure of the iG Internet portal for five
years. On December&nbsp;31, 2002, the Company terminated this contract and entered
into a new arrangement</FONT>
<P align="center"><FONT size="2">85</FONT>
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<P align="left"><FONT size="2">with iG to provide the portal&#146;s entire access
infrastructure in Region I under conditions equivalent to those that the
Company offers to other Internet access providers operating in Brazil.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Related-Party transactions prior to the Break-up of Telebr&#225;s</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until August&nbsp;4, 1998, the Brazilian Government was the controlling
shareholder of most of the telecommunications companies in Brazil, and
therefore all transactions between the PSTN Subsidiaries and such other
telecommunications companies could be considered related-party transactions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal related-party transaction before August 1998 was with
Embratel in respect of long-distance telecommunications. We have operating
agreements with Embratel defining the charge per minute for interstate,
intrastate and international long distance calls that originate or are
completed in Region I. All charges to our customers, including long-distance,
are billed by us, and then the appropriate portion is transferred to Embratel.
For further information about related-party transactions prior to the Breakup
of Telebr&#225;s, see Note 27 to the Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Transfer of the Company&#146;s shares in Oi to Telemar</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2003, the sale of all of TNL&#146;s shares in Oi to Telemar was approved
by the boards of directors of both TNL and TMAR and consummated. The sale
price was fixed at R$1.00, which is equal to the net equity value of Oi at
market price on the base date of March&nbsp;31, 2003, as determined by an
independent asset evaluation performed by Ernst &#038; Young in accordance with
article 256(II)(b) of Corporate Law 6404/76 and adjusted to reflect the
capitalization of Oi in the amount of R$563&nbsp;million through the conversion of
part of Oi debt held by TNL prior to the sale. Following the consummation of
the sale, Oi maintained total indebtedness of R$4.76&nbsp;billion, of which R$1.79
billion, was intercompany and R$2.97&nbsp;billion was to third parties. The primary
reason for this transaction is to strengthen the strategic position of TNE and
to increase its capacity for growth by combining the potential of fixed
(Telemar) and wireless (Oi) telephone assets. The benefits arising from the
optimization of Telemar&#146;s and Oi&#146;s operating and support sectors and from the
alignment of the two companies&#146; business interests and strategies will result
in more rational use of available resources, with consequent cost reductions
and productivity gains and the better use of the synergies between the
companies. Another important reason for having Telemar rather than TNL own Oi
is that Telemar will be able to use the tax benefits associated with the
transfer of all of the indebtedness of Oi to Telemar. We believe Telemar&#146;s
higher interest expense will decrease its pre-tax income and result in tax
savings.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to consummating the sale of Oi, we obtained, from three law firms
that are recognized leaders in Brazilian corporate matters, opinions to the
effect that the transaction was consistent in all respects with Brazilian
corporate law. In addition, we obtained independent appraisal reports, one
from Ernst &#038; Young relating to the asset valuation, and another from J.P.
Morgan relating to the strategic and economic valuation, in support of the
fairness of the price and the economic and financial desirability of the
transaction for Telemar. Nevertheless, subsequent to the sale of the shares in
Oi to Telemar, reports have appeared in the press containing allegations that
the transaction may have been unfair to the minority shareholders of Telemar.
As of the date of filing of this annual report, we have not received any formal
notice of any of these allegations, either from any Brazilian regulatory
authorities or any shareholders of Telemar.
</FONT>

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<P align="left"><FONT size="2"><B><I>Item&nbsp;8. Financial Information</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Consolidated Statements and Other Financial Information</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Item&nbsp;18. Financial Statements.&#148;
</FONT>

<P align="center"><FONT size="2">86</FONT>
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<P align="left"><FONT size="2"><B>Legal Proceedings</B>
</FONT>

<P align="left"><FONT size="2"><B>General</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The legality of the breakup and privatization of Telebr&#225;s has been
challenged in numerous legal proceedings, some of which have now been
dismissed. A few, however, are still pending. We believe that the ultimate
resolution of those proceedings will not have a material adverse effect on our
business or financial condition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a party to certain legal proceedings arising in the normal course
of business, including civil, administrative, tax, social security and labor
proceedings. We classify our risk of loss in legal proceedings as &#147;remote,&#148;
&#147;possible&#148; or &#147;probable.&#148; Provisions taken by us on our financial statements in
connection with such proceedings reflect reasonably estimable, probable losses
as determined by our management on the basis of legal advice.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telebr&#225;s, our legal predecessor, is a defendant in a number of legal
proceedings and subject to certain other claims and contingencies. Under the
terms governing the breakup of Telebr&#225;s, liability for any claims arising from
acts committed by Telebr&#225;s prior to the effective date of the breakup of
Telebr&#225;s remained with Telebr&#225;s, except for labor and tax claims (for which
Telebr&#225;s and the New Holding Companies are jointly and severally liable by
operation of law) and any liability for which specific accounting provisions
have been assigned to us or to one of the other New Holding Companies.
Creditors of Telebr&#225;s had until September&nbsp;14, 1998 to challenge this allocation
of liability. We believe that the chances of any such claims materializing and
having a material adverse financial effect on our business are remote.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liability for any claims arising out of acts committed by the former
operating companies in each state prior to the effective date of the spin-off
of the operating company&#146;s wireless assets and liabilities to the newly formed
wireless companies remains with the operating companies which following our
reorganization are part of the Telemar, except for labor and tax claims (for
which the former operating subsidiaries and the newly formed wireless companies
are jointly and severally liable by operation of law) and those liabilities for
which specific accounting provisions have been assigned to the newly formed
wireless companies. However, under the shareholders&#146; resolution pursuant to
which the spin-off was effected, the newly formed wireless companies have
contribution rights against the former operating subsidiaries with respect to
the entire amount of any payments made by the newly formed wireless companies
in connection with any claims brought against the newly formed wireless
companies and relating to acts committed by the state subsidiaries prior to the
effective date of the spin-off, not related to the assets of the former.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Composition of our contingency provisions is as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Year ended December 31</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="7"><FONT size="1"><B>(in millions of reais)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><HR noshade size="1"></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Nature</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Labor</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">272.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,294.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,001.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Civil</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">217.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,772.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,491.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our contingency provisions are subject to monetary restatements, on a
monthly basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a detailed description of our provisions for contingencies see Note 19
to the Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2"><B>Labor Proceedings</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal material labor proceedings to which we are a party are
listed below:</FONT>
<P align="center"><FONT size="2">87</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Dangerous Work Conditions Premium</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian law, employees working in dangerous conditions, as defined
in applicable laws, are entitled to payment of an extra amount equal to 30% of
their basic salary as a dangerous work conditions premium. There are
significant claims pending against us relating to this dangerous work premium
arising from an adjustment to the amount payable under trade union agreements
for employees working within an environment considered to be dangerous,
principally close to high-tension electric installations. In 1998, a
definitive ruling by the Superior Labor Tribunal (&#147;TST&#148;) provided guidance on
determining dangerous work premiums. Because the premium paid by us in
accordance with the trade union agreement is inconsistent with the ruling of
the TST, our management believes that it is probable that these claims will
have an unfavorable outcome for us. The total amount of provisions that we
have made in connection with those claims is R$107.4&nbsp;million. Based on the
advice that we have received from our legal counsel, we believe that such
amount is sufficient to cover losses arising from such claims.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Equalization of Salary Scales</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have claims against us to equalize salary scales among certain
employees who do the same work, within a given period of time, with the same
productivity and technical performance. This type of judicial proceeding
usually involves significant amounts of money because it relates to the
difference in monthly salaries some an entire period. In addition, the
proceedings usually depend on questions of evidence and the tribunals&#146;
interpretation of the evidence. The total provision that we have for probable
losses on these lawsuits is R$39.7&nbsp;million. Based on the advice that we have
received from our legal counsel, we believe that such amount is sufficient to
cover losses arising from such claims.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Indexation of Salaries to Inflation</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of the labor claims filed by employees and unions challenge the
indices that we used for monetary restatement of salaries, given the inflation
write-offs determined by economic stabilization programs (Collor and Bresser
Plans).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Productivity Premiums / Voluntary Retirement Plan / Salary Differences /
Severance Fees</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We entered into certain collective bargaining agreements in which we
agreed to implement a model to improve employees&#146; productivity and share
profits with our employees based on productivity gains. However, the model and
consequent payment was not implemented, and consequently the employees filed
claims for such payment.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We established an employment termination incentive plan, the <I>Plano de
Incentivo &#224; Rescis&#227;o Contratual</I> (&#147;PIRC&#148;), in 1998 with a view to restructuring
our management. The PIRC generated a number of labor law suits brought by
different groups of employees including:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Employees dismissed before implementation of the PIRC who have brought
a claim arguing that the PIRC should apply equally to them;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Employees who did not elect to participate in the PIRC within the time
period stipulated, and therefore received only a portion of the
severance payments provided for under the PIRC, who have brought a
claim arguing that they should receive full payment under the terms of
the PIRC; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Employees who elected to participate in the PIRC brought a claim
arguing that they are entitled to payment of a fine based on the terms
of the applicable collective bargaining agreement, which
provides that such a fine will be levied against us in instances where
employees are dismissed in the 30-day period preceding salary adjustments.
After analyzing the evidence produced in a number of proceedings and the
decisions in those proceedings, we came to the conclusion that the trend in
such proceedings was the issuance of decisions in favor of employees.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">88</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other claims that have been increasing in number as a result of increasing
termination rates that took place in the second half of year 2001 challenge
salary differences, labor compensation and claim severance fees. We have
established a provision of R$112.1&nbsp;million for liabilities from the claims
described above. Based on the advice that we have received from our legal
counsel, we believe that such amount is sufficient to cover losses arising from
such claims.
</FONT>

<P align="left"><FONT size="2"><B>Tax and Administrative Proceedings</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal material tax and administrative proceedings to which we are
a party are listed below:
</FONT>

<P align="left"><FONT size="2"><B>Administrative Proceeding before Anatel and CADE</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are party to a material administrative proceeding filed with Anatel and
CADE (Antitrust Regulatory Agency) against Telemar on April&nbsp;15, 2003, whereby
Embratel and Intelig alleged that Telemar engaged in anti-competitive
practices. They claim that Telemar abused its dominant market position, by
making use of cross-subsidies from its local to its long distance business and
practicing price discrimination with regard to the utilization of its local
network by the long-distance operators. We believe that their claims lack
merit. Embratel and Intelig sought a preliminary injunction which would
suspend any new authorizations granted to regional fixed-line service providers
which anticipated network expansion and universal service targets of December
31, 2003 until a final decision of the claim. Anatel and CADE have denied the
request for a preliminary injunction. Moreover, Anatel has released a
technical report stating that there was no finding of anti-competitive conduct.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>FINSOCIAL</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1995, the Brazilian Supreme Court ruled in a leading case that certain
increases in the rate of the FINSOCIAL tax (a predecessor tax to COFINS) were
unconstitutional. Based on this decision, we recorded a credit of R$33.1
million under &#147;other net operating income&#148; in 1995 and offset such credit
against other federal taxes but did not obtain judicial recognition that such
precedent would apply specifically to us. In 1997, the Brazilian Supreme Court
narrowed the scope of its prior decision, concluding that such increases in
FINSOCIAL were unconstitutional for sellers of goods, but not for service
providers like us. In accordance with this decision, an increased (2%) rate of
FINSOCIAL became applicable to us, and as a consequence, various FINSOCIAL
assessments were issued against us in 1998 on account of the credit that we had
taken in 1995. Based on these assessments and other Supreme Court decisions,
Telemar decided to make a provision of R$48.5&nbsp;million in connection with these
assessments, which was subject to a monetary restatement in 2001. In 2002
Telemar utilized benefits provided by Provisional Measures 66 and 75
promulgated by the President of Brazil and approximately R$32&nbsp;million of such
provision was reversed. See Note 6 to Consolidated Financial Statement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PIS/COFINS (Social Integration and Social Security Financing Contributions)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This is a claim which resulted from Law N&#186; 9718/98, which increased the
rate of COFINS and broadened the calculation basis for COFINS and PIS, to be
calculated on total gross revenue of the Company &#151; it was formerly calculated
on telecommunications services revenue only. There is not a final court ruling
on this issue. As of December&nbsp;31, 2002 we have provisioned R$483.8&nbsp;million for
liabilities related to this claim.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>ICMS Due On Installation and Related Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;19, 1998, the State Finance Departments approved Agreement 69,
which increased the scope of ICMS to other services, including installation.
Under this new interpretation, ICMS may be levied on a retroactive basis to
other communications services provided in the past five years. We believe that
such enlargement in the scope of the ICMS to reach additional services to basic
telecommunications</FONT>
<P align="center"><FONT size="2">89</FONT>
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<P align="left"><FONT size="2">services is questionable because (i)&nbsp;State Secretariats have
acted beyond their authority, (ii)&nbsp;such an interpretation reaches services that
are not considered telecommunications services, and (iii)&nbsp;such interpretation
cannot be applied on a retroactive basis.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From 1999 through December&nbsp;31, 2001, our former fixed-line operating
subsidiaries which are now a part of Telemar, were served notices of
infringement related to ICMS on additional services, including installation,
which are still pending a decision. These notices considered ICMS in arrears
with respect to installation fees covering periods before and after June 1998.
We consider the probability of a levy against Telemar as &#147;remote&#148; for those
procedures that cover periods before June 1998 and &#147;probable&#148; for periods after
June 1998. Based on advise from legal counsel, we have contingency provisions
(period after June 1998) in the amount of R$141.9&nbsp;million as of December&nbsp;31,
2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>ICMS On International Telecommunications Services</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are legal and administrative proceedings currently pending against
us regarding the application of ICMS to telecommunications services involving
international calls. The State Government claims that international calls are
services rendered in Brazilian territory because the request and payment for
the services occur in Brazil and are therefore subject to ICMS. ICMS
assessments totaling R$64.0&nbsp;million in connection with international calls were
issued against us in 1999. We have made no provision for such taxes in the
Consolidated Financial Statements because based on advice from our legal
counsel we do not believe that we would be required to pay ICMS on
international calls. In February 2000, a lower court issued an injunction
favorable to us in connection with this proceeding. Based on external
consultants, there is no risk for us related to this issue.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Instituto Nacional de Seguro Social &#150; INSS (National Social Security
Institute)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian social security regulations establish that a company contracting
third-party services is jointly responsible for the payment of the <I>Instituto
Nacional de Seguro Social</I> (&#147;INSS&#148;) social contribution which is payable by the
contractor. Brazilian social security regulations also establish that any
indirect remuneration, usually called fringe benefits, shall be included in our
payroll for purposes of payment of the INSS social contribution. For legal
purposes, indirect forms of remuneration of employees, such as housing, health
insurance, transportation facilities and technical qualification courses,
constitute fringe benefits. We have provisioned R$122.3&nbsp;million for such
liabilities, including R$27.7&nbsp;million resulting from a new notice of default
served on us after January&nbsp;1, 2002. The January&nbsp;1, 2002 notice to the Company
was in the amount of R$243.3&nbsp;million. However, based on the opinion of legal
counsel the Company believes that the likelihood of an adverse outcome is
&#147;remote,&#148; and accordingly have not reserved funds to cover such liabilities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Imposto Sobre Servi&#231;os &#150; ISS (Tax on Service)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1999, a number of municipalities in which the former fixed-line
operating subsidiaries are located took the position that some supplementary
services offered by telecommunications service providers to their clients that
do not clearly fall within the definition of telecommunications services are
subject to services tax (<I>Imposto sobre Servi&#231;os</I>&#151;ISS), which is generally levied
at the maximum rate of 5%. Several ISS tax assessments, totaling approximately
R$320.0&nbsp;million, were issued against us. Since this issue remains unresolved,
we have taken the position that the tax assessments represent a probable
liability. As of December&nbsp;31, 2002, we reserved R$38.0&nbsp;million based on the
probable risk of loss regarding each of the several tax assessments issued
against us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Contribui&#231;&#227;o Provis&#243;ria para Movimenta&#231;&#245;es Financeiras &#150; CPMF (Tax on Cash
Transferring)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;26, 1999, the Company was granted an injunction exempting it
from the payment of the CPMF, until at least July 2003. However, because the
injunction may be reversed by the Supreme Court, the Company continues to
maintain a provision to cover possible losses, recorded and restated on a
</FONT>

<P align="center"><FONT size="2">90</FONT>
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<P align="left"><FONT size="2">monthly basis according to the activity of its bank accounts. Based on the
opinion of its legal advisors, TNL recorded in July 2002 the amount of R$20,605
in connection with unpaid CPMF since January 2001. Increases in this amount
refer to the supplementation of reserves arising from the review of the
calculation criteria and information from the financial institutions.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Imposto sobre Lucro L&#237;quido &#150; ILL (Tax on Net Profit)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar offset the ILL paid in previous years (up to calendar year 1992)
in reliance of Supreme Court decisions on the unconstitutionality of this tax
in similar cases involving other companies. Although several cases have been
successfully tried in higher courts, Telemar continues to maintain a provision
due to the fact that it has not been granted a final administrative or judicial
ruling on the criteria for restatement of tax credits. During 2002, Telemar
reversed part of the reserve, in the approximate amount of R$16,003, after
thoroughly reviewing the amounts offset in previous years, as well as the
criteria adopted to restate such amounts. See Note 7 to the Consolidated
Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Imposto Opera&#231;&#245;es Financeiras &#150; IOF (Tax on Financial Transactions)</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on the opinion of its legal advisors, as well as the fact that
Supreme Courts are not in agreement regarding the possibility of this tax being
levied, the Company chose in December 2002 to record a provision to meet a
possible levy of this tax on intercompany credit lines. As was the case with
other provisions, IOF-related amounts were restated up to December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Federal Taxes</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;9, 2000, Telemar was served two notices of infringement by the
Federal Revenue Department which called for a penalty in the aggregate amount
of R$993.7&nbsp;million. These are notices of tax default relating to income tax
and social contribution on net profit related to taxable events that occurred
in 1996 and, therefore, before the privatization of the Telebr&#225;s System.
Telemar has timely submitted to the Federal Revenue Department in Rio de
Janeiro the documents that demonstrate regular status of the accounting records
that had been disallowed as well as appropriate payment of taxes payable with
respect to the relevant period. Based on the opinion of our external legal
consultants, we have classified such notices as having a &#147;remote&#148; risk of loss
and, therefore, no provision is made.
</FONT>

<P align="left"><FONT size="2"><B>Civil Litigation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Preferred Shares</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1990, Telebr&#225;s&#146; board authorized a capital stock increase by means of a
public share offering. During the offer, the Brazilian equivalent of the
Securities Exchange Commission (CVM)&nbsp;started an inquiry to investigate the
price of such new shares, issued at a discount relative to its book value.
Upon completion of such inquiry, CVM informed the Federal Public Attorneys&#146;
Office that, in CVM&#146;s opinion, there had been no violation given that the price
as established was compatible with the price of Telebr&#225;s shares traded in
exchanges. Nevertheless, the Public Attorneys&#146; Office decided to take the
matter to court. In April 1998, Telebr&#225;s was ordered to issue 13,718,350
thousand preferred shares to fulfill its obligation but it appealed the
decision. As of December&nbsp;31, 2002 we have maintained R$67.2&nbsp;million provision
for this claim.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Operational Income &#150; Interconnection &#150; Fixed-to-Mobile Calls</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;6, 2000, Anatel decided that Embratel is entitled to income from
the so-called interstate fixed-to-mobile calls, while local operators are
entitled to income from intrastate calls in the period from June 1998, when the
concession agreements were signed, until July 1999, at which point the provider
selection code CSP 31 became effective for long distance services. Anatel&#146;s
decision established that, following introduction of the CSP, income belongs to
the provider selected by the user. In our opinion,
</FONT>

<P align="center"><FONT size="2">91</FONT>
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<P align="left"><FONT size="2">Anatel misconstrued
fixed-to-mobile services and PSTN. We believe that pursuant to Anatel&#146;s rules
in force, irrespective of the distance, income from fixed-to-mobile calls
belongs to the local operator to which the subscriber who originated the call
is bound. Telemar obtained a preliminary injunction against Embratel and
commenced a lawsuit against Anatel. The preliminary injunction was granted by
a lower court (provisional judicial act) to prevent offsetting by Embratel, a
decision that has been affirmed to this date. However, such provisional
measures can be stayed or vacated at any time. In light of the uncertainties
surrounding the outcome of these actions, the Company maintains a provision of
R$50.7&nbsp;million.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>DETRAF</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company understands that Embratel has not complied with the
Interconnection Agreement rule and Anatel&#146;s decision establishing that, in
order to challenge a DETRAF statement companies must first pay the stated
amounts. It is also the Company&#146;s understanding that Embratel did not
challenge the Detraf statements in the manner prescribed in the Interconnection
Agreement and Code of Conduct Agreement executed by the operators. Telemar has
filed two suits against Embratel, the first is a collection suit with respect
to the difference between the amounts billed Telemar and the amounts paid by
Embratel for the usage of the network from August 2001 to August 2002. The
second suit requests acceleration of tutelage so that Embratel refrains from
withholding any amounts for remuneration for the use of Telemar networks.
Telemar was granted the requested acceleration of tutelage, and the appeal
filed by Embratel was dismissed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Common collection suits</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Embratel filed three common collection suits against Telemar involving
amounts that are allegedly due to it for services provided including 0800
inter-regional and 0800 local calls, TU-COM tariffs and remuneration for
long-distance national and international calls placed through public
telephones. These claims total R$55.9&nbsp;million and Telemar has contested them
all, in addition to filing a counterclaim, whereby the amount of R$36.4&nbsp;million
is requested from Embratel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Lawsuits</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are several other smaller lawsuits and administrative proceedings
that deal with civil matters for which we have a R$85.5&nbsp;million provision, and
taxation matters for which a R$206.9&nbsp;million provision has been made.
</FONT>

<P align="left"><FONT size="2"><B>Policy on Dividend Distribution</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Preferred Shares are entitled under the TNL&#146;s by-laws to receive, to
the extent of available distributable profits and reserves, a non-cumulative
preferred dividend in an amount equal to the greater of (a)&nbsp;six percent per
year on the amount resulting from the division of the subscribed capital by the
total amount of the Company&#146;s shares, and (b)&nbsp;three percent of the equity value
of the share (the &#147;Preferred Dividend&#148;). To the extent there are additional
distributable profits, TNL is also required to distribute to all shareholders
an amount equal to 25% of the adjusted net income (the &#147;General Dividend&#148;),
determined in accordance with Brazilian Corporate Law. Payment of General
Dividends may be limited to the net realized income for the year, provided that
the difference is recorded as unrealized reserve. Net income recorded in
unrealized income reserve, when
realized and as long as not offset by losses for subsequent years, should
be added to the first dividend declared after realization. TNL&#146;s obligation to
pay General Dividends to holders of Preferred Shares will be met in as much as
a Preferred Dividend is paid. Should dividends be distributed in excess of
General Dividend, holders of Preferred Shares will share equally with holders
of Common Shares in such excess, after allocation to holders of Common Shares
of a dividend equivalent to the Preferred Dividend. TNL may also make
additional distributions to the extent of available distributable profits and
reserves. Telemar is also subject to mandatory distribution requirements and,
to the extent of distributable profits and reserves, is accordingly required to
pay
</FONT>

<P align="center"><FONT size="2">92</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">dividends to the minority shareholders as well as to the TNL. All of the
aforementioned distributions may be made as dividends or as tax-deductible
interest on capital.
</FONT>
<P align="left"><FONT size="2"><B>Significant Changes</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;Item&nbsp;5. Operating and Financial Review and Prospects.&#148;
</FONT>

<!-- link2 "Item&nbsp;9. The Offer and Listing" -->
<DIV align="left"><A NAME="011"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;9. <I>The Offer and Listing</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Information Regarding the Price History of the Stock to be Offered or Listed</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal trading market for the Preferred Shares is the BOVESPA.
Until 2000, the Preferred Shares were also traded on the <I>Bolsa de Valores do
Rio de Janeiro</I> (the Rio de Janeiro Stock Exchange) and the seven other
Brazilian stock exchanges. In May 2000, the nine Brazilian stock exchanges
merged. See &#147;Trading on the Brazilian Stock Exchanges.&#148; As of December&nbsp;31,
2002, TNL had approximately 2.0&nbsp;million shareholders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Preferred Shares commenced trading separately on the Brazilian stock
exchanges on September&nbsp;21, 1998. The following table sets forth the reported
high and low closing sale prices for Preferred Shares of TNL on the S&#227;o Paulo
Stock Exchange for the periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Reais per 1,000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Preferred Shares</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>1998 </B>(beginning September&nbsp;21, 1998)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.77</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.23</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49.12</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1<SUP>st</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48.95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2<SUP>nd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3<SUP>rd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4<SUP>th</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.69</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1<SUP>st</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2<SUP>nd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3<SUP>rd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4<SUP>th</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2003</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1<SUP>st</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">January</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">February</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.91</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">March</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.70</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">May</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">June (through June&nbsp;12, 2003)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the United States, the Preferred Shares trade in the form of ADSs, each
representing 1,000 Preferred Shares, issued by the Depositary pursuant to a
Depositary Agreement among TNL, the
Depositary and the registered holders and beneficial owners from time to
time of ADSs. The ADSs commenced trading separately on the NYSE on November
16, 1998 under the symbol TNE. As of February&nbsp;28, 2003, there were
approximately 109.0&nbsp;million ADSs outstanding. The following table sets forth
the reported high and low closing sales prices for ADSs on the NYSE for the
period indicated.
</FONT>

<P align="center"><FONT size="2">93</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="71%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>US dollars per ADS</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Low</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>1998 </B>(beginning November&nbsp;16, 1998)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1st Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.50</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2nd Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3rd Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22.60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4th Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.82</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1<SUP>st</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.67</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.44</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2<SUP>nd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.86</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3<SUP>rd</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">4<SUP>th</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.88</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>2003</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1<SUP>st</SUP> Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">January</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.22</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">February</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">March</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.43</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">April</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">May</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">June (through June&nbsp;12, 2003)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until August&nbsp;21, 2001, the common shares and preferred shares of TELERJ,
Telemig and Telebahia traded on the BOVESPA. The common shares and preferred
shares of Telaima, Telamazon, Telasa, Teleamap&#225;, Telecear&#225;, Telepar&#225;, Telepisa,
Telergipe, Telern, Telest, Telma, Telpa and Telpe also traded on <I>Sociedade
Operadora de Mercado de Acesso</I> (SOMA), an some-the-counter trading system based
in Rio de Janeiro, until August 2001. The daily trading volumes on the SOMA
averaged approximately R$15.3&nbsp;million in 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After the corporate restructuring process, all these companies became part
of Telemar Norte Leste, which began trading on the BOVESPA on September&nbsp;24,
2001. The daily trading volume of Telemar averaged approximately R$10.9
million in 2002.
</FONT>

<P align="left"><FONT size="2"><B>Trading on the Brazilian Stock Exchanges</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2000, the nine Brazilian stock exchanges merged. Since the merger,
private equity and debt have been traded only on the BOVESPA. Brazilian
federal, state and municipal public debt has been traded exclusively on, and
privatization auctions have been carried out exclusively at, the Rio de Janeiro
Stock Exchange. In 2000, BOVESPA accounted for approximately 97% of the trading
value of equity securities on all Brazilian stock exchanges, and BOVESPA and
the Rio de Janeiro Stock Exchange together accounted for approximately 99% of
the trading value of equity securities on all Brazilian stock exchanges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Brazilian stock exchange is a non-profit entity owned by its member
brokerage firms. Trading on the exchange is limited to member brokerage firms
and a limited number of authorized non-members. The BOVESPA has two open
outcry trading sessions each day, from 10:00&nbsp;a.m. to 1:00 p.m.
and from 2:00 p.m. to 6:00 p.m. Trading is also conducted during this
time on an automated system on the BOVESPA.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;20, 1999, the BOVESPA launched the After-Market, with the
objective of expanding business opportunities and offering investors a more
flexible trading schedule. After-Market trading takes place from 6:00 to 10:00
p.m., that is, after regular trading hours. All stocks traded during
</FONT>

<P align="center"><FONT size="2">94</FONT>
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<P align="left"><FONT size="2">the
regular trading session of the day may be traded on the After-Market. However,
only cash market trading via the BOVESPA&#146;s electronic trading system is
allowed. The maximum variation allowed for stock prices&#151;whether positive or
negative&#151;corresponds to 2% in relation to the closing price at the regular
trading session.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no specialists or market makers for TNL&#146;s shares on the BOVESPA.
Trading in securities listed on the Brazilian stock exchanges may be executed
off the exchanges in certain circumstances, although such trading is very
limited.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 a separate clearinghouse, 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 BOVESPA is Companhia
Brasileira de Liquida&#231;&#227;o e Cust&#243;dia S.A. (&#147;CBLC&#148;), which is controlled mainly
by the member brokerage firms and banks that are not members of that exchange.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, the aggregate market capitalization of the 399
companies listed on the BOVESPA was approximately US$124&nbsp;billion. Although all
the outstanding 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 are 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian equity market is relatively small and illiquid compared to
major world markets. In 2002, the monthly trading volume on the BOVESPA
averaged approximately US$ 4.1&nbsp;billion. In 2002, the five most actively traded
issues represented approximately 41% of the total volume of shares traded on
the BOVESPA.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trading on Brazilian stock exchanges by nonresidents of Brazil is subject
to certain limitations under Brazilian foreign investment legislation.
</FONT>

<P align="left"><FONT size="2"><B>Regulation of Brazilian Securities Markets</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian securities markets are regulated by the CVM, which has
authority some stock exchanges and the securities markets generally, and by the
Central Bank, which has, among other powers, licensing authority some brokerage
firms and regulates foreign investment and foreign exchange transactions. The
Brazilian securities market is governed by the Corporate Law and by Law No.
6,385, as amended (the &#147;Securities Law&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Corporate Law, a company is either public, a <I>companhia aberta</I>,
such as TNL, or private, a <I>companhia fechada</I>. 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 BOVESPA or
in the Brazilian some-the-counter market. The shares of a public company may
also be traded privately, subject to certain limitations. To be listed on the
BOVESPA, a company must apply for registration with the CVM and the BOVESPA.
Once the BOVESPA has admitted a company to listing and the CVM has accepted its
registration as a public company, its securities may be traded on the BOVESPA.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trading in securities on the BOVESPA may be suspended at the request of a
company in anticipation of the announcement of a material event. Trading may
also be suspended on the initiative of the BOVESPA 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 BOVESPA.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trading of shares is disallowed under certain circumstances for the
following persons: the company itself, its controlling shareholders, officers,
directors or members of any technical or advisory
</FONT>

<P align="center"><FONT size="2">95</FONT>
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<P align="left"><FONT size="2">body established pursuant to
its by-laws, or for persons who, as a result of their position, title or
relationship with the company, have access to information regarding relevant
acts or events, such as the impending disclosure of a relevant act or event,
and the 15-day period before disclosure of the company&#146;s quarterly and annual
financial statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian securities markets are principally governed by Brazilian
Securities Law, by Brazilian Corporate Law and by regulations issued by the CVM
and the <I>Conselho Monet&#225;rio Nacional</I> (National Monetary Council). These laws
and regulations, among others, provide for 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;31, 2001 the Brazilian Congress passed a law amending Law No.
10,303 (Brazilian Corporate Law), which became effective in March 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Companies were given a one year period through March 2003 to amend their
by-laws in accordance with the amended Brazilian Corporate Law. This amended
law increases the right of minority shareholders, including holders of
Preferred Shares, with restricted voting rights and granted more regulatory
power to CVM. TNL modified its by-laws in accordance with this amended law
with respect to dividends on December&nbsp;27, 2002.
</FONT>

<!-- link2 "Item&nbsp;10. Additional Information" -->
<DIV align="left"><A NAME="012"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;10. <I>Additional Information</I></B>
</FONT>

<P align="left"><FONT size="2"><B>Memorandum and Articles of Association</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as described in this section, all relevant information with respect
to TNL&#146;s by-laws are described in Item&nbsp;14 of its Registration Statement on Form
20-F filed with the Securities and Exchange Commission on September&nbsp;18, 1998
(File No.&nbsp;001-14487), which is incorporated by reference.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian Law, there is no memorandum or articles of association.
The only constitutive documents of TNL are the by-laws and the minutes of the
General Shareholders Assembly for the Incorporation of the Company.
</FONT>

<P align="left"><FONT size="2"><B>Organization</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL is a listed company duly registered with the CVM under No.&nbsp;01765-5.
According to Article&nbsp;2 of the Company&#146;s by-laws, its business purposes are:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to exercise control some the companies that exploit public fixed-line telephone services in Region I;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to promote, through subsidiaries or affiliates, the expansion and establishment of fixed-line telecommunications services
in its concession area;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to promote, carry out or direct the acquisition of funds from internal and external sources to be used by it or by its
subsidiaries;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to promote and foster study and research activities aimed at the development of the fixed-line telecommunications sector;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to provide, through subsidiaries or affiliates, specialized technical services in the fixed-line telecommunications area;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to promote, foster and coordinate, through its subsidiaries or affiliates, the education and training of the personnel
required in the fixed-line telecommunications sector;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to carry out and promote the importation of goods and services for its subsidiaries or affiliates;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to carry out other activities that are similar or related to its business purposes; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to invest in shares or quotas of other companies.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">96</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as described in this section, TNL&#146;s bylaws do not contain
provisions addressing the duties, authority, or liabilities of directors and
senior management, which are instead established by Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Qualification of Directors</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian law provides that only shareholders of a company may be
appointed to its board of directors. There is no minimum share ownership or
residency requirement for qualification as a director. If a director is living
abroad, he must appoint an attorney-in-fact to act as his representative as
required by Brazilian law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Allocation of Net Income and Distribution of Dividends</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The by-laws of TNL require the Board of Directors to recommend, at each
annual shareholders&#146; meeting, the allocation of net income for the preceding
fiscal year as follows:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5% to a legal reserve, not to exceed 20% of the paid-in capital of
TNL; and
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25% of adjusted net income against payment of dividends. Such amount
will be increased if required to satisfy payment of dividends of Preferred
Shares. This is a requirement of Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whenever TNL accumulates or reserves profits, the Board of Directors can
authorize the allocation of interim dividends, as provided under Brazilian
Corporate Law. In general, the Company has to pay dividends first to the
Preferred Shares and then, to the Common Shares. The balance remaining will be
prorated on an equal basis for all shares of stock. The dividends not claimed
within 3&nbsp;years will revert to TNL.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In lieu of the payment of dividends as stated in the preceding two
paragraphs, TNL may elect to make payments to shareholders characterized as
interest on capital of TNL. See &#147;Taxation&#151;Distribution of Interest on
Capital.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Shareholders&#146; Meetings</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shareholders&#146; meetings are held once a year, generally during the
first four months following the end of the fiscal year. The meeting can be
called at any other time, whenever TNL&#146;s interests so require.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL&#146;s shareholders have the power to decide any matters related to TNL&#146;s
corporate purpose and to pass any resolutions they deem necessary for TNL&#146;s
protection and development, through voting at a general shareholders&#146; meeting.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL convenes the shareholders&#146; meetings by publishing a notice in the
Gazeta Mercantil newspaper and in the Federal Official Gazette. The notice
must be published no fewer than three times, beginning at least 15 calendar
days prior to the scheduled meeting date. However, pursuant to TNL&#146;s by-
laws the meeting must be called with 30&nbsp;days in advance if the meeting is
to decide on the following matters:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the creation of Preferred Shares or the increase of existing classes disproportionately to the other classes of shares, if
not yet forecasted or approved in the by-law;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">changing the rights and buy back conditions or amortization of one or more classes of preferred shares, or the creation of
a class with more favorable benefits;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">reducing mandatory dividends;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving a merger, company spin-off or company merger into another company;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">97</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving the participation of TNL in a <I>&#147;grupo de sociedades&#148;</I> (a group of companies whose management is coordinated through
contractual relationships and equity ownership) as defined under the Brazilian Corporate Law;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">changing TNL&#146;s business purpose;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">creating founders&#146; shares (<I>partes benefici&#225;rias</I>);</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ceasing TNL&#146;s state of liquidation; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving TNL&#146;s dissolution.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The notice must always contain the meeting&#146;s agenda and, in the case of a
proposed amendment to the by-laws, an indication of the subject matter.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board of Directors, or, in some specific situations set forth in the
Brazilian Corporate Law, the shareholders or the <I>Conselho Fiscal</I>, calls the
general shareholders&#146; meetings. A shareholder may be represented at a general
shareholders&#146; assembly by an attorney-in-fact so long as the attorney-in-fact
was appointed within a year of the meeting. The attorney-in-fact must be a
shareholder, a member of the management of the Company, a lawyer, or a
financial institution. The power of attorney given the attorney-in-fact must
comply with certain formalities set forth by Brazilian law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to be held legally on the first call, the general shareholders&#146;
meeting needs a quorum representing at least one quarter of the issued and
outstanding Common Shares; at a second call, the general shareholders&#146; meeting
can be held without a required quorum. However, if the purpose of a general
meeting is to amend TNL&#146;s by-laws, shareholders representing at least
two-thirds of the issued and outstanding Common Shares must be present. If
quorum is not met, the Board of Directors may call a second meeting with notice
given at least eight calendar days prior to the scheduled meeting, in
accordance with the rules of publication described above. The quorum
requirements will not apply to a second meeting, subject to the voting
requirements for certain matters described below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Voting Rights</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Common Share entitles its holder to one vote at TNL&#146;s shareholders&#146;
meetings. Except as otherwise provided by law, resolutions of a general
shareholders&#146; assembly are passed by a simple majority vote by holders of the
Common Shares; abstentions are not taken into account.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of non-voting Preferred Shares may acquire voting rights if TNL
fails to pay dividends for three consecutive years. They will continue to have
voting rights until dividends are duly paid by TNL. In addition, its preferred
shareholders have voting rights in the following circumstances:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approval of long-term agreements between TNL or its subsidiaries, on
one hand, and the controlling shareholder or its subsidiary or
affiliated companies, or companies that are under common control with,
or have control some, the controlling shareholder, on the other hand,
except for standard clause agreements; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">amendment or repeal of the provision above, as well as a provision
requiring a 30-day notice for calling a General Meeting to review
certain matters listed above, and a provision requiring that any
approval by the company of a merger, spin-off, consolidation or
dissolution of subsidiaries must be preceded by an economic-financial
analysis conducted by independent experts, ensuring fair treatment to
all interested companies.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Brazilian law, the approval of the holders of a majority of
the outstanding adversely affected preferred shares as well as shareholders
representing at least one-half of the issued and outstanding common shares is
required for the following actions:
</FONT>

<P align="center"><FONT size="2">98</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">creating preferred shares or increasing an existing class of shares
without preserving the proportions of the shares, except as already
authorized by TNL&#146;s by-laws;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">changing a preference, privilege or condition of redemption or
amortization of any class of preferred shares; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">creating a new class of preferred shares that has a preference,
privilege or condition of redemption or amortization superior to the
existing preferred shares.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These actions are put to the vote of the holders of the adversely affected
preferred shares at a special meeting, where each preferred share entitles the
shareholder to one vote. Preferred shareholders do not have a vote on any
other matter, beyond those mentioned here.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding those previously mentioned, the approval of holders of at
least one-half of the issued and outstanding common shares is required for the
following actions:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">reducing the mandatory distribution of dividends;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving a merger with or into another company or company spin-off;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving the participation in a <I>&#147;grupo de sociedades&#148;</I> (a group of
companies whose management is coordinated through contractual
relationships and equity ownership) as defined under the Brazilian
Corporate law;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">changing the business purpose;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">creating founders&#146; shares (partes benefici&#225;rias);</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">ceasing the state of liquidation; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">approving the dissolution.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Brazilian Corporate Law, holders of common shares, voting
at a general shareholders&#146; meeting, have the exclusive power to:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">amend the by-laws, including changes to the rights of the holders of the common shares;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">elect or dismiss members of the Board of Directors and elect the majority of the members of the <I>Conselho Fiscal</I>;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">receive the yearly accounts prepared by the management and accept or reject management&#146;s financial statements, including
the allocation of net profits for payment of the mandatory dividend and allocation to the various reserve accounts;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">authorize the issuance of debentures and founders&#146; shares (<I>partes benefici&#225;rias</I>), with the exception of the Board of
Directors&#146; ability to determine whether to issue simple debentures, not convertible into shares and with no real guarantee;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">suspend the rights of a shareholder who has not fulfilled the obligations imposed by law or by the by-laws;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of capital stock;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">pass resolutions to reorganize TNL&#146;s legal form, merge, spin off, dissolve or liquidate, elect or dismiss the liquidators
or examine their accounts; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">authorize TNL&#146;s management to file for bankruptcy or request concordat (similar to Chapter&nbsp;11 proceeding under US
bankruptcy law).</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">99</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Rights of Withdrawal</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian Corporate Law provides that under certain circumstances a
shareholder has the right to withdraw from participation in a company and to
receive a payment for his or her equity interest if an independent valuation
were to determine based on its last approved balance sheet that the company&#146;s
economic value was lower than the company&#146;s net equity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This right of withdrawal may be exercised:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by the dissenting or non-voting holders of the adversely affected
class of shares (including any holder of preferred shares of an adversely
affected class) in the event that a majority of all outstanding common shares
authorizes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the creation of preferred shares or an increase in an existing class
of shares without preserving the proportions with the other classes of
shares, except as already authorized by TNL&#146;s by-laws;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the change of a preference, privilege or condition of redemption or
amortization of preferred shares;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the creation of a new class of preferred shares that has a preference,
privilege or condition of redemption or amortization superior to the
existing preferred shares; or</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by all dissenting or non-voting shareholders in the event that a
majority of all outstanding common shares authorizes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a reduction in the mandatory distribution of dividends;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a change in the business purpose;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a transfer of all shares to another company, making the Company a
wholly-owned subsidiary of such company, known as an incorpora&#231;&#227;o de
a&#231;&#245;es;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to revert winding up of the Company, to create founders&#146; shares
(<I>partes benefici&#225;rias</I>) or to dissolve the Company; or</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;by the dissenting or non-voting shareholders, in the event that a
majority of all outstanding common shares authorizes:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the acquisition of control of another company at a price which exceeds
certain limits set forth in the Brazilian Corporate Law;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">a merger with or into another company, or the spin-off of the Company
under certain circumstances defined in the Brazilian Corporate Law; or</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">participation in a <I>&#147;grupo de sociedades.&#148;</I></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that the Company is merged with another one, becomes part of
a &#147;group of companies&#148; or has its control acquired by another company for a
price in excess of certain limits imposed by the Brazilian Corporate Law, or in
the event of &#147;grouping of shares,&#148; holders of any type or class of shares that
are marketable and spread out in the market will not have the right to
withdraw. Shares are considered marketable when that type or class of share is
part of a general index, defined by the Comiss&#227;o
de Valores Mobili&#225;rios, that is representative of the securities portfolio
listed in stock exchanges in Brazil or abroad. Shares are considered spread out
in the market when the controlling shareholder, the parent company or other
companies under its control hold less than half the total amount of that share
type or class.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a spin-off, the right to withdraw will exist only when the
spin-off implies a change in the company purpose (except if the spun-off assets
revert to companies whose main purpose is the same as the split company&#146;s), a
reduction in compulsory dividends, or a participation in a &#147;group of
companies.&#148;
</FONT>

<P align="center"><FONT size="2">100</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dissenting shareholders or those without voting rights are also entitled
to withdraw in the event that the entity resulting from a merger or spin-off
does not become a listed company whose shares are traded in the secondary
market within 120&nbsp;days from the general shareholders&#146; meeting that approved the
relevant merger or spin-off was taken.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dissenting shareholders or shareholders with no voting rights are only
entitled to withdraw when they are shareholders of record at the time when the
first notice calling for a general meeting to deliberate on this matter is
published or at the time when a relevant event is announced, whichever is
earlier.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The right to withdraw lapses 30&nbsp;days after publication of the minutes of
the meeting where the act was taken, except when the resolution is taken
pending confirmation by the holders of preferred shares (such confirmation to
be given at special meeting to be held within a year). In this event, the
30-day period for shareholders who disagree with the special meeting
deliberation begins at the date of publication of the special meeting minutes.
The Company is entitled to reconsider, within 10&nbsp;days after expiration of the
exercise period of withdrawal rights, any act which gives rise to such rights,
should reimbursement of shares held by dissenting shareholders be deemed to
have a negative impact on its financial stability.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In any one of the situations above, shares would be redeemable at their
net book value, determined based on the most recent balance sheet approved by
shareholders. The reimbursement amount can only be lower than such amount if
established based on the economic value of enterprise, to be determined through
an appraisal. If the general meeting that gave rise to such redemption rights
is held more than 60&nbsp;days after the date of the most recent approved balance
sheet, shareholders may require that the reimbursement value of their shares be
calculated based on a new balance sheet dated up to 60&nbsp;days before the general
meeting.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Liquidation Procedures</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of the liquidation of TNL, the holders of Preferred Shares
would be entitled to priority some the holders of Common Shares in the
reimbursement of the capital, with no premium. The amount to which they would
be entitled is based on the portion of the capital stock represented by the
Preferred Shares, as adjusted from time to time to reflect any capital
increases or reductions. First, after all the creditors of TNL had been paid,
the residual assets would be used to return the amount of capital represented
by the Preferred Shares to its holders. Once the holders of Preferred Shares
had been fully reimbursed, the holders of the Common Shares would be reimbursed
on the portion of the capital stock represented by the Common Shares. All the
shareholders of TNL would participate equally and ratably in any remaining
residual assets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Form and Transfer of Securities</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL&#146;s shares are maintained in book-entry form with a transfer agent (the
&#147;Transfer Agent&#148;). To make the transfer, the Transfer Agent makes an entry in
the register, debits the share account of the transferor and credits the share
account of the transferee.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transfers of shares by a foreign investor are made in the same way and
executed by the investor&#146;s local agent on the investor&#146;s behalf.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The BOVESPA and clearing systems, such as member brokerage firms and
banks, control the clearing entity CBLC. The shareholders may choose, at their
individual discretion, to hold their shares through CBLC. Shares are added to
the CBLC system through Brazilian institutions that have clearing accounts with
the CBLC. TNL&#146;s shareholder registry indicates which shares are listed on the
CBLC system.
</FONT>

<P align="center"><FONT size="2">101</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Transfer of Control</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the General Telecommunications Law, the control of a
fixed-line service provider can only be transferred:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">after the obtaining of Anatel&#146;s approval;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">after 5&nbsp;years from the start of the fixed-line services;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">to a company which fulfills all technical, legal, economic and
financial requirements imposed by applicable regulations; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">if the transaction does not hinder competition and does not place the
performance of the obligations under the concession contract in risk.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even after 5&nbsp;years, a transfer of control, the result of which is that
direct or indirect control of concessionaires servicing different regions under
the Concession Agreement is assigned to a single shareholder or group of
shareholders, will not be allowed if Anatel considers such impediment necessary
to carry the Concession Agreement through.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The disposal of the control of a publicly-held company, such as TNL and
Telemar, can only be effected on condition that the acquirer undertakes to make
a public offering to purchase the voting shares of the remaining shareholders,
at a price equal to at least 80% of the amount paid for each voting share
included in the controlling block. Minority shareholders will have the option
to keep their shares, upon payment of a premium equal to the excess of the
market value of the shares some the amount paid for each share included in the
controlling block. The public offering must comply with the rules issued by
CVM.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disposal of control is defined as the direct or indirect transfer of those
shares included in the controlling block, shares subject to shareholders&#146;
agreements, securities convertible into voting shares, assignment of share and
other securities subscription rights, or rights attached to securities
convertible into shares which may result in the disposal of the company
control.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s by-laws require that approval by its shareholders of
mergers, split-ups or dissolution of its subsidiaries be preceded by an
economic-financial analysis performed by an independent company of recognized
international standing, to confirm that all of the companies involved are being
treated equitably. The shareholders of the companies involved in the process
shall have full access to the report on the analysis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Amendments</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The by-laws were last amended on April&nbsp;10, 2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Disclosure of Shareholder Ownership</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian regulations establish that the controlling shareholders and
those shareholders who elected the members of the Board of Directors or
<I>Conselho Fiscal</I>, as well as any other person or group of persons acting
together or representing the same interest, and who directly or indirectly hold
5% or
more of any type or class of the shares in a publicly-owned company,
disclose their shareholding to CVM and other stock exchanges. A statement to
this effect, setting forth the information required, must also be published in
adequate Brazilian newspapers. This publication requirement may be waived by
CVM when the company shares are spread out in the market and the purchaser
represents that it is not his/her intention to alter the share control or
administrative structure of the company, provided that the CVM deems the
disclosure satisfactory. Every 5% increment in shareholding must be similarly
disclosed thereafter.
</FONT>

<P align="center"><FONT size="2">102</FONT>
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<P align="left"><FONT size="2"><B>Material Contracts</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the material contracts to which the Company
is a party, other than contracts entered into in the ordinary course of
business.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of November&nbsp;30, 1999, Telemar and Telemar Participa&#231;&#245;es entered into a
management services agreement, providing for consulting and management
assistance services by Telemar Participa&#231;&#245;es to Telemar. This agreement
represents the only material contract not entered into in the ordinary course
of business. The management services agreement is effective until 2003, and
its term may be extended. Telemar Participa&#231;&#245;es&#146; remuneration for providing
management services under the management services agreement is a percentage of
net revenues of Telemar, determined in accordance with the Brazilian Corporate
Law, as follows: 1% in the period from August 1998 to December&nbsp;31, 2000, 0.5%
in 2001 and 2002 and 0.2% in 2003. As of December&nbsp;31, 2002, the payment due to
Telemar Participa&#231;&#245;es under the management services agreement for the year
2002, in the amount of R$57.7&nbsp;million, was recorded as general and
administrative expenses. See &#147;Note 5 and Note 3 to the Consolidated Financial
Statements.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Exchange Controls</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 have been
registered with the Central Bank. Such restrictions on the remittance of
foreign capital abroad may hinder or prevent Banco Ita&#250; S.A. (the &#147;Custodian&#148;),
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 into US dollars and
remitting such US 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
Preferred Shares underlying the ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Brazil, there is a mechanism available to foreign investors interested
in trading directly on the S&#227;o Paulo Stock Exchange. Until March 2000, this
investment mechanism was known as &#147;Annex IV&#148; after Annex IV to Resolution No.
1,289 of the National Monetary Council&#151;the &#147;Annex IV Regulations.&#148; Currently,
this investment mechanism is regulated by Resolution No.&nbsp;2,689 dated January
26, 2000 of the National Monetary Council and by Instruction No.&nbsp;325 dated
January&nbsp;27, 2000 of the CVM, as amended (the &#147;2,689 Regulation&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2,689 Regulation, which became effective on March&nbsp;31, 2000, sets forth
new regulations on foreign portfolio investments in Brazil. Foreign
investments registered under Annex IV Regulations had to be conformed to the
2,689 Regulation by September&nbsp;30, 2000. Such new regulations allow foreign
investors to invest in almost all of the financial assets and to engage in
almost all transactions available in the Brazilian financial and capital
markets, provided that some requirements are met. In accordance with the 2,689
Regulation, foreign investors are individuals, legal entities, mutual funds and
other collective investments resident, domiciled or headquartered abroad. The
2,689 Regulation prohibits the offshore
transfer or assignment of the title to the securities, except in the cases
of (i)&nbsp;corporate reorganization effected abroad by a foreign investor or (ii)
inheritance.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the 2,689 Regulation, foreign investors must:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">appoint at least one representative in Brazil with powers to perform
actions relating to the foreign investment;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">fill in the appropriate foreign investor registration form;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">obtain registration as a foreign investor with CVM; and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">103</FONT>
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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">register the foreign investment with the Central Bank.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The securities and other financial assets held by the foreign investor
pursuant to the 2,689 Regulation must be registered or maintained in deposit
accounts or under the custody of an entity duly licensed by the Central Bank or
by the CVM or be registered in register, clearing and custody systems
authorized by the Central Bank or by the CVM. In addition, securities trading
is restricted to transactions carried out in exchanges or organized in
some-the-counter markets licensed by the CVM.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All investments made by a foreign investor under the 2,689 Regulation will
be subject to an electronic registration with the Central Bank. Foreign
investments registered under Annex IV Regulations had to be conformed to the
new regulations of capital registration by September&nbsp;30, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 2,689 Regulation also extends a favorable tax treatment to all foreign
investors investing pursuant to these new regulations. See &#147;Taxation&#151;Brazilian
Tax Considerations.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, the holder will be
entitled to continue to rely on the Depositary&#146;s Certificate of Registration
for five business days after the exchange, following which the holder must seek
to obtain its own Certificate of Registration with the Central Bank.
Thereafter, any holder of Preferred Shares may not be able to convert into
foreign currency and remit outside Brazil the proceeds from the disposition of,
or distributions with respect to, such Preferred Shares, unless such holder
qualifies under Resolution No.&nbsp;2,689 or 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
&#147;Taxation&#151;Brazilian Tax Considerations.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s balance of
payments. For approximately six months in 1989 and early 1990, the Brazilian
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&#146;s foreign currency reserves. These amounts were subsequently released
in accordance with Federal Government directives. There can be no assurance
that the Federal Government will not impose similar restrictions on foreign
repatriations in the future.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Registered Capital</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts invested in Preferred Shares by a non-Brazilian holder who
qualifies for benefits under Resolution 2,689 and obtains registration with the
CVM, or by the Depositary representing an ADS holder, are eligible for
registration with the Central Bank. Such registration (the amount so
registered is referred to as &#147;Registered Capital&#148;) allows the remittance
outside Brazil of foreign currency, converted at the commercial market rate,
acquired with the proceeds of distributions on,
and amounts realized through dispositions of, such Preferred Shares. 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 US dollars). The Registered
Capital per Preferred Share withdrawn upon cancellation of an ADS will be the
US dollar equivalent of (i)&nbsp;the average price of a Preferred Share on the
BOVESPA on the day of withdrawal or, (ii)&nbsp;if no Preferred Shares were traded on
that day, the average price on the BOVESPA during the fifteen trading sessions
immediately preceding such withdrawal. The US dollar equivalent will be
determined on the basis of the average commercial market rates quoted by the
Central Bank on such date or dates.
</FONT>

<P align="center"><FONT size="2">104</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-Brazilian holder of Preferred Shares may experience delays in
effecting Central Bank registration, which may delay remittances abroad. Such
a delay may adversely affect the amount in US dollars received by the
non-Brazilian holder.
</FONT>

<P align="left"><FONT size="2"><B>Taxation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary contains a description of the principal Brazilian
and US federal income tax consequences of the acquisition, ownership and
disposition of Preferred Shares or ADSs, but it 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 the United States and regulations under these tax laws
as currently in effect, which are subject to change. <B>Prospective purchasers 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.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. No assurance can be given, however, as to
whether or when a treaty will enter into force or how it will affect the US
holders of Preferred Shares or ADSs. 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Brazilian Tax Considerations</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion summarizes the principal 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 (a &#147;non-Brazilian holder&#148;). This discussion does not address all the
Brazilian tax considerations that may be applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult its own tax
advisor about the Brazilian tax consequences of investing in Preferred Shares
or ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Dividends</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid by TNL in cash or in kind from profits of periods beginning
on or after January&nbsp;1, 1996 (i)&nbsp;to the Depositary in respect of Preferred
Shares underlying ADSs or (ii)&nbsp;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&nbsp;1, 1996 may be subject to
Brazilian withholding tax at varying rates, except that stock dividends are not
subject to Brazilian tax unless, within five years after the distribution, the
stock is subsequently redeemed by TNL or the non-Brazilian holder sells the
stock in Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The only Brazilian tax treaty now in effect that would (if certain
conditions are met) reduce the rate of the withholding tax on dividends paid
from profits generated before January&nbsp;1, 1996 is the treaty with Japan, which
would reduce the rate to 12.5% under the circumstances set forth in the treaty.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Distribution of Interest on Capital</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian corporations may make payments to shareholders characterized as
interest on capital of TNL as an alternative form of making dividend
distributions. The rate of interest may not be higher than the Federal
Government&#146;s long-term interest rate (the &#147;TJLP&#148;) as determined by the Central
Bank from time to time (11% per annum for the three month period beginning
April 2003). The total amount distributed as interest on capital may not
exceed the greater of (i)&nbsp;50% of net income (before taking such distribution
and any deductions for income taxes into account) for the year in respect of
which the payment is made or (ii)&nbsp;50% of retained earnings for the year prior
to the year in respect of which the payment is made. Payments of interest on
capital are decided by the shareholders on the basis of recommendations of
TNL&#146;s Board of Directors.
</FONT>

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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distribution 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 TNL for Brazilian corporate
income tax purposes. Such payments are subject to Brazilian withholding tax at
the rate of 15%, except for payments to persons who are exempt from tax in
Brazil, which payments are free of Brazilian tax, and except for payments to
persons situated in tax havens, which payments are subject to tax at a 25%
rate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No assurance can be given that the Board of Directors of TNL will not
recommend that future distributions of profits will be made by means of
interest on capital instead of by means of dividends.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts paid as interest on capital (net of applicable withholding tax)
may be treated as payments in respect of the dividends TNL is obligated to
distribute to its shareholders in accordance with its Charter and the Brazilian
Corporate 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 US dollars and remitted
outside of Brazil, subject to applicable exchange controls.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Gains</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs to another non-Brazilian holder are not subject to Brazilian tax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. Gains on the disposition of Preferred Shares obtained upon
cancellation of ADSs are not taxed in Brazil if the disposition is made and the
proceeds are remitted abroad within five business days after cancellation,
unless the investor is a resident of a jurisdiction that, under Brazilian law,
is deemed to be a &#147;tax haven&#148; (<I>i.e.</I>, a country that does not impose any income
tax or that imposes tax at a rate of less than 20%). Gains realized through
transactions with Brazilian residents or through transactions in Brazil off of
the BOVESPA are generally subject to tax at a rate of 15%. Gains realized
through transactions on the BOVESPA are generally subject to tax at a rate of
10%, unless the investor is entitled to tax-free treatment for the transaction
under Resolution 2,689 of the National Monetary Council Regulations, described
immediately below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Resolution 2,689, which as of March&nbsp;31, 2000 superseded the Annex IV
Regulations that previously provided tax benefits to foreign investors, extends
favorable tax treatment to a non-Brazilian holder of Preferred Shares who has
(i)&nbsp;appointed a representative in Brazil with power to take action relating to
the investment in Preferred Shares, (ii)&nbsp;registered as a foreign investor with
the CVM and (iii)&nbsp;registered its investment in Preferred Shares with the
Central Bank. Under Resolution 2,689 securities held by foreign investors must
be maintained under the custody of, or in deposit accounts with, financial
institutions duly authorized by the Central Bank and the CVM. In addition,
securities trading is restricted under Resolution 2,689 to transactions on the
BOVESPA or qualified some-the-counter
markets. The preferential treatment generally afforded under Resolution
2,689 and afforded to investors in ADSs is not available to residents of tax
havens.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There can be no assurance that the current preferential treatment for
holders of ADSs and non-Brazilian holders of Preferred Shares under Resolution
2,689 will be maintained.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on the disposition of Preferred Shares is measured by 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. See &#147;Registered
Capital.&#148;
</FONT>


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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective on January&nbsp;1, 2002, withholding taxes
for transactions on the BOVESPA have been increased from previous 10% to 20%.
Brazil&#146;s tax treaties do not grant relief from taxes on gains realized on sales
or exchanges of Preferred Shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 (i)&nbsp;whether the sale or assignment is
made by the Depositary or the investor and (ii)&nbsp;whether the transaction takes
place on the BOVESPA. 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%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The deposit of Preferred Shares in exchange for the ADSs may be subject to
Brazilian tax if the amount previously registered with the Central Bank as a
foreign investment in Preferred Shares is lower than (i)&nbsp;the average price per
Preferred Share on the BOVESPA on the day of the deposit; or (ii)&nbsp;if no
Preferred Shares were sold on that day, the average price on the BOVESPA during
the fifteen preceding trading sessions. In this case, the difference between
the amount previously registered and the average price of the Preferred Shares,
calculated as set forth above, shall be considered a capital gain subject to
income tax at a rate of 15% (unless the Preferred Shares were held in
accordance with Resolution 2,689, in which case the exchange would be
tax-free).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The withdrawal of Preferred Shares in exchange for ADSs is not subject to
Brazilian tax. On receipt of the underlying Preferred Shares, a non-Brazilian
holder entitled to benefits under Resolution 2,689 will be entitled to register
the US dollar value of such shares with the Central Bank as described in
&#147;Exchange Controls&#151;Registered Capital.&#148; If such non-Brazilian holder does not
qualify under Resolution 2,689, it will be subject to the less favorable tax
treatment described above in respect of exchanges of Preferred Shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Brazilian Taxes</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. There are no Brazilian stamp, issue, registration, or similar taxes or
duties payable by holders of Preferred Shares or ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A financial transaction tax (the &#147;IOF tax&#148;) may be imposed on a variety of
transactions, including the conversion of Brazilian currency into foreign
currency <I>(e.g., </I>for purposes of paying dividends and interest). The IOF 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%<I>. </I>Any such increase will be
applicable only prospectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IOF may also be levied on transactions involving bonds or securities
(&#147;IOF/T&#237;tulos&#148;) even if the transactions are effected on Brazilian stock,
futures or commodities exchanges. The rate of the IOF/T&#237;tulos with respect to
Preferred Shares and ADSs is currently 0%. The Minister of Finance, however,
has the legal power to increase the rate to a maximum of 1.5% of the amount of
the taxed transaction per each day of the investor&#146;s holding period, but only
to the extent of gain realized on the transaction and only on a prospective
basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the IOF tax, a second, temporary tax that applies to the
removal of funds from accounts at banks and other financial institutions (the
&#147;CPMF tax&#148;) will be imposed on distributions by
</FONT>

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<P align="left"><FONT size="2">TNL in respect of ADSs at the time such distributions are converted into
US dollars and remitted abroad by the Custodian. The CPMF tax will be in
effect until June 2002, unless its term is extended, and is currently imposed
at a rate of 0.38%. On June&nbsp;12, 2002, the Brazilian Congress approved an
extension of the CPMF tax until December&nbsp;31, 2004. The rate of 0.38% is
maintained until December&nbsp;31, 2003, changing to 0.08% for the subsequent
period. The Brazilian Congress also approved that, as of July&nbsp;12, 2002, stock
exchange transactions are exempted from the CPMF tax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>US Federal Income Tax Considerations</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The statements regarding US tax law set forth below are based on US law as
in force on the date of this Annual Report, and changes to such law subsequent
to the date of this Annual Report may affect the tax consequences described
herein. This summary describes the principal 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 US dollar, holders of 10% or more of the shares
of TNL (taking into account shares held directly or through depositary
arrangements), tax-exempt organizations, financial institutions, 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Each holder should consult such holder&#146;s own tax advisor concerning the
overall tax consequences to it, including the consequences under laws other
than US federal income tax laws, of an investment in Preferred Shares or ADSs.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this discussion, references to ADSs also refer to Preferred Shares, and
references to a &#147;US holder&#148; are to a holder of an ADS (i)&nbsp;that is a citizen or
resident of the United States of America, (ii)&nbsp;that is a corporation organized
under the laws of the United States of America or any state thereof, or (iii)
that is otherwise subject to US federal income taxation on a net basis with
respect to the ADS.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the US Internal Revenue Code of 1986, as amended, (the
&#147;Code&#148;) holders of ADSs will be treated as owners of the Preferred Shares
represented by such ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Distributions</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A US holder will recognize ordinary dividend income for US federal income
tax purposes in an amount equal to the amount of any cash and the value of any
property distributed by TNL as a dividend to the extent that such distribution
is paid out of TNL&#146;s current or accumulated earnings and profits, as determined
for US federal income tax purposes, when such distribution is received by the
custodian, or by the US holder in the case of a holder of Preferred Shares.
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
<I>reais </I>will be measured by reference to the exchange rate for converting <I>reais</I>
into US dollars in effect on the date the distribution is received by the
Custodian, or by a US holder in the case of a holder of Preferred Shares. If
the Custodian, or US holder in the case of a holder of Preferred Shares, does
not convert such <I>reais </I>into US dollars on the date it receives them, it is
possible that the US holder will recognize foreign currency loss or gain, which
would be ordinary loss or gain, when the <I>reais </I>are converted into US dollars.
Under new rules applicable to dividends received after 2002 and before 2009, an
individual US holder generally will be subject to US taxation at a maximum rate
of 15%. This reduced rate does not apply to dividends paid in respect of
certain short-term (less than 60&nbsp;days) or hedged positions. You should consult
your own tax adviser regarding the implications of these new rules in light of
your particular
</FONT>

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<P align="left"><FONT size="2">circumstances. Dividends paid by TNL will not be eligible for the
deduction for dividends allowed to corporations under the Code.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
&#147;passive&#148; (or, in the case of certain US holders, &#147;financial services&#148;) 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 US federal income tax liability of a US holder if such US
holder elects for that year to credit all foreign income taxes. Alternatively
such Brazilian withholding tax may be taken as a deduction against taxable
income. Foreign tax credits will not be allowed for withholding taxes imposed
in respect of certain short-term or hedged positions in securities and may not
be allowed in respect of arrangements in which a US holder&#146;s expected economic
profit is insubstantial. US holders should consult their own tax advisors
concerning the implications of these rules in light of their particular
circumstances.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Distributions of additional shares to holders with respect to their ADSs
that are made as part of a pro rata distribution to all shareholders of TNL
generally will not be subject to US federal income tax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of ADSs that are foreign corporations or nonresident alien
individuals (&#147;non-US holders&#148;) generally will not be subject to US federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for US federal income tax purposes unless such
dividends are effectively connected with the conduct by the holder of a trade
or business in the United States.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Capital Gains</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the sale or other disposition of an ADS, a US holder will generally
recognize gain or loss for US federal income tax purposes. The amount of the
gain or loss will be equal to the difference between the amount realized in
consideration for the disposition of the ADS and the US holder&#146;s tax basis in
the ADS. Such gain or loss generally will be subject to US federal income tax
and will be treated as capital gain or loss and will be long-term capital gain
or loss if the ADS has been held for more than one year. The net amount of
long-term capital gain recognized by an individual holder after May&nbsp;5, 2003 and
before January&nbsp;1, 2009 generally is subject to taxation at a maximum rate of 15
percent. The net long-term capital gain recognized by an individual holder
before May&nbsp;6, 2003 or after December&nbsp;31, 2008 generally is subject to taxation
at a maximum rate of 20%. Long-term capital gains recognized by an individual
holder generally are subject to reduced rates. Capital losses may be deducted
from taxable income, subject to certain limitations. Gain realized by a US
holder on a sale or disposition of ADSs generally will be treated as US source
income. Consequently, if Brazilian tax is imposed on such gain, the US 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-US holder will not be subject to US federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (i)&nbsp;such gain is effectively connected with the conduct by the holder of
a trade or business in the United States, or (ii)&nbsp;such holder is an individual
who is present in the United States of America for 183&nbsp;days or more in the
taxable year of the sale and certain other conditions are met.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Backup Withholding and Information Reporting</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on, and proceeds from the sale or other disposition of, the
ADSs or Preferred Shares to a US holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup
withholding unless the US holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any backup
withholding collected from a
</FONT>

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<P align="left"><FONT size="2">payment to a US holder will be allowed as a credit against the US holder&#146;s
US federal income tax liability and may entitle the US holder to a refund,
provided that certain required information is furnished to the Internal Revenue
Service.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-US holder generally will be exempt from these information reporting
requirements and backup withholding tax, but may be required to comply with
certain certification and identification procedures in order to establish its
eligibility for such exemption.
</FONT>

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<DIV align="left"><A NAME="013"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;11. Quantitative and Qualitative Disclosures about Market Risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to market risk from changes in both foreign currency
exchange rates and interest rates. We are exposed to foreign exchange rate
risk because some of our costs are denominated in currencies (primarily the US
dollar) other than those in which we earn our revenues (primarily the <I>real)</I>.
Similarly, we are subject to market risk deriving from changes in interest
rates, which may affect the cost of our financing. In 2000 we began to use
derivative instruments, such as foreign exchange swap and forward contracts,
foreign currency options, and interest rate swaps or forward rate agreements,
to manage these market risks. We do not hold or issue derivative or other
financial instruments for trading purposes.
</FONT>

<P align="left"><FONT size="2"><B>Exchange Rate Risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since January 1999, the <I>real </I>has traded in a volatile market, reaching a
high in 1999 of R$2.1650 per US$1.00 on March 3. Between December&nbsp;31, 1998 and
December&nbsp;31, 1999, the <I>real </I>depreciated 32.4% against the US dollar, and at
December&nbsp;31, 1999, the commercial market rate for purchasing US dollars was
R$1.7890 to US$ 1.00. In 2000, the fluctuations of the exchange value of the
<I>real </I>were not as volatile as they were in 1999, ranging between R$1.7234 and
R$1.9847 per US$1.00, while the average exchange rate for 2000 was R$1.8294 per
US$1.00, showing a slight depreciation of the real in relation to the same
average rate in 1999, of 0.8%. However, in 2001 the <I>real </I>continued to devalue
against the US dollar. The exchange rate fluctuated in a range between
R$1.9353 and R$2.8007 per US$1.00 in 2001, while the average rate for the year
reached R$2.3519, showing a depreciation of 28.6% in the period. In 2002 the
exchange rate fluctuated in a range between R$2.2720 and R$3.9548 per US$1.00,
while the average rate was R$2.9185 per US$1.00, showing a depreciation of
24.2% in the period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 72.5% of the Company&#146;s debt obligations are denominated in
foreign currency. As a result, we are exposed to currency exchange risks that
may adversely affect our business, financial condition and results of
operations, as well as our ability to meet debt service obligations. In 2002,
we continued our policy of limiting our exposure to foreign currency exchange
rate risks by entering into foreign currency swap and options agreements. As
of December&nbsp;31, 2002, approximately R$1,002.9&nbsp;million, or 8.2% of the total
Company&#146;s debt obligations were not hedged. Accordingly, an unfavorable 1%
change in the real-US dollar exchange rate would have resulted in a R$10
million increase in the Company&#146;s debt obligations as of December&nbsp;31, 2002.
For further information about such swap agreements and other financial
instruments utilized by us, see Note 19 to the Consolidated Financial
Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to have exchange rate exposure with respect to our planned
capital expenditures. In 2002, approximately 39% of our capital expenditures
were made in US dollars. The potential loss in connection with our planned
capital expenditures for 2003 that would have resulted from each unfavorable 1%
change in the <I>real</I>-US dollar exchange rate, assuming that we carry out the
entirety of such planned capital expenditures notwithstanding such unfavorable
change in rates, would be approximately R$8.0&nbsp;million.
</FONT>

<P align="left"><FONT size="2"><B>Interest Rate Risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we had approximately R$10,774.4&nbsp;million in loans
and financing outstanding, considering the results of currency swap operations
and including R$1,321.0&nbsp;million of local
</FONT>

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<P align="left"><FONT size="2">non-convertible debentures. Approximately 100% of our local-currency
denominated debt of R$2,042.4&nbsp;million bears interest at floating rates based on
either the TJLP or the interbank certificates of deposits &#151; CDI rate for
<I>real</I>-denominated indebtedness and approximately 80% of our foreign
currency-denominated indebtedness bears interest at floating rates based on US
dollar LIBOR. As of December&nbsp;31, 2002, we did not have any derivative
contracts outstanding that could limit our exposure to variation in the TJLP or
CDI rate. However, we invest our excess liquidity (R$1,484&nbsp;million at December
31, 2002) mainly in short-term instruments, and our exposure to Brazilian
interest rate risk is therefore partially limited by our <I>real</I>-denominated
floating interest investments, which generally earn the overnight interest
rates paid on CDI. In addition to our exposure with respect to existing
indebtedness, we would also be exposed to interest rate volatility with respect
to future indebtedness in case we decide that a protection against interest
rate variation is not required.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Every increase of 100 basis points in the CDI rate or LIBOR implies an
additional interest exposure on local currency-denominated assets and
liabilities of R$78.0&nbsp;million and R$45.0&nbsp;million, respectively, if a
hypothetical, instantaneous and unfavorable change of 100 basis points in the
interest rates applicable to financial assets and liabilities on December&nbsp;31,
2002 had occurred. The above sensitivity analysis is based on the assumption
of an unfavorable 100 basis point movement of the CDI rate or LIBOR as the case
may be, in 2003, in relation to December&nbsp;31, 2002, applicable to each
homogeneous category of financial assets and liabilities and sustained some a
period of one year.
</FONT>

<!-- link2 "Item&nbsp;12. Description of Securities other than Equity Securities" -->
<DIV align="left"><A NAME="014"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;12. </B><B><I>Description of Securities other than Equity Securities</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<P align="center"><FONT size="2">111</FONT>
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<!-- link1 "PART II" -->
<DIV align="left"><A NAME="015"></A></DIV>
<P align="left"><FONT size="2"><B>PART II</B>
</FONT>

<!-- link2 "Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies" -->
<DIV align="left"><A NAME="016"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;13. </B><B><I>Defaults, Dividend Arrearages and Delinquencies</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the completion of our audited and consolidated financial statements
for the period ended on June&nbsp;30, 2001, we have been out of compliance with the
following financial covenants set forth in our BNDES facility, dated as of
December&nbsp;13, 2000, in which we are guarantors: (a)&nbsp;current assets divided by
current liabilities (AC/PC) must be equal to or greater than 1.20; and (b)
EBITDA divided by current liabilities (EBITDA/PC) must be equal to or greater
than 1.20. TNL has requested and been granted several waivers from BNDES, as
well as from Banco Ita&#250; S.A., Banco do Brasil S.A., Banco Bradesco, Banco Alfa,
Unibanco, Citibank, Banco Safra, Banco Votorantim, Banco Sudameris and Banco
Santander as Lenders under the BNDES facility for failure to comply with these
covenants. The waivers from BNDES and the other banks excuse non-compliance
with these covenants through January&nbsp;1, 2004. TNL expects to be able to comply
with these covenants by the end of June 2003 which will be the next time that
we will be required to determine if we meet the financial ratios set forth in
these covenants. For additional information regarding our BNDES facility see
&#147;Item&nbsp;5. Operation and Financial Review and Projects&#151;Liquidity and Capital
Resources.&#148;
</FONT>

<!-- link2 "Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds" -->
<DIV align="left"><A NAME="017"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;14. </B><B><I>Material Modifications to the Rights of Security Holders and Use of
Proceeds</I></B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Law 10,303/01 introduced significant changes in the Brazilian Corporate
law, including minority shareholders rights, in particular preferred
shareholders. For more details on this, see Part I, Item&nbsp;8 (Dividend
Distribution Policy) and Item&nbsp;10.
</FONT>

<!-- link2 "Item&nbsp;15. Controls and Procedures" -->
<DIV align="left"><A NAME="018"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;15. </B><B><I>Controls and Procedures</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within the 90&nbsp;days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company&#146;s management, including the Company&#146;s Chief Executive Officers and
Chief Financial Officer, of the effectiveness of the design and operation of
the Company&#146;s disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon and as of the date of the
Company&#146;s evaluation, the Chief Executive Officers and Chief Financial Officer
concluded that the disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed in the reports
the Company files and submits under the Exchange Act is recorded, processed,
summarized and reported as and when required.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no significant changes in the Company&#146;s internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
</FONT>

<!-- link2 "Item&nbsp;16B. Code of Ethics." -->
<DIV align="left"><A NAME="019"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;16B. Code of Ethics.</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted a Code of Conduct and Transparency that applies to
its directors, officers, controlling shareholders and members of the <I>Conselho
Fiscal </I>in accordance with CVM rules satisfying the requirements of Brazilian
Law. The Company&#146;s Code of Conduct and Transparency does not address all of
the principles set forth by the Securities and Exchange Commission in Section
406 of the Sarbanes-Oxley Act. However, Brazilian Law no. 6.404 Article&nbsp;156
specifies that an officer is prohibited from taking part in any corporate
transaction in which he has an interest that conflicts with the interests of
the company. This disqualification must be disclosed to the board. Moreover,
an officer may only contract with the company under reasonable and fair
conditions, conditions which are identical to those that prevail in the market
or under which the company would contract with third parties. Any business
which is contracted in violation of this article is voidable and requires the
offending officer to disgorge any benefits he received from such violation.
</FONT>

<P align="center"><FONT size="2">112</FONT>
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<!-- link1 "PART III" -->
<DIV align="left"><A NAME="020"></A></DIV>
<P align="left"><FONT size="2"><B>PART III</B>
</FONT>

<!-- link2 "Item&nbsp;17. Financial Statements" -->
<DIV align="left"><A NAME="021"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;17. </B><B><I>Financial Statements</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TNL has responded to Item&nbsp;18 in lieu of responding to this Item.
</FONT>

<!-- link2 "Item&nbsp;18. Financial Statements" -->
<DIV align="left"><A NAME="022"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;18. </B><B><I>Financial Statements</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reference is made to pages F-1 through F-95.
</FONT>

<!-- link2 "Item&nbsp;19. Exhibits" -->
<DIV align="left"><A NAME="023"></A></DIV>
<P align="left"><FONT size="2"><B>Item&nbsp;19. </B><B><I>Exhibits</I></B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>No.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Description</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">1.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By-laws of the Company as of April&nbsp;10, 2003.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">2.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Deposit Agreement, dated as of July&nbsp;27, 1998 among the Company, The Bank of
New York, as Depositary, and Owners and Beneficial Owners of American
Depositary Receipts issued thereunder, filed as Exhibit&nbsp;2.1 to the Company&#146;s
Registration Statement on Form&nbsp;20-F filed with the Commission on September
18, 1998 (File # 001-14487), incorporated by reference.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">2.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Note Purchase Facility Agreement, dated as of August&nbsp;10, 2001 among TNL PCS
S.A., as Issuer, Tele Norte Leste Participa&#231;&#245;es S.A., as Guarantor, ABN AMRO
Bank N.V., as Administrative Agent, Initial Purchaser, Tranche A
Participation Agent, Tranche B Participation Agent, Tranche C Participation
Agent, US Collateral Agent, Book Runner, Chase Trust Bank, as Principal
Paying Agent, and the Tranche D Lenders.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">2.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Subloan Agreement, dated as of December&nbsp;15, 2000, among the Company, as
Guarantor, BNDES and a syndicate of banks led by Banco do Brasil and Banco
Ita&#250; in English.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Standard Concession Agreement for Local, Switched, Fixed-Line Telephone
Service and Schedule of Omitted Concession Agreements in Portuguese and with
a translation into English, filed as Exhibits 10.1 and 10.2 to the Company&#146;s
Registration Statement on Form&nbsp;20-F filed with the Commission on September
18, 1998 (File # 001-14487), incorporated by reference.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements in
Portuguese and with a translation into English, filed as Exhibits 10.3 and
10.4 to the Company&#146;s Registration Statement on Form&nbsp;20-F filed with the
Commission on September&nbsp;18, 1998 (File # 001-14487), incorporated by
reference.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Statement of Authorization for Personal Mobile Services between Anatel and Oi.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Statement of Authorization for Domestic Long-distance Mode of Switched
Wireline Telephone service between Anatel and Oi.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Statement of Authorization for International Long-distance Mode of Switched
Wireline Telephone Service between Anatel and Oi.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">4.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certifications of the Company&#146;s attainment of the targets established by
Anatel for the 16 states in which the Company operates.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">8.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
List of the Subsidiaries.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certifications of the co-Chief Executive Officers and the Chief Financial
Officer of the Company, pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2">11.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Code of Ethics of the Company.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">113</FONT>
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<br>
<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>
<P align="center"><FONT size="2">114</FONT>
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<!-- link1 "Technical Glossary" -->
<DIV align="left"><A NAME="024"></A></DIV>
<P align="center"><FONT size="2"><B>Technical Glossary</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following explanations are not intended as technical definitions, but
to assist the general reader to understand certain terms as used in this Annual
Report.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Access charge: </I>Amount paid per minute charged by network operators for the
use of their network by other network operators. Also known as an
&#147;interconnection charge&#148; or &#147;network usage charge.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Access gates: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>ADSL technology (Asymmetric Digital Subscriber Line): </I>A technology that
converts existing twisted-pair telephone lines into access paths for high-speed
communications of various sorts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Analog: </I>A mode of transmission or switching which is not digital, e.g.,
the representation of voice, video or other modulated electrical audio signals
which are not in digital form.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Analog network: A </I>network using analog technology with circuit switching,
capable of connecting one user with all the users, but with limited
transmission capacity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>ATM (Asynchronous Transfer Mode): </I>A broadband switching technology that
permits the use of one network for different kinds of information (e.g., voice,
data and video).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Band A Service Provider: </I>A former Telebr&#225;s operating subsidiary that has
been granted a concession to provide wireless telecommunications services in a
particular area within a radio spectrum frequency range referred to by Anatel
as &#147;Band A.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Band B Service Provider: </I>A wireless service provider that has been granted
a concession to provide wireless telecommunications services in a particular
area within a radio spectrum frequency range referred to by Anatel as &#147;Band B.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Base station: </I>A radio transmitter/receiver that maintains communications
with the wireless telephones within a given cell. Each base station in turn is
interconnected with other base stations and with the public switched telephone
network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Broadband services: </I>Services characterized by a transmission speed of 2
Mbit/s or more. According to international standards, these services are
divided into two categories: (i)&nbsp;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; retrieval of sound programs or fixed and moving
images; and (ii)&nbsp;Broadcast services, such as sound programs, television
programs (including high-definition TV and pay TV) and selective document
acquisition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>CA TV (Cable television): </I>Cable or fiber-based distribution of TV
programs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>CDMA </I>(<I>Code Division Multiple Access</I>): A standard of digital wireless
telecommunications technology.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cell: </I>The geographic area covered by a single base station in a wireless
telecommunications system.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Wireless service: </I>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 wireless telecommunications system
service area.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Digital: </I>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 networks allow for higher capacity and
</FONT>

<P align="center"><FONT size="2">115</FONT>
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<P align="left"><FONT size="2">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.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Digital penetration: </I>The substitution of equipment capable of transmitting
digital signals for equipment limited to analog transmission.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Exchange: </I>See Switch.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>DWDM (Dense Wavelength Division Multiplex) transmission systems: </I>It is the
higher-capacity of a WDM (Wavelength Division Multiplex), which is a means of
increasing the capacity of fiber-optic data transmission system through the
multiplexing of multiple wavelengths of light.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Frame relay: </I>A data transmission service using fast protocols based on
direct use of transmission lines.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>GPRS (General Packet Radio Service)</I>: Typically referred to as the &#147;2.5&#148; G
standard for companies employing GSM, which is not optimal for data (slow
speeds of 9.6kbps). GPRS is a relatively less expensive way (supposedly)&nbsp;of
enabling a GSM network with a data overlay; GPRS enables speeds in the range of
115kbps.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>GSM (Global System for Mobile Communications)</I>: An international standard
for digital wireless service.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internet: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>IP (Internet protocol): </I>An interconnection protocol for sub-networks, in
particular for those with different physical characteristics. It is used by the
Internet.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>ISDN (Integrated Services Digital Network): </I>A system in which several
services (e.g., speech and data) may be simultaneously transmitted end-to-end
in digital form.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leased high-speed data communication: </I>The digital exchange of information
at speeds exceeding 64 Kbps transmitted through mediums that are leased to
users for their exclusive use.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Local loop: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Network: </I>An interconnected collection of elements. In a telephone network,
these consist of switches connected to each other and to customer equipment.
The transmission equipment may be based on fiber optic or metallic cable or
point-to-point radio connections.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Network usage charge: </I>Amount paid per minute charged by network operators
for the use of their network by other network operators. Also known as an
&#147;access charge&#148; or &#147;interconnection charge.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Optical fiber: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Packet-switched data communication services: </I>Data services based on
parceling or breaking 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>PBX (Private Branch Exchange): </I>Telephone switchboard for private use, but
linked to the national telephone network.
</FONT>

<P align="center"><FONT size="2">116</FONT>
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<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Penetration: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Private leased circuits: </I>Voice, data or image transmission mediums leased
to users for their exclusive use.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>PSTN (Public Switched Telephone Network): </I>The public telephone network
that delivers basic telephone service and, in certain circumstances, more
advanced services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Repeaters: </I>A device that amplifies an input signal for retransmission.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Satellite services: </I>Satellites 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>SDH (Synchronous Digital Hierarchy): </I>A hierarchical set of digital
transport structures, standardized for the transport of suitably adapted
payloads some physical transmission networks.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sectorization: </I>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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>SIM (Subscriber Identity Module) Cards</I>: A card designed to personalize the
customers information, a feature of the GSM standard.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>SMP (Personal Mobile Services): </I>A networking system that provides secure
digital wireless communications in a high frequency range. It uses small
low-powered base stations and light-weight and compact handsets. It offers
voice and data transmission capabilities, enhanced mobile connection and
heightened subscriber capacity as well as features like caller ID and
alphanumeric messaging.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Specialized Services Companies: </I>Companies which were duly permitted by
Anatel to provide specialized limited services, such as (i)&nbsp;private mobile
services provided by means of radio communication system, in radio-frequencies
bands of 460, 800 and 900 MHz, (ii)&nbsp;private fixed-line services to allow
point-to-point or multi-point telecommunications through circuits, (iii)
private network services, and (iv)&nbsp;duplex radio communication services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Switch: </I>These are used to set up and route telephone calls either to the
number called or to the next switch along the path. They may also record
information for billing and control purposes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>TDMA (Time Division Multiple Access): </I>A standard of digital wireless
telecommunications technology.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Universal service: </I>The obligation to supply basic service to all users
throughout the national territory at reasonable prices.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Value Added Services: </I>Value Added Services provide additional
functionality to the basic transmission services offered by a
telecommunications network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>VSAT (Very Small Aperture Terminal)</I>: A small satellite antenna used for
satellite based point-to-multipoint data communications applications.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>WAP (Wireless Application Protocol)</I>: A protocol that simplifies standard
internet codes for the more limited transmission features of a wireless
handset.
</FONT>

<P align="center"><FONT size="2">117</FONT>
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<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="025"></A></DIV>
<P align="center"><FONT size="2"><B>SIGNATURES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Norte Leste Participa&#231;&#245;nes S.A. hereby certifies that it meets all of
the requirements for filing on Form&nbsp;20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="17%">&nbsp;</TD>
    <TD width="39%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" valign="top" align="left"><FONT size="2">TELE NORTE LESTE PARTICIPA&#199;&#213;NES S.A.</FONT></TD>
</TR>

<TR valign="bottom">
    <TD width="17%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
By: /s/ Marcos Grodetzky</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<HR size="1" noshade width="85%"></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Name: Marcos Grodetzky</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Title: Chief Financial Officer</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Dated: June&nbsp;12, 2003
</FONT>

<P align="center"><FONT size="2">118</FONT>
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<P align="center"><FONT size="2"><B>CERTIFICATIONS</B>
</FONT>

<P align="left"><FONT size="2">I, Ronaldo Iabrudi dos Santos Pereira, certify that:
</FONT>
<P align="left"><FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this annual report on Form&nbsp;20-F of Tele Norte Leste
Participa&#231;&#245;es S.A.;
</FONT>
<P align="left"><FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
</FONT>
<P align="left"><FONT size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
</FONT>
<P align="left"><FONT size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules&nbsp;13a-14 and 15d-14) for the registrant and we have:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the registrant&#146;s disclosure controls
and procedures as of a date within 90&nbsp;days prior to the filing of this
annual report (the &#147;Evaluation Date&#148;); and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date:</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant&#146;s auditors and the audit committee of
registrant&#146;s board of directors (or persons performing the equivalent
function):
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant&#146;s ability to record,
process, summarize and report financial data and have identified for the
registrant&#146;s auditors any material weaknesses in internal controls; and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant&#146;s internal
controls; and</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
</FONT>
<P align="left"><FONT size="2">Date: June&nbsp;13, 2003
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">By:&nbsp;&nbsp; /s/ Ronald Iabrudi dos Santos Pereira</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top" align="center"><HR size="1" noshade width="80%"></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Name: Ronaldo Iabrudi dos Santos Pereira</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Title: &nbsp;&nbsp;Director Superintendent</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">119</FONT>
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<P align="left"><FONT size="2">I, Luis Eduardo Falco, certify that:
</FONT>
<P align="left"><FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this annual report on Form&nbsp;20-F of Tele Norte Leste
Participa&#231;&#245;es S.A.;
</FONT>
<P align="left"><FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
</FONT>
<P align="left"><FONT size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
</FONT>
<P align="left"><FONT size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules&nbsp;13a-14 and 15d-14) for the registrant and we have:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the registrant&#146;s disclosure controls
and procedures as of a date within 90&nbsp;days prior to the filing of this
annual report (the &#147;Evaluation Date&#148;); and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date:</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant&#146;s auditors and the audit committee of
registrant&#146;s board of directors (or persons performing the equivalent
function):
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant&#146;s ability to record,
process, summarize and report financial data and have identified for the
registrant&#146;s auditors any material weaknesses in internal controls; and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant&#146;s internal
controls; and</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
</FONT>
<P align="left"><FONT size="2">Date: June&nbsp;13, 2003
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">By: /s/ Luis Eduardo Falco</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top" align="center"><HR size="1" noshade width="88%"></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Name: Luis Eduardo Falco</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Title: &nbsp;&nbsp;Director Superintendent</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">120</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left"><FONT size="2">I, Marcos Grodetzky, certify that:
</FONT>

<P align="left"><FONT size="2">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this annual report on Form&nbsp;20-F of Tele Norte Leste
Participa&#231;&#245;es S.A.;
</FONT>
<P align="left"><FONT size="2">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
</FONT>
<P align="left"><FONT size="2">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
</FONT>
<P align="left"><FONT size="2">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and internal
controls and procedures (as defined in Exchange Act Rules&nbsp;13a-14 and 15d-14)
for the registrant and we have:
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the registrant&#146;s disclosure controls
and procedures as of a date within 90&nbsp;days prior to the filing of this
annual report the Evaluation Date;</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant&#146;s auditors and the audit committee of
registrant&#146;s board of directors (or persons performing the equivalent
function):
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant&#146;s ability to record,
process, summarize and report financial data and have identified for the
registrant&#146;s auditors any material weaknesses in internal controls; and</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>
<TR valign="top">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant&#146;s internal
controls; and</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant&#146;s other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
</FONT>
<P align="left"><FONT size="2">Date: June&nbsp;13, 2003
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD width="40%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">By: /s/ Marcos Grodetzky</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><HR size="1" noshade width="88%"></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Name: Marcos Grodetzky<BR>
Title: &nbsp;&nbsp;Director</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">121</FONT>



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<P align="center"><FONT size="2"><B>Report of Independent Accountants</B>
</FONT>

<DIV align="left"><FONT size="2">To the Board of Directors and Shareholders
</FONT></DIV>

<DIV align="left"><FONT size="2">Tele Norte Leste Participa&#231;&#245;es S.A.
</FONT></DIV>
<P align="left"><FONT size="2">In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Tele Norte Leste
Participa&#231;&#245;es S.A. and its subsidiaries (together the &#147;Company&#148;) at December
31, 2002 and 2001 and the changes in shareholders&#146; equity and the results of
their operations and their changes in financial positions for each of the three
years in the period ended December&nbsp;31, 2002, all expressed in Brazilian <I>reais</I>,
in conformity with accounting practices adopted in Brazil. These financial
statements are the responsibility of the Company&#146;s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in Brazil and the United States of
America which require that we plan and perform the audit 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
</FONT>
<P align="left"><FONT size="2">Although not required under accounting practices adopted in Brazil, the Company
has presented statements of cash flows. This supplemental information has been
subject to the same audit procedures described above and, in our opinion, these
statements fairly present in all material respects, the cash flows in relation
to the overall financial statements.
</FONT>
<P align="left"><FONT size="2">Accounting practices adopted in Brazil vary in certain important respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of consolidated
results of operations for each of the three years in the period ended December
31, 2002 and the determination of shareholders&#146; equity at December&nbsp;31, 2002 and
2001 to the extent summarized in Notes 31 and 32 to the consolidated financial
statements.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">/s/PricewaterhouseCoopers</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Rio de Janeiro, Brazil</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Auditores Independentes</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">
February&nbsp;26, 2003, except as to the information
contained in Note 1 (a) (ii), for which the date
is May&nbsp;30, 2003.</FONT></DIV></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">PricewaterhouseCoopers<BR>
Auditores Independentes</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-1</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.<BR>
CONSOLIDATED BALANCE SHEETS<BR>
Years ended December&nbsp;31<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,512,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade accounts receivable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,724,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,145,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred and recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,456,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,293,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">215,351</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,089,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,950,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred and recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,680,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,561,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Judicial deposits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">313,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">273,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">299,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total long-term assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,361,777</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,948,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Permanent assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98,219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,842,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,146,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,432,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,163,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">636,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total permanent assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,010,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,866,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,461,584</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,766,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payroll and related accruals</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Suppliers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,634,743</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,199,346</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on own-capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">703,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">538,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred taxes and taxes on income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">283,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes other than on income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">481,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">436,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,747,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,370,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Licenses payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">603,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consignment on behalf of others</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">113,449</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amounts payable relating to the Pegasus acquisition (Note 1(b))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">111,433</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">106,395</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,489,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,609,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term liabilities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes other than income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,705,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,249,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provisions for contingencies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,772,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,491,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,816,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,073,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,034,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,057,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Own-capital and reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,323,850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,396,342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Retained earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,796,288</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,626,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total shareholders&#146; equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,120,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,023,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds for capitalization - expansion plan contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total shareholders&#146; equity and funds for capitalization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,120,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,026,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities and shareholders&#146; equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,461,584</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,766,016</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-2</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
Years ended December&nbsp;31<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Services provided to third parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,568,296</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,126,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">305,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provided by third parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,738,089</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,806,635</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,294,442</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(414,356</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,721,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,296,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,832,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating (expenses)&nbsp;income:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,307,354</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,571,070</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(885,726</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,014,602</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(869,680</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(835,782</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating (expense)&nbsp;income, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(144,285</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(225,455</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">128,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other non-recurring extraordinary income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153,233</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income before interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,408,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">630,226</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,239,164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">494,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,345,573</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(918,754</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323,119</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(552,602</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,190,208</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-operating income (expenses), net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,120</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees&#146; profit share</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(130,893</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28,410</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64,831</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before income taxes and minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(655,054</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,141,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax and social contribution (expense)&nbsp;benefit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(174,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(131,856</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(56,685</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(257,216</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares outstanding at the balance sheet date (thousand)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">375,065,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">369,469,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">369,752,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;per thousand shares outstanding at the
balance sheet date (in <I>reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1.11</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.92</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-3</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
Years ended December&nbsp;31<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial resources were provided by:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expenses (income)&nbsp;not affecting working capital:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,863,109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,926,421</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,803,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for tax incentives losses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,284</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,253</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity accounting adjustments and capital gain</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,023</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred income tax and social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(364,894</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(365,991</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,635</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss on disposals of property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provisions for contingencies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">631,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">609,744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest (income)&nbsp;expense on long-term assets and liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">898,477</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">194,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,113</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23,563</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,414</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,748,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,542,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,064,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in long-term liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,999,887</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,506,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,172,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transfer from long-term receivables to current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">286,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">200,590</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">219,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends prescribed and reversal of dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total funds provided</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,056,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,271,557</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,461,137</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial resources were used for:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in long-term receivables</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">451,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">848,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">95,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">169,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in permanent assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">143,474</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill on investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">278,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,013,382</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,940,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,936,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,102,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">221,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">479,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,964,454</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,744,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,041,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued dividends and interest attributable to capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">668,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">466,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">409,053</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transfer from long-term to current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,986,791</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,230,009</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">343,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total funds used</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,619,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,441,381</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,793,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Working capital of acquired investment (Pegasus)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(201,710</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in working capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>1,234,890</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>(3,169,824</B></FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>2,667,271</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Changes in working capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">At the end of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,089,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,950,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,108,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">At the beginning of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,950,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,108,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,915,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,138,651</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,157,856</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,193,225</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">At the end of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,513,115</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,609,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,597,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">At the beginning of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,609,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,597,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,071,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(96,239</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,011,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in working capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>1,234,890</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>(3,169,824</B></FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2"><B>2,667,271</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-4</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"> <FONT size="2"><B>
TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.<BR>
CONSOLIDATED STATEMENTS OF OPERATIONS<BR>
Years ended December 31<BR>
(Expressed in thousands of Brazilian <I>Reais</I>)</B></FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="1"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="1"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD nowrap align="center" colspan="1"><FONT size="1"><B>2000</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="1"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="1"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD colspan="1"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>(i)</B></FONT></DIV></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cash flow from operating activities</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustment to reconcile net income (loss)&nbsp;to net cash
provided by operating activities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on monetary and exchange variation on loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,954,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">948,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">925,545</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,645,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,927,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,673,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization goodwill Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,196</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of Goodwill (Note 1(d))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of negative goodwill</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(175,424</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37,591</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity accounting adjustments and capital gain</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,023</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net results of disposals of permanent assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,566,845</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,057,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,853,470</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(559,868</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">356,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,094,023</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred and recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(427,796</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(924,745</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,227,604</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(109,792</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(89,773</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,633</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(71,988</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,299</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,730</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Judicial deposits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(40,068</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(138,070</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(54,217</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(136,247</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Suppliers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(625,755</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">840,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">358,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payroll and related accruals</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,811</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred taxes and taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">238,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provisions for contingencies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">281,210</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">609,744</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(40,642</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other accounts payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,213</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,640</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,173,064</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,928,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,063,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>(ii)</B></FONT></DIV></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cash flow from investing activities</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital expenditures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,013,382</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,042,038</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,936,827</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of permanent investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(143,474</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,611</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(221,024</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(479,222</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="5"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><HR size="1" noshade></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><HR size="1" noshade></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash used in investing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,284,406</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,834,226</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,945,438</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>(iii)</B></FONT></DIV></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Cash flow from financing activities</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing obtained</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,296,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,044,206</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,174,854</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Debentures issued</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans granted that were received</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,614</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Licenses payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(603,900</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">603,900</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payment of principal amounts of loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,910,709</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(986,864</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(436,051</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest paid on loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,021,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(538,435</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(144,995</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payment of dividend and interest on own-capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(386,636</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(386,505</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(314,967</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net cash provided by (used in) financing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,610,398</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,047,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,278,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Increase (decrease)&nbsp;in cash and cash equivalents</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">278,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(858,127</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,396,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at the beginning of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,092,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">695,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at the end of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,512,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,092,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-5</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>


<DIV align="left"></DIV>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Capital reserves</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Earnings reserves</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fiscal</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Special</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>incentives</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Unrealized</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Share</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Legal</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>income</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of goodwill</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>donations</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,741,151</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,464,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">186,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,750,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share goodwill reserve provision</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,599,647</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves and retained
earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">400,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,367</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(186,331</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(134,070</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Constitution of legal reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,141,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">851,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,616,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,606</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of the elimination of
capitalized
interest expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fiscal incentives</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Constitution of legal reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,309,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">684,167</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,616,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends prescribed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,606</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,606</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,072,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on capital proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,476,811</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">516,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">543,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">
<P align="right"><FONT size="2">&#091;Additional columns below&#093;</FONT>
<P align="left"><FONT size="2">&#091;Continued from above table, first column(s) repeated&#093;</FONT>


<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Retained</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Treasury</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>earnings</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,407,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,934</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,470,183</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share goodwill reserve provision</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,599,647</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves and retained
earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(200,750</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Constitution of legal reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,798</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(248,496</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(248,496</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,781,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,934</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,331,447</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of the elimination of
capitalized
interest expense</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,905</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fiscal incentives</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Constitution of legal reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,019</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(300,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(300,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,626,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(260,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,023,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends prescribed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(372,563</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(372,563</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,072,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on capital proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(499,979</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(499.979</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>At December&nbsp;31, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,839,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(260,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,163,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">

<P align="center"><FONT size="2">F-6</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Description of business and summary of significant accounting
policies</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Norte Leste Participa&#231;&#245;es S.A.(the &#147;Parent Company&#148;) and its
subsidiaries are referred to as (&#147;the Company&#148; or &#147;TNL&#148;) in these financial
statements.
</FONT>

<P align="left"><FONT size="2"><B>(a)&nbsp; Description of business</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s business is carried out by three primary business segments:
</FONT>

<P align="left"><FONT size="2"><I>(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Fixed-line telecommunications:</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Fixed-line telecommunications services are provided by Telemar Norte Leste
S.A. (&#147;Telemar&#148;) in its operating area - Region I - which comprises the States
of Rio de Janeiro, Minas Gerais, Esp&#237;rito Santo, Bahia, Sergipe, Alagoas,
Pernambuco, Para&#237;ba, Rio Grande do Norte, Cear&#225;, Piau&#237;, Maranh&#227;o, Par&#225;,
Amazonas, Roraima and Amap&#225; (but excluding the &#147;Tri&#226;ngulo Mineiro&#148; and certain
areas of &#147;Alto Parana&#237;ba&#148; in the state of Minas Gerais) (&#147;Region I&#148;). These
services are provided under a concession granted by <I>Ag&#234;ncia Nacional de
Telecomunica&#231;&#245;es </I>(&#147;Anatel&#148;), the National Agency for Telecommunications, the
regulatory authority for the Brazilian telecommunications sector, which expires
on December&nbsp;31, 2005. The concession may be extended for an additional 20-year
period, if the terms of such extension and the conditions regarding new
universal service and quality targets, in each case to be determined by Anatel
and the Ministry of Communications and they are met, at the cost of 2% of net
revenues payable every two years.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel certified the early attainment by Telemar of the universal service
targets set in the concession agreement which had a deadline of December&nbsp;31,
2003 and, as a result, starting July&nbsp;20, 2002 Telemar started to provide
service for inter-regional long distance calls initiated in the 16 States
mentioned above. As the legality of such right gave rise to different
interpretations and challenging by other long distance operators, Telemar asked
for and was granted an injunction from the Regional Federal Court of Appeals -
2nd Region, pending confirmation by Anatel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar also offers international long distance services as of July 2002,
under a license granted to TNL PCS S.A. (&#147;Oi&#148;) with the acquisition of the
license to operate wireless telecommunications.
</FONT>

<P align="left"><FONT size="2"><I>(ii)&nbsp;&nbsp;&nbsp; Mobile telecommunications:</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile telecommunications services are provided by Oi, by means of the
Personal Mobile Service (&#147;SMP&#148;) license which was acquired on March&nbsp;12, 2001,
for R$1,102,007, and will expire on March&nbsp;12, 2016. The license authorizes the
services in the same region of Telemar, in addition to the &#147;Tri&#226;ngulo Mineiro&#148;
and certain areas within the &#147;Alto Parana&#237;ba&#148; (certain areas in the state of
Minas Gerais). The license may be renewed for an additional 15-year period, for
a charge, payable every two years, based on the previous year&#146;s net income,
provided that the current license conditions are met. On June&nbsp;26, 2002, Oi was
authorized by Anatel to start providing the service, using GSM/GPRS technology,
within Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2003, the sale of all of TNL&#146;s shares in Oi to Telemar was approved
by the boards of Directors of both TNL and TMAR and consummated. The sale
price was fixed at R$1.00, which is equal to the net equity value of Oi at
market price on the base date of March&nbsp;31, 2003, as determined by an
independent asset evaluation preformed by Ernst &#038; Young in accordance with
article 256(II)(b) of Corporate Law 6404/76 and adjusted to reflect the
capitalization of Oi in the amount of R$563&nbsp;million through the conversion of
part of Oi debt held by TNL prior to the sale. Following the consummation of
the sale, Oi maintained total indebtedness of R$4.76&nbsp;billion of which R$1.79
billion intercompany and R$2.98&nbsp;billion with third parties.
</FONT>

<P align="center"><FONT size="2">F-7</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="center"><FONT size="2">F-8</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">The primary reason for this transaction is to strengthen the strategic position
of TNE and to increase its capacity for growth by uniting the potential of
fixed (Telemar) and mobile (Oi) telephony assets. The benefits arising from
the optimization of Telemar&#146;s and Oi&#146;s operating and support sectors and from
the alignment of the two companies&#146; business interests and strategies will
result in more rational use of available resources, with consequent cost
reductions, productivity gains and better use of the synergies between the
companies. Another important reason for having Telemar rather than TNL own Oi
is that Telemar will be able to use the tax benefits associated with the
transfer of all of the indebtedness of Oi to Telemar. We believe Telemar&#146;s
higher interest expense will decrease its pre-tax income and result in tax
savings.
</FONT>
<P align="left"><FONT size="2"><I>(iii)&nbsp;&nbsp; Contact center:</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subsidiary Contax S.A. (&#147;Contax&#148;) operates a contact center, which
manages the total relationship between companies and clients, including
logistics and billing, through multiple interactive means such as e-mail, fax
and voice via IP.
</FONT>

<P align="left"><FONT size="2"><I>(iv)&nbsp;&nbsp;&nbsp; Other business activities:</I>
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Hosting and the placement of clients&#146;
applications on hardware and software platforms, provided by
our subsidiary TNext S.A.;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Outsourcing of corporate telecommunications
services, including the implementation, operation, management
and service insurance, provided by our subsidiary HiCorp
Comunica&#231;&#245;es Corporativas S.A.; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Interests in other companies which perform
internet-related activities, including an indirect
participation of 17.5% in Internet Group do Brasil Ltda. (iG)
and our subsidiaries TNL.Acesso S.A. and TNL.Net
Participa&#231;&#245;es S.A.;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The General Plan on Quality for Personal Mobile Service, related to the
resolution promulgated by the <I>Comiss&#227;o de Valores Mobili&#225;ros </I>(&#147;CVM&#148;), the
Brazilian Securities Commission, Resolution No.&nbsp;249, issued on December&nbsp;19,
2000, defines quality targets to be attained by the Company. These targets
include service quality, customer service and billing. In addition to these
targets, the General Plan on Quality for Personal Mobile Service also
stipulates deadlines for repairing malfunctions and deficiencies as well as
providing physical data to the regulator.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All telephone services are subject to the regulations and inspections by
Anatel, in accordance with Law No.&nbsp;9472, issued on July&nbsp;16, 1997.
</FONT>

<P align="left"><FONT size="2"><B>(b)&nbsp;Acquisition of Pegasus</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pegasus&#146; primary purpose was the operation, marketing, project
development, execution and rendering of data transmission services in the
states of Rio Grande do Sul, Santa Catarina, Paran&#225;, Mato Grosso, Mato Grosso
do Sul, Goi&#225;s, Tocantins, Acre, Rondonia, Distrito Federal (&#147;Region II&#148;) and
S&#227;o Paulo (&#147;Region III&#148;). We expect that our acquisition of Pegasus will enable
us to expand our share in the corporate market, by offering data transmission
services in Brazil on a nationwide basis.
</FONT>

<P align="center"><FONT size="2">F-9</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;19, 2001, the Company increased its capital in Pegasus to
approximately R$93,200. This investment increased its holding percentage from
9.33% to 23.26%. Goodwill in the amount of R$61,969 was calculated and recorded
considering financial viability studies carried out by third parties and the
expected future profitability. During 2001 the Company&#146;s participation
increased to 24.44%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;27, 2002, Telemar entered into a purchase and sale contract
for the outstanding shares in Pegasus (including the 24.44% held by the
Company), following approval at an Extraordinary General Meeting held on
November&nbsp;29, 2002. During such meeting, the Company abstained from voting on
the amount paid by way of synergy and savings. The transaction was priced
according to the average of two different economic-financial appraisals
prepared by experts, totaling R$560,950 based on the financial statements as of
June&nbsp;30, 2002, in addition to future operating synergy gains in the amount of
R$114,000, proposed by the Board of Directors based on studies taking into
account the joint operation of the companies following the acquisition.
Pegasus&#146; total liabilities, in the amount of R$397,552, were deducted from the
amount payable.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The shares purchase-and-sale contract provided for the adjustment of the
acquisition price to reflect the variations in (i)&nbsp;the working capital of
Pegasus between June&nbsp;30, 2002 and the audited transfer balance sheet on
December&nbsp;27, 2002, (ii)&nbsp;monetary restatement, based on the CDI rate, from
December&nbsp;27, 2002 up to the dates that the payments occurred and (iii)
identified contingencies and aggregate indebtedness. Therefore, after
negotiations had been concluded at the end of the first quarter of 2003, the
purchase price was adjusted from R$307,809 to R$241,382.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;27, 2002, the Company paid a first installment of R$50,000,
and the remaining amount of R$191,382 was paid in February 2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisition price of Pegasus, giving effect to the value paid to third
parties, was in excess of the book value and generated a goodwill of R$254,974,
which was justified by the expectation of future profitability based on the
economic-financial appraisals and synergy gains by the joint operations of
Telemar and Pegasus. In addition, the goodwill of R$55,772 paid by the Company
upon acquisition of the 24.44% participation is included as part of the total
goodwill in connection with the acquisition of Pegasus and will be amortized
over the same period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The purchase price does not include income tax and social contribution
credits, totaling R$57&nbsp;million as of December&nbsp;27, 2002, arising from tax loss
carryforwards, which will only be paid when utilized by Telemar and/or Pegasus.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The transfer balance sheet of Pegasus, as of December&nbsp;27, 2002, is as
follows:
</FONT>

<P align="center"><FONT size="2">F-10</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Current liabilities</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">433,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans and financing</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">335,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Suppliers</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts received in advance</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Long-term liabilities</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Related parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans and financing</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,825</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts received in advance</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Permanent assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">332,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and
equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">326,810</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">451,230</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unsecured liabilities (Negative
shareholders&#146; equity)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets and unsecured liabilities
(Negative shareholders&#146; equity)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pegasus&#146; balance sheet was consolidated as of December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Corporate restructuring</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;28, 2001, the Board of Directors and the <I>Conselho Fiscal </I>of
Telemar - RJ (the predecessor of Telemar) and the Company&#146;s other 15 fixed-line
telephone subsidiaries approved the merger of the net book values of these
subsidiaries into Telemar - RJ, as proposed by the Board of Executive Officers.
The objective of the merger was to simplify the existing corporate structure,
improving the operation of public switched fixed-line telephone services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the merger, holders of common shares of the other
subsidiaries who opted to migrate exchanged their shares for common shares of
Telemar - RJ, and holders of preferred shares of the other subsidiaries,
regardless of the class, exchanged their shares for preferred class &#147;A&#148; shares
of Telemar - RJ.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate restructuring resulted in the acquisition of minority
interests in a number of subsidiaries and sale of shares in others. The table
below demonstrates the change in ownership of subsidiaries.
</FONT>

<P align="center"><FONT size="2">F-11</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>






<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%&nbsp;change in</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>% of total capital December 31,</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>ownership as a</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>result of corporate</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>restructuring</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar (previously
Telemar-RJ)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.41</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-ES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2.23</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-CE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">78.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-RN</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68.89</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-PA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55.13</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.66</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-PB</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64.38</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-MG</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79.49</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-BA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.66</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-SE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61.87</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-PE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75.90</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-PI</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73.40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-MA</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63.59</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-AP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.29</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-RR</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-AM</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75.18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.61</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar-AL</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69.99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the subsidiaries were merged into Telemar as of August&nbsp;2, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the merger the deferred income tax assets related to loss
carryforwards recorded by Telemar - AM, Telemar - AL and Telemar - PE were
written-off against net income for the year, totaling:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Social</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Income tax</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>contribution</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar - AM</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,683</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar - AL</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,166</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telemar - PE</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,842</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,851</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The appraisal rights paid to the shareholders who exercised their right to
withdraw from the group as a result of the corporate reorganization within the
legal period of thirty days from the date of the shareholders meetings, which
was held on August&nbsp;2, 2001, totaled R$185,914. The shares of the dissenting
shareholders will be held in treasury for cancellation or sale.
</FONT>

<P align="left"><FONT size="2"><B>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Goodwill on down-stream merger</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;14, 1999, as permitted by Article&nbsp;157 of Brazilian GAAP and
Instructions Nos. 31/84, 319/99 and 320/99 of CVM, Telemar Participa&#231;&#245;es S.A.
(&#147;Telemar Participa&#231;&#245;es&#148;), the controlling shareholder of the Company (52.96%
of common shares), subscribed for and paid in, through
</FONT>

<P align="center"><FONT size="2">F-12</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">transfer of its investment and corresponding goodwill asset (&#147;Goodwill&#148;)
in the Company, 100% of the capital in a new entity, 140 Participa&#231;&#245;es S.A.
</FONT>
<P align="center"><FONT size="2">F-13</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The objective of the down-stream merger was to assure realization of the
tax benefits arising from the amortization of the Goodwill paid over book value
by Telemar Participa&#231;&#245;es on its acquisition of the Company by transferring to
the Company the tax benefit arising from the amortization of their Goodwill.
Telemar Participa&#231;&#245;es subscribed for and paid in the capital of 140
Participa&#231;&#245;es S.A. The purchase consideration included Telemar Participa&#231;&#245;es
shares in the Company and the corresponding Goodwill which arose at the time of
the privatization of the Company. The down-stream merger of 140 Participa&#231;&#245;es
S.A. was approved by the shareholders on December&nbsp;29, 1999, whereupon 140
Participa&#231;&#245;es S.A. was merged into the Company. In the downstream merger, the
shareholders of Telemar Participa&#231;&#245;es received shares of the Company in
exchange for their shares in 140 Participa&#231;&#245;es S.A. The net book value of the
assets merged into the Company as of November&nbsp;30, 1999 were as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Permanent assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tele Norte Leste Participa&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,800,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,464,787</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,265,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shareholders&#146; equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital (special goodwill)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,267,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated deficit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,879</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,265,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This transaction was recorded in shareholders&#146; equity as a special reserve
of goodwill in the amount of R$2,464,787 against a corresponding Goodwill asset
to be amortized over five years based on expected profits. The tax benefit
realized from the amortization expense of the Goodwill will be transferred to
Telemar Participa&#231;&#245;es through shares to be issued at no par value, at which
time the minority shareholders will be granted the right to acquire shares in
proportion to their participation in the Company&#146;s share capital.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;6, 2001, the CVM issued Instruction No.&nbsp;349, which amended
Instruction No.&nbsp;319 and related to the accounting for the down-stream merger.
The new Instruction allowed the Company to write-down the Goodwill asset to the
amount of the future tax benefit expected to be generated by the amortization
of the Goodwill retroactive to January&nbsp;1, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result, on January&nbsp;1, 2000, the Company reduced the Goodwill asset
and the corresponding special reserve of goodwill by R$1,599,647. The remaining
value of R$824,060 corresponds to the amount of the expected future tax
benefit. The Goodwill, which had been recorded in permanent assets, was
reclassified to current and non-current deferred and recoverable taxes on the
balance sheet. In addition, the Company reversed R$325,352 of amortization that
had been recorded during 2000 in connection with the portion of the Goodwill
that was reduced, retroactively as of January&nbsp;1, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;9, 2001 and April&nbsp;26, 2002, the Company increased its capital by
R$167,606, which represented the prior year tax benefit realized and derived
from the amortization of the Goodwill recorded during the years ended December
31, 2001 and 2000 of R$492,958 in each year. Amortization expense of the
Goodwill, net of amortization of the provision, for the years ended December
31, 2002, 2001 and 2000, was R$167,606 (Note 5).
</FONT>

<P align="center"><FONT size="2">F-14</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Summary of significant accounting policies</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Basis of presentation</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements, which are used as the basis for
determining income tax and mandatory minimum dividend calculations, have been
prepared in accordance with accounting practices adopted in Brazil (&#147;Brazilian
GAAP&#148;), which are based on Brazilian GAAP (Law No.&nbsp;6,404/76, as amended), the
rules and regulations issued by <I>Comiss&#227;o de Valores Mobili&#225;rios </I>(the Brazilian
Securities Commission, or &#147;CVM&#148;), and the accounting standards issued by the
<I>Instituto dos Auditores Independentes do Brasil </I>(the Brazilian Institute of
Independent Accountants, or &#147;IBRACON&#148;). The consolidated financial statements
include the financial statements of the Company&#146;s wholly-owned subsidiaries and
subsidiaries in which it has a controlling financial interest. Investments in
businesses in which the Company does not have the ability to exercise
significant influence over operating and financial policies are accounted for
under the cost method.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain amounts in these financial statements were reclassified to conform
to the 2002 presentation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidation process for the balance sheet and the statement of
income accounts reflects the aggregate of the balances of the assets,
liabilities and income and expense accounts, according to their nature,
together with the elimination of intercompany transactions and unrealized
profits/losses within the group.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Statements of cash flows (supplemental information)</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These consolidated financial statements include the consolidated
statements of cash flows prepared in accordance with Brazilian accounting
standards and procedures - NPC 20, which reflect the source and use of cash and
cash equivalents in addition to the consolidated statements of changes in
financial position which are required by Brazilian GAAP.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Use of estimates</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consolidated financial statements include estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingencies and the amounts of revenues and expenses. Actual results could
differ from those estimates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cash and cash equivalents</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents are considered to be all highly liquid
investments with an original maturity of three months or less.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Foreign </I>currency transactions
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the related transactions. Foreign currency-denominated
assets and liabilities are translated using the exchange rate at the balance
sheet date. Exchange gains and losses on transactions denominated in foreign
currencies are generally included in results of operations as incurred.
</FONT>

<P align="center"><FONT size="2">F-15</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Accounts receivable</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable from telecommunication services are valued by applying
the rates on the date the service is provided. These accounts receivable also
include credits for services rendered but not yet billed up to the balance
sheet date. The value of services rendered but not yet billed is determined by
the valuation of the metered services at year-end or by estimates that take
into account the performance for the previous month. The related taxes are
similarly determined and accounted for on the accrual basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounts receivable from handsets and other accessories sold are
recorded when these goods are transferred to the customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Late-payment interest is accounted for following the liquidation of the
overdue bill.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Provision for doubtful accounts</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This provision is established progressively in order to recognize probable
losses in relation to the collection and call-restriction actions, as of 60
days past due, as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="87%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%&nbsp;loss</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Overdue bills</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>provided for</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Between 61 and 90&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Between 91 and 120&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Between 121 and 150&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Over 151&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencing September 2001, government entities, corporate clients and
other telecommunications service providers are being included in the
calculation base for the provision, as are the agreements with clients in
default to settle their debts in installments.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable more than 180&nbsp;days overdue and the related provision
are eliminated from the balance sheet.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Inventories</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories of materials for resale are stated at realizable value, which
does not exceed replacement cost or realizable value.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories of maintenance materials are stated at average purchase cost,
which does not exceed replacement cost. Inventories of materials for network
expansion are stated at average acquisition cost and recorded in &#147;Inventories
for expansion&#148; under Property, plant and equipment.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Prepaid expenses</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subsidies for postpaid handsets sold by Oi are recorded as prepaid
expenses considering that they represent subscriber acquisition costs,
amortized over a 12&nbsp;month-period since the client agreement provides for
reimbursement in the event of disconnection or migration to the prepaid system
before completion of this period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of the Fundo de Fiscaliza&#231;&#227;o das Telecomunica&#231;&#245;es (&#147;FISTEL&#148;),
the Telecommunication Inspection Fund, fees paid by Oi on activations in the
course of 2002 was also recorded as prepaid expenses, taken to income over the
average churn (retention)&nbsp;period, which is usually
</FONT>

<P align="center"><FONT size="2">F-16</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">24&nbsp;months. Since these fees are necessary to install the mobile terminals
to be used by our clients, we consider them as subscriber acquisition costs.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Premiums on foreign exchange options, and prepaid commissions and fees
related to the drawdown of loans are amortized in accordance with the term of
the related contracts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue recognition</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are recognized on the accrual basis i.e. at the time the service
is rendered. The services provided between the last billing date (&#147;cycle&#148;) and
the end of each month are estimated and recognized in the month of accrual.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues consist of the rental of lines, service tariffs based on the
number and length of calls (tariffs for local and long distance calls are based
on the time and length of calls, the distance involved and the services used),
network services, interconnection and leasing of high-capacity lines,
maintenance fees and other value-added services rendered to clients. These
revenues also include telephone installation fees and pre-paid calling cards.
The Company&#146;s management considers that the installation fees should not be
deferred since the margins are negative or low. Revenues from public telephone
pre-paid calling cards are recognized when the cards are sold and the related
costs are recognized when incurred.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from sales of handsets and accessories are recognized when title
to the products is transferred to the customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investments</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments consist primarily of (i)&nbsp;investments in affiliated companies,
which are accounted for under the cost method, (ii)&nbsp;fiscal incentives, which
are also accounted for under the cost method but indexed by inflation through
December&nbsp;31, 1995, less a provision for losses when considered necessary, and
(iii)&nbsp;investments in affiliated companies accounted for under the equity
method.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian Corporate Law, equity investments are investments in
companies in which the Company has more than 20% participation (voting or
non-voting shares) and/or influence over the management, but without control.
Equity accounting adjustments arising from gains and losses due to changes in
the holding percentage in the share capital of investees are recorded in
non-operating income (expenses), net.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, the equity method is permitted if the company holds 20% or
more of the voting shares (Note 30(n)).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Property, plant and equipment</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The investment in property and equipment is stated at original cost,
indexed for inflation through December&nbsp;31, 1995. Materials used for specific
network expansion projects are stated at average original cost and are
presented as &#147;Construction-in-progress.&#148; Improvements to existing property are
capitalized while maintenance and repair costs are charged to expense as
incurred. Property and equipment is depreciated using the straight-line method
over their estimated useful lives. The principal depreciation rates are
detailed in Note 14.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to January&nbsp;1, 2000, interest on construction-in-progress was
calculated monthly at a rate of 12% per annum, and capitalized as part of
property and equipment until the asset was placed in service.
</FONT>

<P align="center"><FONT size="2">F-17</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">Interest capitalized, which exceeded interest expense on loans obtained to
finance construction-in-progress, was recorded in a restricted capital reserve
directly in shareholders&#146; equity.
</FONT>
<P align="center"><FONT size="2">F-18</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning January&nbsp;1, 2000, the Company changed its interest capitalization
policy on property and equipment in compliance with the new CVM rule No.&nbsp;193,
&#147;Capitalized Interest on Financing of Construction-in-progress.&#148; This new rule
requires interest to be capitalized on construction-in-progress at the rates
represented by current loans. As of December&nbsp;31, 2002 and 2001, the Company
capitalized R$323,413 and R$504,836, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management reviews long-lived assets, primarily buildings and equipment to
be held and used in the business, for the purpose of determining and measuring
impairment on a recurring basis or when events or changes in circumstances
indicate that the carrying value of an asset or group of assets may not be
recoverable. Write-down of the carrying value of assets or groups of assets is
made if and when appropriate. No impairment losses were identified in 2002 and
2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Intangible assets</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets consist of (i)&nbsp;the wireless license ( license), acquired
by the Company&#146;s new wireless telecommunications subsidiary, Oi, which is
amortized using the straight-line method over the license period of 15&nbsp;years
and (ii)&nbsp;goodwill related to the excess of the acquisition cost over the book
value of acquired investment (Pegasus &#150; Note 1 (b)), which is amortized on a
straight-line basis over a five-year period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Deferred charges</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, pre-operational costs are deferred until the
start-up of operations, at which time the costs are amortized on a
straight-line basis over five years.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Derivatives</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has entered into derivative transactions to manage its
exposure to fluctuations in foreign currency exchange and interest rates. The
company employs risk management strategies using a variety of derivatives
including cross-currency interest rate swaps, forwards and options. The Company
does not hold derivatives for trading purposes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, results from swap operations are determined and
recorded on a monthly basis by comparing contractual exchange rates to month
end exchange rates, when applicable, regardless of the respective terms for
settlement. Gains on &#147;options&#148; and &#147;forward&#148; contracts are recorded in interest
income when the contracts expire while losses are recorded currently against
income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, derivatives are recorded at fair value (Note 30 (f)).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Vacation pay accrual</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vacation benefits payable to employees are accrued in proportion to the
period vested.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Provisions for contingencies</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions for contingencies are established for contingent risks
considered as &#147;probable losses&#148; by the Company&#146;s management and external legal
consultants. The basis, amounts involved and nature of the main provisions are
described in Note 21.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends and interest on own-capital</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends and interest on own-capital are recorded at year-end based on
the proposed amount by the Directors, which is expected to be approved in the
annual Shareholders&#146; Meeting.
</FONT>

<P align="center"><FONT size="2">F-19</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I><BR>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income tax and social contribution</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions for deferred and payable income tax and social contribution and
tax credit on temporary differences are established at the base rate of 34%.
Prepaid income tax and social contribution are recorded as &#147;Deferred and
recoverable taxes.&#148; Tax credits arising from tax loss carryforwards are
recognized as tax assets when management considers future realization to be
probable, pursuant to CVM Resolution No.&nbsp;273 and CVM Instruction No.&nbsp;371 (Note
10).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Advertising and marketing costs</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Advertising and marketing costs are expensed as incurred. As of December
31, 2002, 2001 and 2000, total expenses were R$138,750, R$180,205 and
R$150,048, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and development</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are charged to expense as incurred. Total
costs were R$34,411 and R$47,418 in 2001 and 2000, respectively. There were no
research and development costs in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Earnings per share</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Earnings per share is computed based on number of shares outstanding at
the end of each year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Pension plans</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contributions to pension are based on payroll and on actuarial
calculations, being recorded on an accrual basis. At December&nbsp;31, 2000, CVM
issued Deliberation CVM No.&nbsp;371 that approved the technical pronouncement of
IBRACON on specific accounting procedures for the recording of obligations of
employees&#146; benefits. This pronouncement was adopted by the Company and its
subsidiaries as from the year ending December&nbsp;31, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although, the plans&#146; assets exceed the actuarial liabilities at December
31, 2002 and 2001, those excesses will not be recognized, as the reimbursement
is not determined by law.
</FONT>


<P align="center"><FONT size="2">F-20</FONT>



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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Operating revenues</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly subscription fees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,581,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,606,831</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,517,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line to mobile calls VC1</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,753,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,680,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,116,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pulses (metered services)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,247,179</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,026,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,889,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Installation charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">359,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">157,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Collect calls</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">112,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,241</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,851,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,792,650</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,816,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance services (Intra-state)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,110,585</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">835,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">694,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line to mobile calls VC2 and VC3</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">482,089</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">459,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">346,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance services (Interstate)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">399,936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance services (Inter-regional)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">58,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long distance services (International)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,066,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,568,400</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,264,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other fixed-line services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Public telephone services (telephone cards)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">668,875</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">570,379</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,346</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value-added services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">302,513</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advanced voice</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">259,459</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">177,622</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">115,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,230,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,005,821</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">802,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenue from the use of the fixed-line network:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line to fixed-line network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,248,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,251,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,071,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mobile to fixed-line network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">248,380</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">244,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,497,311</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,495,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,278,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Remuneration for the use of the mobile network:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mobile to mobile network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed-line to mobile network use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,242</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Mobile telephone services:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sales of handsets and accessories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Originating calls</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monthly subscription fees</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">International roaming</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,131</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,110</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">National roaming</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">455,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data network services (fixed-line):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Industrial
Dedicated Digital Line Service - EILD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">373,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">344,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">339,883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dedicated Digital Line Service - SLD</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">275,642</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">275,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">251,059</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">IP services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91,992</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,807</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,824</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Data communication services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,803</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47,933</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,847</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">905,829</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">787,266</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">678,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other services, including contact center</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,050</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,091,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,659,549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,850,578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value added and other indirect taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,071,139</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,466,281</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,629,686</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(146,275</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,202</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(93,902</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,873,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,103,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,126,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-21</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Description of the services</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;&nbsp;&nbsp; </B>Local
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Local services refer to installation charges, monthly subscription fees
(including 100 free pulses), exceeding pulses, collect calls and local
fixed-line to mobile calls. In-dialing service (direct transmission of external
calls to extensions) is also offered by the Company to those corporate clients
that work with PBX systems. For corporate clients in need of a large number of
phone lines, the Company offers digital trunk services that allow up to 30
simultaneous connections within a single physical loop of 2 Mbps, increasing
the speed and optimization of the client&#146;s telephone system.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii) </B>Long distance intra-state and interstate services
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each State in the Company&#146;s operating region is divided into a number of
local areas. Calls from one local area in the region to another are referred to
as &#147;intra-regional long distance&#148; calls. Intra-regional long distance service
includes intra-state long distance calls and interstate long distance calls.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii) </B>Long distance inter-regional and international services
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company commenced providing inter-regional and international long
distance services in July 2002, after having met in June 2002 our fixed-line
network expansion and universal targets set for December&nbsp;31, 2003.
Inter-regional long distance services are offered from the 16 States in Region
I to Region II and Region III.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv) </B>Fixed-line to mobile services
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These refer to calls made by the Company&#146;s fixed-line clients to mobile
service providers operating within the region. These services also include
collect calls from mobile customers to fixed-line clients.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v) </B>Revenue from the use of the network
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from the use of the network include only those amounts charged by
the Company to other telephone operators.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 1999, the Company signed an interconnection agreement with
Embratel in order to formalize the use of its network for long distance calls
carried out by Embratel (Empresa Brasileira de Telecomunica&#231;&#245;es S.A.). The
Company received from Embratel. Until June&nbsp;30, 2001, a supplemental per-minute
fee called the <I>Parcela Adicional de Transi&#231;&#227;o </I>(&#147;PAT&#148;) which in 2001 totaled
R$18,624 (R$84,500 - 2000). This fee was introduced to offset the impact caused
by the elimination of the shared-revenue system.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company maintains contracts for voice interconnection and transmission
with all fixed-line and wireless telecommunications service providers operating
in Region I.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vi) </B>Sale of handsets and accessories
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refers to revenues from the sale of mobile handsets, &#145;sim-cards&#146; and other
accessories, recorded when delivered to the dealers.</FONT>
<P align="center"><FONT size="2">F-22</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vii)&nbsp; </B>Data network services
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides low and high-speed data transmission services through
switched circuits.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company leases telecommunications equipment and lines to other
telecommunication companies under monthly operating leases, which expire at
various dates. Leased line revenues (denominated SLD and EILD) for the years
ended December&nbsp;31, 2002, 2001 and 2000 were R$648,965, R$619,723 and R$590,942,
respectively. These services are recorded and billed on a monthly basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Data network services also comprise certain additional and value-added
services such as ISDN, which allows voice, data, image and sound transmission
supported by a single digital line permitting the client to use simultaneously,
for example, voice transmission and the Internet
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(viii) </B>Other services, including contact center
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company provides other services that include equipment rentals,
technical assistance and other telecommunication services. The Company also
offers integrated telecommunications services for corporate clients via our
contact center.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Main rates</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecommunications service rates are subject to a comprehensive
regulation. The concessions establish a price-cap mechanism for annual rate
adjustments, which places an upper limit based on a weighted average of the
rates for local, long distance and for interconnection charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;28, 2002, Anatel approved the following tariff adjustments to the
standard plan for local and long distance services (unaudited):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="80%">
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Previous</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Current</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Local service</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>tariff</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>tariff</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Variation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Installation charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42.04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">-40.01</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Residential subscription</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23.32</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26.58</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.98</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Commercial subscription</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.92</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PBX</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41.75</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">-13.56</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Local pulse</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.09259</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.72</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Calling card credits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.07500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.08100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.00</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Previous</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Current</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Long distance (Km) (*)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>tariff</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>tariff</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Variation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">0-50</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.23964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.26936</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.40</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">50-100</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.36298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.38403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.80</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">100-300</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.37746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.40236</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.60</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&#043;300</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.39243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.43363</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10.50</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">(*)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tariff for minute of long distance national calls, between 9 am and 12 am,
and between 2 pm and 6 pm, business days.
</FONT>
<P align="center"><FONT size="2">F-23</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2002, Anatel also approved the maximum rates for the
fixed-mobile service:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">VC1 = R$0.5098<BR>
VC2 = R$1.0371<BR>
VC3 = R$1.1800</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The subsidiaries Telemar and Oi rent telecommunication equipment and lines
from/to fixed-telephone and mobile telephone operators and other private
companies in order to enable the completion of calls (dedicated circuits, cable
connections, satellites, posts, right of way and physical space), as well as to
provide data transmission under a number of operating agreements expiring at
different dates. Rental revenues and expenses, according to the related
agreements, were as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">648,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">619,723</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(349,824</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(209,903</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>3. Cost of services and operating
expenses - by nature</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>General</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cost of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and adminis-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>services</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Selling</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>trative</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interconnection (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,369,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,369,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,362,792</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,645,467</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">440,373</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">172,902</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">187,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">801,174</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,779</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">237,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of handsets and accessories (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">414,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">414,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party services (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">932,324</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">292,756</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">438,211</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,663,291</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Management fee (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,708</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advertising</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and insurance (vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">390,618</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,778</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,911</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">451,307</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">616,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">616,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other consumables (viii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,157</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,152,445</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,307,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,014,602</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,474,401</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-24</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>General</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cost of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and adminis-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>services</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Selling</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>trative</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interconnection (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,334,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,334,608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,737,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">146,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,934,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525,376</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">202,819</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">895,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">263,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">285,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party services (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">705,816</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">229,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384,445</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,319,625</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Management fee (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advertising</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and insurance (vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">220,412</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,082</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,116</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">292,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">925,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">925,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other consumables (viii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,806,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,571,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">869,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,247,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>General</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cost of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and adminis-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>services</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Selling</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>trative</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interconnection (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,634,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,634,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,427,132</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,673,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">397,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">221,725</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">799,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">195,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">214,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party services (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">479,393</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">189,628</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">320,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">989,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Management fee (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81,186</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advertising</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">150,048</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and insurance (vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,229</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222,582</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other (viii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,294,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">885,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">835,782</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,015,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interconnection costs refer essentially to rates for the use of
fixed-mobile networks charged by the cellular operators, substantially reducing
the margin of such services.
</FONT>

<P align="center"><FONT size="2">F-25</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation increased in 2002 due to the completion of the early
target attainment plan at the end of 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Materials costs comprise mostly network maintenance, fuel and
lubricant expenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This refers to the cost of selling mobile handsets, sim-cards (chips
with subscribers&#146; information) and other accessories.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third-party services included in &#147;Cost of services&#148; refer mainly to
operating technical network services, such as installation, line and
infrastructure equipment maintenance and electricity. Services included in
&#147;Selling&#148; refer to customer collection expenses, commissions and sales support
services, and services considered &#147;General and administrative&#148; include data
processing, consultancy, legal advice and utilities (water, among others).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vi)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the Extraordinary General Meeting held on November&nbsp;30, 1999,
shareholders approved a management and administrative services agreement
between Telemar and Telemar Participa&#231;&#245;es establishing a management fee, as
provided for in the concession contracts. Such contract will be in force until
2003 and may be extended. Remuneration is based on a percentage of Telemar&#146;s
net revenues, as follows: 1% from August 1998 to December&nbsp;31, 2000; 0.5% during
2001 and 2002, and 0.2% from 2003 onwards.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vii) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rental and insurance costs mostly include amounts currently paid for
rental of circuits, posts of electricity companies, satellites, right of way,
dedicated lines from other telephone operators, as well as areas for the
installation of Oi towers. They also include those amounts paid by TNL.Acesso
to the internet provider, iG, by way of passing on traffic enhancement. This
contract was terminated by the parties on December&nbsp;31, 2002, and a new
arrangement was signed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(viii) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This refers mostly to indemnity, donations and fines.
</FONT>

<P align="left"><FONT size="2"><B>4. Interest income (expense)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Interest income</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on marketable securities (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">139,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">176,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">157,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on the receipt of overdue bills</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">89,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of option premiums</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,870</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Exchange gains on financial investment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">161,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,002</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">384,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">494,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">274,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Interest expenses</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest and monetary/foreign exchange losses
on loans
payables to third parties (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,089,144</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,020</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(255,769</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Derivatives results (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,675,399</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(266,645</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on own-capital (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(668,365</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(152,736</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of interest on own-capital (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">668,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">152,736</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of option premiums (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(73,182</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,771</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Bank charges, including CPMF</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(205,599</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(120,300</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(46,594</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monetary restatement of interest on own-capital
and dividends proposed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,013</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,912</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,215</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(245,473</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(139,089</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monetary restatement of provisions
for contingencies (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(132,995</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(98,809</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,209</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PIS/COFINS on financial income and IOF</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(239,349</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(61,284</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(25,028</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,217</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(79,924</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,465</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,345,573</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(918,754</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323,119</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,961,102</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(424,312</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(48,956</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-26</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest on marketable securities basically represents interest on
short-term investments in Bank Deposit Certificates and Investment Funds.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Giving effect to the tax benefit introduced by Law 9.249/95, which
amended the income tax legislation, and the generation of taxable income in the
Company, in 2002 and 2001 Telemar recorded interest on own-capital of R$849,997
and R$670,311, respectively. To comply with the tax provisions, such interest
was accounted for as &#147;Interest expenses&#148; and &#147;Interest income,&#148; and reversed to
&#147;Retained earnings&#148; by Telemar and &#147;Investments&#148; by the Company, as it
represents profit distribution. In 2002, the Company recorded R$499,979 as
interest on own-capital, also reversed to &#147;Retained earnings.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Expenses and income from premiums on options are taken to income
during the term of the related contracts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, indexation charges and foreign exchange losses on loans
obtained from third parties were strongly impacted as a result of the
significant valuation of the US dollar against the Real (52.3%). Under
Brazilian GAAP, net results from swap operations are recognized in the income
for the year on the accrual method, thus reducing the interest expenses arising
from exchange variations. Gains on options transactions are recognized upon
contract maturity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, gains on options transactions amounted to
R$66,600, which were not accounted for, while the exchange losses on loans were
fully recorded. This gain will be realized during the first quarter of 2003, if
the US dollar to Real quotation is equal to or above R$2.90 (should the
quotation be less than R$2.70, than there will be no gain).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All the outstanding swap operations were signed between October 2001 and
August 2002, and therefore, during a period of increasing devaluation of the
Real, these operations guaranteed that this devaluation did not materially
effect income since 72.8% (2001 &#150; 57,6%) of our indebtedness is denominated in
foreign currencies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of its risk management strategy, the Company entered into swap
agreements to reduce its foreign currency exposure on loans and financing. As a
result, during 2002 the Company recognized gains in the swap transactions in
the amount of R$ 1,603,468, relating to the difference between the devaluation
of the Real against the US Dollar and the CDI rates, which partially offset the
exchange loss on loans and financing in the amount of R$ 2,551,800.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note 25 for details on derivative transactions.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restatement of provisions for contingencies of the amounts to be
actually paid in the event of loss and/or settlement is stated as &#147;Interest
expenses.&#148; Such procedure applies primarily to tax assessments and proceeding,
since reserves for most civil and labor claims are estimated.
</FONT>


<P align="center"><FONT size="2">F-27</FONT>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>5.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Other operating income (expenses), net</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds reimbursed by the SISTEL pension plan (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153,233</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of down-stream merger Goodwill (Note 1(d))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(492,958</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(492,958</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(492,958</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of provision of down-stream merger Goodwill</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">325,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">325,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">325,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of negative goodwill (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of goodwill on Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,196</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,840</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,455</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity accounting adjustment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,600</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Research and development (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(34,411</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(47,418</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(188,907</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,302</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(25,626</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Technical and administrative services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">53,566</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fines on late-payment (Note 9)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">118,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">102,057</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,323</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Recovered expenses (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">132,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,498</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reserves for contingencies (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(197,438</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(376,162</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(91,896</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of contingencies (vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,320</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">149,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental of infrastructure (viii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,073</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,728</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,864</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,948</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(225,455</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">128,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first half of 2002, Telemar received and recorded R$153,233
(recovery of expenses) with respect to excess funds from <I>Funda&#231;&#227;o Sistel de
Seguridade Social </I>(&#147;SISTEL&#148;), the Sistel Foundation for Social Security, as a
result of the reversal of part of SISTEL&#146;s provisions for tax contingencies
under the defined contribution benefit plan, arising from the amnesty of legal
fines as a result of SISTEL&#146;s adherence to the Special Taxation Regime, as
permitted by Provisional Measure No.&nbsp;2222, of December&nbsp;4, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At an Extraordinary General Meeting of the subsidiary
Telecomunica&#231;&#245;es do Rio de Janeiro S.A. (currently Telemar) held on April&nbsp;12,
1999, the settlement of the subsidiary debt value of R$1,681,427, owed to the
Company, with the issue of 37,766,387,915 common nominative shares to the
Company, with no par value was approved.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The capital increase of this subsidiary generated a negative goodwill of
R$238,075, attributed to the expectations of future results. The negative
goodwill balance was fully amortized in the year ended December&nbsp;31, 2001, as a
result of the merger of the subsidiaries into Telemar &#150; RJ.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the spin-off of Telebr&#225;s, the subsidiaries and other
companies of the Telebr&#225;s System contributed to <I>Centro de Pesquisa e
Desenvolvimento </I>- (&#147;CPqD&#148;), Research and Development Center, which was operated
by Telebr&#225;s and conducted its own independent research and development.
Subsequent to the spin-off, a private, independently administered research and
development center was created. According to an agreement signed in May 1998
between the Company and the research and development center, the Company was
required to contribute R$128,594 in total to the center over a three-year
period which expired in May 2001.
</FONT>

<P align="center"><FONT size="2">F-28</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the years ended December&nbsp;31, 2002 and 2001, the Company
recorded R$99,343 and R$81,537, respectively, with respect to the <I>Fundo de
Universaliza&#231;&#227;o de Servi&#231;os de Telecomunica&#231;&#245;es </I>(&#147;FUST&#148;), Fund for Universal
Telecommunication Services. FUST was approved on August&nbsp;17, 2000 and provides
funds to cover the necessary costs to comply with the obligations established
in the General Plan on Universal Service. The FUST&#146;s revenues include a
contribution of 1% of gross operating revenue from telecommunications services
earned by Telemar and Oi, net of ICMS, PIS and COFINS taxes. Such contribution
has been paid on a monthly basis since January 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October 2000, the Brazilian Senate passed a bill establishing the <I>Fundo
para o Desenvolvimento Tecnol&#243;gico das Telecomunica&#231;&#245;es Brasileiras</I>
(&#147;FUNTTEL&#148;), Fund for the Technical Development of Brazilian
Telecommunications. FUNTTEL&#146;s main objective is to encourage research and
development of new technologies. It started activities on March&nbsp;28, 2001, with
funds arising from 0.5% of net operating revenues of telecommunications service
providers. In the years ended December&nbsp;31, 2002 and 2001, the Company recorded
expenses of R$49,672 and R$31,965, respectively, with FUNTTEL.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This refers basically to fines and arrears interest arising from the
late delivery of services and the recovery of several expenses. The increase in
the 2001 figure is due to the recognition of extemporaneous ICMS credits in the
approximate amount of R$25&nbsp;million. In November 2002, a provision for
insufficient technical reserves of the <I>Plano de Benef&#237;cios de Complementados</I>
(&#147;PB-CT&#148;), the Complementary Benefit Plan, was reversed, because the plan was
merged into the TelemarPrev plan and the amount was no longer payable. This
reversal amounted to R$30,315 (Note 26(a)(ii)).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vi)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reserves for contingencies refer primarily to new tax claims in the
amount of R$61,493 (2001 &#150; R$103,305), labor claims of R$84,898 (2001 -
R$115,528) and civil claims of R$51,047 (2001 &#150; R$157,329), plus interest and
charges on arrears arising from the recalculation of claims for which
provisions had already been established. Increases to provisions for tax
contingencies, included: a) challenging of the tax on certain revenues from
telecommunication services (R$20.2&nbsp;million); b) INSS tax foreclosures
concerning the joint responsibility for the contribution collection, and the
assessment of the contribution on severance pay and other social benefits (R$16
million); and c) supplementation and restatement of claims related to the
increase in FINSOCIAL rates (R$19&nbsp;million). Increases to provisions for labor
contingecies, include: provision for dangerous work premium (R$13&nbsp;million), and
creation of new provisions, as well as the restatement of individual claims
under R$1,000 (R$60&nbsp;million). As to civil claims, provisions were established
for Anatel fines (R$17&nbsp;million), indemnity to SISTEL (R$15&nbsp;million) and other
claims the individual amounts of which are under R$1,000 (R$12&nbsp;million). The
changes in provisions for contingencies are fully described in Note 21.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions related to the probable incidence of PIS/COFINS, ICMS -
Conv&#234;nio 69/98, IOF, ILL, IR/CS, FGTS and CPMF are recorded in the
results/operations accounts of such taxes:
</FONT>

<P align="center"><FONT size="2">F-29</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deductions from gross revenue:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ICMS Conv&#234;nio 69/98 - additional services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,270</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(65,894</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,247</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">COFINS rate increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(127,409</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(115,587</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(107,535</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel cost:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">FGTS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,478</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SAT offset</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,398</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,361</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,392</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PIS/COFINS &#150; base increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(27,092</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,662</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,646</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">PIS/COFINS &#150; base increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28,726</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,610</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CPMF</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,043</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,172</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,912</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">IOF &#150; loans to subsidiaries</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(101,075</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Monetary restatements</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(122,260</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(61,284</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,209</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax and social contribution:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,002</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(528,748</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(378,814</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(205,551</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The restatement of reserves representing amounts that will be actually
paid is recorded as &#147;Interest expenses&#148; (Note 4).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reversal of contingencies in 2002 arose basically from a) settlement
of INSS-related judicial proceedings, previously provided for by Telemar,
through the acquisition of Government securities at a discount, generating
revenues of R$12&nbsp;million; b) utilization of benefits provided by Provisional
Measures 66 and 75 (rules issued by the President of Brazil, with effect of law
valid from 60 to 120&nbsp;days), whereby interest and fines due by Telemar were
reduced/waived, and a provision (substantially FINSOCIAL) of approximately R$32
million was reversed; c) reversal of R$8.5&nbsp;million for amounts recorded to
cover the retroactive increase in the FGTS rate pursuant to a Supreme Court
ruling; d) reversal of R$11.5&nbsp;million related to negotiations with Embratel
(VC2/VC3) e) recognition of an asset of R$16&nbsp;million associated with ILL paid
in previous years, based on a Supreme Court ruling stating the
unconstitutionality of this tax in this particular instance; f) reversal of
R$26&nbsp;million regarding the settlement of several labor claims, the most
important of which is the payment of the claim involving the adjustment of
salaries in accordance with inflation indices under the &#147;Ver&#227;o Plan&#148; (economic
plan) in the state of Par&#225;, with a reversal of approximately R$5&nbsp;million; g)
reversal by the Company of a portion of the provision for convertible
debentures, in the amount of R$21&nbsp;million, as a result of the decrease in the
market value of the related shares. The remaining amounts refer to reversals on
account of several suits completed by ruling or settlement. The material
reversals are fully described in Note 21.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(viii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mobile operators use radio base stations (ERB)&nbsp;located in the
buildings of Telemar. Telemar charges a rental fee for the use of these
facilities, called rental of infrastructure, which is recorded under &#147;Other
operating revenues and expenses &#150; Rental-infrastructure.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<P align="center"><FONT size="2">F-30</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

</FONT>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>6.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Non-operating income (expense), net</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gain (loss)&nbsp;on disposal of permanent assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,471</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,896</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Equity in earnings of affiliates</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,344</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other non-operating income (expense), net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,034</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,682</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,441</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,120</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the merger of the 15 subsidiaries into Telemar (Note 2
(c)), the Company&#146;s interest in Telemar reduced from 86.20% to 79.56%. The
capital gain recorded as a result of the merger operation totaled R$50,669.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2001, Telemar entered into a partnership agreement with
Hispamar Ltda. in order to reduce costs to cover the northern region of Brazil,
in particular transponders rented from Embratel. On December&nbsp;31, 2002, Telemar
entered into an agreement with Hispamar Sat&#233;lites S.A., a subsidiary of
Hispamar Ltda., providing for the assignment, at a charge, of the right to
utilize the geostationary C Band satellite. Such right had been granted to
Telemar by Anatel, free of charge, included in the concession agreement. The
assignment price was based on a report of independent appraisers, totaling
R$28,659 to be received over five years, inflation-indexed based on the
Consumer Price Index (&#147;IPC&#148;). The proceeds of this transaction were recorded as
gain on disposal of permanent assets as a contra-entry to &#147;Other assets,&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains and losses on disposal of permanent assets consist mainly of
write-offs of equipment in connection with the modernization of the network.
</FONT>

<P align="left"><FONT size="2"><B>7.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Income tax and social contribution</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian income taxes comprise federal income tax and social contribution
tax. The composite statutory rate is 34% for all three years presented.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is an analysis of the income tax and social contribution
(expense)&nbsp;benefit:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Social contribution (expense)&nbsp;benefit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">107,520</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,018</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,635</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax (expense)&nbsp;benefit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,789</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(142,924</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Offset of tax on net income-ILL</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total tax (expense)&nbsp;benefit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(174,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-31</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a reconciliation of the amount calculated by applying the
combined statutory tax rates to the reported income before taxes and the
reported income tax expense (benefit):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before income taxes and minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(655,054</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,141,261</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax (charge)&nbsp;benefit at the composite
</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">222,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(59,631</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(388,029</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Write-off of net operating losses (&#147;NOL&#146;s&#148;) of subsidiaries
merged into Telemar (Note 1(c))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(61,467</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax benefit on the amortization of the Goodwill (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,619</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-taxable amortization of negative goodwill (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax benefit of interest on own-capital (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">227,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,747</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Offset of tax on net income &#150; ILL (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized tax credits (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(185,273</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,695</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non-taxable equity accounting adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(89,122</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax effects on permanent differences (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,037</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,130</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,160</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,588</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,337</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total benefit (provision)&nbsp;of income taxes and
social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(174,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Effective tax rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52.24</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12.4</FONT></TD>
    <TD nowrap><FONT size="2">%)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.3</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the downstream-merger (Note 1(d)), the Company recorded a
provision for the reduction of the Goodwill to the amount of the tax benefit to
be generated. In order to produce the tax benefit, the amortization of this
provision, included in the income (loss)&nbsp;before income taxes and minority
interests is not taxed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Up to December&nbsp;31, 2001, the Company recorded a negative goodwill
arising from a capital increase of Telemar - RJ. The amortization of such
negative goodwill (Note 5 (ii)) was excluded from the calculation basis of the
income tax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian companies are permitted to determine a tax-deductible
interest on own-capital expense attributable to shareholders&#146; equity, which is
treated as a dividend and distributed in a manner similar to a dividend. For
financial reporting purposes, interest on own-capital is recorded as a
deduction from unappropriated retained earnings, payable by the Company on
behalf of the shareholders. However, the tax benefit remains in the income
statement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Considering Supreme Court rulings on the unconstitutionality of this
tax, in the second half of 2000 the Company offset the payment of other federal
taxes with this tax credit. Based on administrative proceedings and the opinion
of outside counsel, the Company reversed that portion of the provision during
2002, while maintaining a provision for the possible challenging of the
criteria for the restatement of tax credits (Note 21).
</FONT>

<P align="center"><FONT size="2">F-32</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain subsidiaries did not recognize deferred taxes on the tax
losses of 2002 and 2001 in the absence of past experience and/or expectation of
future taxable income to ensure full utilization. Such tax assets may be
recorded in the event that these subsidiaries demonstrate the capability of
realizing such credits over the next ten years (Note 10).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vi)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax effects on permanent differences refer basically to write-offs of
accounts receivable recorded in 2001 and 2000 which are not tax deductible.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax assets are presented in the balance sheet under &#147;Deferred and
recoverable taxes&#148; (Note 10), and comprise the following:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax benefit on down-stream merger goodwill (Note 1(d))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">321,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">488,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Allowance for NOL&#146;s (Note 10(ii))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(185,273</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,695</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">NOL&#146;s</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">609,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">322,901</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provisions for contingencies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">577,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">462,559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Temporary differences, mainly provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">351,805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">160,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,674,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,422,580</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Current</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">443,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">389,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Long-term</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,230,653</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,033,364</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tax loss carryforwards do not expire and may be carried forward for an
indefinite period. Utilization of the tax carryforwards in any year, however,
is limited to 30% of taxable income generated in such year. However, Telemar
holds an injunction authorizing the offsetting of 100% of its accumulated tax
loss carryforwards determined in 1998 and prior years, and maintains a
provision for contingencies relating to charges and interest in arrears in the
amount of R$23,001 (2001 &#150; R$3,611) (Note 21 &#150; Tax (ix)). Tax credits at
December&nbsp;31, 2002, described in Note 10, include R$138,437 relating to 1998 and
prior years.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax liabilities and taxes on income are comprised as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Federal income tax payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Social contribution tax payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,770</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax withheld at source on interest on own-own-capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,256</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred tax liabilities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional indexation expense from 1990 (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Others</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">284,361</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">283,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-33</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional indexation expense from 1990 relates to the non-tax
deductible increase in depreciation arising from pre-1990 indexation
adjustments to property, plant and equipment, according to Brazilian tax
legislation.
</FONT>

<P align="left"><FONT size="2"><B>8.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cash, cash equivalents and government securities</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>a) &nbsp;&nbsp;Cash and cash equivalents</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and bank accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Certificate of deposits (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">994,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">906,593</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investment funds (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">321,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">219,298</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Remunerated deposits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">116,576</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Debentures (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,895</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Government bonds</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,512,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>b) &nbsp;&nbsp;Government securities</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Government exchange securities (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,654,158</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term investments in <I>Certificados de Dep&#243;sitos Banc&#225;rios </I>(&#147;CDB&#148;),
Bank Deposit Certificates, are partially indexed to <I>Certificado de Dep&#243;sitos
Interbanc&#225;rios </I>(&#147;CDI&#148;), Interbank Deposit Certificates rates, with immediate
liquidity and an average yield of 19.04% p. a. (2001 &#150; 16.05% p. a.).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investment funds have immediate liquidity and had an average yield of
55.18% per annum in 2002, being primarily collateralized by US and Austrian
government securities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments in government bills such as NTN &#150; Notas do Tesouro
Nacional mature from February 2004 through February 2005, while bills
of NBC &#150; Notas do Banco Central mature in November 2005. The average returns of these
bills range from 10.2% to 11.7% per annum, plus exchange variations. Government
securities are presented in the balance sheet under other long-term assets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debentures refer to Ita&#250; Leasing S.A. securities negotiated by Banco
Ita&#250; S.A., with a yield of 100% of CDI, and were redeemed in 2002.
</FONT>




<P align="left"><FONT size="2"><B>9.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Accounts receivable, net</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Services billed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,594,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,029,745</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Services measured not yet billed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">461,068</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">451,056</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(330,667</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(334,957</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,724,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,145,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-34</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">The aging-list of accounts receivable is as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Not yet due</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,416,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,039,730</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">To receive from other providers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">527,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">272,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Overdue up to 30&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">475,684</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">544,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Overdue from 31 to 60&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">233,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">174,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Overdue from 61 to 90&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">130,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Overdue more than 90&nbsp;days</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">272,718</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">339,479</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,055,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,480,801</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overdue accounts are subject to a 2% fine (recorded in &#147;Other operating
income&#148;) on the total debt and late-payment interest of 1% per month (recorded
in &#147;Financial income&#148;), on a pro rata basis, which are recorded when the
subsequent bill is issued after payment of the overdue bill.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable from other providers include credits with Embratel,
currently under discussion with Anatel and being litigated in court. The
receivables and payable from Embratel are summarized as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">318,431</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">237,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consignment on behalf of others</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(99,212</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for contingencies (Note 21 - civil (ii))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,713</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(62,201</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance to receive, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since September 2002, Embratel is depositing in to court the amounts
disputed regarding the interconnection traffic (remuneration on the use of the
fixed-line network), totaling R$34,435. These amounts are maintained as
accounts receivable since there is no final decision as to the ownership of
these amounts.
</FONT>




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>10.</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;<B>Deferred and recoverable taxes</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax credit on down-stream merger goodwill (Note 1(d)) (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">321,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">488,849</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred income tax and social contribution (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,353,051</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">935,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax recoverable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">191,838</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Social contribution recoverable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,963</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ICMS (value-added tax) and other taxes recoverable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,070,691</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,053,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Withholding income tax (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">169,716</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147,765</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,137,529</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,854,268</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,456,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,293,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,680,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,561,173</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the goodwill transaction on the downstream merger (Note
1(d)), an income tax and social contribution credit and a special reserve of
goodwill were recorded.
</FONT>

<P align="center"><FONT size="2">F-35</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company records deferred tax credits arising from timing
differences and tax loss carryforwards, under the terms of CVM Resolution No.
273 and CVM Instruction No.&nbsp;371. These credits are shown under current assets
and long-term receivables, according to the expectation of their realization.
During the year ended December&nbsp;31, 2002, the Company recorded tax credits and
tax loss carryforwards in the amount of R$113,622, included under current
assets and long-term receivables.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to a technical study approved by the Conselho Fiscal in November
2002, the generation of taxable income over the next ten years, brought to
present value, will be sufficient to absorb such tax credits, as follows:
</FONT>

<P align="left"><FONT size="2">Until December&nbsp;31(non-audited):
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">443,641</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">434,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">321,912</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">292,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">40,977</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2009</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2010</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,657</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2011</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,222</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2012</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,413</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,674,294</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, it is not possible to foresee with reasonable precision the years
in which the assets will be realized. The estimates for the generation of
future taxable income include several assumptions related to the performance of
the Brazilian economy, exchange rates, service volume, tariffs, tax rates and
other factors which could differ from current estimates. Management can provide
no assurance that the tax assets will be realized within the years specified
above.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For those subsidiaries that do not have a past history of profitability
and/or expectation of future generation of taxable income, management has
chosen not to recognize tax credits arising from timing differences and tax
loss carryforwards, which amount to R$185,273 at December&nbsp;31, 2002 (2001 -
R$12,695).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>In May 2000, the Company was authorized to offset, in order to
extinguish the tax claim, approximately R$100&nbsp;million of withheld income tax
arising from interest on own-capital, received in 2000 and 2001, against the
contingent liability related to PIS/COFINS (Note 21 &#150; Tax (ii)).
</FONT>

<P align="left"><FONT size="2"><B>11.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Prepaid expenses</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Subsidies on handsets (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68,689</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">FISTEL fee (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,102</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Insurance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial charges (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">88,271</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">85,629</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,846</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">126,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,354</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,018</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,921</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,867</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-36</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This refers to the number of postpaid handsets sold during the year,
with a minimum subsidy of R$300 reais. This amount is recoverable over 12
months, considering that the agreements provide for this amount as early
termination fee or upon migration to prepaid plans.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of the &#147;<I>Fundo de Fiscaliza&#231;&#227;o das Telecomunica&#231;&#245;es
(&#147;</I>FISTEL&#148;), Telecommunication Inspection Fund, fee paid each month based on the
number of installations in the course of the year is deferred to be amortized
during the estimated period of client churn (retention), which is equivalent to
24&nbsp;months. In addition, the FISTEL fee related to the annual operation and
inspection of radio base and fixed-line and mobile switches active in the prior
year paid in April is amortized during the same year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;This refers basically to premiums paid on option contracts,
amortized during the term of the related contracts, in addition to prepaid
commissions and fees in advance for loans.
</FONT>

<P align="left"><FONT size="2"><B>12.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Other assets</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Government exchange securities (Note 8 (iii))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Maintenance inventories (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">108,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,051</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other debtors</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,243</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,047</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax incentive investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Recoverable advances and deposits (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">68,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">107,834</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,119</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">515,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">264,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">215,351</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">180,118</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">299,888</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance inventories relate to new and reusable materials in the
operating telephone subsidiaries which are stated at the lower of average
original cost or market.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recoverable advances and deposits as of December&nbsp;31, 2002 relate
primarily to advances to suppliers in the amount of R$44,337 (2001 &#150; R$99,711)
and advances to employees in the amount of R$24,322 (2001 &#150; R$8,123).
</FONT>

<P align="left"><FONT size="2"><B>13.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Investments</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investment in Pegasus, recorded up to December 2001 under
the equity method (Note 1(b)), and not consolidated</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments at cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fiscal incentives</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">98,219</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-37</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fiscal incentives and other investments are stated at cost and refer
mainly to equity interests obtained by converting into shares or capital quotas
the tax incentive investments in regional funds, information technology
companies and audiovisual projects.
</FONT>




<P align="left"><FONT size="2"><B>14.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Property, plant and equipment, net</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD align="right" nowrap>&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Annual</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>depre-</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>ciation</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cost</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>depreciation</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Net</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Net</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>rate (%)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed switching equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,475,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,499,319</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,976,213</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,939,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Oi switching equipment (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">316,197</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,223</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">306,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fixed transmission equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,266,487</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,198,224</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,068,263</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,338,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Oi transmission equipment (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">661,518</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,749</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">642,769</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Terminal equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,252,209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,730,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">521,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">639,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trunking (switches)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,039,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,178,372</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,861,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,192,631</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">5 to 20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cables (access network)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,167,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,374,788</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,792,832</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,344,345</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">5 to 20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cables and network Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">194,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,291</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">187,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">3 to 4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Machines and equipment Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">113,670</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103,012</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">4 to 33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,526,711</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(855,042</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">671,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">564,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">10 to 20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Underground ducts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,894,915</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(999,645</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">895,270</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">932,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Posts and towers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">806,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(264,559</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">541,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,358</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">4 to 5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Hardware and software</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,214,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(546,655</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">667,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">557,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Buildings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,083,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,110,282</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">973,217</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">957,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">4 to 10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,045,451</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(376,299</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">669,152</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">319,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">10 to 20</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Construction in-progress</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">556,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">556,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,875,129</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials for expansion projects</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">407,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">407,122</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,026,550</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,021,392</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,178,532</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,842,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,146,569</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap>&nbsp;</TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The depreciation rate for Oi&#146;s transmission and switching equipment is
supported by an internal report on the assessment of the useful life. This
assessment is based primarily on technical obsolescence and is consistent with
the practices followed by the wireless telecommunications sector.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In compliance with CVM Resolution No.&nbsp;193/96, during 2002 the subsidiary
companies capitalized the amount of R$323,413 (2001 &#150; R$504,836) arising from
financial charges in connection with financing of permanent assets, during
their construction period. Capitalized interest is subsequently depreciated
over the same period as the related assets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to clause 21.1 of the Concession Agreement, all of Telemar&#146;s
property, plant and equipment which are essential to provide the services
described thereunder are considered reversible assets and comprise the
concession&#146;s assets. Upon expiration or termination of the Concession Agreement
these assets will automatically revert to Anatel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management reviews its potential for profit generation on a regular basis,
especially buildings and equipment to be maintained and used in the activities,
to determine and assess possible impairment. No impairment losses were
identified in 2002 and 2001.
</FONT>

<P align="center"><FONT size="2">F-38</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>

</FONT>

<P align="left"><FONT size="2"><B>15.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Intangible assets</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">License
-  Oi</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,122,209</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,102,007</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill
-  Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">310,746</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,432,955</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,163,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2001, Oi acquired for R$1,102,007 the license to operate and
market Personal Mobile Service in the same areas within Region I that Telemar
operates and the &#147;Tri&#226;ngulo Mineiro&#148; area and certain cities within the &#147;Alto
Parana&#237;ba&#148; region of the State of Minas Gerais, in competition with CTBC
Celular S.A. This license is valid through March&nbsp;12, 2016 and may be renewed
for an additional 15-year period. Oi was authorized by Anatel to start
operations on June&nbsp;26, 2002 and began billing its customers as of July 2002. We
began amortizing the license, as of July 2002, upon the commencement of
operations, on a straight-line basis through the expiration date in March 2016.
</FONT>

<P align="left"><FONT size="2"><B>16.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Deferred charges</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred charges consist of expenses incurred during the pre-operating
period of the new subsidiaries Oi, TNext, HiCorp, Contax and TNL.Acesso, which
will be amortized over periods based on the economic studies carried-out by a
third party (average period of five years), and comprise of the following:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">235,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and interest expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">332,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">409,417</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Materials (mainly handsets)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,720</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,254</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Revenues of handset sales</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,838</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rental and insurance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,060</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,431</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,969</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">636,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Total per subsidiary:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="26%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Accumulated</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Cost</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>amortization</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Net</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Net</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Oi</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">628,486</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,431</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">598,055</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">409,964</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNext</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,511</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,525</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">HiCorp</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,778</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,693</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TNL.Acesso</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,667</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,726</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,491</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,235</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,981</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pegasus</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,333</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,320</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,013</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">686,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,113</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">636,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">458,049</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-39</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payroll and related accruals</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Wages and salaries</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,663</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82,054</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued social security charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employee&#146;s profit sharing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,612</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued benefits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">654</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Payroll withholdings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,357</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,574</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,155</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">181,860</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The employees&#146; profit sharing is performance-based on operating revenues
and is measured on an annual basis (Note 26 (b)).
</FONT>

<P align="left"><FONT size="2"><B>18.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Dividends and interest on own-capital</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proposed dividends and interest on own-capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">499,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on own-capital to minority shareholders of Telemar</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">160,040</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prior years&#146; dividends and interest on own-capital not claimed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,150</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">703,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">538,042</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dividends and interest on own-capital not claimed refer to the amounts
available to shareholders, which if not claimed within three years of the
annual Shareholders&#146; Meeting that such dividends and interest on own-capital
were approved will be reversed to retained earnings.
</FONT>




<P align="left"><FONT size="2"><B>19.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Taxes other than on income</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Value-added taxes &#150; ICMS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">342,322</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">388,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employees&#146; Profit Participation Program &#150; PIS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,692</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,410</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax for Social Security Financing &#150; COFINS</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,742</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other indirect taxes on operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">481,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">437,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">481,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">436,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">608</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-40</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>20.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Loans and financing</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Draw-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>down</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Financial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maturity</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Guarantees</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>charges</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>(a)&nbsp;Local currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco de Desenvolvimento de Minas Gerais S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">07/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Receivables</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">TJLP &#043; 4.20%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,328</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco de Cr&#233;dito Nacional S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">02/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">02/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Conditional investment and promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">CDI &#043; 0.15% and 0.4% p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,626</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="top">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Nacional de Desenvolvimento Econ&#244;mico e Social - BNDES &#147;Credit line&#148; (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">01/08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Endorsement  and receivables</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">TJLP &#043; 3.85%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">1,909,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">2,173,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Bilbao Vizcaya Argentaria S.A. (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">IGPM &#043; 12% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco do Brasil S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">104% to 110% of CDI and 2.18% p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,852</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="top" bgcolor="#eeeeee">
    <TD><FONT size="2">Banco Mercantil do Brasil S.A. (vi)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Promissory note and receivables</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">CDI &#043; 0.30% p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco ABC Brasil S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">24.60% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Fibra S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Promissory note and receivables</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">1.05% p.m.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telcon Fios e Cabos para Telecomunica&#231;&#245;es S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">02/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">02/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">112% of CDI</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,085</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,335</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total in local currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,042,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,238,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-41</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="16%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Draw-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>down</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Financial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maturity</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Guarantees</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>charges</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>(b)&nbsp;Foreign currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>US Dollar</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco
Nacional de Desenvolvimento Econ&#244;mico e Social - BNDES &#147;Credit line&#148; (i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Endorsement and receivables</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">UMBND (ix)&#043;
3.85% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">920,017</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">695,953</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ABN AMRO Bank N.V.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">05/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 5.00%
p.a</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">298,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">262,586</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">ABN AMRO Bank N.V. (iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Endorsement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">Libor &#043; 5.50%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,131,512</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,153,239</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Ita&#250; S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 2.75%
to 3.125% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">324,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">233,827</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BBA Creditanstalt S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">05/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.20%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">211,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">185,632</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BankBoston N.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.80%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">169,598</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">139,224</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">BankBoston N.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Endorsement</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.25%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103,455</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91,934</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Santander do Brasil S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.40%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81,214</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Santander do Brasil S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">1% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">EDC-Export Development Corporation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 1.50%
to 3.00% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">246,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">196,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fuji Bank, Limited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">09/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 3.10%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">256,967</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,945</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">KFW-Kreditanstalt F&#252;r Wiederaufbau</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">8.75% to 11.87% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">506,440</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">398,335</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">KFW-Kreditanstalt F&#252;r Wiederaufbau (iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">07/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">8.75% to 11.87% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">346,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unibanco Uni&#227;o de Bancos Brasileiros S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">12.01% p.a. and
10.85% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">176,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">151,565</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco Bilbao Vizcaya Argentaria S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">07/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Guaranteed by THE COMPANY</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">6.84% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,759</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sumitomo Corporation do Brasil S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/97</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043;2.5% and
3% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,998</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>


<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Electro Banque S.A. (v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.5%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,066</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-42</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Draw-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>down</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Financial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maturity</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Guarantees</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>charges</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SEB Merchant Banking (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">03/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 2.75%
p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">173,432</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Soci&#233;t&#233; G&#233;n&#233;rale (ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043;  5% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Suppliers (viii)</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Bosch Telecom Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/95</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 2.50% to 3.30% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">106,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SIEMENS Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 5.4375% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SIEMENS Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">09/05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 5.00% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">77,624</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,617</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SIEMENS Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">06/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 4.71% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Alcatel Telecomunica&#231;&#245;es S.A. (vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 5% to 6.2% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Alcatel Telecomunica&#231;&#245;es S.A. (vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/99</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 5% to 6.2% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">203,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Alcatel Telecomunica&#231;&#245;es S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">04/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">6.91% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">SIEMENS Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">02/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">6.91% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,638</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Nokia do Brasil Ltda.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">6.91% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other suppliers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10/96</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">05/04</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Promissory note</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="right"><FONT size="2">LIBOR &#043; 1.125% to 6.6% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">126</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>Yen currency</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Japan Bank for International Cooperation &#150; JBIC</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">08/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">01/10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">None</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" colspan="3"><FONT size="2">1.65% p.a.</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,043,568</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">661,776</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accrued interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">114,154</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total in foreign currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,856,349</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,806,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Results of swap operations (x)</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,445,432</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">575,365</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total loans and financing</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,453,341</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,619,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-43</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Draw-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>down</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Financial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maturity</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Guarantees</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>charges</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Short term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,747,472</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,370,561</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,705,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,249,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-44</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refers to the use of funds provided by special lines of credit for the
acquisition and assembly of infrastructure equipment, electronic equipment,
network management software, among others, under the terms of the
&#147;Telecommunication Investment Support Program.&#148; Financial charges were due on a
quarterly basis up to December 2001, and from February 2002 through January
2008, financial charges and the principal are due on a monthly basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, the Company, in the capacity of an endorsing
guarantor, had not met certain indices established in covenants under the
R$2,829,898 loan obtained by Telemar from BNDES and ten financial agents,
starting in December 2000 with final maturity in January 2008. Banco Ita&#250; S.A.
and Banco do Brasil S.A., as consortium leaders and BNDES, granted a waiver, in
connection with the noncompliance of current liquidity ratio and debt coverage
as of December&nbsp;31, 2002, upon increase of the interest from 3.85% per annum to
4.40% per annum for 2003. Based on these waivers and the opinion of legal
counsel, management believes to be in compliance with the covenants up to
January 2004.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company obtained funds from Skandinaviska Enskilda Banken AD
(&#147;SEB Merchant Bank&#148;) in March 2002, from Banco Bilbao Vizcaya Argentaria S.A.
in June 2002 and from Soci&#233;t&#233; G&#233;n&#233;rale in December 2002, all to finance the
acquisition of Ericsson equipment by Telemar.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, Oi obtained loans from ABN AMRO Bank, to make investments
and pay the first installment of the right to use a radio frequency. During
2002, additional drafts were made; to cover investments made in Oi&#146;s operating
network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2002, the Company obtained funds from KFW-Kreditanstalt Fur
Wiederaufbau, in the amount of R$258&nbsp;million, and in October 2002, in the
amount of R$31&nbsp;million, to finance the acquisition of Siemens equipment by
Telemar.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the Company obtained funds from Electro Banque, in
the amount of R$60&nbsp;million, to finance the acquisition of Alcatel equipment by
Telemar.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vi)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Refers to loans and financing obtained by Pegasus, which was acquired
and consolidated by Telemar on December&nbsp;27, 2002 (Note 1(b)).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the Company assumed part of the debt of its
subsidiary Pegasus with Alcatel Telecomunica&#231;&#245;es S.A., in the amount of R$134
million
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(viii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans from suppliers refer to contracts for the supply and
installation of equipment in order to comply with the network expansion
program.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ix)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;UMBND&#148; is a currency basket published by BNDES on a daily basis.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(x)</B>&nbsp;&nbsp;The results of swap operations refer to the gains and losses of
existing transactions at the balance sheet dates, considering the difference
between an average of 103.31% of the variation in the CDI rate and the exchange
rate variation of the US Dollar and Yen plus the bank spread. These gains and
losses are reducing or increasing our foreign currency indebtedness in US
Dollars and Yen. Management expects to maintain these transactions until their
maturity, which is similar to the disbursements relating to the loans and
financing in foreign currency.
</FONT>


<P align="center"><FONT size="2">F-45</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The maturity dates of long-term debt are as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Local currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">368,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">381,710</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">368,004</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">442,388</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">365,620</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">375,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">362,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">375,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">362,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008 and thereafter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,310</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,190</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,606,836</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,856,384</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Foreign currency</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">713,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,531,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,098,305</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,709,101</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,104,405</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,286,858</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">909,547</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">645,594</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008 and thereafter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">926,406</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">319,969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,099,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,392,937</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Total</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,081,466</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,912,784</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,466,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2005</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,151,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,470,025</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2006</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,662,573</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,271,830</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2007</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,021,308</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">609,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2008 and thereafter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">957,715</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">350,159</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,705,869</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,249,321</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-46</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>21.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Provisions for contingencies</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><B>Tax</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">FINSOCIAL</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">PIS/COFINS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">483,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">357,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">ISS (service tax) on services which are</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="3" align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;not subject to ICMS (value-added tax)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">ICMS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,961</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">139,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">INSS</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">122,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">114,205</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(vi)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">CPMF</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">155,890</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,599</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(vii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">ILL</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,694</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,139</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(viii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">IOF</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">117,396</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ix)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Other claims</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">206,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">199,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,294,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,001,567</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><B>Labor</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Unsafe work conditions premium</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">107,385</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">106,418</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Inflation indexation adjustments</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,343</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Equalization of salary scales</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Salary differences/indemnities/productivity</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,583</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Other actions</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80,246</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260,176</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">272,202</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2"><B>Civil</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(i)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Preferred shares</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,149</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Embratel VC2/VC3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,201</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iii)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">SISTEL indemnity</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iv)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Claims - small claim courts</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,478</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,171</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(v)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Other claims</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,074</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45,148</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">217,669</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">Total (Long-term)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,772,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,491,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provisions for contingencies are monetarily restated on a monthly
basis, according to legally established criteria, as follows:
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax :Variation <I>Sistema Especial de Liquida&#231;&#227;o e Cust&#243;dia </I>(SELIC) (Special
System for Settlement and Custody);
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Labor : Variation in the TR &#150; <I>Taxa Referencial </I>(&#147;TR&#148;) (Referential Rate)
plus 1% per month; and
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Civil : Variation in the TR plus 0.5% per month.
</FONT>

<P align="center"><FONT size="2">F-47</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>Probable contingencies</B>
</FONT>

<P align="left"><FONT size="2"><B><I>Tax</I></B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FINSOCIAL
- During 2002, Telemar accepted to withdraw its claim and
pay the contested tax, totaling R$40,043 after a reduction of interest and fine
granted pursuant to Provisional Measures No.&nbsp;66/02 and No.&nbsp;75/02. This resulted
in a reduction and reversal of R$31,672 of the Company&#146;s provisions for
contingencies (Note 5).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;PIS/COFINS
- Based on the opinion of its legal advisors and
unfavorable interpretation by the Federal Court of Appeals, Telemar maintains a
provision to cover the discussion about the rate increase of COFINS and
broadening of the calculation basis of <I>Programa de Integra&#231;&#227;o Social </I>(&#147;PIS&#148;)
and <I>Contribu&#231;&#227;o para Financiamento da Seguridade Social </I>(&#147;COFINS&#148;) (Law
9.718/98), despite having obtained preliminary injunctions, authorizing the
nonpayment of these taxes, as well as the offsetting of amounts collected in
accordance with this broadened calculation basis. However, Telemar has suffered
unfavorable decisions in some states where it operates: a) Minas Gerais, where
the amount due, plus arrears interest, totaling R$72,680, was judicially
deposited; and b) Roraima and Par&#225;, where appeals were denied on June&nbsp;26, 2001.
Utilizing Provisional Measure No.&nbsp;66/02, Telemar paid R$1,743 in connection
with COFINS in the State of Amap&#225;, with benefit of R$193 as reduction of
interest and fines.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of the Company, although an interlocutory appeal is still
pending judgment in order to stay an unfavorable decision at the second
judgment phase, and in view of the likelihood of a negative outcome, management
decided to use credits of withheld income tax to offset against the amount due
being challenged, in the approximate amount of R$100&nbsp;million (Note 10).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISS
- Telemar maintains provisions for tax assessments suffered as
from 1998, challenging the incidence of this tax on several services, such as
equipment rental, value-added services, and other technical and administrative
services. The provision reflects the assessed services which are considered as
probable losses by the legal consultants. Changes occurred during the year
primarily refer to the restatement of the existing provision.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assessments in connection with the incidence of <I>Imposto Sobre Serui&#231;os</I>
(&#147;ISS&#148;) on services relating to outsourcing of personnel, equipment rental,
wake-up call services, and others, in the approximate amount of R$320&nbsp;million,
have not been provided for, since these contingencies are considered possible
or remote, as some activities are not within the scope of the ISS and are
already taxed by the ICMS. These assessments are reviewed by the Legal
Department, in connection with a comprehensive study of the legislation
applicable to all service revenues that was prepared by external legal counsel.
Furthermore, adding to the defense rationale, the Supreme Court ruled, in the
last quarter of 2001, that ISS should not be levied on equipment rental. A
substantial portion of the assessed amounts refers equipment rental.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ICMS
- On June&nbsp;19, 1998, State Financial Secretaries approved
<I>Conv&#234;nio </I>69, which increased the scope of <I>Imposto Sobre Circula&#231;&#227;o de
Mecadorias e Servi&#231;os </I>(&#147;ICMS&#148;) to other services, including installation.
Pursuant to this interpretation, the ICMS tax may be applied retroactively to
such telecommunication services during the last five years. Management believes
that the extended incidence of the ICMS tax on supplementary services to the
basic telecommunication services is questionable, because: a) the State
Secretaries acted beyond the scope of their authority; b) their interpretation
considers, for taxation purposes, certain services which are not
telecommunications services; and c) new taxes cannot be applied retroactively.
This is a complex matter as it involves technical definitions of services,
which would give rise to the incidence of ICMS, ISS or neither one of them.
</FONT>

<P align="center"><FONT size="2">F-48</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the disclosure of the <I>Conv&#234;nio</I>, Telemar filed a court injunction
against the incidence of ICMS on installation and activation services (main
revenues being discussed), recording the provision and respective restatement
on a monthly basis. From 1999 until December 2001, Telemar was assessed for
ICMS on additional services, including activation and installation fees, in the
approximate amount of R$260&nbsp;million. Based on the opinion of its legal
consultants, management considers the probability of loss for notifications
related to periods prior to June 1998 as &#147;remote,&#148; and for those after June
1998 as &#147;possible or probable,&#148; and accordingly recorded a provision for the
probable notifications of approximately R$142&nbsp;million (R$14&nbsp;million for
assessments, in addition to R$128&nbsp;million related to the court injunction since
the Conv&#234;nio was published).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As support for the opinion that the risk is remote for periods prior to
the <I>Conv&#234;nio</I>, Telemar was granted a favorable judicial decision (in rem
judicatam) in the State of Minas Gerais, stating that the ICMS collection of
amounts for activation services prior to issuance of the Conv&#234;nio is
unconstitutional.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2002, in the light of unfavorable ruling regarding periods
subsequent to the <I>Conv&#234;nio</I>, judicial deposits in the amount of R$27&nbsp;million
were transferred to the State Treasury of Bahia. However, Telemar may an appeal
to this judgment.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INSS  -  This refers to the tax assessment on joint responsibility for
the payment of this tax by service providers, in the amount of R$35,199 (2001 -
R$53,165), as well as for contributions on the compensation and suspension of
SAT <I>Seguro de Acidente de Trabalho </I>(&#147;SAT&#148;) (Workers&#146; Compensation Insurance) in
the amount of R$68,065 (2001  -  R$46,041). Although the amounts are being
complemented and restated in the light of existence of new tax executions,
there has been a settlement through an auction of Government securities
promoted by <I>Instituto Nacional de Seguro Social </I>(&#147;INSS&#148;) according to Law No.
9.711/99 of claims provisioned for and considered as likely losses, in the
amount of R$33,100. Such settlements generated a R$12,141 revenue due to the
discount obtained at the auction.
</FONT>

<P align="left"><FONT size="2">CPMF  -  The Company was granted an injunction relieving it from the payment of
Contribui&#231;&#227;o <I>Provis&#243;ria para Movimenta&#231;&#245;es Financeiras </I>(&#147;CMPF&#148;). In view of the
pro-tax authorities attitude adopted by the Supreme Court, the Company
maintains a provision to cover probable losses, recorded and restated on a
monthly basis according to the activity of its bank accounts.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(vii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ILL  -  Telemar offset <I>Imposto Sobre Lucro Liquido </I>(&#147;ILL&#148;) paid in
previous years (up to calendar year 1992), based on Supreme Court decisions on
the unconstitutionality of this tax in similar cases involving other companies.
However, although several cases have been successfully tried in higher courts,
Telemar continues to maintain a provision due to the fact that it has not been
granted a final administrative or judicial ruling on the criteria for
restatement of tax credits. During 2002, Telemar reversed part of the reserve,
in the approximate amount of R$16,003, after thoroughly reviewing the amounts
offset in previous years, as well as the criteria adopted to restate such
amounts (Note 7).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(viii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IOF  -  Based on the opinion of its legal advisors, as well as the
fact that Supreme Courts are not unanimous regarding the possibility of this
tax being levied, the Company chose in December 2002 to record a provision to
meet a probable incidence of this tax on intercompany credit lines. As was the
case with other provisions, <I>Imposto Opera&#231;&#245;es Financeiras </I>(&#147;IOF&#148;) related
amounts were restated up to December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ix)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other claims  -  This account consists substantially of: (a)&nbsp;a
provision to cover offsetting of PIS and FINSOCIAL credits, currently being
discussed at the highest court with respect to the restatement index, totaling
R$103,161 (2001  -  R$92,969), and (b)&nbsp;a provision for SELIC interest
</FONT>

<P align="center"><FONT size="2">F-49</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">calculated
on the amounts of tax losses and tax loss carryforwards in excess of the annual
limit of 30%, based on an injunction, but pending final decision, of R$23,001
(2001  -  R$3,611).
</FONT>
<P align="center"><FONT size="2">F-50</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>Labor</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dangerous work conditions premium  -  This provision reflects the amount
payable under possible trade union agreements for employees working within an
environment considered to be unsafe, principally close to high-tension electric
installations. Increases refer to new claims and monetary restatement in the
amount of R$12,585, in addition to settlement of claims in the amount of
R$5,955 and the reversal of R$5,663 having given rise to a gain.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inflation indexation adjustments  -  Provision related to labor claims
discussing the inflation indexation adopted for the adjustment of salaries
under certain economic stabilization programs (&#147;Collor Plan&#148; and &#147;Bresser
Plan&#148;). In July 2002, several processes in connection with this indexation
criteria of February 1989 in the State of Par&#225; were settled, through payment of
R$10,534 which excluded interest and fines, the provision for which was
reversed in the amount of R$5,092.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equalization of salary scales  -  Provision to reflect the probable
loss arising from claims to equalize salary scales among certain classes of
employees. Increase reflects the restatement of this contingent liability.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Salary differences/indemnities/productivity  -  Claims in connection
with collective suits, with loss expectations considered as probable, in view
of unfavorable decisions in lower courts.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other actions  -  These refer to the challenging of individual amounts
which are less than R$1,000. The increase during the year can be substantially
attributed to the emergence of new suits and restatement in the aggregate
amount of R$59,818. In addition, settlement payments totaled R$50,320 which
excluded interest and fines, and a gain arising from reversals related to fines
and interest was recorded in the amount of R$16,514.
</FONT>

<P align="left"><FONT size="2"><B>Civil</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i) </B>Preferred shares  -  In 1990, the Telebr&#225;s Board of Directors approved
an increase in its share capital by means of a public offer. During the call
for tender, CVM started to investigate the price of the new shares, which were
issued at a discount to the book value. Upon completion of the investigation,
CVM informed the <I>Minist&#233;rio P&#250;blico Federal </I>(Brazilian public prosecution
service) that in its opinion there had been no infringements as the price
established for the new shares was compatible with the market price for
Telebr&#225;s shares. Nevertheless, the public prosecutor decided to take the issue
to court. In April 1998, Telebr&#225;s was ordered to issue 13,718,350 thousand
preference shares in order to comply with the obligation, but the Company
appealed against this decision. The Company maintains a provision in connection
with the 2,516,572 thousand preference shares transferred to it at the spin-off
and privatization of Telebr&#225;s, which varies in accordance with the share
quotation on the <I>Bolsa de Valores de S&#227;o Paulo </I>(&#147;BOVESPA&#148;), (S&#227;o Paulo Stock
Exchange). In July 2002, the amount of R$21,292 was reversed to income due to
the movement in the quoted market value of the shares (Note 5).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii) </B>Embratel VC2/VC3  -  On July&nbsp;6, 2000 Anatel decided that Embratel is
entitled to income from the revenue arising from the long distance fixed-mobile
calls, and for Telemar&#146;s right over revenues arising from local calls, for the
period between June 1998, when the Concession Agreements were executed, and
July 1999, when the CSP (carrier dialing code) was introduced for long distance
services. Anatel&#146;s decision establishes that, following the introduction of the
CSP, the corresponding revenue belongs to the service provider selected by the user. In the Company&#146;s
opinion, Anatel misinterpreted the fixed-mobile and switched fixed-line
telephone services as being equivalent. Management understands that the
revenues generated by fixed-mobile services, irrespective of the distance
called, belong to
</FONT>

<P align="center"><FONT size="2">F-51</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">Telemar, as it is the service provider to the caller who
originated the call, in conformity with the regulations established by the
Ministry of Telecommunications.
</FONT>
<P align="center"><FONT size="2">F-52</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telemar obtained a favorable decision from Anatel with regard to the
reconsideration request submitted to the Directors Council of Anatel and,
therefore, contested the matter judicially, challenging not only Embratel&#146;s
right to offset amounts, but also the regulation of this type of revenue. With
regard to the first issue, Telemar obtained a legal instruction that prevents
Embratel from discounting the related amounts; this procedure, however, has a
temporary nature and may be revoked or overruled at any time. As for the
regulation matter, the suit is in its initial stage. The decision to maintain
the withheld amount recorded is based on the lack of evidence favorable to
Telemar and taking into consideration Anatel&#146;s decision (Note 5).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SISTEL indemnity &#150; Based on the opinion of its legal advisors,
Telemar management recorded a provision for the suit in connection with the
indemnity of SISTEL, arising from the termination of a property rental
agreement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Claims &#150; small claims courts &#150; These refer mostly to suits filed by
customers, the individual indemnity amounts of which do not exceed the limit of
forty minimum wages. Increase in the period is attributable to the provisioning
of R$63,615, of which R$51,308 have been paid.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other claims &#150; These refer to indemnity suits filed by former
resellers of prepaid calling cards, indemnity for termination of contracts with
subcontractors, indemnity for expansion plans with the issuance of shares,
among many others.
</FONT>

<P align="left"><FONT size="2"><B>Possible contingencies</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has also several cases for which losses are considered as
&#147;possible&#148; in the opinion of its legal advisors, with no recorded provisions
for contingencies. The main contingencies total approximately R$890,000 (2001 &#150;
R$887,000) and relate to matters such as the incidence of ISS (See
item (iii) &#150;
Tax) and ICMS on services (See item (iv) &#150; Tax), termination of contracts with
former resellers of prepaid calling cards, subcontractors and other suppliers,
indemnity for expansion plans/issuance of shares and losses due to failure in
the initial stage of long distance carrier code.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The main contingencies classified as possible or remote losses in the
opinion of the Company&#146;s legal advisors are as follows:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">ICMS on international calls &#150; In July 1999, the legal dispute
in Rio de Janeiro relating to international calls originating in
Brazil was estimated at approximately R$70,000 (tax assessments).
Tax authorities claim that international call services are provided
in Brazil, being therefore subject to ICMS. However, the law opposes
another legal interpretation, which considers international calls as
exported services, being therefore exempt from ICMS. Additionally,
there is doubt as to the responsibility for the payment of this tax,
if charged, since Telemar does not have revenues from these
services.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">In February 2000, in Rio de Janeiro, Telemar obtained a favorable
decision from the <I>Conselho de Contribuintes </I>(Taxpayers&#146; Council),
countered by a partially unfavorable ruling from the State Revenue
Secretary, according to whom the responsibility for payment, before
the introduction of CSP, lies with Telemar. Telemar obtained a court
injunction from a lower court assuring that, even after the
introduction of CSP, in July 1999, the international long distance
service provider is responsible for paying this tax.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-53</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Federal taxes &#150; On August&nbsp;9, 2000, Telemar was assessed by the
Brazilian Internal Revenue Service in Rio de Janeiro for alleged
infringements related to taxable events occurred in 1996, prior to the
privatization, totaling R$993,700, relating to IRPJ, CSL, PIS, COFINS
and IRRF. Telemar submitted to the State Federal Revenue Service of
Rio de Janeiro the documentation supporting the conformity of the
accounting records, which were disallowed for tax purposes, as well as
proof of the correct payment of the corresponding taxes in the period
assessed.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Telemar requested and was granted a new proceeding to submit
supplementary documentation, and is now awaiting a decision of the
lower court on the analysis of the documents. The assessment has been
reduced by tax authorities to approximately R$152&nbsp;million, after a
first inspection of some of these documents. The ruling should be
based on the quality of the documentation submitted which, management
believes, was adequate and presented on timely basis. Accordingly,
this contingency is substantially considered remote.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">The <I>Instituto de Defesa do Consumidor </I>(&#147;IDEC&#148;) (Consumer&#146;s
Protection Institute) filed a civil claim in the first half of 2001,
against Telemar in Rio de Janeiro, questioning the increase in
tariffs at a higher percentage than IGP-DI. Telemar appealed
against the decision and the effects of the injunction granted to
IDEC were suspended. Based on the opinion of its legal advisors,
grounded on the fact that this increase complies strictly with the
terms of the Concession Contract signed by the Company and Anatel,
management did not record a reserve for this claim, as it believes
that no losses are likely to be incurred from this claim.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2"><B>22.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Debentures</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2001, the Company issued 13,000 simple, non-convertible debentures
of R$100 each, totaling R$1,300,000. These debentures are due in five years and
bear interest at the CDI rate plus 0.7% per annum, recorded under current
assets and amortized every six months. During 2002, interest in the amount of
R$242,699 (2001 &#150; R$121,189) was settled.
</FONT>

<P align="left"><FONT size="2"><B>23.</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Shareholders&#146; equity</B>
</FONT>

<P align="left"><FONT size="2"><B>(a)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Share capital</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The authorized capital comprises 700&nbsp;billion shares. At a meeting held on
April&nbsp;26, 2002, the Board of Directors approved a capital increase of
R$167,606, by issuing 1,865,185 thousand common shares and 3,730,370 thousand
preferred shares at R$27.14 per thousand common shares and R$31.36 per thousand
preferred shares. These prices were defined based on the average closing prices
traded on BOVESPA at the most recent floor sessions. This capital increase
corresponds to the capitalization of part of the special reserve of goodwill,
as determined in CVM Instruction No.&nbsp;319/99 (Note 1(d)). Minority shareholders
have 30&nbsp;days, from the date when the related notice was published, to exercise
their right of preference to the subscription of the increase, in proportion to
their holdings.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Number (lot of 1,000 shares)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>%</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127,948,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">126,083,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">255,897,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">66.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">252,166,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">66.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">383,845,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">378,250,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100.0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,156,100</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,156,100</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,624,337</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,624,337</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">375,065,248</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">369,469,693</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-54</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>


<P align="center"><FONT size="2">F-55</FONT>




<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in issued shares (lot of 1,000 shares):
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Preferred shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 1999</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,369,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,029,997</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">334,399,028</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Issued May, 2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">156,529</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,021,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,177,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,525,560</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,051,120</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">373,576,680</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Issued May, 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,557,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,115,633</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,673,450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">126,083,377</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">252,166,753</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">378,250,130</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Issued April, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,865,185</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,730,370</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,595,555</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127,948,562</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">255,897,123</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">383,845,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>(b) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Capital reserves</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Special reserve of goodwill</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This refers to the contra entry to Goodwill recorded upon the downstream
merger described in Note 1(d), net of the provision recorded in accordance with
CVM Instruction No.&nbsp;349.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Fiscal incentives and donations</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Donations and subvention of assets received in accordance with the
self-financing plan, as well as fiscal incentives &#150; substantially FINAM (Amazon
Investment Fund) and FINOR (Northeast Investment Fund).
</FONT>

<P align="left"><FONT size="2"><B>(c)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Earnings reserves</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Legal reserve</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Art. 193 of the Brazilian GAAP, the Company must
appropriate 5% of net income for the year to a legal reserve, up to the limit
of 20% of its total share capital. This appropriation is optional when the
legal reserve, added to the capital reserves, exceeds the share capital by 30%.
This reserve may be used for capital increase or absorption of losses, but may
not be distributed as dividends.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Unrealized income reserve</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unrealized income reserve represents net income not yet realized
financially, arising from the restatement of certain permanent asset accounts
and equity adjustments of investments accounted for using the equity method.
This reserve is realized when the permanent assets from which it originated are
depreciated or disposed of or when dividends are received, or when the reserve
is appropriated to the payment of minimum compulsory dividends. The Company has
currently realized a substantial part of this reserve, and the remaining
balance is explained by the difference between dividends received and equity in
earnings of subsidiary companies, which posted positive results in recent
years.
</FONT>

<P align="left"><FONT size="2"><B>(d)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Retained earnings</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The retained earnings balance was used to fund investments under the
investment plan of the Company and its subsidiaries.
</FONT>

<P align="center"><FONT size="2">F-56</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(e)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Treasury shares</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;16, 1999, the Company&#146;s Board of Directors authorized a share
buy-back program limited to 3% of the shares in circulation and up to
R$250,000. On October&nbsp;27, 1999 the limit was increased to 6%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002 and 2001, the Company held treasury shares of
4,624,337 thousand preferred shares and 4,156,100 thousand common shares, which
were acquired during 2001 at a cost of R$45,528 and R$123,964, respectively.
</FONT>

<P align="left"><FONT size="2"><B>(f)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Dividends and interest on own-capital</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to its by-laws, the Company is required to distribute as
dividends in respect of each fiscal year to the extent amounts are available
for distribution, an aggregate amount equal to at least 25% of &#147;Adjusted Net
Income&#148; (as defined below) (the &#147;Compulsory Dividend&#148;). The annual dividend
distributed to holders of preferred shares (the &#147;Preferred Dividend&#148;) has
priority in the allocation of Adjusted Net Income in determining the Preferred
Dividend in relation to the Compulsory Dividend. Remaining amounts to be
distributed are allocated first to the payment of a dividend to holders of
common shares in an amount equal to the Preferred Dividend and the remainder is
distributed equally among holders of preferred shares and common shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Preferred Dividend corresponds to a non-cumulative preferred dividend
equal to 6% of share capital determined in accordance with accounting
principles prescribed by Brazilian GAAP, in proportion of preferred shares to
total capital.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of Brazilian GAAP, and in accordance with the Company&#146;s
by-laws, the Adjusted Net Income is an amount equal to the Company&#146;s net
profits determined in accordance with accounting principles prescribed by
Brazilian GAAP adjusted to reflect allocations to or from (i)&nbsp;the statutory
reserve, (ii)&nbsp;an equity contingency reserve for anticipated losses, if any, and
(iii)&nbsp;an unrealized income reserve, if any.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s by-laws also provide for distribution of interest on
own-capital as an alternative form of payment to shareholders. The interest is
limited to the average <I>Taxa de Juros de Longo Prazo </I>(&#147;TJLP&#148;) (Long-Term
Interest Rate) during the applicable period and cannot exceed the greater of
50% of net income (before distribution and deductions for income taxes) for the
period or 50% of retained earnings. Distribution of interest may also be
accounted for as a tax-deductible expense, for both income tax and social
contribution purposes. The amount paid to shareholders as interest on
own-capital, net of any withholding tax, may be included as part of a
Compulsory Dividend. Under Brazilian GAAP, the Company is obligated to
distribute interest on own-capital in an amount sufficient to ensure that the
net amount received by the shareholders, after payment by the Company of
applicable Brazilian withholding taxes (15%) is at least equal to the
Compulsory Dividend.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annual General Meetings of March&nbsp;31, 2003 and April&nbsp;25, 2002 approved
the distribution of common dividends in respect of 2002 and 2001 income of R$
499,979 and R$300,000, respectively. These dividends had been proposed by the
Board and recorded in the December&nbsp;31, 2002 and 2001 financial statements.
</FONT>

<P align="center"><FONT size="2">F-57</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(Expressed in thousands of Brazilian <I>Reais, unless otherwise stated</I>)</B>
</FONT>

<P align="left"><FONT size="2">Minimum compulsory dividends (25%) were calculated as follow:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(372,563</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,072,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Appropriation to legal reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,019</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjusted net income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,699,929</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">133,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">424,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,340</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of common shares in circulation (lots of 1,000)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,792,462</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,927,277</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Number of preferred shares in circulation (lots of 1,000)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">251,272,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">247,542,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Minimum dividends of the preferred shares were calculated as follow:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Preferred</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Share capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,476,809</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proportion of preferred shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">66.67</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proportion of capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,984,539</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Percentage of dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">179,072</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Dividends and interest on own-capital proposed are as follow:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Common</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Preferred</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on own-capital proposed in 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">165,020</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">334,959</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on own-capital per lots of one thousand
shares &#150; (in r<I>eais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.33</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends proposed in 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">99,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">201,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends per lots of one thousand shares &#150; (in <I>reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.81</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Management proposed the payment of dividends and interest on own-capital of
R$74,997 in 2002 and R$166,641 in 2001 in excess of the adjusted net income,
through the use of retained earnings.
</FONT>
<P align="left"><FONT size="2"><B>(g)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Stock options</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2000, the Company established the Stock Option Plan whereby
preferred shares are reserved for a selected group of executives. The options
are exercisable at varying dates and on a cumulative basis up to five years.
Options become fully exercisable after the fifth year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executives who opt for the plan must pay the Company 10% of the shares
valued at the offer price upon signing the contract. The amount paid will be
deducted from the exercise price after the five year vesting period. In the
event of a forfeiture prior to the 5-year vesting period, the executive may
receive, at the Company&#146;s discretion, a number of shares equivalent to the 10%
paid or receive cash for the 10% paid at the average market value based on the
last 90&nbsp;days trading price in the stock exchange.
</FONT>

<P align="center"><FONT size="2">F-58</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The offer price is restated in accordance with the IGP-M (General Market
Price Index) variation, plus 6% per annum. Executives may opt to receive the
value resulting from the difference between the market price and the exercise
price or to receive the equivalent shares.
</FONT>
<P align="center"><FONT size="2">F-59</FONT>


















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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a dividend distribution, the related amount will be
deducted from the exercised options.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should an executive decide to sell the acquired shares after the exercise
period, he/she must grant the Company a right of first refusal in the
acquisition of the shares at the market value on the date of sale.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes stock option operations carried-out up to
December&nbsp;31, 2002:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>In reais</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Initial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Adjusted</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(lots of 1,000)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>option price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>option price(*)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in July 2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in May 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,449,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in October 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,198,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,898,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Offerings extinguished due to rescissions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(821,656</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Options outstanding at December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,076,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">(*) The option price is adjusted by IGP-M plus 6% from the date of grant to
December&nbsp;31, 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market value of preferred shares at December&nbsp;30, 2002 was R$27.30
(2001 - R$36.25) per lot of one thousand shares. Differences between the actual
offer price and the market value at the balance sheet date, which may result in
losses to the Company, are recorded on the accrual basis.
</FONT>
<P align="left"><FONT size="2"><B>24. Funds for capitalization</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Self-financing was one of the ways by which Telebr&#225;s financed part of the
expansion of the telecommunications network. As from July&nbsp;1, 1997, the scheme
was extinguished by Ordinance No.&nbsp;261 issued on April&nbsp;30, 1997, by the Ministry
of Telecommunications. These amounts are to be used for future capital
increases.
</FONT>
<P align="left"><FONT size="2"><B>25. Financial instruments</B>
</FONT>

<P align="left"><FONT size="2"><B>(a)&nbsp;Foreign currency exchange risk</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since January 1999, the Brazilian Reais exchange rate has been volatile.
At December&nbsp;31, 2001, the commercial US dollar selling rate was R$2.32 to
US$1.00. In 2002, there was significant devaluation of the Brazilian Real
against the US dollar, and at September&nbsp;30, 2002 the rate was R$3.91 to US$
1.00, closing at December&nbsp;31, 2002 at R$3.53 to US$1.00.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
December&nbsp;31, 2002, 72.6% (2001 - 57.6%) of the Company&#146;s debt,
including debentures, was denominated in foreign currency (US dollar, Japanese
Yen and a currency basket of BNDES bank). Consequently, the Company is exposed
to foreign currency exchange rate risks that may adversely affect the results
of operations and financial position, as well as the ability to comply with
debt liabilities.
</FONT>
<P align="left"><FONT size="2">These balances of loans and financing totaled US$2,507,347 thousand and
US$2,072,876 thousand at December&nbsp;31, 2002 and 2001, being covered by financial
derivatives (swaps and options) for 103.98% and 104.79%, respectively.
</FONT>
<P align="center"><FONT size="2">F-60</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(b)&nbsp;Derivatives</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company limits its use of derivatives to managing risk that could
negatively impact its financing and operating flexibility. The Company&#146;s risk
management strategy is designed to protect against adverse changes in foreign
currency exchange rates and foreign currency interest rates. The Company does
not hold derivatives for trading purposes.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencing in May 2000, the Company entered into foreign currency exchange
rate and interest rate swap agreements to limit its exposure to foreign
exchange rate risks related to its US dollar and Yen denominated long-term
debt. Due to the devaluation of the Real against the US dollar during 2001 and
2002, the Company significantly increased its use of exchange rate derivatives
in order to reduce additional losses principally on its foreign currency debt.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total notional amount of the cross-currency interest rate swaps and
derivatives at December&nbsp;31, 2002 and 2001 was US$2,614,127 thousand and US$
2,172,097 thousand, respectively, with maturities ranging from January 2003
through January 2010. These values represent 103.98% and 104.79% of the loans
and financing, respectively.
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Results related to</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Derivatives contract value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>derivatives</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Swap</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,431,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,260,386</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,603,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,373</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Options</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,342,654</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,396,881</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,035</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(74,272</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forward</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">382,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,920</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,774,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,040,133</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,664,616</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(291,565</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred charges and property, plant and equipment include the amounts of
R$128,931 (2001 - R$206,776) and R$41,407 (2001 - R$37,110), respectively,
which relate to financial charges related to derivative transactions which were
capitalized during the year.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the swap arrangements, the Company pays to or receives
from the counterparts at maturity the amounts, if any, on an average of 103.31%
of the variation in the CDI rate (Brazilian bank certificate of deposit rate)
on the portion of the notional value which exceeds the variation on the US
dollar and Yen exchange rates plus the bank spread on the notional amount from
7.9% to 11.5% per annum in the US dollar and 1.65% per annum in the Yen debts.
If the variation in the US dollar and Yen exchange rates exceeds the variation
in the CDI rate, then the Company is entitled to receive the difference from
its counterparts. The gains and losses attributable to these instruments
resulting from changes in rates are accrued and recognized as an adjustment to
interest expenses in the statement of operations. The gains and losses are paid
or received to or from the counterparts, and these amounts are recorded
reducing or increasing the amounts of loans and financing. At December&nbsp;31,
2002, the Company has receivables of R$3,445,432 while at December&nbsp;31, 2001,
the Company had payables of R$575,365.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foreign exchange rate options (put and call) allow the Company, by the
means of payment of premiums, to acquire US dollar at pre-established exchange
rates, limited to a maximum gain in some contracts. The Company also signed
foreign exchange rate forward contracts, establishing a fixed exchange rate.
The weighted average US dollar rate of these contracts was R$2.73 per US$1.00,
with an average premium of 2.76%. The premiums on the foreign exchange rate
options are recorded in the
results of the year on the accrual basis up to the contract maturity,
using the straight-line method. The gains on these options and forward contacts
contracts are only recorded when financially realized, while the losses are
recorded on the accrual basis.
</FONT>
<P align="center"><FONT size="2">F-61</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The estimated fair value of cross-currency interest rate swap and
derivatives at December&nbsp;31, 2002 and 2001 was R$234,286 and R$324,855,
respectively. The estimated weighted average coupon rate of the cross-currency
interest rate swaps at December&nbsp;31, 2002 was 2.89% for US dollar and 1.86% for
Yen (2001 &#150; 7.91% for US dollars). The difference between the contract values
and fair values would only be incurred if the Company liquidates prior to
maturities.
</FONT>
<P align="left"><FONT size="2"><B>(c)&nbsp;Interest rate risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, the Company had loans and financing subject to
floating interest rates based on the Brazilian long-term interest rate (TJLP)
of R$1.93&nbsp;billion and CDI of R$1.36&nbsp;billion for the Reais-denominated debts,
and based on LIBOR for the US dollar-denominated debts of R$6.01&nbsp;billion and
based on LIBOR for the Yen-denominated debt of R$1.04&nbsp;billion, and also based
on a currency basket (UMBND)&nbsp;for a debt of &#091;R$0.92&nbsp;billion.&#093; The Company&#146;s
financial investments are indexed substantially at CDI rate variation.
</FONT>
<P align="left"><FONT size="2"><B>(d)&nbsp;Concentration of credit risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments that subject the Company to concentration of credit
risk, consist primarily of cash and cash equivalents, certificate of deposits,
treasury and corporate bonds, trade accounts receivables, advances to suppliers
and derivative contracts. The Company limits its credit risk on cash and cash
equivalents, certificate of deposits, treasury and corporate bonds by
depositing and holding these funds with major financial institutions. The
Company limits its credit risk related to trade accounts receivables by selling
to a geographically dispersed customer base and by performing credit
evaluations on all new customers. Credit risk related to customer accounts is
diversified. For the periods presented, no single external customer amounted to
10% or more of the Company&#146;s annual operating revenues. Advances to suppliers
are made only to a select group of long-standing suppliers. The financial
condition of these suppliers is analyzed on an ongoing basis to limit credit
risk. Counterparts to the Company&#146;s derivative contracts are also major
financial institutions and organized exchanges. The Company considers exposure
to credit loss due to nonperformance of their counterparts to be remote. The
Company depends on the fixed-line telecommunications concession granted by the
Federal Government. Should this concession be rescinded, the Company&#146;s
operations and financial results would be materially affected.
</FONT>
<P align="left"><FONT size="2"><B>(e)&nbsp;Fair value of financial instruments</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value of financial instruments and book value at December&nbsp;31 are
as follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Book</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fair</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Book</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Fair</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>value</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(i)&nbsp;Investments in marketable securities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,581,312</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,427,892</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,190,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,190,786</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ii)&nbsp;Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,898,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,888,346</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,044,517</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,023,168</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(ii)&nbsp;Debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,321,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,243,799</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,317,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,317,899</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(iii)&nbsp;Derivatives</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,430,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">234,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(529,668</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(324,855</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The carrying amounts of cash and cash equivalents, accounts receivable,
suppliers and short-term financing approximates fair value due to the short
maturity of these instruments.
</FONT>
<P align="center"><FONT size="2">F-62</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(i) </B>Investments in marketable securities
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The book value approximates market value due to short-term maturities
and/or interest rates used for these instruments.
</FONT>
<P align="left"><FONT size="2"><B>(ii) </B>Loans and financing and debentures
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market value of loans and financing was calculated in accordance with
the present value of these financial instruments considering market interest
rates for operations of similar terms and risks, and approximates the book
value.
</FONT>
<P align="left"><FONT size="2"><B>(iii) </B>At December&nbsp;31,
2002, the fair value of derivatives used for currency protection was:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="25%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD align="right" nowrap>&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Book value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Fair value</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Swap</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,427,510</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">(441,221</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,686</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(329,077</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Options</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">(19,620)(*</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">66,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forward</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">(68,827</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(47,850</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net liability</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,430,800</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><FONT size="2">(529,668</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">234,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(324,855</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" nowrap><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">(*) Net of options recorded as prepaid assets of R$45,697
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The fair value of derivatives differs substantially from the book value
due to the timing these instruments were acquired and the future expectations
of foreign exchange variation. The values recorded under Brazilian GAAP are
reducing the losses over loans and financing due to the devaluation of the
Brazilian Real. The reduction of these book values to fair value would only
occur if the Company were to terminate these contracts before maturity.
Management expects to maintain these instruments to maturities.
</FONT>
<P align="left"><FONT size="2"><B>26. Provision for pensions</B>
</FONT>

<P align="left"><FONT size="2"><B>(a)&nbsp;SISTEL</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Funda&#231;&#227;o Sistel de Seguridade Social (&#147;SISTEL&#148;) is a private, non-profit
pension plan created on November&nbsp;9, 1977, with the purpose of establishing
private plans for granting assistance or benefits, supplementing the retirement
benefits assured by the Federal Government to SISTEL sponsored employees and
their families.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the statutory changes approved by the Secretariat for Complementary
Pensions on January&nbsp;13, 2000, the sponsors negotiated conditions to create
individual plans per sponsor, and limited the benefits to those participants
who retired up to January&nbsp;31, 2000 (pension plan denominated PBS-Assistidos
PBS-Assistidos - &#147;PBS-A&#148;).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2001, SISTEL opted for the Special Taxation System provided
for in art. 2 of Provisional Measure No.&nbsp;2222, of September&nbsp;4, 2001, to take
advantage of the tax amnesty in connection with the payment of income tax and
tax on financial transactions, then contested in court and provided for. Such
amnesty required the payment of the provided principal amount only, with no
interest and restatement.
</FONT>
<P align="center"><FONT size="2">F-63</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the balance provided was greater than the payment made, remaining
funds from provisions for tax contingencies were transferred to the benefit
plans. As to the TelemarPrev plan, however, due to its characteristics and
nature, part of the resources, totaling R$153,233 (Note 5) were returned to the
sponsors in March and April 2002, based on legal and actuarial reports and
authorization from the Secretariat for Complementary Pensions.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounting for pension and assistance plans is totally separated,
allowing for the determination of results by benefit plan.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company sponsors two defined benefit plans (PBS-A and PBS-Telemar) and
one defined contribution plan (TelemarPrev). In November 2002, the defined
benefit plan denominated PB-CT was merged into the TelemarPrev plan, as
described below.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information and effects, for reporting purposes, required by the
pronouncement issued by IBRACON with respect to recording benefits granted to
employees, approved by CVM Resolution No.&nbsp;371, of December&nbsp;31, 2000, are
presented below.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(i)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><B>Defined benefit plans (PBS-A and PBS-Telemar)</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the time of the SISTEL restructuring, the PBS-Telemar plan was
introduced, maintaining the rights established in PBS-A. In addition to monthly
income supplementation benefit, medical care is provided (PAMA)&nbsp;to retired
employees and their dependents, on a shared cost basis.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The actuarial method to determine the cost of benefits is the
capitalization method. During 2002, contribution of the Company was 9.5% of
payroll cost of employees that participate in the plan, of which 8% is
allocated to PBS-Telemar and 1.5% to PAMA. These percentages are the same as in
the year ended December&nbsp;31, 2001.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The contribution from active participants is the sum of: a) between 0.5%
and 1.5% of the participation salary (minimum of the total participant&#146;s salary
and R$12,942.73), depending on the age of the participant); b) 1% of the
participation salary that exceeds half the contribution salary (minimum of the
participant&#146;s salary and one Sistel Standard Unit), limited to the value of the
Sistel Standard Unit (R$1,255.32, annually adjusted, in June, by the discount
rate of the plan&#146;s liabilities); and c) 11% of the amount which exceeds the
participation salary.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002,
the Company&#146;s contribution totaled R$302 (2001 - R$1,672).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This plan has not admitted new members since the creation of TelemarPrev
in September 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reconciliation of assets and liabilities at December&nbsp;31:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-A (*)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Telemar</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-A (*)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Telemar</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,044,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148,815</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,787,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">118,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Present value of actuarial liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,621,795</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(113,326</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,562,352</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(106,490</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of assets in excess of
actuarial liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">423,044</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,489</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">225,094</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">(*) This plan does not include active participants and there is sufficient
technical surplus to cover future actuarial liabilities.
</FONT>
<P align="center"><FONT size="2">F-64</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">Evolution of plan assets:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-A (*)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Telemar</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of plan assets at December&nbsp;31, 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,787,446</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">118,302</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid during the current year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(141,610</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,163</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversed contributions during the current year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">749</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Effective yields of the plans&#146; assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">399,003</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,926</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of plan assets at December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,044,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148,814</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Evolution of actuarial liabilities:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-A (*)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Telemar</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liabilities at December&nbsp;31, 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,562,352</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(106,490</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross current service cost (including interest)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,627</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on actuarial liability</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,592</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,747</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid during the current year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">141,610</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,163</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Actuarial loss</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(31,461</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,625</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liabilities at December&nbsp;31, 2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,621,795</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(113,326</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts above do not consider the assets and liabilities of PAMA, a
multi-sponsored plan similar to the &#147;defined contribution&#148; plans (payment of
benefits is limited to the amount of contributions received by the plan), and
no liabilities exist beyond current balances.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the plan&#146;s assets exceed the actuarial liabilities at December
31, 2002 and 2001, those excesses will not be recognized, as the reimbursement
is not determined by law; in addition, PBS-A is not a contribution plan.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(ii)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><B>Complementary Pension Plan (PB-CT)</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This plan assumed charges, obligations and responsibilities laid down in
Individual Complementary Pension Contracts and Collective Labor Agreements
related to ex-employees of the sponsors, which belonged to the former Companhia
Telef&#244;nica Brasileira (&#147;CTB&#148;) and to Companhia Telef&#244;nica de Pernambuco
(&#147;CTP&#148;). The change from Consortium to Administration and Payment of Pension
Benefits in the PB-CT complied with the provisions of arts. 80 and 81 of Law
No.&nbsp;6435 of July&nbsp;5, 1977, which expressly forbids direct management of pension
benefit plans by the employer.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;21, 2002, the Secretariat for Complementary Pensions approved
the merger of the PB-CT plan into the TelemarPrev plan, and therefore the
provision for recognized actuarial liabilities at Telemar, to cover insufficiency of technical reserves of the benefit plan,
was reversed. The reversal amounted to R$30,315 and was recorded as &#147;Other
operating income&#148; (Note 5).
</FONT>
<P align="center"><FONT size="2">F-65</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(iii)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><B>Defined contribution pension plan (TelemarPrev)</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company sponsors the TelemarPrev plan of SISTEL, approved by the
Secretariat for Complementary Pensions on September&nbsp;21, 2000.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;21, 2002, the Secretariat for Complementary Pensions approved
a series of alterations to the TelemarPrev regulations, submitted by SISTEL.
The changes focus on providing participants with much more flexibility,
conforming the plan to the ruling legislation, and enabling implementation of
procedures to enhance the safety of the plan investment policy, i.e. Asset
Liability Modeling (ALM).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The plan assures to participants benefits categorized as follows: (i)&nbsp;risk
benefits, and (ii)&nbsp;programmable benefits.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The usual participants&#146; contributions consists of two parts: (i)&nbsp;basic -
equivalent to 2% of the participation salary, and (ii)&nbsp;standard
-  equivalent to
3% of the positive difference between the total participation salary and the
amount allocated to the pension plan. Additional participants&#146; contributions
are optional, in a percentage representing multiples of 0.5% of the
participation salary and must be made for no less than 12&nbsp;months. Occasional
participants&#146; contributions, which are also optional, may not be less than 5%
of the participation salary (minimum of the participant&#146;s salary and
R$12,942.73) cap.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The plan establishes contribution parity for participants&#146; and sponsors&#146;
contributions, up to a limit of 8% of the participation salary, however the
sponsor is not required to follow any additional or occasional contributions by
the participant. The actuarial method to determine the cost of benefits is the
capitalization method.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002,
the Company&#146;s contributions totaled R$3,872 (2001 - R$3,660).
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The reconciliation of assets and liabilities at December&nbsp;31, 2002 and 2001
is not presented herein, as this is a defined contribution plan.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)&nbsp; Plan results expected for 2003 are as follows:</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-A</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>PBS-Telemar</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated remuneration of assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">285,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,091</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,114</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized actuarial gains</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(175,711</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,418</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total income expected for 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,180</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues will not be recognized, due to lack of evidence that such assets
could reduce future sponsors&#146; contributions and because they are not
reimbursable.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)&nbsp; Main actuarial assumptions</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Main actuarial assumptions used in the calculation of PBS-A, PBS-Telemar
and TelemarPrev plans are as follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="84%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Annual %</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discount rate of actuarial liability (includes 5% inflation)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.30</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expected remuneration rate of assets (includes 5% inflation)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.45</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated inflation rate for salary increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated inflation rate for benefit increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-66</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(b)&nbsp;Employees&#146; profit sharing</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The employees&#146; profit sharing is defined on an annual basis, according to
the accomplishment of targets to increase operating revenues the Company&#146;s
value, pursuant to Law No.&nbsp;10101, of December&nbsp;19, 2000. At December&nbsp;31, 2002,
the Company recorded provision based on the best estimate of the accomplishment
of these targets, in the amount of R$131,612. The difference between this
amount and the expense shown in the statement of income reflects the reversal
of prior year&#146;s excess of provisions.
</FONT>
<P align="left"><FONT size="2"><B>27. Transactions with related parties</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2000, the Company entered into a loan agreement with BNDES (a
shareholder of the Company). At December&nbsp;31, 2002 and 2001 the outstanding
balances were R$2,869,650 and R$2,869,650, respectively.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the November&nbsp;30, 1999 Extra-ordinary General Meeting, the common and
preferred shareholders of the Company approved a management services agreement
between Telemar Participa&#231;&#245;es and Telemar, in accordance with the Concession
Agreement. This management services agreement is effective until December&nbsp;31,
2003 and may be extended. The remuneration is based on a percentage of
consolidated net revenues of the Company determined under Brazilian GAAP, as
follows: 1% in the period from August 1998 to December&nbsp;31, 2000; 0.5% in 2001
and 2002; and 0.2% in 2003. For the years ended December&nbsp;31, 2002 and 2001,
management fees totaled R$50,665 and R$50,665, respectively.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, Pegasus received and recorded as indemnity for damages and losses
caused by contract defaults, a credit in the amount of R$31,744, and recorded
also the right to rent 1,573 km of fiber optic cable ducts for 20&nbsp;years, at
R$4.50 per meter, originally recorded as property, plant and equipment at
R$1.00 and subsequently adjusted to market value and sold to Companhia AIX de
Participa&#231;&#245;es for R$21,710, accounted for as &#147;Non-operating income.&#148;
</FONT>
<P align="left"><FONT size="2"><B>28. Commitments</B>
</FONT>

<P align="left"><FONT size="2"><B>(a)&nbsp;Anatel (unaudited)</B></FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company accomplished most targets established by Anatel. Accordingly,
the Company announced, during the year ended December&nbsp;31, 2001, the early
attainment of universal service and expansion targets through 2003 in 15
states, excluding Rio de Janeiro, which attained its targets in February 2002.
Besides this, the Company prepares, on a monthly basis, statements of quality
indicators, which are audited by Anatel. In the event of possible defaults
regarding those indicators, the Company will be assessed and the related
provisions will be in accordance with management&#146;s risk assessment.
</FONT>
<P align="left"><FONT size="2"><B>(b)&nbsp;Rentals</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has operating leases for facilities, electrical energy posts,
dedicated lines and equipment used in operations, which expire at different
dates. Rental expense under operating leases was R$129.7&nbsp;million, R$102.1
million and R$176.2&nbsp;million for 2002, 2001 and 2000, respectively.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the approximate future minimum rentals
under non-cancelable operating leases in effect at December&nbsp;31, 2002 that
expire in 2003:
</FONT>
<P align="center"><FONT size="2">F-67</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Minimum rental</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">137,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">137,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-68</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(c)&nbsp;Capital expenditures (unaudited)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, the Company had forecast approximately R$1,800,000
of capital expenditures for the year 2003.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These capital expenditures are to be incurred on continuing expansion of
our wireless and fixed-line network.
</FONT>
<P align="left"><FONT size="2"><B>(d)&nbsp;Other commitments</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 24% of all employees are members of state labor unions
associated either with the <I>Federa&#231;&#227;o Nacional dos Trabalhadores em
Telecomunica&#231;&#245;es </I>(&#147;Fenattel&#148;), or with the <I>Federa&#231;&#227;o Interestadual dos
Trabalhadores em Telecomunica&#231;&#245;es </I>(&#147;Fittel&#148;). Management negotiates new
collective labor agreements every year with the local unions.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate restructuring that arose from the downstream merger
anticipates the annual issuance of shares by the Company to Telemar
Participa&#231;&#245;es equal to the tax benefit derived from the amortization of the
Goodwill (Note 1(d)). Minority shareholders of the Company will have a
preemptive right to subscribe for shares issued in proportion to their
percentage interest in the share capital the Company. In the event that a
minority shareholder elects to exercise such right, it will be required to pay
to Telemar Participa&#231;&#245;es an amount equal to the value of the shares with
respect to which the right is exercised.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All assets of the concessionaire are deemed to be part of the concession&#146;s
equity. If the concession contract were to be terminated, the assets would
automatically revert to Anatel.
</FONT>
<P align="left"><FONT size="2"><B>29. Insurance</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the concession period, the concessionaire must maintain the
following insurance policies, in accordance with contractual terms: all risks
insurance, insurance covering the economic conditions required to continue
providing the service, and insurance to meet the obligations relating to
quality and universal coverage.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assets and liabilities of material value and/or high risk are covered by
insurance. The Company holds insurance policies which guarantee coverage for
material damage and loss of revenue arising from such damages (loss of
profits), etc. Management considers the insured amount to be sufficient to
guarantee full protection of their net worth and operational continuity, as
well as the rules established in the Concession Agreement.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance policies held by the Company comprise the following coverage,
according to risks and nature of assets:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="83%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Insurance type</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Amount covered</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating risks/profit interruption</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">558,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party liability &#150; comprehensive</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party liability &#150; vehicles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Third party liability &#150; third parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">70,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Insurance guarantee</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-69</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>30. Summary of the differences between Brazilian GAAP and US GAAP</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has presented its primary financial statements based on
accounting principles established under Brazilian GAAP with a reconciliation to
US GAAP.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accounting policies comply with Brazilian GAAP, which differs
significantly from US GAAP as described below:
</FONT>
<P align="left"><FONT size="2"><B>(a)&nbsp;Inflation accounting methods and indices</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Brazil, because of highly inflationary conditions that prevailed in the
past, a form of inflation accounting had been in use for many years to minimize
the impact of the distortions in financial statements caused by inflation. Two
methods of inflation accounting were developed: one that is required under
Brazilian GAAP and the other that is known as the constant currency method. The
primary difference between Brazilian GAAP and constant currency methods relates
to accounting for the effects of inflation. Under Brazilian GAAP inflation
accounting was discontinued effective January&nbsp;1, 1996. Prior to that date,
Brazilian GAAP required inflationary indexation of property, plant and
equipment, investments, deferred charges and shareholders&#146; equity, the net
effect of which was reported in the statement of operations as a single line
item. The constant currency method is similar to US Accounting Principles Board
Statement No.&nbsp;3 (&#147;APS 3&#148;), except that the former continues to apply
inflationary accounting in periods of low inflation. Under US GAAP, the
Brazilian economy ceased to be highly inflationary effective July&nbsp;1, 1997. The
other significant difference between the two sets of principles relates to the
present-value discounting of fixed-rate receivables and payables, which is
required by the constant currency method and prohibited by Brazilian GAAP.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial statements prepared in accordance with Brazilian GAAP have been,
and continue to be, required of all Brazilian corporate entities and are used
by the Brazilian tax authorities to determine taxable income. Financial
statements prepared in accordance with the constant currency method were
required through 1995 for those entities whose securities were registered with
the CVM. Since 1996, presentation of supplemental financial statements under
the constant currency method has been optional.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><I>(i)</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><I>Additional inflation restatement in 1996 and 1997 for US GAAP</I></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the reconciliation from Brazilian GAAP to US GAAP, an adjustment for
inflation accounting has been included in relation to the period from January
1, 1996 to December&nbsp;31, 1997. During this period, inflation accounting was
prohibited by Brazilian GAAP but still required by APS 3 under US GAAP.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders&#146; equity under US GAAP was increased by R$289,052 and
R$526,502, respectively, at December&nbsp;31, 2002 and 2001 due to the additional
inflation restatement adjustments, net of depreciation.
</FONT>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><I>(ii)</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><I>Inflation indices</I></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The indexation of the financial statements through 1995, except for the
year 1990, under Brazilian GAAP was based on an official government index, the
<I>Unidade Fiscal de Refer&#234;ncia </I>(&#147;UFIR&#148;) and for the year ended December&nbsp;31, 1990
on a consumer price index the <I>&#205;ndice de Pre&#231;os ao Consumidor </I>(&#147;IPC&#148;). For US
GAAP purposes, a general price index, the <I>&#205;ndice Geral de
Pre&#231;os &#150; Mercado</I>,
(&#147;IGP-M&#148;), was used to record the additional inflation restatement in 1996 and
1997.
</FONT>

<P align="center"><FONT size="2">F-70</FONT>




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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(b) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Corporate Reorganization</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)</I>&nbsp;&nbsp;&nbsp;<I>Date of acquisition</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, the date of accounting for a corporate
reorganization can be defined as a date several months prior to the approval of
the operation by the shareholders. The corporate reorganization described in
Note 1(c) was recorded based on accounting balances as of March&nbsp;31, 2001
despite the approval of the operation by the shareholders on August&nbsp;2, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, the corporate reorganization is accounted for as the
acquisition of minority interests in a number of subsidiaries and the sale of
participation in other subsidiaries to third parties. The date of acquisition
of a company should ordinarily be the date that assets are received and other
assets are given or securities are issued. For convenience, an effective date
at the end of an accounting period between initiation and consummation may be
designated if a written agreement transfers effective control to the acquiring
company on that date and the acquisition does not require approval of
shareholders or others. However, in this case shareholder and regulatory
approval was required and was only received on August&nbsp;2, 2001 which is thus the
acquisition date. Likewise the date of the sale of the participation in
subsidiaries to third parties is the date of shareholders&#146; approval.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)</I>&nbsp;&nbsp;&nbsp;<I>Basis of accounting</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, the corporate reorganization was accounted for based
on book values of the interests sold and acquired. The net impact of the
corporate reorganization was an increase in the net book value of the Company&#146;s
investments in subsidiaries of R$50,669 which was recorded as a capital gain in
non-operating income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, the consideration given, in the form of shares in listed
subsidiaries, for the purchase of minority interests was recorded based on the
fair value (quoted market value) of those shares. The difference between the
book value and quoted value of the shares given is recorded as a profit or loss
in the income statement in accordance with EITF 90-13 &#147;Accounting for
Simultaneous Common Control Mergers.&#148; The fair value of the shares given is
based on the listed value of such shares immediately after shareholders&#146;
approval of the corporate reorganization. The consideration paid for the
acquired minority interests is allocated to the fair values of the assets and
liabilities of the respective subsidiaries in accordance with SFAS No.&nbsp;141,
&#147;Business Combinations.&#148; The consideration received for the sale of interests
in subsidiaries to third parties is recorded at fair value and the gain or loss
on the sale is recorded in income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iii)</I>&nbsp;&nbsp;&nbsp;<I>Determination of differences between Brazilian GAAP and US GAAP</I>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>

<TD nowrap align="center" colspan="7"><FONT size="1"><B>Shareholders&#146; equity</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Net income</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of gain recorded under Brazilian GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,669</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Recognition of gain recorded under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interest impact due to difference in
acquisition date for US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,765</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value adjustment on property, plant and
equipment acquired</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reduction in depreciation of property, plant
and equipment due to fair value adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,626 </FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(42,327</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(42,327</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-71</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(c) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Pension and other post-retirement benefits</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, amounts due to a multi-employer pension plan are
treated on an accrual basis as the obligations fall due. In December 1999, the
Company split-up the SISTEL multi-employer defined benefit pension plan and
formed a single-employer defined benefit plan. However, the Company and the
co-sponsors of the multi-employer pension plan agreed to jointly maintain a
plan offering the current levels of benefits under SISTEL for those employees
who have retired before January&nbsp;30, 2000. Under Brazilian GAAP, amounts due to
a single-employer defined benefit plan are also treated on an accrual basis as
the obligations fall due. On September&nbsp;21, 2000, the Company created a new
defined contribution plan, which replaced the defined benefit plan by migrating
all active employees to the new plan. In March 2001, the final period for
voluntary migrations, 96.0% of the active participants of the previous plan had
migrated to the new defined contribution plan and the accrual of future
benefits under the defined benefit plan relating to the post-retirement health
care plan for these participants was eliminated. Under Brazilian GAAP, there is
no requirement to recognize a gain or loss caused by a curtailment of a benefit
plan. A summary of the actuarial position of plans which the Company sponsors,
including the Company&#146;s allocated assets and liabilities of multi-employer
plans such as the PBS &#150; A plan, is to be disclosed under Brazilian GAAP
accounting principles. Because the plans have an unfunded status or a funded
status which the Company believes will lead to future benefits, the Company has
elected at December&nbsp;31, 2001 to record that deficit over the next five years at
20% per year in accordance with IBRACON and CVM regulations. If a plan has a
positive funded status, which is not expected to generate future benefits, the
company does not recognize the funded status.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The funded status of the plan at December&nbsp;31, 2002 and 2001, in accordance
with US GAAP, is presented in Note 35(c). To calculate the funded status in
accordance with the provisions of SFAS No.&nbsp;87, &#147;Employers&#146; Accounting for
Pensions&#148; were applied with effect from January&nbsp;1, 1992 because it was not
feasible to apply them from the effective date specified in such provisions.
SFAS No.&nbsp;132, &#147;Employers&#146; Disclosures about Pensions and Other Post-retirement
Benefits&#148; revises and standardizes employers&#146; disclosures about pension and
other post-retirement benefit plans. It does not change the measurement or
recognition of those plans. The supplemental disclosures under US GAAP are also
provided in Note 35(c). US GAAP does not require the sponsor to record
actuarial calculations for multi-employer pension plans such as the PBS-A and
contributions to such plans are recorded on an accrual basis.
</FONT>

<P align="center"><FONT size="2">F-72</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(d) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Funds for capitalization</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, expansion plan contributions received are included
in the balance sheet after total shareholders&#146; equity until the proposed
subscribers have paid for their telephone connection in full. A general
shareholders meeting approves the capital increase. Until December&nbsp;31, 1995,
expansion plan contributions were indexed from the month in which they were
received to the end of the subsequent fiscal year-end and transferred to
shareholders&#146; equity when shares were issued to the subscriber, at a value per
share equal to the equity value per share shown on the latest fiscal year-end
balance sheet. As from January&nbsp;1, 1996, indexation was no longer applied and
for contracts signed as from that date the subsidiaries have the option of
using a value per share equal to the market value, provided that it is higher
than the equity value. The difference between the value per share at the moment
of payment and the value per share at the moment of capitalization has been
booked as share premium under capital reserves.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the expansion plan, which they promoted directly, the
subsidiaries also sponsored agreements between companies or individuals in a
particular community and independent contractors who developed the
telecommunications infrastructure required to connect them to the national
telephone network (Community Expansion Plan). The Company or individuals paid
the contractor. On completion of the project, the Company incorporated the
completed equipment into their fixed assets at the appraised value and credited
expansion plan contributions which were then treated in the same manner as the
expansion plan contributions received from prospective telephone subscribers,
as described above.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, a portion of the expansion plan contributions is allocated
to shareholders&#146; equity (if the Company issues shares - up to 1996) or minority
interests (if the subsidiaries issues shares - as from 1997) based on the
market value of the shares to be issued to subscribers. The remainder of the
expansion plan contributions would be classified as a deferred credit and
amortized to reduce depreciation expense from the time the related
construction-in-process was completed.
</FONT>

<P align="left"><FONT size="2"><B>(e)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Different criteria for capitalizing interest and depreciating capitalized
interest</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until December&nbsp;31, 1993 capitalized interest was not added to the
individual assets in property and equipment under Brazilian GAAP, instead it
was capitalized separately and amortized over a time period different from the
useful lives of the related assets. However, as applied to public companies in
the Brazilian telecommunications industry, interest attributable to
construction-in-progress was computed at the rate of 12% per annum of the
balance of construction-in-progress and the part which relates to interest on
third party loans is credited to interest expense based on actual interest
costs with the balance relating to capital being credited to capital reserves
up to December&nbsp;31, 1999. As from January&nbsp;1, 2000, following a regulation issued
by the CVM (<I>Delibera&#231;&#227;o CVM No.&nbsp;193</I>), management changed its interest
capitalization policy. Similar to US GAAP, under the new policy interest
incurred on loans is capitalized to the extent that loans do not exceed
construction-in-progress, except that under Brazilian GAAP the amount of
capitalized interest: includes i) monetary gains and losses associated with
loans and financing in foreign exchange currency and ii) charges resulting from
currency derivatives. The capitalization excludes financial charges on loans,
which are not associated with specific construction-in-progress. Similar to US
GAAP, the interest is capitalized to individual assets and amortized over their
useful lives.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, in accordance with the provisions of US SFAS No.&nbsp;34,
interest incurred on loans is capitalized to the extent that loans do not
exceed construction-in-progress, added to the individual assets and amortized
over their useful lives. Under US GAAP, the amount of interest capitalized
excludes: (i)&nbsp;the monetary gains and losses associated with the loans and
financing in foreign currency; (ii)&nbsp;charges resulting from currency
derivatives; however, (iii)&nbsp;interest on loans that are not associated with
construction-in-progress can be capitalized.
</FONT>

<P align="center"><FONT size="2">F-73</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(f) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Derivatives</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, foreign currency derivatives are recorded on a
monthly basis by comparing contractual exchange rates to exchange rates at
month end. Under the swap agreement, the Company pays or receives at maturity
the amounts of the difference between the variation corresponding to an average
103.31% of the CDI rate and the US Dollar and Yen exchange rate plus the bank
spread. Gains and losses on swap agreements are recorded on a monthly basis,
reducing or increasing the foreign currency indebtedness. Gains on &#147;options&#148;
and &#147;forward&#148; contracts are recorded under interest income (expense)&nbsp;when the
contracts expire while losses are recorded currently against income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, derivatives were accounted for in the same manner as under
Brazilian GAAP through December&nbsp;31, 2000. However, as from January&nbsp;1, 2001 all
derivatives are recorded at fair value on the balance sheet and all variations
in fair value are being recorded in the statement of operations. The impact of
the initial application of SFAS No.&nbsp;133 &#147;Accounting for Derivative Instruments
and Hedging Activities&#148; on January&nbsp;1, 2001 resulted in recognition of a gain in
the amount of R$8,920, presented in the Statement of Operations under
accumulative effect of change in accounting policy. The Company does not
account for any activities as hedging activities.
</FONT>

<P align="left"><FONT size="2"><B>(g) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Deferred charges on development stage subsidiaries</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, expenses incurred during the pre-operational phase
of a subsidiary are deferred until the entity is fully operational, at which
time the expenses are amortized as a charge to income over the expected future
benefit of the new subsidiary (Note 16).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, in accordance with Statement of Position 98-5, <I>&#147;Reporting
on the Costs of Start-Up Activities,&#148; </I>costs incurred during the start-up and
organization of a development stage entity are to be expensed as incurred.
</FONT>

<P align="left"><FONT size="2"><B>(h) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenue recognition</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, installation revenues are recognized in the period
in which the installation services are provided while related costs of services
are recognized when incurred.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, prepaid card revenues are recognized when sold while
the costs are recognized when the cards are used.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 1999, the SEC issued Staff Accounting Bulletin No.&nbsp;101 (SAB
101) which provides guidance on revenue recognition. SAB 101 requires the
deferral of certain non-recurring fees, such as service activation,
installation fees and associated incremental costs that are recognized over the
expected term of the customer relationship, approximately five years. Because
an equal amount of revenue and expense was deferred, there was no impact on net
income for the change in accounting principle. The adoption of the new rule
resulted in a net reduction in revenues and costs during 2002, 2001 and 2000 of
R$141,302, R$359,475 and R$118,444, respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, prepaid card revenues are deferred and recognized as
income, based on customer usage.
</FONT>

<P align="center"><FONT size="2">F-74</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(i) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Capital leases</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, through December&nbsp;31, 2002, there is no requirement
to capitalize assets acquired through capital leases and depreciate them over
the respective economic life. All lease contracts are recorded as operational
leases, with charges made to income on a monthly basis during the contractual
period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, material lease contracts which meet at least one of the
following four criteria according to SFAS No.&nbsp;13, &#147;Accounting for Leases&#148; are
to be capitalized as property, plant and equipment and depreciated over the
life of the asset: (i)&nbsp;automatic transfer of title at the end of the lease
term; (ii)&nbsp;the contract includes a bargain purchase option to buy the asset at
the end of the lease term; (iii)&nbsp;the lease term equals or exceeds 75&nbsp;percent of
the remaining estimated economic life of the leased asset; or (iv)&nbsp;the present
value of the minimum lease payments equals or exceeds 90&nbsp;percent of the excess
of fair value of the leased asset over any related investment tax credit.
</FONT>

<P align="left"><FONT size="2"><B>(j)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Stock option plan (the &#147;Plan&#148;)</B>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, compensation expense is recorded on an accrual basis
when the market value at the balance sheet date is higher than the option
price.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP in accordance with APB 25, <I>&#147;Accounting for Stock Issued to
Employees,&#148; </I>the employee&#146;s stock option is deemed to give rise to compensation
expense to the extent of the excess of the market price of the shares purchased
over the option price. The market value discount at which the employees can buy
the shares identifies a stock option plan as a compensatory plan. Terms of the
Plan determine the amount of shares to be granted but do not determine a fixed
price. According to the Plan, the exercise price is reduced by dividends paid
on a preferred share until the option is exercised. In addition, the exercise
price is adjusted for IGP-M plus 6% per annum from the date of grant until the
date the options are exercised. Since the ultimate option price is not known
until the date of exercise, the Plan is considered a variable plan. In a
variable plan, compensation cost is measured at each year-end between the grant
date and the measurement date, based upon incremental changes in the market
value of the company&#146;s shares. Compensation cost is calculated at the end of
each year using the expected number of options or awards to be issued. These
options or awards are multiplied by the year-end market price less the
employees&#146; expected share price. The incremental change in compensation cost is
then amortized as a charge to expense over the period in which the employees
perform the related services; such period normally includes a vesting period.
In addition, under US GAAP pro forma disclosures of net income and earnings per
share are presented using the fair value method of accounting. Using this
method, fair value is determined using an option-pricing model (Black-Scholes
or the binomial option models) which takes into account the share price at the
grant date, the exercise price, the expected life of the option, the volatility
of the underlying share and its expected dividends, and the risk-free interest
rate over the expected life of the option. However, based on the terms of the
Company&#146;s Plan and as it is probable that compensation will be paid in the form
of cash rather than shares, an accrual is recorded for the cash amount payable
and no pro forma calculations are made. The required calculations and
disclosures under US GAAP are provided in Note 35(d).
</FONT>

<P align="left"><FONT size="2"><B>(k) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Earnings per share</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, net income per share is calculated using the number
of shares outstanding at the balance sheet date. Information is disclosed per
lot of one thousand shares, because generally, this is the minimum of Company&#146;s
shares to be traded on the Brazilian stock exchanges.
</FONT>

<P align="center"><FONT size="2">F-75</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, since the preferred and common shareholders have different
voting and liquidation rights, basic and diluted earnings per share have been
calculated using the &#147;two-class&#148; method, pursuant to SFAS No.&nbsp;128 &#147;Earnings per
share.&#148; This statement provides computation, presentation and disclosure
requirements for earnings per share. The &#147;two-class&#148; method is an earnings
allocation formula that determines earnings per share for preferred and common
stock according to the dividends to be paid as required by the Company&#146;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 and preferred shareholders by the weighted-average
number of common and preferred shares outstanding during the period. Net income
available to preferred shareholders is the sum of the preferred dividend (up to
a minimum of 6% of preferred share capital) and the preferred shareholders
portion of undistributed net income (Note 23). Remaining amounts to be
distributed are allocated primarily to the payment of a dividend to holders of
common shares in an amount equal to the preferred dividend and the remainder is
distributed equally among holders of preferred shares and common shares.
Undistributed net income is computed by deducting the preferred dividend and
common stock dividends from net income. Undistributed net income is shared
equally by the preferred and common shareholders on a pro rata basis. The
common shares mandatory dividend is calculated up to 25% of adjusted net income
or an amount equal to the preferred dividend, whichever is less.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted earnings per share are computed by reducing net income for an
increase to net earnings allocated to minority shareholders and dividing such
net income available to common and preferred shareholders by the monthly,
weighted-average number of common and preferred shares outstanding during the
period. The weighted average shares outstanding for diluted earnings per share
is not higher than the number of shares used in the basic earnings per share
calculation because the diluted share issue is that of the Company&#146;s
subsidiaries.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The weighted-average number of common and preferred shares used in
computing basic earnings per share for (i)&nbsp;2002 was 123,170,734 thousand and
250,029,329 thousand, respectively, (ii)&nbsp;2001 was 120,154,738 thousand and
248,880,409 thousand, respectively, and (iii)&nbsp;2000 was 121,768,289 thousand and
239,924,679 thousand, respectively. The Company has received certain
contributions from customers or customers have independently paid suppliers of
telecommunications equipment and services for the installation of fixed-line
services. These amounts are reflected as &#147;Funds for capitalization&#148; in the
balance sheets. Once the installation is essentially complete and the
contributions have been received, the funds will be converted into equity (Note
23). These activities are dilutive in nature to the shareholders of the
Company, whether the shares to be issued are those of the Company&#146;s
subsidiaries (which will impact the minority interest recognized) or of the
Company itself. The expectation is that the shares will be issued by the
Company&#146;s subsidiaries rather than by the Company based on the manner in which
such shares were issued in 2002, 2001 and 2000. The Company&#146;s management
determined that this manner of issuing shares in these three years was
appropriate as a result of the dilution of the Brazilian Government&#146;s share of
common shares of the Company below the 50% level which would have occurred if
the shares had been issued by the Company. The shares are treated as
outstanding and included in the basic earnings per share calculation only when
such funds are converted to equity and the shares are issued. The shares are
treated as outstanding for diluted earnings per share purposes when expansion
plan contributions are received or when Community Expansion Plan agreements are
approved (Note 23). Pursuant to SFAS No.&nbsp;128, no potential issue of these
shares was included in the computation of diluted earnings per share for the
years ended December&nbsp;31, 2002, 2001 and 2000 as such effect would have had an
antidilutive effect on earnings per share.
</FONT>

<P align="center"><FONT size="2">F-76</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s preferred shares are non-voting except under certain limited
circumstances and are entitled to a preferential, noncumulative dividend and to
priority over the common shares in the event of liquidation of the Company. The
preferred shareholders were entitled to a non-cumulative dividend, of R$1.33
per thousand preferred shares in 2002, R$0.81 per thousand preferred shares in
2001 and R$0.67 per thousand preferred shares in 2000.
</FONT>

<P align="left"><FONT size="2"><B>(l) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Income tax and social contribution</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, the Company fully accrues for deferred income taxes
on temporary differences between tax and reporting records. The existing
policies under Brazilian GAAP for providing for deferred taxes are
substantially in accordance with SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;.
The tax credits relating to loss carryforwards are recognized to the extent
future realization is considered certain, pursuant to CVM Instruction No.&nbsp;391
issued on June&nbsp;27, 2001, based on estimates of future taxable income over a
ten-year period, at present value. At December&nbsp;31, 2002 the Company has not
recognized tax credits in the amount of R$197,968 (December&nbsp;31,
2001 &#150; R$12,695) relating to tax loss carryforwards of subsidiaries that do not
demonstrate future realization.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Brazil, the tax law is sometimes significantly altered by provisional
measures (&#147;<I>medidas provis&#243;rias</I>&#148;) announced by Presidential decree. The
provisional measures can affect tax rates as well as other areas that could
impact deferred taxes. These measures remain in force for 30&nbsp;days and expire
automatically if they are not extended for an additional period. When
calculating the effect of tax changes or other changes on deferred income taxes
in Brazil, the provisional measures are substantively considered as enacted
law. For the calculation of deferred taxes, Brazilian GAAP requires the use of
the tax rate that is expected to be in effect when the temporary differences or
tax loss carryforwards will be realized.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, only enacted tax rates may be used to calculate deferred
taxes. Tax rates for future periods, which have been established by provisional
measures, are not considered to have been enacted and are ignored. However, the
provisional measure is still used for determining the amount of current tax
payable. During 1999 legislation was introduced in order to permit the
compensation of social contribution obligations with amounts payable as a
result of an additional 1% increase of the COFINS rate (from 2% to 3%) in that
year. Although a provisional measure introduced by December&nbsp;31, 1999 prevented
such compensation, management provided for its deferred tax asset of R$89,491
related to negative basis of social contribution at that time as they estimated
that under the existing legislation the additional amounts payable of COFINS
would completely compensated future amounts of social contribution payable and
that it was no longer &#147;more likely than not&#148; that the deferred tax asset could
be realized based on legislation at that time. By 2001, the right to offset
social contribution with the additional amounts of COFINS payable was no longer
permitted by law and the valuation allowance against the deferred tax asset for
the negative basis of social contribution was reversed.
</FONT>

<P align="left"><FONT size="2"><B>(m)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Provision for dividends and interest on own-capital</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, at each balance sheet date the directors are
required to propose a dividend distribution from earnings and accrue for this
in the financial statements. Under Brazilian GAAP, companies are permitted to
distribute or capitalize an amount of interest on own-capital, subject to
certain limitations and calculated based on a government interest rate, on
shareholders&#146; equity. Such interest is deductible for tax purposes and is
presented as a deduction from shareholders&#146; equity. Although not affecting net
income, except for the tax benefit, in the Company includes this nominal charge
in interest expense and reverse out the same amount before the net income
total.
</FONT><P align="center"><FONT size="2">F-77</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Under US GAAP, since proposed dividends may be ratified or modified at the
annual Shareholders&#146; Meeting, such dividends are not considered declared at the
balance sheet date and therefore not accrued. However, interim dividends paid
or interest on own-capital credited to shareholders as capital remuneration
under Brazilian legislation is considered declared for US GAAP purposes. Under
US GAAP, no similar interest on own-capital distribution concept exists.
</FONT>

<P align="left"><FONT size="2"><B>(n) </B>&nbsp;&nbsp;&nbsp;&nbsp;<B>Equity method accounting</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, investments in affiliated companies can be accounted
for under the equity method if the company has influence over the
administration or holds more than a 20% participation (voting or non-voting
shares) in the investee. Until December&nbsp;27, 2002, the Company owned only
preferred shares of Pegasus, and under Brazilian GAAP accounted for the
investment using the equity method.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, the equity method is permitted if the Company holds 20% or
more of the voting shares of an investee and the ability to exercise
significant influence over the investee&#146;s operational and financial decisions.
</FONT>

<P align="left"><FONT size="2"><B>(o)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Segment reporting</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, no separate segment reporting is required.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, SFAS No.&nbsp;131 &#147;Disclosures about Segments of an Enterprise
and Related Information&#148; establishes the standards for the manner in which
public enterprises are required to report financial and descriptive information
about their operating segments. The standard defines operating segments as
components of an enterprise for which separate financial information is
available and evaluated regularly as a means for assessing segment performance
and allocating resources to segments. Measures of profit or loss, total assets
and other related information are to be disclosed for each operating segment.
In addition, this standard requires the annual disclosure of information
concerning revenues derived from the enterprise&#146;s products or services,
countries in which it earns revenues or holds assets, and major customers (Note
35(b)).
</FONT>

<P align="left"><FONT size="2"><B>(p)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Disclosure requirements</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, disclosure requirements differ from those required by
Brazilian GAAP. However, in these Brazilian GAAP financial statements, the
level of disclosure has been expanded to comply with US GAAP.
</FONT>

<P align="left"><FONT size="2"><B>(q)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Permanent assets</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, the financial statements present a class of assets
called permanent assets. This is the collective name for all assets on which
indexation adjustments were calculated under Brazilian GAAP and Tax law
accounts of Brazilian companies through 1995.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, some assets would be classified as non-current assets,
especially intangible assets.
</FONT>

<P align="center"><FONT size="2">F-78</FONT>
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<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(r)</B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Retained earnings</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, a company formed as a result of a split-off may
present retained earnings in its balance sheet if the parent company
shareholders&#146; resolution adopting the split-off deems so by allocating retained
earnings from the parent company to the new company.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, &#147;retained earnings&#148; allocated in the split-off are not
considered historical retained earnings because such amount represents capital
allocated from the parent company and is described as &#147;distributable capital.&#148;
</FONT>

<P align="left"><FONT size="2"><B>(s) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Statement of cash flows</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, a statement of changes in financial position that
reflects the source and application of funds in terms of movement in working
capital is required to be presented. The statement of cash flows may be
presented as supplemental information based on NPC 20.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under US GAAP, presentation of a statement of cash flows describing the
cash flows provided by or used in operating, investing and financing activities
is required. SFAS No.&nbsp;95, &#147;Statement of Cash Flows,&#148; establishes specific
presentation requirements and requires additional disclosures, such as the
amount of interest and income taxes paid and non cash transactions such as
acquisition of property, plant and equipment through capital leases,
utilization of escrow deposits in settlement of liabilities and debt for equity
conversions, among others (Note 35(a)).
</FONT>

<P align="left"><FONT size="2"><B>(t) </B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Classification of income statement line items</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian GAAP, as noted above, the classification of certain income
and expense items is presented differently from US GAAP. A number of
significant presentation differences have arisen in the years ended December
31, 2002, 2002 and 2000. Accordingly, the consolidated income statement under
Brazilian GAAP has been recast to present a condensed consolidated statement of
operations in accordance with US GAAP (Note 33). The reclassifications are
summarized as follows:
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Interest in subsidiaries, whereby credits made directly to equity -
which represent amounts recorded by the Company&#146;s subsidiaries in
their respective shareholders&#146; equity accounts without affecting net
income but which are recorded by the Company in a separate line item
in the consolidated statement of operations in accordance with
Brazilian GAAP. Such amounts have been reclassified to the respective
line items to which they relate in the condensed consolidated income
statement of operations in accordance with US GAAP.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Interest income and interest
expense - such items, together with other
financial charges are displayed within operating income in the
consolidated statement of operations in accordance with Brazilian
GAAP. Such amounts have been reclassified to non-operating income and
expenses in the condensed consolidated statement of operations in
accordance with US GAAP.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Employees&#146; profit sharing - these expenses have been classified in the
consolidated statement of operations in accordance with Brazilian GAAP
after non-operating expenses. Such amounts have been reclassified to
operating expenses in the condensed consolidated statement of
operations in accordance with US GAAP.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The net income (loss)&nbsp;differences between Brazilian GAAP and US GAAP-
as detailed in the reconciliation in Note 31, were incorporated in the
condensed consolidated statement of operations in accordance with US
GAAP.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-79</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">

    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Gains and losses on disposal of permanent assets are classified as
non-operating income (expense)&nbsp;under Brazilian GAAP. Such amounts have
been reclassified to operating income (expense)&nbsp;in the condensed
consolidated statement of operations in accordance with US GAAP.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-80</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(u)&nbsp;Acquisition of Pegasus</B>
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">On December&nbsp;27, 2002, Telemar acquired 93.27% of the outstanding
common shares of Pegasus (including the 24.4% owned by the Company).
The results of Pegasus&#146; operations have not been included in the
consolidated financial statements considering the acquisition date,
since the four-day-results are not material. On February&nbsp;19, 2003
Telemar acquired the remaining 6.73% of the outstanding common shares
of Pegasus.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The aggregate purchase price was R$258,798 including R$80,671
corresponding to the Company&#146;s 24.4% participation.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. Telemar
is in process of obtaining third-party valuations of Pegasus&#146;
intangible assets to determine fair values and, when applicable, the
amortization periods, in accordance with the provisions of SFAS No.
142 &#147;Goodwill and Other Intangible Assets;&#148; thus, the allocation of
the purchase price is subject to refinement.</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>At December 31, 2002</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">51,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,954</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant, and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">483,990</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">107,181</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">71,917</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets acquired</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">784,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">433,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term debt</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total liabilities assumed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">525,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total purchase price</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">258,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>(v)&nbsp;New US GAAP accounting pronouncements</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(i)&nbsp; Accounting for asset retirement obligations and asset disposal costs</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the Financial Accounting Standards Board or &#147;FASB&#148; issued
SFAS No.&nbsp;143, &#147;Accounting for Asset Retirement Obligations&#148; on the accounting
for obligations associated with the retirement of long-lived assets. SFAS No.
143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. SFAS No.
143 is effective for fiscal years beginning after June&nbsp;15, 2002. The Company
believes that adoption of this statement will not have a significant impact on
its financial position of results of operation.
</FONT>
<P align="center"><FONT size="2">F-81</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2002 the FASB issued SFAS No.&nbsp;146, &#147;Accounting for Costs
Associated with Exit or Disposal Activities.&#148; SFAS No.&nbsp;146 provides guidance
related to accounting for costs associated with disposal activities covered by
SFAS No.&nbsp;144 or with exit or restructuring activities previously covered by
Emerging Issues Task Force (&#147;EITF&#148;) Issue No.&nbsp;94-3, &#147;Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).&#148; SFAS No.&nbsp;146 supercedes
EITF 94-3 in its entirety. SFAS 146 requires that costs related to exiting an
activity or to a restructuring not be recognized until the liability is
incurred. SFAS 146 will be applied prospectively to exit or disposal activities
that are initiated after December&nbsp;31, 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, the FASB issued SFAS No.&nbsp;148, &#147;Accounting for
Stock-Based Compensation, Transition and Disclosure.&#148; SFAS No.&nbsp;148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS No.&nbsp;148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. The transition and annual disclosure
requirements of SFAS No.&nbsp;148 are effective for the Company&#146;s fiscal year ending
after December&nbsp;15, 2002. The Company does not expect SFAS No.&nbsp;148 to have a
material effect on its results of operations or financial condition.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(ii)&nbsp; Goodwill and other intangible assets</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June 2001, the FASB issued SFAS No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets.&#148; SFAS No.&nbsp;142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under prescribed conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS
No.&nbsp;121, &#147;Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.&#148; The goodwill impairment test under SFAS No.&nbsp;142
requires a two-step approach, which is performed at the reporting unit level,
as defined in SFAS No.&nbsp;142. Step one identifies potential impairments by
comparing the fair value of the reporting unit to its carrying amount. Step
two, which is only performed if there is a potential impairment, compares the
carrying amount of the reporting unit&#146;s goodwill to its implied value, as
defined in SFAS No.&nbsp;142. If the carrying amount of the reporting unit&#146;s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized for an amount equal to that excess. The amortization of goodwill
included in our investments in equity investees and subsidiaries will also no
longer be recorded. Intangible assets that do not have indefinite lives will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No.&nbsp;144, &#147;Accounting for the Impairment or Disposal of
Long-Lived Assets.&#148;
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adoption of SFAS No.&nbsp;142 on January 2002 did not have a material effect on
the Company&#146;s results of operations or financial position.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iii)&nbsp; Impairment or disposal of long-lived assets</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2001, the FASB issued SFAS No.&nbsp;144. This standard supersedes
SFAS No.&nbsp;121 and the provisions of APB Opinion No.&nbsp;30, &#147;Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions&#148; with regard to reporting the effects of a disposal of a
segment of a business. SFAS No.&nbsp;144 establishes a single accounting model for
assets to be disposed of by sale and addresses several SFAS No.&nbsp;121
implementation issues. Adoption of SFAS No.&nbsp;144 on January 2002 did not have a
material effect on the Company&#146;s results of operations or financial position.
</FONT>
<P align="center"><FONT size="2">F-82</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(iv)&nbsp; Guarantor&#146;s accounting and disclosure requirements for guarantees,
including indirect guarantees of indebtedness of others</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, the FASB issued FIN No.45, an interpretation of SFAS No.
5, 57, and 107 and rescission of FIN No.&nbsp;34. This interpretation clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligations undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued are
modified after December&nbsp;31, 2002.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(v)&nbsp; Consolidation of variable interest entities</I>
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2003, the FASB issued FIN No.&nbsp;46, an interpretation of
Accounting Research Bulletin No.&nbsp;51 Consolidated Financial Statements.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This FIN No.&nbsp;46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="76%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
o
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">The equity investment at risk is not
sufficient to permit the entity to finance its activities
without additional subordinated financial support from
other parties, which is provided through other interests
that will absorb some or all of the expected losses of the
entity, or</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
o
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">The equity investors lack a controlling
financial interest.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FIN No.&nbsp;46 applies immediately to variable interest entities created after
January&nbsp;31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June&nbsp;15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. FIN No.&nbsp;46 applies to public enterprises as of the beginning of the
applicable interim or annual period, and it applies to nonpublic enterprises as
of the end of the applicable annual period.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FIN No.&nbsp;46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management understands that these new accounting pronouncements will have
no significant impact on the Company&#146;s consolidated financial statements.
</FONT>
<P align="center"><FONT size="2">F-83</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>31.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss)&nbsp;reconciliation of the differences between Brazilian GAAP
and US GAAP</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="57%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>For the years ended December 31</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Note 30</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;under Brazilian GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation of additional inflation restatement in 1996 and 1997:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(a</FONT></TD>
    <TD nowrap><FONT size="2">) (i)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(237,449</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(266,853</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(270,917</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Different criteria for:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Corporate reorganization US GAAP differences:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center" nowrap><FONT size="2">(b) (iii)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reduction of gain on corporate reorganization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,402</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minorities interest credit due to difference in acquisition
date for US GAAP purposes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">(26,765</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reduction in depreciation of property, plant and equipment
due to fair value adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">6,701</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">1,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pension and other post-retirement benefits:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(c</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Change in prepaid pension cost under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,699</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,894</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Settlement and curtailment of the defined benefit pension plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">355,067</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred credit on expansion plan contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(d</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,058</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">145,965</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalizing interest and depreciating capitalized interest:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(e</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of interest on construction-in-progress</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(170,338</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(27,644</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">170,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation of capitalized interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(33,294</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(82,355</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,458</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Derivatives</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(f</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impact of initial application of SFAS No.&nbsp;133</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value adjustment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,401,327</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">195,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Write-off of deferred charges on development stage subsidiaries,
principally start-up costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">(g</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">(207,137</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">(479,222</FONT></TD>
    <TD nowrap valign="top"><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred development stage costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenues on prepaid calling cards</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(h</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,651</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,043</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Valuation allowance for social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(l</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">89,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pegasus (equity method adjustment)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(n</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,719</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,756</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,683</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred tax on adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">645,942</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">186,145</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(144,440</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interest on adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">232,781</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(51,661</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-84</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>32.&nbsp;&nbsp;Shareholders&#146; equity reconciliation of differences between Brazilian GAAP
and US GAAP</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="4"><FONT size="1"><B>Years ended December 31</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Note 30</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Consolidated shareholders&#146; equity under Brazilian GAAP</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,120,138</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,023,273</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional inflation restatement in 1996 and 1997 for US GAAP:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(a</FONT></TD>
    <TD nowrap><FONT size="2">) (i)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,564,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,564,826</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation of inflationary effects</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,275,774</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,038,325</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Different criteria for:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Corporate reorganization US GAAP differences:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">(b) (iii)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value adjustment on property, plant and equipment acquired</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reduction in depreciation of property, plant and equipment due to
fair value adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,541</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid pension cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(c</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">192,567</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds for capitalization:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(d</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred credit on expansions plan contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(622,603</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(622,603</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred credit on expansions plan contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">622,603</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">576,545</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Different criteria for capitalizing and depreciating capitalized interest:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(e</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of interest on construction-in-progress</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(370,491</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(200,153</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation of difference on capitalized interest adjustment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">295,033</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">328,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value adjustment on derivative instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(f</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,196,514</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">204,813</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Write-off of deferred charges on development stage subsidiaries</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(g</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(686,359</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(479,222</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of deferred development stage costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50,113</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred revenue on prepaid calling cards</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(h</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,694</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,043</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Reversal of provision for dividends not yet declared</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(m</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">499,979</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pegasus (equity method adjustment)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(n</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,818</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,099</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(334</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,087</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred tax on adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">503,286</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(141,803</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interest on adjustments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(114,096</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Consolidated shareholders&#146; equity under US GAAP</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,785,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,503,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B><I>US GAAP supplementary information:</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,700,707</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39,440,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated depreciation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,528,128</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21,824,849</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,172,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,616,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,347,837</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,163,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accumulated amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,740</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,304,097</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,163,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net property, plant, equipment and intangible assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,476,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,780,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,785,362</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27,006,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-85</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>33.&nbsp;&nbsp;Condensed consolidated statements of operations prepared in accordance with
US GAAP</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="90%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Years ended December 31</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3">&nbsp;</TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,948,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,284,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,732,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deductions (primarily indirect taxes such as ICMS, PIS and COFINS)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,217,403</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,556,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,723,588</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,731,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,727,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,008,546</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,179,013</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,804,267</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,244,302</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross profit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,551,987</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,923,281</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,764,244</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating (expenses):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,307,354</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,427,468</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(888,903</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">General and administrative</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(975,903</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,037,110</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(547,484</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating (expense)&nbsp;income, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(276,207</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(293,429</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">118,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">992,523</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">165,274</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,446,493</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest (expense)&nbsp;income, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,532,767</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(508,704</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">128,984</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other non-operating (expense)&nbsp;income, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(47,085</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,199</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before taxes and minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,525,013</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(390,515</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,588,676</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax and social contribution benefit (expense)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,021,551</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">296,374</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(317,421</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income (loss)&nbsp;before minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,493,462</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,141</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,271,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Impact of initial application of SFAS No.&nbsp;133 on January&nbsp;1, 2001
(R$8,920 less deferred tax of R$2,944)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,976</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">100,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,890</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(308,877</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;and comprehensive income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Net income (loss)&nbsp;applicable to each class of shares</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(932,945</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60,734</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">633,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(459,592</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(29,321</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">328,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;per thousand shares:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares &#150; Basic (in <I>Reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average (thousand)&nbsp;common shares outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,170,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120,154,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,768,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Common shares &#150; Diluted (in <I>Reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average (thousand)&nbsp;common shares outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,170,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">120,154,738</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">121,768,289</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares &#150; Basic (in <I>Reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,73</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average (thousand)&nbsp;preferred shares outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,029,329</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">248,880,409</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">234,924,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Preferred shares &#151; Diluted (in <I>Reais</I>)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,70</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(0.24</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted average (thousand)&nbsp;preferred shares outstanding</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">252,305,316</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,815,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">234,959,538</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-86</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>34.&nbsp;&nbsp;Consolidated statements of changes in shareholders&#146; equity in accordance
with US GAAP</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Share</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital and</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>additional</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Unrealized</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Treasury</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>paid-in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Statutory</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>income</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Retained</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>capital</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>earnings</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Total</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balances at December&nbsp;31, 1999</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,721,231</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">186,331</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,750,514</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,934</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,735,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,302,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(134,070</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,070</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Appropriations:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transfer to reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,798</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on
own-capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(314,967</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(314,967</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employee stock options issued</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of reserves and
retained earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">400,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(186,331</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(214,117</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds for capitalization
transferred to minority interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,872</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">962,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balances at December&nbsp;31, 2000</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,121,988</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,616,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,934</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,309,873</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,977,169</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Acquisition of treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Appropriations:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transfer to reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,019</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,019</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(248,496</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(248,496</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employee stock options issued</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of retained earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,605</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds for capitalization
transferred to minority interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,168</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,168</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balances at December&nbsp;31, 2001</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,290,391</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,616,444</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(260,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,829,866</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,503,092</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends reverted to the Company</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,442</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Realization of unrealized income</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,072,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,072,492</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(300,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(300,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalization of retained earnings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">167,605</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,605</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funds for capitalization
transferred to
minority interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37,332</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37,332</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loss for the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Balances at December&nbsp;31, 2002</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,457,996</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,817</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">543,952</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(260,426</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,017,326</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,785,665</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-87</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>35. Additional disclosures required by US GAAP</B>
</FONT>

<P align="left"><FONT size="2"><B>(a)&nbsp; Consolidated statements of cash flows based on Brazilian GAAP balances for
the years ended December&nbsp;31:</B>
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Operating activities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income - Brazilian GAAP basis</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(415,598</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">140,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">709,407</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Adjustments to reconcile net income to cash provided by
Operating activities:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority interests</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,856</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">56,685</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">257,216</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Depreciation and amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,863,109</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,926,422</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,803,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Gain) loss on permanent asset disposals</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,648</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,896</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,685</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Provision for doubtful accounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">616,038</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">925,611</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,698</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Contingencies and other provisions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">284,806</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">565,721</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61,713</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred tax asset, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">238,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(248,354</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">92,938</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) in accounts receivable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,175,906</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(568,976</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,458,443</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">(Increase) decrease in other current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(166,166</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,968</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,450</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in other non-current assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(176,315</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323,087</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(70,740</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in payroll and related accruals</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,811</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,039</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in accounts payable and accrued
expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(625,755</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">781,839</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">371,096</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in other current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,213</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(38,124</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">212,734</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in accrued interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,954,234</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,270,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">253,531</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Decrease in deferred and recoverable taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(427,796</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(574,614</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(299,245</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase (decrease)&nbsp;in other non-current liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,092</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(71,815</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash provided by operating activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,188,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,001,766</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,063,276</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Investing activities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additions to sale of investments, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(205,443</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,611</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additions to property, plant and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,617,282</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,438,138</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,936,827</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Deferred charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(221,024</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(479,222</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"></TD>
    <TD nowrap></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash used in investing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,888,306</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,122,803</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,945,438</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Financing activities:</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from long-term loans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,296,595</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,554,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,174,275</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from related party long-term loans - BNDES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,489,572</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,000,579</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Repayments of long-term loans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,932,071</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,525,299</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(410,748</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Proceeds from line of credit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Repayments on line on credit</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(170,298</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Purchase of treasury shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,492</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"></TD>
    <TD nowrap></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on capital, paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(386,636</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(386,505</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(314,967</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash provided (used)&nbsp;by financing activities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,022,112</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,262,910</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,278,841</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Increase in cash and cash equivalents</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">278,260</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(858,127</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,396,679</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,092,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">695,891</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash and cash equivalents at end of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,512,703</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,234,443</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,092,570</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-88</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B><I>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</I></B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><I>Supplemental cash flow information</I><B><I>:</I></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income and social contribution tax paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38,906</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">236,356</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">199,927</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">988,783</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">538,435</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,823</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cash paid against provisions for contingencies</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">350,023</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">105,530</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">197,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Non cash transactions:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax incentive investment credits received</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,318</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,098</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Donations received of property and equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,103</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Conversion of expansion plan contributions into share capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,125</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net Goodwill on downstream merger</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,606</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,606</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,767,252</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net negative goodwill on share capital increase in
subsidiary</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,424</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">237,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2"><B>(b)&nbsp;Financial highlights by business segment:</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following segment information has been prepared in accordance with
SFAS No.&nbsp;131 &#147;Disclosure about Segments of an Enterprise and Related
information.&#148; Since January 2002, the Company has operated under the following
segments, which as described as follows:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#149;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Fixed-line: This segment refers to the
services rendered by Telemar using the fixed-line network.</FONT></TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD></TD>
<TD></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#149;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Mobile: This segment refers to the services
rendered by Oi, authorized to operate in June 2002.</FONT></TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD></TD>
<TD></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">&#149;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Contac center: This segment is managed
separately and refers to the services rendered by Contax.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although not required to present segment information up to 2001 under SFAS
No.131, the Company is presenting information relating to 2001 balance sheet
and income statement by segment, prepared on the same basis as that of 2002,
for comparison purposes
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since each segment is a different entity, the balances and results are
segmented.
</FONT>
<P align="center"><FONT size="2">F-89</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>


<DIV align="left"></DIV>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Fixed-line</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Mobile</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Contact-Center</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenues:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,482,293</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,305,194</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">529,303</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">228,161</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158,773</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes on revenues and discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,112,816</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,553,783</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(103,077</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,502</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,968</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,369,477</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,751,411</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">426,227</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">211,659</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">145,805</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of sales:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,395,115</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,626,666</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(599,392</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,161</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(115,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,430,564</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,582,503</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,183</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,699</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,272</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(844,671</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(973,731</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(50,746</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,362</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,883</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial result, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,160,782</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(244,074</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,004,817</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,923</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,232</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating results, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">313,978</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(284,048</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(187,292</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(862</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,581</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(121,889</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">64,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(895,344</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">914</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,525,982</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,140,464</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">291,195</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,825</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,814,327</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,300,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,912,975</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,012,508</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,015</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,760</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,562,828</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,254,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,632,300</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,388,485</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,352</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">
<P align="right"><FONT size="2">&#091;Additional columns below&#093;</FONT>
<P align="left"><FONT size="2">&#091;Continued from above table, first column(s) repeated&#093;</FONT>


<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="23"><FONT size="1"><B>Year ended December 31,</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="23"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Other segments</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Intercompany</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>and holding</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>eliminations</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Consolidated</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross operating revenues:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159,093</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">104,722</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(450,447</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(284,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,948,403</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,284,031</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes on revenues and discounts</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,928</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(26,721</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,920</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,989</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,217,403</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,556,483</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net operating revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148,164</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">78,001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(424,527</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(247,669</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,731,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,727,548</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Cost of sales:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(186,469</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(165,717</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">183,124</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103,283</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,179,013</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,804,267</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling expenses:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,054</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,345</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">320,146</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">162,652</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,307,354</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,427,468</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Administrative expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(70,193</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(60,496</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,069</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(975,903</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,037,110</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Financial result, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(155,433</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,200</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,132,500</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,327,955</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,399,006</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other operating results, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(167,083</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(104,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(145,314</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(293,429</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(459,918</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46,543</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83,700</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(207,409</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,392,537</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(90,055</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Accounts receivable, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,542</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(323,613</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(77,000</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,724,931</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,145,844</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">214,177</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">273,351</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,020,494</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,616,095</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financing</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,232,141</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,004,448</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,973,928</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,037,498</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,453,341</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,619,882</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
<BR clear="all">

<P align="center"><FONT size="2">F-90</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2"><B>(c)&nbsp;Pension and post-retirement benefits</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company, together with other companies in the former Telebr&#225;s group,
sponsors a multi-employer defined benefit pension and other post-retirement
benefit plans, which are operated and administered by SISTEL. In addition, the
Company sponsors single-employer defined benefit pension plans (PBS-Telemar and
TelemarPrev 2), which are also operated and administered by SISTEL. In November
2002, the deferred benefit plan &#147;PB-CT&#148; was merged into TelemarPrev.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;21, 2000, the Company created new defined contribution plans
(TelemarPrev 1) which replaced the defined benefit plan. The migration process
created a curtailment and settlement impact on the post-retirement health care
plan under SFAS No.&nbsp;88, &#147;Employers&#146; Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits&#148; as employees
transferring to the defined contribution plan automatically lost their rights
to participate in the post-retirement health care plan in the future. In March
2001, the final period for voluntary migration, 96.0% of the Company&#146;s active
employees had transferred to the new plan. A similar percentage of participants
transferred to the TelemarPrev 2 plan, which is a defined benefit plan for
death, invalidity and other benefits, for which the Company recorded the funded
status resulting from actuarial calculations.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the defined benefit pension plans&#146; change
in projected benefit obligation:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Projected benefit obligation at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">276,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">265,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(74,131</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,213</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Actuarial gains</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(28,596</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,448</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Transfers from PB-CT</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,505</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Projected benefit obligation at end of the year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">275,607</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">276,697</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the change in the fair value of the defined
benefit pension plans&#146; assets:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Change in plan assets:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of plan assets at beginning of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">553,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">430,024</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Actual return on plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">82,678</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,204</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employee contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">501</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">681</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Employer contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Assets transferred from other plans and PB-CT</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,010</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,639</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Benefits paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(74,131</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,213</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Fair value of plan assets at end of year</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">619,798</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">553,491</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid pension cost recognized is computed as follows for the defined
benefit pension plans at December&nbsp;31:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Funded status of plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">344,192</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">276,795</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">164,350</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized net actuarial gain</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(169,339</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(143,194</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(55,196</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unrecognized transition obligation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,714</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,267</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,820</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Prepaid pension cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">192,567</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">153,868</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,974</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-91</FONT>
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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="center"><FONT size="2">F-92</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>



<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net periodic defined benefit pension cost for the years ended December&nbsp;31,
includes the following:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net service cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,457</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,338</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,170</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">29,840</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Return on plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(78,728</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(62,149</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of unrecognized net actuarial gain</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,165</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(871</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization of initial transition obligation</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,553</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Participants&#146;contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(738</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,449</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net periodic benefit cost</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(38,451</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,738</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following actuarial assumptions were used to determine the actuarial
present value of the Company&#146;s projected benefit obligation:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2000</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discount rate to determine projected benefit obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Expected long-term rate of return on plan assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Rate of compensation increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inflation rate assumption used in the above</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company also participates in a multi-employer defined benefit pension
plan (PBS-Assistidos) for employees that had retired prior to the split-up of
the SISTEL plan. The Company made no contributions to this plan during 2002 and
2001.
</FONT>
<P align="left"><FONT size="2"><B><I>Other post-retirement benefit plans</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is also a sponsor of a multi-employer defined benefit health
care plan (PAMA). Contributions by the Company to this plan, for the years
ended December&nbsp;31, 2002, 2001 and 2000 were R$1,071, R$10,101 and R$9,697,
respectively.
</FONT>
<P align="left"><FONT size="2"><B>(d)&nbsp;Stock option plan</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 2000, the Company established a stock option plan (the &#147;Plan&#148;)
under which stock options were issued for a selected group of key full time
executives. The options are exercisable at varying dates on a cumulative basis
beginning after one year and expiring after five years. After five years, all
stock options are fully exercisable.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The employee has the option to receive, in cash, the difference between
the market value at the exercise date and the exercise price of the shares or
exercise the option.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The exercise price per thousand shares stated in the contract varies by
the variation of IGP-M plus 6% per year. In the event of a dividend
distribution, the exercise price per thousand shares is reduced by the amount
of dividends paid per share as from the option date.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The options granted under the Plan were awarded with an exercise price
less than the estimated fair market value of the shares on the date of grant.
Compensation expense charged to income under US GAAP was R$798 and R$309 in
2001 and 2000, respectively. There was no compensation cost in 2002.
</FONT>
<P align="center"><FONT size="2">F-93</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">The expense represents the excess of the quoted market value over the
exercise price at year-end, pro rata over the period for which benefits are
expected to be generated for the Company.
</FONT>
<P align="center"><FONT size="2">F-94</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P align="center"><FONT size="2"><B>TELE NORTE LESTE PARTICIPA&#199;&#213;ES S.A.</B><BR>
<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
(Expressed in thousands of Brazilian </B><B><I>Reais, unless otherwise stated</I></B><B>)</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The executive directors, granted an option under the Plan, must pay the
Company 10% of the value of the shares at the exercise price upon signing the
contract, which will be used towards the purchase price of the options when
they are exercisable at the end of the five year vesting period. Should
employment terminate before the end of the fifth year, the Company has the
option to deliver the shares related to the 10% paid or pay the average market
value of the shares (based on the last 90&nbsp;days of trading) at the termination
date.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event the employee decides to sell the shares acquired under the
Plan, after the stated grace period in the Plan, the employee must grant the
Company the right-of-first-refusal to purchase such shares at the stated market
value on the date of sale.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For US GAAP purposes, the Company accounts for participation in the Plan
in accordance with US Accounting Principles Board Opinion No.&nbsp;25 (&#147;APB 25&#148;),
&#147;Accounting for Stock Issued to Employees.&#148; Because management&#146;s intention is
to settle its stock option obligations under the Plan in cash, the pro forma
compensation expense under SFAS No.&nbsp;123 is the same as the expense calculated
under APB 25.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This table summarizes the Company&#146;s variable stock option plans:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>In reais</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Number</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Initial</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Actual</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of shares</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>offer</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>offer price</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(lots of 1,000)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>2001</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in July 2000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">250,330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38.63</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in May 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,449,304</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50.15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.72</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Shares offered in October 2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,198,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">24.73</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,898,269</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Offerings extinguished due to rescissions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(821,656</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Options outstanding at December&nbsp;31,
2002 (0.54% of issued shares)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,076,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market value of preferred shares at December&nbsp;30, 2002 was R$27.30
(2001 - R$36.25) per lot of one thousand shares. A provision is not recorded
because the exercise price of the options is higher than the market value.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Possible differences between actual offer price and the market value that
may result in losses to the Company are recorded using the accrual method.
</FONT>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes information about stock options outstanding as
of December&nbsp;31, 2002:
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Stock options outstanding</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Stock options exercisable</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="7"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Range of exercise</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>prices on the</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Weighted</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>contracts' settlement</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares (in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>remaining Life</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>average</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Shares (in</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>date</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>thousands)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(in years)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>exercise price</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>thousands)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>price</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">R$20.00 - 29.99</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,198,635</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.83</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">199,278</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34.80</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">R$30.00 - 39.99</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,699,634</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.28</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50.47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">204,463</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(821,656</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,076,613</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">403,741</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42.71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">F-95</FONT>




</BODY>
</HTML>
[{"type": "20-F", "sequence": "1", "filename": "y87274e20vf.htm", "description": "FORM 20-F", "secsgml_size_bytes": 2397224}]
{"company-data": {"conformed-name": "TELE NORTE LESTE PARTICIPACOES SA", "cik": "0001066113", "assigned-sic": "4812", "irs-number": "000000000", "state-of-incorporation": "D5"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "001-14487", "film-number": "03744274"}, "business-address": {"street1": "HUMBERTO DE CAMPOS, N? 425", "street2": "8? ANDAR", "city": "RIO DE JANEIRO - RJ", "state": "D5", "zip": "22641-560", "phone": "3131-1315"}, "mail-address": {"street1": "HUMBERTO DE CAMPOS, N? 425", "street2": "8? ANDAR", "city": "RIO DE JANEIRO - RJ", "state": "D5", "zip": "22641-560"}}
FORM 20-F
Table of Contents
As filed with the Securities and Exchange Commission on June 13, 2003
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number: 001-14487
TELE NORTE LESTE PARTICIPAÇÕES S.A.
(Exact Name of Registrant as Specified in Its Charter)
Tele Norte Leste Holding Company
(Translation of Registrant's Name into English)
The Federative Republic of Brazil
(Jurisdiction of Incorporation or Organization)
Rua Humberto de Campos, 425/8° andar-Leblon
22430-190 Rio de Janeiro, RJ, 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*
American Depositary Shares, each
representing 1,000 Preferred Shares
New York Stock Exchange
New York Stock Exchange
*  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 this Annual
Report:
127,948,562,088 Common Shares, without par value
255,897,123,174 Preferred Shares, without par value
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]
TABLE OF CONTENTS
PRESENTATION OF INFORMATION
FORWARD-LOOKING INFORMATION
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on the Company
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities other than Equity Securities
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16B. Code of Ethics.
PART III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
Technical Glossary
SIGNATURES
BY-LAWS
AGREEMENT
AGREEMENT
STATEMENT OF AUTHORIZATION
STATEMENT OF AUTHORIZATION
STATEMENT OF AUTHORIZATION
CERTIFICATIONS
LIST OF THE SUBSIDIARIES
CERTIFICATIONS
CODE OF ETHICS
Table of Contents
TABLE OF CONTENTS
Page
Presentation of Information
ii
Forward-Looking Information
iii
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
13
Item 5.
Operating and Financial Review and Prospects
46
Item 6.
Directors, Senior Management and Employees
75
Item 7.
Major Shareholders and Related Party Transactions
82
Item 8.
Financial Information
86
Item 9.
The Offer and Listing
93
Item 10.
Additional Information
96
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
110
Item 12.
Description of Securities other than Equity Securities
111
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
112
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
112
Item 15.
Controls and Procedures
112
Item 16B.
Code of Ethics
112
PART III
Item 17.
Financial Statements
113
Item 18.
Financial Statements
113
Item 19.
Exhibits
113
Technical Glossary
114
Consolidated Financial Statements
F-1
i
Table of Contents
PRESENTATION OF INFORMATION
We have prepared our financial statements as of December 31, 2001 and 2002
and for the years ended December 31, 2000, 2001 and 2002 and the notes thereto
(the "Consolidated Financial Statements") in conformity with accounting
principles established under Brazilian corporate law, referred to herein as
"the Brazilian Corporate Law" or "Brazilian GAAP," as required by the
Comissão
de Valores Mobiliários
, the Brazilian Securities Commission, or "CVM." The
Brazilian Corporate Law when applied to us differs in certain important
respects from generally accepted accounting principles in the United States
("US GAAP"). See "Item 3. Key Information – Selected Financial Data –
Brazilian Corporate Law and US GAAP," "Item 5. Operating and Financial Review
and Prospects – Presentation of Information" and Note 30 to the Consolidated
Financial Statements for a summary of the differences between the Brazilian
Corporate Law and US GAAP, Notes 31 and 32 for a reconciliation to US GAAP of
net income (loss) for the years ended December 31, 2000, 2001 and 2002 and
shareholders' equity as of December 31, 2001 and 2002 and Notes 33 through 35
for presentations of results of operations and changes in shareholders' equity
prepared in accordance with, and other disclosures required by, US GAAP.
In this annual report, except where otherwise specified, "TNL," the
"Company," "we," "us" and "our" refer to Tele Norte Leste Participações S.A.
and its subsidiaries. Telemar Norte Leste S.A., our fixed-line subsidiary, is
referred to as "Telemar," and our wireless telecommunications subsidiary, TNL
PCS S.A., is referred to as "Oi." Our majority shareholder Telemar
Participações S.A. is referred to as Telemar Participações. References to the
Company's businesses and operations are references to the businesses and
operations of its subsidiaries and/or TNL, as the case may be. References to
"US dollars," "US$," "US$" or "$" are to the lawful currency of the United
States, and references to "
real
," "
reais
" or "R$" are to the lawful currency of
Brazil. Any discrepancies in tables between totals and sums of the amounts
listed are due to rounding.
This annual report is presented in
reais
. On June 12, 2003, the
commercial selling rate for
reais
was R$2.862 to US$1.00.
References in this annual report to "Preferred Shares" and "Common Shares"
are to the preferred shares and common shares, respectively, of TNL.
References to "American Depositary Shares" or "ADSs" are to American Depositary
Shares, each representing 1,000 Preferred Shares. The ADSs are evidenced by
American Depositary Receipts ("ADRs").
Certain terms are defined the first time they are used in this annual
report. Technical terms are defined in the Technical Glossary that begins on
page 115.
ii
Table of Contents
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements. We may also make
forward-looking statements in press releases and oral statements. Statements
that are not statements of historical fact, including statements about our and
our management's beliefs and expectations are forward-looking statements. Many
of the forward-looking statements contained in this annual report are
identified by the use of forward-looking words such as "anticipate," "believe,"
"could," "expect," "should," "plan," "estimate," and "potential," among others.
These statements appear in a number of places in this annual report and include
statements regarding our intent, belief or current expectations with respect
to, among other things,
•
the competition in the Brazilian telecommunications sector;
•
the cost and availability of financing;
•
the performance of the Brazilian economy in general;
•
the levels of exchange rates between Brazilian and foreign currencies; and
•
the Brazilian 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 assume any obligation to update them in light
of new information or future developments.
iii
Table of Contents
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
Selected Financial Data
The selected financial information presented below should be read in
conjunction with the Consolidated Financial Statements. The Consolidated
Financial Statements have been audited by PricewaterhouseCoopers Auditores
Independentes, and their report on the Consolidated Financial Statements
appears elsewhere in this annual report. The selected financial information
as of December 31, 1998, 1999 and 2000 and for the years ended December 31,
1998 and 1999 has been derived from the Company's consolidated financial
statements, which are not included elsewhere in this annual report.
The following paragraphs discuss important features of the presentation of
the selected financial information and the Consolidated Financial Statements.
These features should be kept in mind in evaluating the selected financial
information and in reading "Item 5. Operating and Financial Review and
Prospects."
Brazilian Corporate Law and US GAAP
The Consolidated Financial Statements have been prepared in accordance
with the accounting principles established under the Brazilian Corporate Law.
Brazilian Corporate Law differs in certain material respects from US GAAP. See
Note 30 to the Consolidated Financial Statements for a summary of the
differences between Brazilian Corporate Law and US GAAP, Notes 33 and 35 for a
reconciliation to US GAAP of shareholders' equity as of December 31, 2001 and
2002, and Notes 31 and 32 for net income for the years ended December 31, 2000,
2001 and 2002.
Accounting Consequences of the Breakup of Telebrás
On May 22, 1998 following a general shareholders' meeting,
Telecomunicações Brasileiras S.A. or "Telebrás" was restructured to form twelve
new holding companies (the "New Holding Companies"). TNL is one of the New
Holding Companies. The shareholders established the shareholders' equity of
each of the New Holding Companies, which was formed as a result of the breakup
of Telebrás, and allocated to each a portion of the retained earnings of
Telebrás. Telebrás kept sufficient retained earnings to pay certain dividends
and other amounts. The balance of Telebrás' retained earnings was allocated to
each of the New Holding Companies in proportion to the total net assets
allocated to each such company. The retained earnings thus allocated do not
represent the historical retained earnings of the New Holding Companies. The
retained earnings thus allocated to us resulted in an increase of R$1,906.7
million in relation to the historical retained earnings of Telemar. The amount
of distributable retained earnings of TNL includes retained earnings allocated
to TNL in the breakup of Telebrás.
Effects of Down-stream Merger
In November 1999 our management approved and implemented a restructuring
plan that resulted in the transfer to TNL of goodwill (the "Goodwill") in the
amount of R$2,464.8 million paid by Telemar Participações in connection with
the acquisition of shares representing control of TNL. For a description of
the Goodwill see Note 1(d) to the Consolidated Financial Statements.
As
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of
December 31, 1999, we had recorded Goodwill on TNL's balance sheet as permanent
assets to be amortized some 5 years and as a special reserve goodwill under
shareholders' equity.
In March 2001, the CVM issued a new rule amending the way we could account
for the Goodwill. The new rule required us to write-down the Goodwill to the
amount of the future tax benefit expected to be generated by the amortization
of such Goodwill, retroactively to January 1, 2000. As a result, we reduced
the amount of the Goodwill, as of January 1, 2000, by R$1,599.6 million, and
the resulting amount of R$824.1 million was reclassified on the consolidated
balance sheet as current and non-current recoverable taxes. At the same time,
the special reserve goodwill under shareholders' equity was also reduced by
R$1,599.6 million. In 2001 and 2002, we registered Goodwill amortization of
R$493.0 million in each year.
For more complete information about the corporate restructuring and the
effects of the Goodwill amortization, see "Item 4. Information on the Company
— Corporate Restructuring Plan," "Item 5. Operating and Financial Review and
Prospects — Down-stream Merger" and "Statements of Operations for 2000, 2001
and 2002 — Operating (Expenses) Income, Net" and Note 1(d) to the Consolidated
Financial Statements.
Effects of Corporate Reorganization
Up to August 2001 we provided fixed-line telecommunications services
through 16 fixed-line subsidiaries, one in each state of Maranhão, Piauí,
Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe, Bahia,
Roraima, Amapá, Amazonas, Pará, Rio de Janeiro, Minas Gerais and Espírito Santo
in Brazil ("Region I") (excluding an area in the state of Minas Gerais where
Companhia de Telecomunicações do Brasil Central, a company that was not part of
Telebrás, continues to operate independently). In August 2001, our 16
operating fixed-line subsidiaries were reorganized through the merger of 15
fixed-line subsidiaries into Telecomunicações do Rio de Janeiro S.A.
("TELERJ"), the surviving fixed-line subsidiary. The corporate name of TELERJ
was changed to Telemar Norte Leste S.A.
The purpose of the merger was to simplify our operations by consolidating
them into one single company and, therefore (i) increase our productivity and
efficiency of the services provided; (ii) obtain higher synergies among our
operations; (iii) reduce our operating costs and tax burdens associated with
inter-company transactions; (iv) enhance efficiency and the capacity of our
subsidiaries to obtain funding and (v) increase the value and liquidity of the
shares for Telemar's shareholders.
In the merger, shareholders of the 15 fixed-line subsidiaries received
common shares of TELERJ, in exchange for common shares held by them. Holders
of preferred shares of those subsidiaries received preferred shares Class "A"
of TELERJ. The exchange ratios were established according to the economic
values of each subsidiary, calculated on a stand-alone basis, plus a 12%
premium offered to shareholders who agreed to exchange their shares to TELERJ
shares. The total payment made to the dissenting shareholders of these
subsidiaries, who exercised their redemption rights, amounted to R$185.9
million. The valuation of the subsidiaries' assets was based on the
subsidiaries' net book values derived from the balance sheets of March 31,
2001.
Following the merger, and beginning in September, 2001, only the shares of
Telemar Norte Leste S.A. are traded on the
Bolsa de Valores de São Paulo
("BOVESPA") (the São Paulo Stock Exchange). The new shares started trading on
the BOVESPA under the trade name of Telemar NL,
under the symbol TMAR3 (common shares), TMAR5 (preferred shares class A)
and TMAR6 (preferred shares class B). There was no change of trade name
(Telemar) or ticker symbol for TNL's shares on the BOVESPA (TNLP3 and TNLP4) or
of its ADSs on the New York Stock Exchange (TNE). In addition to the above
described consequences, all the assets, rights and liabilities of our 15
fixed-line subsidiaries were transferred to TELERJ, which had its share capital
increased from R$3,816 million to R$7,088.1 million. The reorganization,
defined as
Incorporação
2
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under Brazilian Law, was implemented in accordance to
Brazilian Corporate Law and Brazilian Securities Law.
TNL PCS S.A.
On November 22, 2000 we established a wholly-owned subsidiary under the
name TNL PCS S.A. to participate in the public auction for a license to provide
wireless telecommunications services in Region I utilizing a frequency band
referred to as "Band D," which was commercially launched under the brand name
"
Oi
." Oi was the successful bidder and on March 12, 2001 Oi signed the
corresponding agreement of authorization with Agencia Nacional de
Telecomunicações, the Brazilian telecommunications regulatory body ("Anatel"),
and agreed to pay approximately R$1.1 billion in exchange for the license.
Pursuant to the terms of the license, Oi began providing wireless
telecommunications services in Region I on June 26, 2002.
3
Table of Contents
Selected Financial Information
Year ended December 31,
1998
1999
2000
2001
2002
(thousands of reais, except per share data)
Income Statement Data:
Brazilian Corporate Law
Net operating revenue
5,158,417
6,222,305
8,126,990
10,103,066
11,873,953
Cost of services
(3,008,628
)
(4,527,392
)
(5,294,442
)
(6,806,635
)
(8,152,445
)
Gross profit
2,149,789
1,694,913
2,832,548
3,296,431
3,721,508
Operating expenses
(1,880,837
)
(1,597,021
)
(1,593,384
)
(2,666,205
)
(2,313,008
)
Operating income before interest
268,952
97,892
1,239,164
630,226
1,408,500
Interest income
162,323
213,117
274,163
494,442
384,471
Interest expense
(1)
(151,863
)
(255,446
)
(323,113
)
(918,754
)
(2,345,573
)
Operating income from operations
279,412
55,563
1,190,208
205,914
(552,602
)
Net non-operating income (expense)
(196,356
)
(43,508
)
15,884
(2,120
)
28,441
Employees' profit share
(10,844
)
(26,767
)
(64,831
)
(28,410
)
(130,893
)
Income (loss) before taxes and minority interest
72,212
(14,712
)
1,141,261
175,384
(655,054
)
Income tax and social contribution
27,307
68,719
(174,638
)
21,679
371,312
Minority interests
76,646
41,679
(257,216
)
(56,685
)
(131,856
)
Net income
176,165
95,686
709,407
140,378
(415,598
)
Net income per thousand shares (in
reais
)
0.53
0.29
1.92
0.38
0.99
Dividends per thousand Preferred Shares
(in
reais
)
0.67
0.67
0.67
0.81
1.33
Dividends per thousand Common Shares
(in
reais
)
0.67
0.67
0.67
0.81
1.33
Shares outstanding at the balance sheet date
(in thousands)
334,399,028
334,399,028
369,752,180
369,469,693
383,845,685
US GAAP
Income (loss) before taxes and minority
interests
161,358
(199,829
)
1,588,676
(390,515
)
2,384,120
Net income (loss)
101,566
31,633
962,378
(90,055
)
(1,392,537
)
Net income (loss) applicable to each class of
shares:
Preferred
63,268
19,905
633,840
(60,734
)
(932,945
)
Common
38,298
11,728
328,538
(29,321
)
(459,592
)
Net income (loss)
101,566
31,633
962,378
(90,055
)
(1,392,537
)
Net income (loss) per thousand shares:
Common shares—Basic
0.31
0.09
2.71
(0.24
)
(3.73
)
Common shares—Diluted
0.31
0.09
2.64
(0.24
)
(3.73
)
Preferred shares—Basic
0.31
0.09
2.71
(0.24
)
(3.73
)
Preferred shares—Diluted
0.31
0.09
2.64
(0.24
)
(3.70
)
Weighted average shares outstanding:
Common shares—Basic
124,369,031
123,543,506
121,768,289
120,154,738
123,170,734
Common shares—Diluted
124,369,031
123,543,506
121,768,289
120,154,738
123,170,734
Preferred shares—Basic
205,457,214
209,689,764
239,924,679
248,880,409
250,029,329
Preferred shares—Diluted
205,457,214
209,689,764
234,959,538
249,815,220
252,305,316
(1)
For 1998, interest expense allocable to continuing operations.
4
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December 31,
1998
1999
2000
2001
2002
(thousands of reais, except per share data)
Balance Sheet Data:
Brazilian Corporate Law
Property and equipment, net
12,646,670
12,031,044
12,199,500
18,146,569
16,842,860
Total assets
14,748,894
18,054,023
19,471,641
26,766,016
27,461,584
Share capital and capital reserves
3,741,151
6,217,038
5,004,472
5,013,507
5,013,507
Divisional equity
—
—
—
—
—
Shareholders' equity
(1)
9,214,013
11,470,183
10,331,447
10,023,273
9,163,173
US GAAP
Property, plant and equipment, net
13,997,602
13,119,250
13,242,583
17,616,095
17,176,579
Intangible assets, net
0
0
0
1,163,976
1,304,097
Total assets
16,350,868
17,702,003
20,561,614
27,006,952
27,785,362
Share capital and additional paid in capital
3,907,851
4,721,231
5,121,988
5,290,391
5,457,996
Divisional equity
—
—
—
—
—
Shareholders' equity
(1)
9,710,849
10,302,577
10,977,169
10,503,092
8,785,665
(1)
Includes dividends and interest on capital, which is an alternative
method under the Brazilian Corporate Law to distribute dividends to
shareholders. See "Item 10. Additional Information—Taxation—Distribution of Interest on Capital."
Exchange Rates
TNL, the holding company, will pay any cash dividends or interest on
capital and make any other cash distributions with respect to Preferred (and
Common) Shares in Brazilian currency. Accordingly, exchange rate fluctuations
will affect the US dollar amounts received by the holders of ADSs on conversion
by The Bank of New York, as depositary (the "Depositary") of dividends and
distributions in Brazilian currency on the Preferred Shares represented by the
ADSs. Fluctuations in the exchange rate between the Brazilian currency and the
US dollar will also affect the US dollar equivalent of the price of the
Preferred Shares on the Brazilian stock exchanges. Exchange rate fluctuations
may also affect our results of operations. The Company signed hedging
agreements to cover foreign exchange rate risks related to its US dollar and
Yen denominated debts. See "Item 5. Operating and Financial Review and
Prospects — Foreign Exchange and Interest Rate Exposure."
There are two principal foreign exchange markets in Brazil:
•
the "commercial rate exchange market," and
•
the "floating rate exchange market."
Most trade and financial foreign-exchange transactions are carried out on
the commercial rate exchange market. These transactions include the purchase
or sale of shares or the payment of dividends or interest with respect to
shares. Foreign currencies may only be purchased through a Brazilian bank
authorized to operate in these markets. In both markets, rates are freely
negotiated but may be strongly influenced by interventions of the Brazilian
Central Bank ("Central Bank"). In 1999, the Central Bank unified the exchange
positions of the Brazilian banks in the floating rate exchange market and
commercial exchange market, which led to a convergence in the pricing and
liquidity of both markets. Since February 1, 1999, the floating market rate
has been the same as the commercial market rate. However, there is no
guarantee that the rates will continue to be the same in the future. Despite
the convergence in the pricing and liquidity of both markets, each market
continues to be regulated differently.
5
Table of Contents
From its introduction on July 1, 1994 through March 1995, the
real
appreciated against the US dollar. In 1995, the Central Bank announced that it
would intervene in the market and buy or sell US dollars, establishing a
bandwidth in which the exchange rate between the
real
and the US dollar could
fluctuate. This policy resulted in a gradual devaluation of the
real
relative
to the US dollar. On January 13, 1999, the bandwidth was set between R$1.20
and R$1.32 per US$1.00. Two days later, on January 15, 1999, due to market
pressures, the Central Bank abolished the bandwidth system and allowed the
real
/US dollar exchange rate to float freely. As a result, the exchange rate
dropped to R$2.1647 per US$1.00 on March 3, 1999. Since then, the
real
/US
dollar exchange rate has been established by the interbank market, and has
fluctuated considerably. In the past, the Central Bank has intervened
occasionally to control unstable movements in the foreign exchange rate. It is
not possible to predict whether the Central Bank will continue to let the
real
float freely or whether the
real
will remain at its present level.
Accordingly, it is not possible to predict what impact the Brazilian
government's exchange rate policies may have on us. The Brazilian government
could impose a bandwidth system in the future or the
real
could devalue or
appreciate substantially. For more information on these risks, see "Risk
Factors — Risks Relating to Brazil."
The following table sets forth the noon buying rate expressed in r
eais
per
US dollar for the periods indicated.
Average for
Period
Period-end
Period
High
Low
1998
1.2085
1.1640
(1)
1.2090
1.1160
1999
1.8090
1.8640
(1)
2.2000
1.2074
2000
1.9510
1.8350
(1)
1.9840
1.7230
2001
2.3120
2.3530
(1)
2.7880
1.9380
2002
3.5333
2.9983
(1)
3.8949
2.3236
December 2002
3.5400
3.6300
3.7950
3.4390
January 2003
3.5130
3.4383
3.6590
3.2650
February 2003
3.5650
3.5907
3.6640
3.5350
March 2003
3.3320
3.4469
3.5700
3.3320
April 2003
2.8870
3.1090
3.3290
2.8870
May 2003
2.9790
2.9517
3.0200
2.8750
June (through June 12, 2003 )
2.8650
2.9037
2.9770
2.8650
(1)
Average of the rates on the last day of each month in the period.
Source
: Federal Reserve Bank of New York.
On June 12, 2003 the noon buying rate was R$2.8650 to US$1.00.
Risk Factors
The following factors should be carefully considered in addition to the
other information presented in this annual report.
Risks Relating to
Brazil
The Brazilian economic and political environment has been unstable at
times in the past. Any future economic or political instability may adversely
affect our results of operations and the value of our securities.
Brazilian political and economic conditions have a direct impact on our
business and the market price of our securities. Brazil has had periods of
economic and political instability that have negatively affected the business,
results of operations and financial condition of Brazilian companies and the
value of Brazilian securities. These include:
6
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•
restrictions for six months in 1989 and 1990 on the conversion of Brazilian currency to foreign currencies and on the
remittance of payments to foreign investors;
•
a period of hyper-inflation from the mid-1980s through June 1994, reaching a peak, annualized rate of approximately 2,700%
during 1994;
•
frequent changes in currency, including the introduction of six different currencies from 1986 through 1994;
•
the resignation of a President in 1992 due to charges of corruption that nearly led to his impeachment;
•
public threats by two state governors in 1999 to default on state indebtedness;
•
opposition by various political parties to free-market and privatization reforms enacted some the past eight years;
•
frequent changes in tax rates and tax policies; and
•
a volatile exchange-rate environment.
If any events similar to these were to continue or recur in the future,
they could adversely affect our business, our results of operations, our
financial condition, and the market price of our securities.
The Brazilian monetary policy has resulted in unstable exchange rates and
interest rates in recent years. In particular, the government has allowed the
real
to devalue and has managed interest policy in an effort to achieve stable
inflation rates and stable growth rates. Future currency devaluations and
future fluctuations in exchange rates could adversely affect the economic
environment in Brazil and our business. Any such conditions could also
increase our borrowing costs.
In addition, the Company cannot predict what effect the policies of
President Luiz Inácio Lula da Silva's administration, which took office in
January 2003, may have on Brazilian economic conditions or on the Company's
financial conditions or results of operations. The Lula administration has
announced that it expects to reform the Brazilian social security and welfare
systems to address underfunding. To date, no significant legislative or
regulatory changes have been made by the Brazilian government. The failure of
the Brazilian government to reform its social security and pension plan systems
may have an adverse effect on Brazilian economic conditions, which in turn may
have an adverse effect on the Company's financial condition.
The Brazilian government also intends to enact a tax reform bill
principally designed to reduce the public deficit by making the Brazilian tax
framework more efficient and by reducing the tax burden on industry. The
Brazilian government submitted proposals to tax and social security reforms on
April 30, 2003, which have yet to be voted on. While the exact results of the
tax reform bill, if enacted, are still uncertain, the amount of taxes we have
to pay may increase.
Developments in other countries may affect the market price of Brazilian
securities. These developments could also make it more difficult or expensive
for us to obtain additional financing.
The securities of Brazilian issuers have been influenced by economic and
market conditions in other countries, especially other emerging-market
countries. Although economic conditions differ in each country, investors'
reactions to developments in one country may affect the value of securities of
issuers in other countries, including Brazil. During the second half of 2001,
volatility in the Brazilian securities markets appeared to be exacerbated by
threats of terrorism in the United States, together with a recession in the US
Currently, Argentina is in the midst of an economic and
7
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political crisis following the abrupt devaluation of its currency in
January 2002, its refusal to service its public debt and its granting
protections to private companies that fail to meet their obligations.
Argentina has historically been one of Brazil's largest trading partners and
the Argentine crisis may affect the perception of risk in Brazil by foreign
investors. Furthermore, the market price volatility of Brazilian securities
has increased significantly since the outbreak of the war between the United
States and Iraq in March 2003.
Our ability to obtain additional financing on acceptable terms or at all
and the market value of our securities may be adversely affected by these or
other events outside of Brazil.
Brazil has recently experienced an energy crisis. Such a crisis, were it
to reoccur, could result in cost increases and/or a decrease in demand for our
services.
In 2001, Brazil experienced a crisis in the electric-energy sector due to
the combination of under-construction of new generation facilities, some
dependence on hydroelectric energy generation and lack of rainfall. As a
result, Brazilian industrial, commercial and residential customers in certain
regions experienced energy rationing from June 2001 to March 2002, which
negatively affected economic growth for the country as a whole in 2001
.
Under
this energy rationing program we were required to reduce our energy
consumption. While energy rationing has ended, electricity tariffs have been
raised to compensate electricity utilities for these losses during the crisis.
We have reduced our energy consumption by adopting several measures to save and
replace outside sources of electric energy. Although we currently have a lower
dependence, we continue to rely on outside sources of electric energy to
provide telecommunications services. Should it reoccur, future electricity
rationing could adversely affect our principal activities and therefore,
negatively impact our business, results of operations and financial condition.
Risks Relating to Our
Business
The telecommunications industry may not continue to grow or may grow at a
slower rate.
We derive most of our revenue from our fixed-line telecommunications
services. As a result, we depend on the continuing development and growth of
the market for fixed-line telecommunications services in Brazil. Our ability
to increase our business depends partially on continuing economic development
in Brazil. In March 2001 we acquired a license to provide wireless
telecommunications services in Region I at a cost of R$1.1 billion, the last
installment of which, R$610 million, was paid in February 2002. In 2001, we
built our wireless network at a capital cost of approximately R$1.2 billion,
and on June 26, 2002, we launched our wireless telecommunications services,
through Oi. In 2002, our revenue from Oi's wireless services represented 3% of
the Company's total revenue. Our ability to build and grow our wireless
subscriber base and revenues from wireless services depends on the continuing
development and growth of the wireless telecommunications industry in Brazil.
Continuing growth of the wireless telecommunications market depends on many
factors beyond our control, including the continuing introduction of new and
enhanced wireless devices and services as well as consumer preferences.
Further, any economic, technological or other developments resulting in a
slowdown in growth or a reduction in demand for fixed-line and wireless
telecommunications services may harm our business and revenues.
The Brazilian telecommunications industry is competitive. Competition may
lead to a reduction in revenues and an increase in capital expenditure
requirements.
Until 2000, we were the sole fixed-line local service provider in the
region in which we are authorized to provide telecommunications services,
Region I. In 2000, Vesper S.A. began offering local and intra-regional
fixed-line services in the region. Until 2002 we had two other competitors,
Embratel Participações S.A. ("Embratel") and Intelig Telecomunicações Ltda.
("Intelig") in the
8
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market for intra-regional, inter-regional and international long-distance
services. The Brazilian government continues to open the telecommunications
market to new competitors. In 2002, Embratel was authorized to provide local
services in the region. Telecomunicações de São Paulo S.A. ("Telesp") also
received authorization to provide local, domestic and international
long-distance services. We believe that both Embratel and Telesp started to
offer services in our region as of the end of the first quarter of 2003. Such
competition for local and long-distance customers may require us to increase
our marketing expenses and our capital expenditures and/or reduce our rates,
and may cause a decrease in our market share of local and long-distance
services, in each case leading to a reduction in our profitability.
In the market for wireless telecommunications services, we compete
primarily with four other telecom groups that provide such services in Region
I. These groups consist of the following companies: (i) a joint venture
between Telefonica and Portugal Telecom (marketing under the new brand name
Vivo
) which is present in all of Region I, except in some Northern states and
in the state of Minas Gerais, (ii) the Telecom Americas Group, controlled by
the Mexican América Móviles, which is present in all of Region I, except in
some Northern states and in the state of Minas Gerais, (iii) TIM Brasil, a
subsidiary of Telecom Italia Mobile, which is present in all of Region I and
(iv) Telemig Celular in the state of Minas Gerais and Tele Norte Celular in
some of the Northern areas of Region I, both of which are controlled by Banco
Opportunity, a private Brazilian investment bank, and by several Brazilian
pension funds. Competition for wireless telecommunications customers may
require us to increase our costs and marketing expenses or provide services at
lower rates than those we currently expect to charge for such services.
According to market research, more than 50% of our mobile clients are derived
from our competitors. These, and other factors, could affect our business,
results of operations and future condition.
In order to stimulate increasing competition in local services, Anatel
also requires that we unbundle our local network allowing other companies to
offer services using our platform. We have presented a price proposal to our
competitors, such as Embratel and Telesp, to effect such a use. If Anatel
requires us to charge our competitors at rates that we consider to be
inadequate to recoup the investments we have made to reach the universal
service targets, there is a risk that competition for our high-end customers
could increase substantially and adversely affect our business and results of
operations.
Competition in data transmission services is not subject to regulatory
restriction. The market is open to a great number of competitors. Increasing
competition in data services may lead to rate reductions in this segment, also
affecting the revenues we generate in this business.
We depend on other telecommunications services providers. We may not be
able to enter into favorable interconnection agreements.
In order to receive or send calls from or to customers of other fixed-line
and wireless Brazilian networks and international networks we must interconnect
with the networks of our competitors. The Brazilian General Telecommunications
Law requires all telecommunications service providers to interconnect their
networks with those of other providers on a non-discriminatory basis. The
rates to be paid by one network operator to the other for the use of each
other's network are currently regulated by Anatel. Starting July 2004
interconnection rates for wireless operators will be freely negotiated so that
if Telemar or Oi are not able to negotiate favorable interconnection agreements
in the future, our operating and financial results may be adversely impacted.
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Our business is highly regulated. Changes in regulations or our failure
to meet obligations set forth in our concession or the extension of our
concession may adversely impact our business.
Our industry is highly regulated by Anatel. Anatel regulates our tariffs,
quality of service, and network expansion, as well as competition between
carriers. Changes in laws and regulations, grants of new concessions or
licenses or the imposition of additional costs of network expansion, among
other factors, may adversely affect our operations and financial results.
We have been granted a concession to operate fixed-line telecommunications
services in Region I (excluding an area in the state of Minas Gerais where
Companhia de Telecomunicaçoes do Brasil Central operates), which initial term
is scheduled to expire on December 31, 2005. We have the right to extend our
concession for another 20 years, beginning January 1, 2006. However, there
will be new conditions set forth in a new General Plan on Quality and a new
General Plan on Universal Service and new terms set forth in the extension to
our concession agreement, dated as of June 2, 1998 (the "Concession
Agreement"). Anatel distributed drafts of these plans and such extension
agreement to the general public in December 2002 and asked for comments by
March 17, 2003. We publicly provided our comments to these drafts on March 17,
2003 and continue to privately negotiate the conditions and terms of extending
our current concession with Anatel. We disagree substantially with a number of
the conditions and terms being proposed in these drafts because they do not
take into account the current cost and investments already made in order to
achieve the targets established in the concession contract, including changes
in how local traffic is to be measured, reductions in interconnection fees and
the number of local areas, and the spin-off of local and long distance
businesses into different companies. We also disagree with the possibility of
new universal service targets being financed at the expense of the incumbent
companies, and with the possibility of eliminating the mechanism of annual
tariff adjustment to reflect increases in inflation, as measured by the
Índice
Geral de Preços — Disponibilidade Interna
("IGP-DI"), an inflation index
developed by the
Fundação Getúlio Vargas
, a private Brazilian economic research
organization. All of these proposed changes could in each case alter the
financial equilibrium of the Concession Agreement and adversely affect our
business and results of operations. Anatel is expected to finalize the
extension to our Concession Agreement and the new General Plan on Quality by
June 2003. The President of Brazil is expected to execute a decree finalizing
the new General Plan on Universal Service also by June 2003 but the execution
of such a decree may be delayed until the second half of June. On June 10,
2003 the President of Brazil issued a decree setting forth a number of changes
in the regulation of Brazil's fixed-line telecommunications sector. See "Item
4. Recent Developments." We are required to inform Anatel whether we intend
to extend our current concession by June 30, 2003. We intend to respond
affirmatively but may continue to litigate against the implementation of some
of the proposed changes, either at the administrative level with Anatel or
within the Brazilian court system. However, if the proposed changes are
approved, we can provide no assurances that we will be able to successfully
litigate against the implementation of any of the proposed changes. In
addition, Anatel may terminate our concession upon the occurrence of an
extraordinary situation in which the public interest is in jeopardy and certain
other events described in our Concession Agreement. In the event that our
concession expires or is terminated, we can no longer provide fixed-line
telecommunications services and Anatel would have the right to occupy our
properties and use equipment and our employees that are necessary to provide
such services, provided that we would have the right to receive an indemnity
for the value of such properties and equipment. If our concession expires or
is terminated, our business, results of operations and financial condition will
be adversely affected.
For a discussion of our concession and other regulations that apply to us,
see "Item 4. Information on the Company — Regulation of the Brazilian
Telecommunications Industry."
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Our concession requires us to meet certain network expansion and quality
of service obligations in each of the states in Region I. In the event of
non-compliance with the Anatel targets in any one of the states, Anatel can
establish a date for the regularization of the services, impose penalties, and,
in extreme situations, terminate our concession for the non-complying state.
See "Item 4. Information on the Company — Regulation of the Brazilian
Telecommunications Industry."
Our concession established the initial maximum tariffs which we could
charge for various fixed-line telecommunications services. These maximum rates
are readjusted annually in accordance with a formula established in the
concession that takes into account inflation and productivity which are
predetermined in the Concession Agreement.
We are controlled by one major shareholder, Telemar Participações.
Telemar Participações has had and is expected to continue to have a significant
influence on our success.
As of December 31, 2002, Telemar Participações owned 52.96% of our
outstanding common stock. Through its ownership of our stock, Telemar
Participações appoints the majority of our Board of Directors and influences
our business strategy. Further, we have entered into a management services
agreement with Telemar Participações that requires Telemar to pay them a fee in
exchange for monthly management services that they provide. For the year 2002,
we paid them a management fee of R$57.7 million. For a description of the
management services agreement see "Item 7. Major Shareholders and Related Party
Transactions — Related Party Transactions — Telemar Management Services
Agreement."
The telecommunications industry is subject to rapid and constant changes
in technology. Our ability to remain competitive depends on our ability to
implement new technology, and it is difficult to predict how these changes will
affect our business
.
The telecommunications industry is subject to rapid and constant changes
in technology. Such rapid changes in technology may render our equipment,
services and technology inefficient, uncompetitive or obsolete. There can be
no assurance that we will be able to remain competitive by adopting, in a
timely fashion, such new technologies as they are developed.
The wireless telecommunications industry is in particular experiencing
significant technological development, ongoing improvements in the capacity,
quality and data transmission speed of digital technology, shorter development
cycles for new cycles and changes in end-user needs and preferences.
Alternative technologies may be developed that are superior to those Oi is able
to provide today. In addition, Anatel is expected to auction 3G wireless
telecommunications licenses in 2005 or 2006, which will allow purchasers of
such licenses to adopt technology platforms that will offer more advanced
wireless services than Oi's current 2.5G GSM technology platform. If we are
unable to respond to market changes in technology, the network infrastructure,
handsets or services that are necessary to operate our existing technology may
be discontinued by the third parties we currently rely upon as they may shift
their emphasis to supplying and servicing new dominant technologies.
We have a substantial amount of existing debt, which could restrict our
financing and operating flexibility and have other adverse consequences.
As of December 31, 2002, we had a total debt of R$10.7 billion and a ratio
of debt to equity of 1.18.
Our existing level of indebtedness and the requirements and limitations
imposed by our debt covenants could have important adverse consequences,
including:
•
reducing our ability to satisfy our obligations with respect to our debt obligations;
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•
requiring us to divert a substantial portion of our cash flow to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements;
•
limiting our ability to refinance our debt obligations or incur new debt needed to finance our working capital, capital
expenditure or other requirements;
•
limiting our flexibility in reacting to and planning for changes in our business and the industry in which we operate;
•
placing us at a competitive disadvantage compared to some of our competitors;
•
limiting our ability to make investments; and
•
limiting our ability to merge, consolidate or dispose of assets.
If our growth in revenues slows or declines in significant manner, for any
reason, we may not be able to continue servicing our debt. If we are unable to
meet our debt service obligations or comply with our debt covenants, we could
be forced to restructure or refinance our indebtedness, seek additional equity
capital or sell assets. We may be unable to obtain financing or sell assets on
satisfactory terms, or at all. For more information regarding the covenants of
our loan agreements, see "Item 13. Defaults, Dividend Arrearages and
Delinquencies."
We are subject to delays and delinquency on accounts receivable and to
legal and administrative claims.
In 2002, we recorded provisions for doubtful accounts and write-offs of
accounts receivable in the amount of R$616.0 million, primarily due to
subscribers' delinquency. Strict regulation from Anatel prevents us from
implementing certain policies to restrain delinquency, such as restrictions
based on credit record and offers of customized services.
If we are unable to implement policies to limit subscriber delinquencies
or otherwise select our customers, persistent subscriber delinquencies and bad
debt can adversely affect our financial results.
We are subject to several legal and administrative proceedings. Based on
advice from our external legal consultants we classify our risk of loss from
such proceedings as "probable," "possible" and "remote." We make provisions
for probable claims but do not make provisions for possible and remote claims.
We have currently provisioned R$1,772.6 million for probable claims. The
possible claims amount to R$890.0 million as of December 31, 2002. If our
liability from such claims exceeds the provisioned amount, our financial
condition may be adversely impacted. See "Item 8. — Financial Information —
Legal Proceedings."
Risks Relating to the
Preferred Shares and ADSs
Holders of Preferred Shares have limited voting rights.
Of our two classes of capital stock outstanding, only our Common Shares
have full voting rights. Except in certain limited circumstances, our
Preferred Shares will be entitled to vote only in the event that we fail to pay
the minimum dividends for a period of three consecutive years. As a result,
holders of our Preferred Shares generally will not be able to influence any
corporate decision requiring a shareholder vote, including the declaration of
dividends.
Holders of ADSs are not entitled to attend shareholders' meetings and may
only vote through the Depositary.
Under Brazilian law, only shareholders registered as such in our corporate
books may attend shareholders' meetings. All Preferred Shares underlying the
ADSs are registered in the name
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of the Depositary. A holder of ADSs, accordingly, is not entitled to
attend shareholders' meetings. A holder of ADSs is entitled to instruct the
Depositary as to how to vote the Preferred Shares represented by ADSs, in
accordance with procedures provided for in the Deposit Agreement, but a holder
of ADSs will not be able to vote the underlying Preferred Shares directly at a
shareholders' meeting or to appoint a proxy to do so.
Holders of ADSs or Preferred Shares in the United States may not be entitled
to participate in future preemptive rights of offerings.
Under Brazilian law, if we issue new shares for cash as part of a capital
increase, we generally must grant our shareholders the right to purchase a
sufficient number of shares to maintain their existing ownership percentage.
Rights to purchase shares in these circumstances are known as preemptive
rights. We may not legally be permitted to allow holders of ADSs or Preferred
Shares in the United States to exercise any preemptive rights in any future
capital increase unless we file a registration statement with the Commission
with respect to that future issuance of shares or the offering qualifies for an
exemption from the registration requirements of the U.S. Securities Act of
1933, as amended. At the time of any future capital increase, we will evaluate
the costs and potential liabilities associated with filing a registration
statement with the Commission and any other factors that we consider important
to determine whether to file such a registration statement. We cannot assure
the holders of ADSs or Preferred Shares in the United States that we will file
a registration statement with the Commission to allow them to participate in a
preemptive rights offering. As a result, the equity interest of such holders
in us may be diluted proportionately.
If you exchange ADSs for Preferred Shares, as a result of Brazilian
regulations you may risk losing the ability to remit foreign currency
abroad.
The Brazilian custodian for the Preferred Shares must register with the
Central Bank of Brazil to remit US dollars abroad. If you decide to exchange
your ADSs for the underlying Preferred Shares, you will be entitled to continue
to rely, for five business days from the date of the exchange, on the
custodian's registration. Thereafter, you may not be able to obtain and remit
US dollars abroad unless you obtain your own registration. Obtaining your own
registration will result in expenses and may cause you to suffer delays in
receiving distributions. See "Item 10. Additional Information — Exchange
Controls."
Item 4.
Information on the Company
Overview
We are the largest provider of fixed-line telecommunications services in
South America, which we market under our
Telemar
brand name.
We have concessions from the Brazilian Government to provide fixed-line
telecommunications services in Region I, which consists of sixteen states,
including the state of Rio de Janeiro, Minas Gerais, Bahia, and Ceará (but
excluding an area in the state of Minas Gerais where Companhia de
Telecomunicações do Brasil Central operates). Region I covers approximately 64%
of the country, has a population of 93 million and produces approximately 40%
of the country's GDP. As of December 31, 2002 we had approximately 17.5
million lines installed, of which 98.5% have been digitized, and 15.1 million
fixed lines were in service. Anatel certified the early attainment by Telemar
of the universal service targets for 2003 set forth in the 1998 Concession
Agreement, and, as a result, starting July 20, 2002 Telemar began offering
inter-regional, and through our subsidiary Oi, international long-distance
services initiated in the areas
that are covered by our concession. See "Our Strategy — Increase
Revenues from Inter-regional and International Long-Distance Services."
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In 2001, we acquired a license to provide wireless telecommunications
services in Region I on the GSM technology platform, and we launched our
wireless telecommunications services in Region I on June 26, 2002, operating
under our
Oi
brand name. As of December 31, 2002 we had 1.4 million
subscribers. See "Our Strategy - Increase Revenues from Wireless
Telecommunications Services."
Tele Norte Leste Participações S.A, or TNL, is a corporation (
sociedade
anônima
) incorporated in May 1998 and organized under Brazilian law. TNL's
headquarters are located at Rua Humberto de Campos, 425/8° andar
- Leblon,
22430-190, Rio de Janeiro, RJ, Brazil, its telephone number is +(55 21)
3131-1314 and its fax number is +(55 21) 3131-1155. Our agent in the United
States is Puglisi & Associates, with offices at 850 Library Avenue, Suite 204,
P.O. Box 885, Newark, Delaware.
Our Strategy
Our aim is to be one of the major companies in the market of integrated
fixed-line and wireless telecommunication services in South America by
providing our corporate and residential customers with the highest quality
local, long-distance, wireless and data services. Key elements of this
strategy include the following:
Increase Revenues from Inter-Regional and International Long Distance
Services
The early attainment of our universal access and expansion targets for the
year 2003 enabled us to commence providing inter-regional and international
long-distance services in July 2002. We intend to increase revenues from
inter-regional and international long-distance services through the retention
and expansion of our customer base by offering more competitive plans, offering
quality and special services, and increasing our marketing efforts through
advertising campaigns such as "Global 31."
Increase Revenues from Wireless Telecommunication Services
In 2001, we acquired a license to provide wireless telecommunications
services in Region I. We began providing wireless telecommunications services
on the GSM technology platform through our subsidiary Oi on June 26, 2002. By
the end of December 2002, the coverage of our wireless telecommunications
services encompassed some 400 cities in 14 states, covering approximately 68%
of the urban population in Region I, and we had 1.4 million wireless
subscribers. We intend to increase our revenues from wireless
telecommunications services through marketing efforts that focus on market
segmentation and corporate businesses, increasing demand for text messaging and
other wireless data services, realizing synergies with our fixed-line
telecommunications company and offering competitive service plans.
Expansion to New Corporate Markets
We intend to expand our voice and data transmission services to
corporations and assume a leadership position in the corporate market. We
intend to focus our marketing efforts on both large corporate clients and
small- to medium-sized corporations. In pursuit of our strategy of providing
nationwide services to the corporate market, Telemar first acquired control of
and then the remaining equity in December 2002 and February 2003, respectively,
of Pegasus Telecom S.A. ("Pegasus"). Pegasus is a broadband data transmission
provider that serves mainly corporate clients and is present in 25 of the major
cities in South and Southeast of Brazil. Because Pegasus' fiber optic and
radio (wireless) network is 100% compatible with the technology used in
Telemar's
existing data network, we are able to offer fully integrated data
transmission services to substantially meet the requirements of our corporate
clients on a nationwide basis.
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Cost Reduction
Cost reduction is also a significant part of our strategy. In this
respect, several steps were taken:
•
deployment of our long distance network and participation in the
project of a satellite launching;
•
centralization of administrative and financial tasks such as
accounting, human resources and supply management;
•
centralization of our network management center;
•
process standardization;
•
outsourcing of network maintenance services;
•
optimization of call centers and data processing centers;
•
implementation of new billing and customer relationship management systems;
•
development of the "educational telemarketing" program, to advise
customers on the proper use of products available and effectively
handling their telecommunications service expenses;
•
centralization of clients and interconnection bills; and
•
reduction in the number of Telemar's employees.
Our History and Development
Prior to the merger of Telebrás in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebrás and its operating subsidiaries acquired almost all the other
telephone companies in Brazil and thus achieved a monopoly in providing public
telecommunications services in almost all areas of the country. Beginning in
1995, the Brazilian Government undertook a comprehensive reform of Brazil's
telecommunications regulatory system. In July 1997, Brazil's National Congress
adopted the
Lei Geral de Telecomunicações
, the Brazilian General
Telecommunications Law, and together with the regulations, decrees, orders and
plans on telecommunications issued by Brazil's executive branch, the
Telecommunications Regulations, which provided for the establishment of a new
regulatory framework, the introduction of competition and the privatization of
Telebrás and its subsidiaries. The General Telecommunications Law established
Anatel, an independent regulatory agency.
Privatization of Telebrás
In January 1998, in preparation for the restructuring and privatization,
Telebrás spun-off its wireless telecommunications operations from the existing
integrated operations (fixed-line and wireless) into separate companies. In
May 1998, Telebrás was restructured to form, in addition to Telebrás, twelve
New Holding Companies by means of a procedure under Brazilian corporate law
called
cisão
, or split-up. The New Holding Companies were allocated virtually
all the assets and liabilities of Telebrás, including Telebrás' interest in its
operating subsidiaries.
The New Holding Companies consist of:
•
eight wireless service providers, operating in one of the
regions into which Brazil has been divided for purposes of wireless
telecommunications services in the frequency range called "A Band,"
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•
three regional fixed-line service providers including TNL,
each initially providing local and intra-regional long-distance
service in one of the three regions into which Brazil has been
divided for purposes of fixed-line telecommunications, and
•
a holding company which controls Embratel, which provides
domestic (including interstate and inter-regional) long-distance
service and international long-distance service throughout Brazil.
TNL is one of the New Holding Companies. In the restructuring and
privatization of Telebrás, TNL was allocated all the share capital held by
Telebrás in the operating subsidiaries that provided fixed-line
telecommunications service in Region I. In July 1998, the Brazilian Government
privatized Telebrás by selling all its voting shares of the New Holding
Companies, including TNL, to private-sector buyers. The Brazilian Government's
shares of TNL, which amounted to approximately 52% of TNL's voting shares, were
purchased by Consortium Telemar, a consortium comprising Construtora Andrade
Gutierrez S.A., Inepar S.A Indústria e Construções, Macal Investimentos e
Participações Ltda., Fiago Participações S.A., Brasil Veículos Companhia de
Seguros and Companhia de Seguros Aliança do Brasil. Consortium Telemar paid
R$3.43 billion for the Brazilian Government's shares.
Acquisition by Telemar
All of the interest in TNL held by the members of Consortium Telemar was
acquired by Telemar Participações, a privately held Brazilian company, in July
1999, in exchange for cash, capital stock of Telemar Participações and the
assumption of certain debts. The sole purpose of Telemar Participações is to
hold shares of TNL. For a discussion of the entities that own interests in
Telemar Participações, see "Item 7. Major Shareholders and Related Party
Transactions."
Corporate Restructuring Plan
In November 1999 we implemented a restructuring plan, which resulted in
the transfer from Telemar Participações to TNL of the Goodwill, in the amount
of R$2,464.8 million, which was recorded in the books of Telemar Participações
in connection with this acquisition of TNL shares from Consortium Telemar. The
restructuring plan enabled us to generate cash flow by allowing us to use tax
credits generated by the amortization of the Goodwill. See "Item 3. Key
Information — Effects of Down-stream Merger."
Corporate Reorganization
Following its formation, TNL provided fixed-line telecommunications
services through sixteen separate operating subsidiaries which provided
telecommunications services in the 16 respective states in Region I. In August
2001, we implemented a corporate reorganization which resulted in the operating
subsidiaries being merged into a single operating company called Telemar Norte
Leste S.A., our Fixed-Line Subsidiary. See "Item 3. Effects of Corporate
Reorganization."
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Table of Contents
Our Significant Subsidiaries
The following table sets forth our shareholding, direct or indirect, in
each of our significant subsidiaries as of December 31, 2002.
Holding Company Ownership
% of share
% of voting
Subsidiary
capital
capital
Telemar Norte Leste S. A.
79.6
97.2
TNL Net Participações S.A.
100.0
100.0
TNext S.A.
100.0
100.0
HiCorp Comunicações Corporativas S.A.
100.0
100.0
TNL PCS S.A - Oi
100.0
100.0
TNL.Acesso S.A
100.0
100.0
Contax S.A.
100.0
100.0
Pegasus Telecom S.A.
93.3
93.3
Telemar Norte Leste S.A.
Telemar is a corporation
(sociedade anônima),
organized and incorporated
in Brazil and controlled by TNL. Telemar provides telecommunications services
through a public switched telephone network. Such services are described in
detail under "Our Operations—Fixed-Line Services" below.
A large part of TNL's assets consist of shares in Telemar. TNL relies
almost exclusively on dividends (also in the form of interest on capital) from
Telemar and interest on loans to its subsidiaries to meet its needs for cash,
including cash to pay dividends to its shareholders. See "Item 5. Operating
and Financial Review and Prospects—Liquidity and Capital Resources."
TNL PCS S.A.
On November 22, 2000 we established a wholly-owned subsidiary under the
name TNL PCS S.A., or Oi, to participate in the public auction for a license to
provide wireless telecommunications services in Region I utilizing a frequency
band referred to as "Band D." Oi was the successful bidder and on March 12,
2001, Oi signed the corresponding agreement of authorization with Anatel and
agreed to pay approximately R$1.1 billion in exchange for the license. Oi
began providing wireless services on June 26, 2002. In May 2003, the sale of
all of TNL's shares in Oi to Telemar was approved by the board of directors of
both TNL and Telemar and consummated. See "Item 7. Major Shareholders and
Related Party Transactions."
Pegasus Telecom S.A.
On December 27, 2002 Telemar acquired 93.27% of the shares in Pegasus
Telecom S.A., including preferred shares held by TNL that represented 24.4% of
Pegasus' share capital. On February 19, 2003 Telemar acquired the remaining
6.73% of Pegasus' shares, and accordingly holds now 100% of its share capital.
Historically, Pegasus' primary purpose was the operation, marketing, project
development, execution and rendering of data transmission services in the
states of Rio Grande do Sul, Santa Catarina, Paranà, Mato Grosso, Mato Grosso
do Sul, Goiàs, Tocantins, Acre, Rondonia, Distrito Federal ("Region II") and
São Paulo ("Region III"). We expect that our acquisition of Pegasus will
enable us to expand our corporate market share, by offering data transmission
services in Brazil on a nationwide basis.
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Table of Contents
Subsidiaries Providing Ancillary Telecommunications Services
We provide certain ancillary telecommunications services such as network
management and data centers, as well as, corporate communication and Internet
access to third parties, through the following wholly-owned subsidiaries:
•
TNext S.A., which started operations in October 2000,
offers hosting services and the placement of clients' applications
on hardware and software platforms. After the merger with Contax
S.A., TNext S.A. changed its name to TNL Contax S.A.
•
Contax S.A., which started operations in December 2000, is
a contact center, which manages the total relationship between
businesses and their clients, including logistics and billing,
through multiple interactive means such as e-mail, fax, voice via
IP and chats. On February 3, 2003, this company was merged into
TNext S.A. and continues its operations under the combined company
of TNL Contax S.A.
•
HiCorp Comunicações Corporativas S.A., which started
operations in November 2000, provides outsourcing of corporate
communication services, including the implementation, operation,
management and quality of service assurance.
•
TNL.Acesso S.A., which started operations in February 2001,
encompasses Internet businesses, including access providers (acting
in the access provider market, services and e-marketplaces).
Other Investments
Through TNL Net Participações, we hold indirectly shares representing
17.5% of the total equity of Internet Group do Brasil Ltda. (iG), owner of the
iG portal. iG is an entertainment, services and content portal and is also the
first free Internet access provider in Brazil. iG started operations on
January 9, 2000 and is the second largest portal in terms of access volume in
Brazil.
Region I
Our concession and license from the Brazilian Government authorizes us to
provide fixed-line and wireless telecommunications services
,
respectively, in
Region I, which consists of sixteen states of Brazil located in the northern,
northeastern and southeastern regions of Brazil, excluding an area in the state
of Minas Gerais where Companhia de Telecomunicações do Brasil Central, a
company that was not part of Telebrás, continues to operate independently. The
excluded area in Minas Gerais represents approximately 3.2% of total lines
installed and 1.9% of the total population of Region I.
Region I covers an area of 5.4 million square kilometers, representing
approximately 64% of the country's total area and generates approximately 40%
of Brazil's gross domestic product. The population of Region I is
approximately 92.7 million, representing 53.4% of the total population of
Brazil. Region I has 102 municipalities with populations in excess of 100,000
inhabitants. In 1999 (the last year for which official data are available),
per capita income in Region I was approximately R$4,193 per year, varying from
R$1,402 in the State of Maranhão to R$7,946 in the State of Rio de Janeiro.
The following table sets forth key economic data, compiled by the
Instituto Brasileiro de Geografia e Estatística
(the "IBGE"), for the states in
which Telemar operates.
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Table of Contents
Key Economic Data on the States of Region I
Population
% of gross
Population
per square
national
Per capita
(million)
kilometer
product
income
State
(2000)
(2000)
(1999)
R$(1999)
Rio de Janeiro
14.4
327.2
11.75
7,946
Minas Gerais
17.8
30.3
9.63
5,239
Bahia
13.1
23.0
4.32
3,206
Ceará
7.4
50.7
2.00
2,631
Pernambuco
7.9
80
2.67
3,279
Espírito Santo
3.1
67
1.93
6,082
Pará
6.2
4.9
1.71
2,705
Rio Grande do Norte
2.8
52
0.79
2,757
Amazonas
2.8
1.8
1.60
5,577
Maranhão
5.6
16.9
0.81
1,402
Alagoas
2.8
100.9
0.66
2,275
Piauí
2.8
11.3
0.49
1,660
Paraíba
3.4
60.7
0.82
2,296
Sergipe
1.8
80.7
0.56
3,056
Amapá
0.5
2.6
0.16
3,392
Roraima
0.3
1.4
0.08
2,558
Source: IBGE.
Map of Region I
Our business, financial condition, results of operations and prospects
depend in part on the performance of the Brazilian economy and the economy of
Region I, in particular. See "Risk Factors—Risks Relating to Brazil."
Our Operations
Fixed-Line Services
Our fixed-line telecommunications services consist of
•
local services, including installation, monthly subscription, measured service, collect calls and supplemental local
services,
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•
intra-regional long-distance services within Region I, inter-regional long distance services, primarily between Region
I and Region II and III, and international long-distance services primarily from Region I, placed through fixed
telephones using our long-distance access code, CSP 31 (
Código de seleção de prestadora
),
•
connection of calls placed from fixed-line telephones in Region I to mobile telephones or "fixed-to-mobile services,"
•
usage of our network to complete calls initiated by customers of other telecommunications service providers, or network
usage,
•
advanced voice services, to corporate customers, such as 0800 services,
•
public telephone services, and
•
data transmission services, comprising the lease of dedicated digital and analog lines to corporate customers,
telecommunications service providers and Internet service providers, Internet Protocol (IP), ADSL and other data
transmission services.
Local Services
Local services include installation, monthly subscription, measured
service, collect calls and supplemental local services. Measured service
includes local calls that originate and terminate within a single local area in
Region I. Until February 1999, we were the only authorized supplier of local
fixed-line and intrastate telecommunications services in Region I. In February
1999, Anatel, pursuant to the Brazilian Telecommunications Regulations, awarded
Vésper S.A. an operating license to provide local fixed-line and intra-regional
long-distance telecommunications services in Region I. Embratel is also
beginning to sell lines under a local fixed-line project, pursuant to
authorization granted by Anatel on August 9, 2002.
Local services also include additional and value added services such as
ISDN lines, which allow voice, data, image and sound transmission supported by
two digital lines permitting the user to use simultaneously, for example, voice
transmission and the Internet. We also offer in-dialing service (direct
transmission of external calls to extensions) to corporate clients. For
corporate clients in need of a large quantity of lines, we offer digital trunk
services, increasing the speed and optimizing the client's telephone system.
We provide a variety of other supplemental local services that include
voice and fax mailboxes, call waiting, call forwarding, conferencing, speed
dialing and caller ID.
On August 7, 2002, Telemar was granted authorization to provide local
services in Regions II and III, however; as of May 2003, it had not yet started
providing such services in those regions.
Intra-regional (Intrastate and Interstate) Long-Distance Service
Each state in Region I is divided into a number of local areas. Calls
from one local area in Region I to another are referred to as "intra-regional
long-distance" calls. Intra-regional long-distance services include intrastate
long-distance calls (non-local calls within a given state) and interstate
long-distance calls (calls between states in Region I). Prior to the formation
of the New Holding Companies, fixed-line operating subsidiaries within each
state were the exclusive providers of intrastate long-distance service in each
state. At that time, Embratel was the exclusive provider of interstate
long-distance service and was not authorized to provide intrastate
long-distance service. However, Anatel implemented a numbering plan to promote
competition between providers of fixed-line long-distance services by requiring
the caller to choose a service provider for each long-distance call by
prefacing the call with numbers that identify the provider (CSP). In July 1999
in conjunction with the implementation of the numbering plan, Embratel began
providing intrastate
20
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long-distance services throughout Brazil, including within
the states in Region I, and we began providing interstate long-distance
services between the states in the Region. For a discussion of the Numbering
Plan, see "Competition – Intra-regional Long Distance."
Inter-regional and International Long-Distance Service
Inter-regional long-distance services consist of calls between a point
within Region I and a point within Region II or Region III. International
long-distance services consist of calls between a point within Region I, Region
II or Region III and a point outside of Brazil.
Upon meeting certain universal service targets in the second quarter of
2002, Telemar commenced providing inter-regional long distance services
originating from Region I in July 2002. For that purpose we entered into
interconnection agreements mainly with Telesp and Brasil Telecom to
interconnect directly with their networks.
In addition, the Company commenced providing international long-distance
services originating from Region I in July 2002 using the wireless
telecommunications services license granted to Oi, even though our fixed-line
customers access these services through the use of CSP 31. For that purpose we
concluded several international agreements to interconnect our network with
those of the main telecommunication services providers worldwide.
In 2003 we began to offer fixed-line inter-regional and international long
distance services originating in Regions II and III using the same wireless
telecommunications services license granted to Oi.
Fixed-to-Mobile Services
Fixed-to-Mobile services consist of calls from our fixed-line customers to
wireless telephone customers of the wireless service providers operating in
Region I. Such services also include collect calls made by customers of the
wireless service providers operating in Region I to our fixed-line customers.
For a discussion of how we bill for Fixed-to-Mobile services see
"Rates—Fixed-to-Mobile Rates."
Public Telephone Services
We own and operate public telephones through Region I. As of December 31,
2002 we had approximately 716,000 public telephones installed, which are all
operated by a prepaid card.
Data Transmission Services
We provide a variety of customized, high-speed data transmission services
to our corporate customers. Our data transmission services include
interconnectivity between local area networks at data transmission speeds of 34
Mbps and 155 Mbps, videoconferencing, video/image transmission and multimedia
applications. We lease dedicated lines to other telecommunications service
providers, Internet service providers ("ISPs") and corporate customers. Other
telecommunications service providers, particularly wireless service providers,
lease trunk lines from us for use within their stand-alone networks. ISPs
lease lines for access to the world wide web, and many of our large corporate
customers lease lines for use in private networks that link different corporate
web sites. We offer high-speed Internet access and other data transmission
services using ADSL technology to residential customers as well as small and
medium-sized business customers.
We provide these data transmission services using Telemar's region-wide
data transmission network and multi-service network platform and Pegasus'
nationwide fiber optic and radio network.
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We expect the Internet access market to be a priority for our future
expansion as competition from cable operators and other telecommunications
service providers increases. We provide broadband Internet access services
using ISDN and ADSL technology in the primary cities in Region I. We began
offering ISDN lines to residential customers in January 2000 and began offering
ADSL subscriptions to small and medium-sized business customers in April 2001.
As of December 31, 2002 we had sold 68,000 ISDN accesses and 45,000 ADSL
subscriptions.
The ADSL technology allows the transmission of voice and data signals, at
high speed, on a single copper pair in the access network. In 2002, a Telemar
focused on a service denominated "Velox" as Internet access mechanism in the
retail segment, a broadband product allowing high-speed access to the Internet.
Since voice transmission through telephone lines uses only one of many
possible frequency bands, the remaining frequency bands are available for data
transmission. An ADSL modem is installed at the customer's conventional line
which, in turn, is connected to a DSLAM (Digital Subscriber Line Access
Multiplexer) equipment at the switching station. Customers can use the
telephone line simultaneously with the internet. Customers pay a subscription
rate for the modem board and a fixed monthly subscription rate, irrespective of
the length of connections to the Internet. Revenues from Velox increased by
435%, from R$7 million in 2001 to R$35 million in 2002.
Wireless Telecommunications Services
As of December 31, 2002, Oi had a presence in some 400 cities, and in 14
of the 16 states of Region I (the states where Oi is not present are Roraima
and Amapá), covering 68% of the urban population. As of December 31, 2002,
approximately 16% of the 93 million inhabitants in Region I were users of
mobile telephones. Revenues from wireless telecommunications services arise
from (i) usage fees for outgoing calls made and value-added services such as
access to the internet, data transmission, short messages, call forwarding,
call waiting, and call blocking; (ii) monthly subscription; (iii) roaming; (iv)
interconnection fees received from other operators on incoming calls; and (v)
sales of handsets. The average customer base of Oi is divided into 80% under
prepaid plans, and 20% under postpaid plans. Postpaid services include
mailbox, caller ID, conference, follow-me, calls on hold, and special services,
depending on the type of handset, such as WAP and GPRS. Prepaid services offer
reduced rates at certain times of the day. As of December 31, 2002, Oi had
1,400,892 subscribers, with an estimated market-share of 8.7%.
Postpaid service customers pay a monthly subscription fee and are billed
on a monthly basis for services already provided, while prepaid service
customers buy cards whose price varies according to the amount of minutes of
usage allowed. Such cards are valid for a stated period following entitlement.
Mobile telecommunications services in Brazil are offered on a "calling
party pays" basis, under which subscribers pay only for calls that they
originate, in addition to roaming charges.
Rates vary according to the service plan subscribed to, the call origin,
destination and length. Subscribers pay for at least 30 seconds, even though
the call lasts for less than 30 seconds. After the first 30 seconds of the
call, users are billed for every additional 6 seconds. Under Oi postpaid
plans, customers pay subscription fees in addition to usage fees. During 2002,
monthly subscription fees accounted for 31% of service revenues.
Depending on the handset model, customers have access to the GPRS service,
available in the main cities of Region I. This service allows for wireless
access to the Internet through mobile telephones, laptops or palm pilots. It
enables customers to simultaneously use voice and data services because the
equipment remains connected to the Internet even when the customer is speaking
on the phone. This means that the customer can remain continuously online and,
at the same time, place or receive calls.
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The WAP portal is a service and contents channel available to our
customers. Some of its features include: sending and receiving e-mails,
forming contact groups, accessing banks, and buying tickets. The WAP portal
can also be used on the Web, for instance to schedule personal activities and
join or initiate contact groups, according to their preferences.
We also receive revenues from roaming agreements with other local and
international mobile telephone operators. When a subscriber to another
wireless operator originates a call within Region I, the other wireless
operator pays us the applicable rate.
Network Usage Services
Telecommunications service providers that provide interconnection services
are required to provide such services on a nondiscriminatory basis. Subject to
certain regulatory requirements, they are free to negotiate the terms of their
interconnection agreements. Such agreements are submitted to Anatel for review
and certification. If the parties fail to reach an agreement, upon the request
of one of the parties, Anatel will establish the terms of interconnection
through arbitration. If Anatel does not approve any of the provisions of the
agreement, Anatel may require amendments to the agreement as a condition to
certification. See "Regulation of the Brazilian Telecommunications Industry."
The terms of interconnection, particularly the pricing and technical
requirements, may affect the results of our operations, our competitive
environment and our capital expenditure requirements.
In April 1998, Embratel began paying us fees on a per minute basis for
long-distance calls carried by Embratel that were originated or completed using
our network. In March 1999, we entered into an interconnection agreement with
Embratel to formalize this network usage arrangement. Until June 30, 2001, we
received from Embratel a supplemental per-minute fee called
Parcela Adicional
de Transição
("PAT"). PAT was introduced with a view to offset the impact
caused by the elimination of the shared revenue system between the Company and
Embratel. PAT has since been discontinued. See "Inter-regional and
International Long-Distance Service."
In January 2000, we also entered into interconnection agreements with
Vésper and Intelig Telecomunicações Ltda. (a provider of inter-regional and
international long distance services), as well as with certain operators of
trucking services and with each of the mobile companies operating in Region I,
which define the terms and conditions of use of each network by the respective
parties.
At year-end 2002, Oi's wireless telecommunications services network
covered some 400 cities. This network is directly interconnected to the
national and international long-distance fixed-line telephone networks of all
companies operating in Region I and all wireless operators of Bands A, B and E
in Region I, and Band D in Regions II and III, thus providing our customers
with automatic access to roaming services when traveling to Brazilian areas
where mobile telecommunications services are available on GSM technology. For
the most part, revenues arising from the growth in the prepaid service customer
base consist of interconnection fees charged when customers of other fixed-line
or mobile operators use the network to complete a call to our customers in
Region I.
Rates
Rates for fixed-line telecommunications services that we provide are
subject to comprehensive regulation. Our concessions from the Brazilian
Government establish a price-cap mechanism for annual rate adjustments, which
places an upper limit for interconnection charges and on weighted averages of
the rates for each of the baskets of local and long-distance services. The
basket includes installation and subscription fees and measured usage fees for
local, long-distance and public telephone services. Subject to certain limits,
the rates for individual services within the basket may be increased by up to
9% above the limit, so long as the weighted average rate for the entire basket
does not exceed the limit. Our concessions provide for the price cap to be
adjusted
23
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periodically to take account of inflation and productivity gains.
Finally, rates may be adjusted annually in order to reestablish the economic
balance of the concessions. See "Regulation of the Brazilian
Telecommunications Industry-Rate Regulation."
Local Rates
Our revenues from local services consist principally of monthly
subscription charges, measured service charges and installation charges.
Monthly subscription charges are fixed amounts charged in connection with the
use of fixed-line services. The charges vary depending on whether the use is
residential, commercial or PBX. The monthly subscription includes the use of
100 pulses per month, which will be charged regardless of whether the actual
local usage is lower. If this limit is exceeded, the customer will incur
measured service charges.
Users of measured service, both residential and nonresidential, pay for
local calls depending on usage. Usage is measured in pulses. Pulses occur
system-wide every four minutes for most local calls. These system-wide pulses
are recorded independently of when individual calls are actually made. In
addition to system-wide pulses, the system records one pulse for every call
when the call is connected. After the first pulse, only system-wide pulses are
used in determining the charge for a call. As a result, the time between the
first pulse and the second (system-wide) pulse may vary. For example, for a
call being charged using four-minute pulse increments, the time between the
first pulse and the second (system-wide) pulse may vary between one second and
four minutes. Since September 1999, in conjunction with the Numbering Plan, we
began measuring usage for certain non-local calls between municipalities within
the same area code in terms of minutes rather than pulses. For information on
the Numbering Plan see "Competition—Intra-regional Long Distance."
Local call charges for normal weekday calls are determined by multiplying
the number of pulses by the charge per pulse. For calls being made any day
between midnight and 6:00 a.m., on Saturdays between 2:00 p.m. and midnight and
all day Sunday and holidays, a caller is charged for only one pulse regardless
of the duration of a call. Measured service charges are the same for all
customers.
The following table sets forth selected information on our subscription
charges and measured service charges for local telephone service for the
periods indicated.
Year ended December 31,
2000
(1)
2001
(1)
2002
(1)
(nominal reais)
Average rates for local telephone service:
Monthly subscription:
Residential
12.50
15.38
17.81
Commercial
19.20
23.81
26.90
PBX
25.50
30.96
30.38
Measured service (per pulse)
0.064
0.066
0.069
(1)
Average of monthly rates, net of taxes.
We charge an average installation fee of R$42.04 and an average fee of
R$130.84 when a customer changes addresses, including value-added taxes. These
charges approximate the cost of services provided.
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Table of Contents
Fixed-to-Mobile Rates
Mobile telecommunications service in Brazil, unlike in North America, is
offered on a "calling party pays" basis under which subscribers pay only for
calls that they originate (in addition to roaming charges paid on calls made or
received outside the subscriber's home registration area). Under the "calling
party pays" policy, a mobile service subscriber generally pays mobile usage
charges only for calls made by the mobile service subscriber and not for calls
received. Besides the "calling party pays" system there is also the
possibility of making collect calls, in which the party receiving the call will
pay. Calls received by a mobile service subscriber are paid for by the party
that places the call, in accordance with a rate based on mobile per-minute
charges. We charge our fixed-line service customers per-minute charges based
on either VC1, VC2 or VC3 rates when a fixed-line service customer calls a
wireless subscriber within Region I. In turn, we pay the wireless service
provider a charge for the use of the mobile network in completing the call.
Effective February 8, 2003, upon authorization received from Anatel, we
increased our fixed-to-mobile service rates by an average of 24.4%. In
contrast to previous years, Anatel decided to align the fixed to mobile rates
with the interconnection rates charged by the mobile companies: beginning in
February 2003, a fixed-line customer now has different fixed-to-mobile rates,
which are measured by the wireless operator which terminates the call. That
means that the higher the interconnection charged by a specific wireless
operator, the higher the fixed-to-mobile rate charged on calls carried by that
operator will be.
The following table sets forth the average per-minute rates that we
charged for fixed-to-mobile services during the years indicated.
Year ended December 31,
2000
(1)
2001
(1)
2002
(1)
(nominal reais)
Per-minute charges for calls made to
wireless telephones:
VC1
0.29
0.32
0.50
VC2
0.61
0.69
0.74
VC3
0.69
0.79
0.84
(1)
The amounts represent an annual average of rates, net of taxes.
Intra-regional Long-Distance Rates
Rates for intra-regional long-distance calls (intrastate as well as
interstate) are computed on the basis of the time of day, day of the week, as
well as duration and distance of the call and vary depending on whether special
services, such as operator assistance, are used. The following table sets
forth selected information on our domestic long-distance rates during the
periods indicated.
Year ended December 31,
2000
(1)
2001
(1)
2002
(1)
(nominal reais)
Domestic long-distance rates
(2)
:
0 to 50 km
0.13
0.16
0.18
50 to 100 km
0.22
0.25
0.26
100 to 300 km
0.28
0.27
0.28
Some 300 km
0.36
0.30
0.30
(1)
Average of monthly rates, net of taxes.
(2)
Per minute rates for a domestic long-distance call, between the hours of
9 a.m. and noon and 2 p.m. and 6 p.m. (peak hours) on weekdays.
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Network Usage Rates
Our revenues from network usage rates consist primarily of payments on a
per-minute basis from:
•
Long-distance service providers to complete calls originating or ending on our network; and
•
Mobile service providers operating to complete calls ending on our network.
The network usage rate varies depending on whether the telecommunications
service provider uses our local or long distance network. We pay other
telecommunications service providers a network usage charge for the use of
their networks.
The following table sets forth the average per-minute rates we charged for
the use of our fixed-line network during the years indicated.
Year ended December 31,
2000
(1)
2001
(1)
2002
(1)
(nominal reais)
Network usage rate (local)
0.044
0.050
0.051
Network usage rate (long-distance)
0.067
0.076
0.084
(1)
The amounts represent an annual average of monthly rates, net of taxes.
In December 2002, Anatel approved a rate increase for network usage, TU-RL
("local network usage rate") and TU-RIU ("intercity network usage rate")
retroactive to June 25, 2002, using the IGP-DI to calculate the adjustment of
1.65% for TU-RL and 5.02% for TU-RIU.
However, since the adjustment was authorized by Anatel only in December
2002 instead of June 2002, we understand that network usage rates should have
been adjusted according to the IGP-DI index accumulated from the last
adjustment, authorized in May 2001, implying adjustments of 16.33% and 23.85%
for TU-RL and TU-RIU, respectively. To enforce this right, Telemar has
requested a preliminary injunction against Anatel in order to adopt these
higher rates.
With respect to Oi, we charge the service provider on whose network the
call originated a rate per each minute of usage of our wireless network. On
February 6, 2003, the wireless network usage rate, or interconnection rate,
charged by Oi was adjusted from the previous rate effective in 2002 of R$0.2921
per minute to R$0.3462 per minute, net of taxes.
Data Transmission Rates
Rates in the data transmission segments are wholly market-driven and
outside of the usual public regime regulatory purview of Anatel. See
"Competition-Data Transmission Services."
The majority of revenue from data transmission services is generated by
monthly line rental charges for private leased circuits to corporate customers,
Internet service providers and other telecommunications service providers.
These revenues are based on contractual arrangements for use of part of our
network. Other telecommunications service providers, such as providers of
trucking and paging services, may use our network to connect a central
switching station to our network. Some wireless service providers use our
network to connect wireless central switching stations to wireless radio base
stations. We also lease transmission lines, certain infrastructure and other
equipment to other providers of telecommunications services. The balance of
such revenues consists mainly of charges for access to the data transmission
network and measured service charges based on the amount of data transmitted.
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Table of Contents
The following table sets forth selected information about our average
monthly line rental charges for private leased circuits service during the
indicated years.
Year ended December 31,
2000
(1)
2001
(1)
2002
(1)
(nominal reais)
Average rates for monthly line rental per leased circuit:
Local Circuit:
4.8 Kbps / 14.4 Kbps as of 2000 (2)
120.00
240.00
240.00
9.6 Kbps / 19.2 Kbps as of 2000 (2)
202.00
247.00
240.00
64 Kbps
322.00
344.00
358.90
2 Mbps
3,920.00
3,677.00
2,953.00
Long Distance Circuit
(3)
4.8 Kbps / 14.4 Kbps as of 2000 (2)
587.00
—
—
9.6 Kbps / 19.2 Kbps as of 2000 (2)
794.00
—
—
64 Kbps
1,336.00
942.00
1,043.55
2 Mbps
13,200.00
11,029.00
9,435.60
(1)
Average of monthly rates, net of taxes.
(2)
4.8 and 9.6 Kbps speed services have been discontinued in year 2000 for
long-distance circuits.
(3)
Assuming a transmission distance between 300 and 500 kilometers and a
three-year contract.
Wireless Rates
Wireless telecommunications service providers are authorized to price
services at their option, provided that offers are part of a service plan
approved by Anatel. The maximum price is adjusted at least on an annual basis,
according to the IGP-DI index, as set forth in the service plans, taking into
account a productivity rate established by Anatel. Providers must offer their
users the Basic Service Plan, which is highly regulated by Anatel, and may
offer nondiscriminatory alternative plans. Although subscribers cannot be
forced to migrate to new plans, existing plans may be discontinued as long as
all subscribers receive a notice to that effect and migrate to new plans within
6 months.
The following table sets forth selected information about rates for some
of our most popular retail service plans as of December 31, 2002, net of taxes.
Name of Service Plan
Oi   40
Oi   80
Oi 160
Oi 300
Minutes included in Service
Plan
40
80
160
300
Monthly Rate
R$18.86
R$31.57
R$54.68
R$75.78
Additional Minutes (Local
Rate)
R$  0.47
R$  0.39
R$  0.34
R$  0.45
We also offer wireless telecommunications services to our customers on a
prepaid basis, charging an average of R$0.62 per minute on local calls.
Taxes on Telecommunications Services
The cost of telecommunications services to customers includes a variety of
taxes. The gross revenue that we receive from our customers includes our
charges for our services and the State and Federal taxes that we are required
to bill for and collect from customers. The average rate of all such taxes, as
a percentage of our gross operating revenues, was 29.9% in 2002. The principal
tax is a state value-added tax, the
Imposto sobre Circulação de Mercadorias e
Serviços ("ICMS"),
which the Brazilian states impose at varying rates on
revenues from telecommunications
27
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services. The rate for domestic
telecommunications services is currently 25% in all states in Region I, except
in the states of Pará and Rio de Janeiro (30%), Bahia (27%) and Pernambuco
(28%).
Other taxes on gross operating revenues include two federal taxes, the
Programa de Integração Social
("PIS") and the
Contribuição para Financiamento
da Seguridade Social
("COFINS"), which are based on the gross operating
revenues, calculated at a combined rate of 2.65% until February 1999, and 3.65%
from March 1999 to present, only for telecommunications services.
In June 1998, the governments of the individual Brazilian states approved
an agreement to interpret existing Brazilian tax law to apply the ICMS to
certain services, including installation and monthly subscription fees, to
which it had not previously been applied. See "Item 8. Legal Proceedings—Tax
and Administrative Proceedings."
Billing and Collection
Fixed-Line Services
Telemar sends each customer a monthly bill covering all the services
provided during the prior period. The customers are grouped in billing cycles
based on the date their bills are issued. The telephone bill separately
itemizes local calls, long-distance calls, calls terminating on a wireless
network, 800 services and other services such as call waiting, voice mail and
call forwarding. Customer payments are effected under agreements with various
banks, either by debiting the customer's checking account or by direct payment
to a bank.
Payments are due within an average of 15 days of the billing date. We
charge late-payment interest at a rate of 1% per month plus a one-time late
charge of 2% of the amount outstanding. As of December 31, 2002, 20.8% (25.2%
in 2001) of all accounts receivable were outstanding for more than 30 days, and
8.93% (13.6% in 2001) were outstanding for more than 90 days. We may restrict
a customer from making outgoing calls when an account is 30 days or more past
due, restrict a customer from making outgoing and receiving incoming calls when
an account is 60 days or more past due and disconnect a customer completely
when an account is 90 days or more past due, provided that, in each case, we
have given the customer 15 days advance notice. The disconnection process thus
comprises several stages, from customer acquisition, through credit analysis,
to the removal of equipment due to nonpayment.
DAYS SOMEDUE
COLLECTION ACTION
10 to 90 days
Notification by voicemail
20, 45 and 70 days
Collection letter
30 days
Partial restriction
60 days
Full restriction
90 days
Removal
Notification to credit protection organizations
Referral to collection firms
Network Usage Services
We are remunerated by Embratel and Intelig for each call carried by them
to or from another fixed-line carrier that originates or terminates on our
network. Until December 1999, when a long-distance call carried by another
telecommunications provider was originated on our network, we billed that
provider's customer, retained any access fee for use of our network and
transferred the balance to the long-distance carrier. The long-distance
carrier was then responsible to transfer
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the appropriate amount to the other
fixed-line carrier where such call was terminated. Since January 2000,
Embratel and Intelig have begun billing customers directly, and each party
collects its respective revenues and pays each respective interconnection fee
under a separate agreement. However, in the second quarter of 2001, we reached
an agreement with Intelig to provide billing services, and in the second
quarter of 2002, a similar agreement was reached with Embratel.
We have also started to be remunerated directly by Telesp for calls which
originated in Region III and terminated in our network since July 2002.
We also receive revenues from wireless service providers that interconnect
with our network and on a monthly basis, we reconcile the amounts owed to us by
each wireless service provider (fixed and mobile network usage rates and any
fees owed on a contractual basis).
Wireless Communications Services
Oi bills its wireless customers on a monthly basis and itemizes charges in
the same manner as Telemar bills its fixed-line customers. See "Fixed-Line
Services." In addition, the monthly bills also provide details regarding
minutes used and national and international roaming charges.
The collection policy adopted by Oi, in line with the rules established by
Anatel, provides that when a bill is more than 15 days overdue and the customer
takes no action after receiving the notification requesting payment, services
will be partly suspended until full payment of all amounts due. The policy
also determines that all incoming and outgoing calls will be restricted when
bills are more than 30 days overdue. Services will be cancelled when the bills
are more than 75 days overdue, and in this event the subscriber's name will be
recorded by the credit protection organizations until such time as the
subscriber negotiates the debt. The collection system used by Oi allows for
accessing delinquent subscribers according to their payment profile. Such
profile can take into account the length of the subscription, bill amount,
greatest delays, etc. Oi has also implemented an information tool to partially
control bills, designed to warn subscribers of high outstanding amounts.
Warnings range from text messages to educational calls to the customer.
Network and Facilities
Fixed-Line Network
Our fixed-line network includes installed lines and exchanges, a network
of access lines connecting customers to exchanges, trunk lines connecting
exchanges and long-distance transmission equipment. As of December 31, 2002,
the access network connected approximately 17.5 million fixed-telephone lines,
200,000 ISDN basic rate and 2,340 ISDN primary rate access lines, 57,000 leased
lines and 81,000 installed ADSL lines. Our installed network decreased by 3%
as compared to 2001, as a result of several measures taken during the year to
optimize investments made and the disconnection of analog terminals in order to
reduce infrastructure and network maintenance costs.
Our PSTN is almost fully digitalized and connects homes and businesses in
more than 8,100 cities, towns and villages to around 20,000 digital telephone
switches and concentrators across our coverage area. Another 8,400 villages
are attended by public telephones. Our transmission infrastructure connects
these digital switches to two international gateway switches. Additionally,
our network supports advanced services, including pre-paid and toll-free
products.
We have deployed an expanded range of satellite-based services to continue
our commitment to the rural and remote areas of northern Brazil, including the
Amazon rainforest region. Around 300 towns are reached through small satellite
earth stations and other 500 small villages are reached through public
telephones satellite stations. These satellite services may include access to
the internet and corporate data applications.
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The following table sets forth selected information about our fixed-line
network at the dates and for the years indicated.
At and for year ended
December 31,
2000
2001
2002
Installed access lines (millions)
12.8
18.1
17.5
Access lines in service (millions)
11.8
14.8
15.1
Average access lines in service for year
ended (millions)
10.8
13.3
14.9
Lines in service per 100 inhabitants
13.2
15.9
18.9
Percentage of installed access lines
connected to digital exchanges
89.6
97.1
98.5
Employees per 1,000 access lines installed
1.6
0.8
0.7
Public telephones in service (thousands)
428.7
723.9
716.0
Local call pulses for year ended (billions)
21.3
21.3
22.9
Domestic long-distance call minutes for
year ended (billions)
5.8
*
7.1
*
8.2
*
International call minutes for year
ended (millions)
—
—
4.8
*
*     
Includes only our own traffic, as Embratel and Intelig began recording and
billing their own long-distance traffic on January 1, 2000. Nevertheless, the
long distance traffic carried by Embratel and Intelig (from and to Region I)
passes through our switches.
In December 2002 we had approximately 68,000 ISDN accesses in use. In
addition, we began providing ADSL services in April 2001 and by December 31,
2002 we had 45,000 ADSL subscriptions.
When we were privatized following the breakup of Telebrás our
long-distance network consisted primarily of the transmission facilities that
the 16 operating subsidiaries used to support intrastate transmission. During
2000, in order to provide interstate long-distance service between the states
in Region I, we began to integrate the intrastate transmission facilities of
Telemar by investing in an inter-state network. The deployment and expansion
of the interstate backbone required an investment of approximately R$954
million and involved the installation of approximately 21,000 km of new fiber
optic cables connecting the major capitals and large cities located in Region
I. Fiber optic lines provide greater transmission capacity. By significantly
reducing the fading of signals and requiring less frequent amplification,
fiber-optic cable reduces the cost of providing service, increases traffic and
network reliability, and enables the provision of long-distance broadband
services.
The long-distance network consists of approximately 31,500 km of fiber
optic cable (including some existing cable) and is equipped with SDH and DWDM
transmission systems. It has an initial capacity of 17.5 Gbps and is comprised
of "self-healing rings" with a control system that guarantees a high level of
availability and flexibility for configuration and provisioning. This
transmission infrastructure has the capacity to accommodate customers' demand
for long-distance, Internet and data transmission services and other
telecommunications providers' demand for transmission facilities.
During 2000, we began implementation of the land-based segment of a
satellite network in order to extend transmission to remote areas in the states
of Pará, Amazonas, Amapá and Roraima,
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as well as to other areas with limited
access due to geographical conditions. The satellite network comprises 300
satellite earth stations located in lesser-populated rural areas as well as hub
stations in the cities Manaus, Boa Vista, Macapá, Belém, Fortaleza, Salvador
and Rio de Janeiro. This new satellite network uses digital technology and
began operating in August 2000. The optical and satellite backbones are
interconnected in Belém, Fortaleza, Salvador and Rio de Janeiro (located in the
states of Pará, Ceará, Bahia and Rio de Janeiro, respectively). The
integration of this land-based segment of the satellite network allows us to
service our subscribers in any area in Region I, enabling us to integrate
customers into our multi-service platform.
Under the Telecommunications Regulations, if we meet the 2003 universal
targets ahead of schedule we will be permitted to begin offering additional
services, such as long distance voice and corporate data services nationwide
after receiving certification and authorization from Anatel. See "Regulation
of the Brazilian Telecommunications Industry – Public Regime – Service
Restrictions." By the end of March 2002, we met or exceeded each of the 2003
network expansion and modernization targets that we were required to meet under
the Brazilian Telecommunications Regulations, and in June 2002 we were
certified by Anatel in that respect. See "Regulation of the Brazilian
Telecommunications Industry – Obligations of Telecommunications Companies" and
"Regulation of the Brazilian Telecommunications Industry – Network
Expansion—General Plan on Universal Service."
Until December 2001, the Company had ten network management structures.
From January through April 2002 a national network operations center ("NOC")
was completed in Rio de Janeiro to centralize Telemar's network remote
monitoring activities. Network monitoring and configuration platforms, located
at our NOC in Rio de Janeiro, perform failure monitoring, configuration
management, performance analysis and tariff engineering for the entire network.
Data Transmission Network
Our data transmission network is an integration of various sub-networks
that support a variety of data transmission services and includes:
•
our satellite network, which utilizes VSAT technology;
•
our IP and Data networks, which covers 300 locations, with
200 points of presence and some 185 active dial-in access gates;
•
our ATM network, which provides broadband services, and our
Frame Relay network, which is available in more than 300 locations,
with approximately 360 points of presence;
•
our TDM/SDH network, which provides dedicated lines with some
600 points of presence; and
•
our Pegasus network, a metroplitan and long-distance optical
backbone stretching from Porto Alegre to Curitiba to São Paulo and
to Brasília, utilizes SDH and DWDM transport platforms and the same
IP, ATM and Frame Relay platforms used by Telemar in Region I.
Wireless Network
Oi's wireless network covers some 400 cities, or 68% of the urban
population in Region I, consisting of 19 switching and control stations, 71
controllers of radio base stations, 4 signaling transfer points and 2,522 radio
base stations. The network is directly interconnected to the national and
international long-distance fixed-line telephone network of all companies
operating in Region I and all mobile operators of Band A, B and E in Region I,
and band D in Regions II and III, thus
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providing our customers with automatic
access to roaming services when traveling in Brazilian areas where mobile
telecommunications services are available on GSM technology. Most
interconnections between our switching stations and the fixed and mobile
telephone networks and the connections linking our radio base stations and
switching stations are made through resources leased from Telemar. Our
switching stations have capacity to serve approximately 2 million subscribers,
and our radio base stations have capacity for approximately 2.5 million
subscribers. Nokia, Siemens and Alcatel are the major suppliers of our network
equipment.
The network quality indicators established by Anatel are subject to
constant monitoring by the Company.
Quality of Service
We have made significant investments in modernizing the network, replacing
analog switches with digital switches, increasing the supply and quality of
services provided to the clients as well as reducing maintenance costs.
Beginning in 1997, all new lines that we installed have been connected to
digital exchanges. Through the replacement of analog switches, the percentage
of installed lines connected to digital switching centers increased from 89.5%
at year end 2000 to 97.1% by year-end 2001 and 98.5% by year-end 2002.
Compared to the older analog technology, digital systems improve the quality
and efficiency of the network, accommodate higher traffic levels, require less
maintenance and permit us to offer a broad range of value-added services, such
as voice, text and data applications.
In 2002, the Company also established our NOC located in Rio de Janeiro to
improve network monitoring and quality of our services.
We must also comply with the provisions of the General Plan on Quality and
with the terms of our respective concession. See "Regulation of the Brazilian
Telecom Industry—Obligations of Telecom Companies" and "Regulation of the
Brazilian Telecom Industry—Quality of Services—General Plan on Quality.
Competition
Overview
The implementation of the Brazilian Telecommunications Regulations brought
dramatic changes in the marketplace for Brazilian telecommunications services
as of 1999. In general, the increasingly competitive marketplace has resulted
in decreasing prices for telecommunications services driven by increasing
competition, implementation of new technology and regulatory oversight. Until
July 1999, we were the only supplier of public local fixed-line and intrastate
telecommunications services in Region I, and until January 2000 we were the
only supplier of local fixed-line services. In January 1999, Intelig
Telecomunicações Ltda., presented the winning bid to provide intrastate and
interstate long-distance services in Region I to compete with Embratel and us.
In February 1999, Vésper S.A. presented the winning bid to provide local and
intra-regional long distance services in Region I in competition with us. In
July 1999, Embratel began competing with us by providing intrastate
long-distance services in Region I, and we began providing interstate
long-distance services in competition with Embratel. In January 2000, Vésper
began providing local fixed-line services in Region I, bringing them into
competition with us, and Vésper and Intelig began providing interstate and
intrastate long-distance services in Region I in competition with each other,
Embratel and us. Telesp, which was granted authorization to provide
intra-regional and inter-regional long-distance services in April 2002, also
began providing such services during the first quarter of 2003. In addition,
companies authorized to provide limited specialized services have begun to
compete with us in the provision of data services for corporate customers.
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Local
In connection with its winning bid in February 1999 for the operating
license to provide local and intra-regional long-distance fixed-line services
in Region I, Vésper paid R$60 million, the minimum price set by the Brazilian
government. Vésper also agreed with Anatel to carry out a yearly network
expansion plan. In order to allow effective competition in public local
telecommunications services, Anatel allowed Vésper to use wireless local loop
technology ("WLL"), an alternative technology system that connects subscribers
to the public switched telephone network using radio signals instead of copper
cables, speeding up installation and expansion procedures. Additionally, WLL
is an alternative tool for reaching remote areas where cable access is limited
or unfeasible. We use WLL technology in a very limited capacity, specifically
in only some neighborhoods of Rio de Janeiro, among the various technologies
deployed by us. In January 2000, Vésper began operations initially serving the
main cities in the Region I, including all 16 state capitals and 13 other
municipalities. We believe that as of December 31, 2002, Vésper had
approximately 400,000 fixed lines.
During 2002, both Embratel and Telesp were authorized by Anatel to start
providing local fixed line services in Region I. Although we do not know if it
is a priority for Embratel and Telesp to target residential customers, we do
believe that competition will increase in local fixed line services to
corporate clients. Brasil Telecom is currently waiting for Anatel's
certification with regard to the early attainment of its network expansion and
universal service targets. Upon being granted such certification, we expect
that Brasil Telecom will begin providing local services in Region I primarily
to corporate clients.
In order to stimulate increasing competition in local services, Anatel is
requiring that we unbundle our local network allowing other companies to offer
services using our platform. We have presented a price proposed to our
competitors, such as Embratel and Telesp, to effect such a use. "See
Regulation of the Brazilian Telecom Industry—Interconnection."
Fixed-to-Mobile
Competition in fixed-to-mobile services is directly related to competition
in local telephone services, since local calls represent the majority of the
revenues derived from fixed-to-mobile services. With regard to long-distance
fixed-to-mobile services, Anatel has issued new rules governing the migration
of Band A and Band B wireless operators to a new status as SMP providers.
Mobile operators that choose to migrate to the new SMP system will be required
to allow their subscribers to choose among different long-distance operators,
which will enhance competition in a segment in which we currently have a
limited market share.
Intra-regional Long Distance
Embratel, Intelig and Telesp are authorized to provide intrastate
long-distance services in Region I. Embratel began providing intrastate
long-distance services in July 1999, Intelig in January 2000 and Telesp in
March 2003. Brasil Telecom may also be authorized to provide such services in
2003.
Embratel is controlled by MCI Worldcom, a global telecommunications
company with revenue of more than US$30 billion and established operations in
some 65 countries. Intelig, which was awarded licenses to provide
long-distance services throughout Brazil in competition with Embratel in
January 1999, is controlled by National Grid, the owner and operator of the
electricity transmission network in the United Kingdom, and by France Telecom,
one of the world's leading telecommunications carriers. Telesp is controlled
by Telefonica S.A., a global telecommunications company with revenue of more
than US$28 billion and established operations in some 50 countries.
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Also in July 1999, we were authorized to provide interstate long-distance
services between the states within Region I in competition with Embratel,
Intelig and Vésper. In conjunction with the opening of competition in the
interstate long-distance market, Anatel implemented a numbering plan to promote
competition between providers of fixed-line long-distance services by requiring
the caller to choose a service provider for each long-distance call by
prefacing the call with numbers that identify the carrier. Following the
implementation of such numbering plan, we began to compete with Embratel in
intrastate and interstate long-distance services and, since January 2000, we
have been competing with Vésper in local, intrastate and interstate
long-distance services and with Intelig in intrastate and interstate
long-distance services.
In 2002, we provided some 65% of the total intrastate and interstate
long-distance fixed-line traffic within Region I. We measure our market share
according to the information available from our own switches, given that the
vast majority of the long-distance calls originated in a company's line go
through our switches even when the caller chooses Embratel or Intelig to
provide the service. Calls originated from Vésper's lines are not routed to
our stations and therefore are estimated in the determination of our market
share.
Inter-regional and International Long Distance
The regional fixed-line companies, such as Telemar, are generally not
permitted to offer inter-regional or international long-distance services until
December 31, 2003. However, because Anatel certified our early attainment of
certain network expansion and universal service targets for year 2003, we
started providing such services in July 2002. Inter-regional long-distance
services originated in Region I and terminated in Regions II and III represent,
according to our estimates, 2.5% and 5%, respectively, of the total
long-distance traffic in Brazil. Embratel and Intelig are our main direct
competitors in these traffic routes. In addition, since March 2003, Telesp
also started to compete in these traffic routes. In July 2002, we also began
offering international long-distance services through Oi using our wireless
telecommunications services license. In March 2003, using the same license, we
began to provide inter-regional long distance services originating in Regions
II and III. Our main competitors are the same as in other services; however,
new players may arise because Anatel has also granted other wireless
telecommunications services operators the right to acquire a license for
domestic and international long-distance services. At least two groups have
already stated an intention to do this, including: TIM (a subsidiary of Telecom
Italy) and Telecom Américas (a subsidiary of Telmex).
Fixed-line Services vs. Wireless Services
Telemar is also subject to competition from wireless service providers,
including Oi, our wireless telecommunications services subsidiary. See
"Wireless Services."
The competition from wireless service providers is increasing but it is
still limited by the fact that tariffs for wireless calls are currently much
higher than tariffs for calls on our fixed-line network. We also face
competition from wireless service providers in the low end of the market,
through the offer of prepaid plans by such wireless providers.
Network Usage Services
Competition in the provision of local network usage services is limited.
However, there can be no assurance that our current local competitor, Vésper,
as well as potential new entrants in the local market, such as Embratel and
Telesp, will not attempt to challenge our leading position in this market in
the future.
Moreover, prices for network usage services are expected to decline as a
result of price regulation by Anatel, in particular as a result of the
application of deemed productivity gains as
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measured by the "K-factor." See
"Regulation of the Brazilian Telecommunications Industry—Rate Regulation."
Another factor that will affect this market is that long distance
interconnection prices may decrease more quickly than local rates, particularly
if long-distance carriers build out their own intrastate long-distance
backbones.
Data Transmission Services
Competition in data transmission services is not subject to regulatory
restrictions other than restrictions aimed at assuring that such services do
not interfere with the provision of public switched telephone services. We
offer data services under the private regime through Telemar and Pegasus;
hence, we are subject, in respect of data transmission services, to much less
stringent regulations. The market is open to a great number of competitors,
including the fixed-line companies and specialized services companies, which
are competing in a high-growth market primarily dedicated to large and
medium-size business customers.
Authorized specialized services companies, such as AT&T Latin America
(controlled by AT&T), MetroRED (controlled by Fidelity Ventures and Boston
Ventures and having among its shareholders Brasil Telecom, with a 19.9% stake)
and Impsat (controlled by the Pescarmona Group and Morgan Stanley Private
Equity Funds) are also competing with us in the provision of data services.
Data transmission, which includes transport network and Internet services,
represents 6% of our total revenues. However, data and Internet-related
services have grown rapidly in Brazil as they have elsewhere, and accordingly
we are preparing for expansion in this market sector. Along with growth in
volume and increasing demand for broadband capacity, we anticipate significant
price reductions in data transmission services as competitors expand their
networks. We also anticipate a shift in competition towards value-added
services provided some IP platforms. Operational since January 2000, our
multi-service network platform is capable of handling various IP-based
applications offering reliable and safe high-speed connectivity.
Wireless Services
We compete primarily with four other groups that provide wireless
telecommunications services in Region I. These groups consist of the following
companies: (i) a joint venture between Teléfonica and Portugal Telecom
(marketing under the brand name
Vivo
), which is present in all of Region I,
except in some Northern states and in the state of Minas Gerais, (ii) the
Telecom Americas Group, controlled by the Mexican América Moviles, which is
present in all of Region I except in some Northern states and in the state of
Minas Gerais, (iii) TIM Brasil, a subsidiary of Telecom Italia Mobile, which
has a presence in all of Region I, and (iv) Telemig Celular in the state of
Minas Gerais and Tele Norte Celular in some of the Northern areas of Region I,
both of which are controlled by Banco Opportunity, a private Brazilian
investment bank, and by several Brazilian pension funds (Sistel, Telos, Petros
and Previ).
Almost all of our competitors have decided to migrate to the SMP system,
with the exception of the companies controlled by the Opportunity Group.
Currently, Vivo's network is based on the CDMA technology platform, while TIM
Brasil and Telecom Américas have already decided to migrate their respective
TDMA networks to the GSM technology platform. Telemig Celular and Tele Norte
Celular, which have not decided yet to migrate to the SMP system, are still
based on the TDMA technology platform.
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Effects of Competition
There can be no assurance that the continuing entry of new competitors and
the new deregulation as of 2002 will not have a material adverse effect on our
business, financial condition, results of operations or prospects. We expect
that the combined effect of the entry of additional competitors into the market
for local and long-distance service in Region I will adversely affect our
related revenues. We anticipate, however, that growth in the Brazilian market
will eventually help generate higher revenues, especially when we are able to
offer long distance and data services on a nationwide basis. We expect that
local traffic per line will continue to decline as we expand our network to
lower-income customers.
Any adverse effects on our results and market share from competitive
pressures will depend on a variety of factors that cannot now be assessed with
precision, some of which are beyond our control. Among such factors are the
technical and financial resources available to our competitors, the business
strategies and capabilities of the competitors, prevailing market conditions,
the regulations applicable to new entrants and us, and the effectiveness of our
efforts to prepare for increased competition.
Marketing
In 2002 we incurred R$138.8 million primarily to market our fixed-line and
wireless products under the brand names
Telemar
and
Oi.
With respect to the wireline services, Telemar's marketing expenses
totaled R$83.8 million. The main objective was the promotion of our fixed-line
products - such as the long distance access code CSP 31 which started to be
used for long distance calls nationwide and the educational campaign to
increase the usage of fixed telephone calls, by emphasizing its low cost per
call - and to advertise the early attainment of our 2003 universal service
targets in 2002.
We sell our fixed-line products and services through the following marketing channels:
•
our direct sales force, which focuses mainly on large corporate customers;
•
the Telemar network channel comprised of non-exclusive
commissioned commercial agents dedicated mainly to small and
medium-sized businesses;
•
our call and contact center, operated through Contax; and
•
the Internet.
With respect to our wireless services, Oi incurred R$65.3 million
primarily to promote the launching of our services and its brand name and to
develop specific campaigns to promote customized products addressed to certain
market segments, such as
Oi-MTV
.
We market our wireless telecommunications services through a network of
some 1,300 third party retail outlets, our call and contact center and through
the Internet.
Research and Development
We conduct independent research and development in areas of
telecommunications services but do not independently develop new
telecommunications hardware. We primarily depend on suppliers of
telecommunications equipment for the development of new hardware.
In connection with the privatization of Telebrás, our operating companies
in each state were required to contribute in aggregate a maximum of R$154.4
million during the three years ending July 2001 to the
Fundação Centro de
Pesquisa e Desenvolvimento das Telecomunicações
(the "Center"), a research and
development center formerly operated by Telebrás. As part of the agreement
with the Center, we had access to telecommunications software developed by the
Center and other technological services provided by the Center such as
equipment testing as well as
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consulting and training services. The Center also
provided services to third parties on a fee-for-service basis. Our research
and development expenses, including our contribution to the Center, were R$45.9
million in 1999, R$47.4 million in 2000 and R$34.4 million in 2001. See Note 5
to the Consolidated Financial Statements. In March 2002, we signed a new
contract with the Center, to provide software development and IT services to
us, in the amount of R$60.0 million.
Capital Expenditures
Our 2002 annual capital expenditures reached approximately R$2,031.0
million. Of this amount, 31.4% was allocated to fixed-line network expansion
and modernization, 46.5% to deployment of our wireless telecommunications
services infrastructure, 16.1% for communications systems, and 6% to others.
All of our capital expenditures were funded through internal cash flow
generation and a credit facility arranged by ABN AMRO Bank and other financing,
mostly linked with equipment purchased by Telemar.
The following table sets forth our capital expenditures for the three-year
period ended December 31, 2002.
Year ended December 31,
2000
2001
2002
(millions of reais)
(1)
Operational investments
(2)
411.1
866.2
285.0
Telephone equipment:
Exchanges
931.8
1,918.3
130.1
Transmission
335.4
997.0
86.7
Infrastructure
101.2
68.5
10.6
External plant
761.2
3,245.5
241.1
Other
31.7
262.7
148.5
Data transmission equipment
231.6
498.8
124.0
Wireless network and systems
2,172.0
945.0
Call and contact center
31.0
60.0
Total capital expenditures.
2,804.0
10,060.0
2,031.0
(1)
Columns may not add due to rounding.
(2)
Operational investments include investments to replace plant equipment
and other fixed assets generally, without altering the capacity of the
asset replaced, and certain investments in operational and technical
support such as telecommunications management network
systems.
Our current 2003 annual capital expenditure budget totals approximately
R$1,800 million. We plan to finance our capital expenditures by a generation
of operating cash flow and supplier credits in connection with the purchase of
equipment. Our management intends to allocate 40% of the 2003 annual capital
expenditure to the wireless services business 55% to the fixed-line business,
and 5% to the call center business.
Dependence on Patents, Licenses or Contracts
The telecommunications industry is highly regulated by the Brazilian
Government through its agency, Anatel. Telemar and Oi operate under a
concession from Anatel that authorizes them to provide specified services and
sets forth certain obligations. See "Regulation of the Brazilian
Telecommunications Industry" and "Our Operations—Wireless Telecommunications
Services."
Seasonality
Our main activity, which is to provide fixed-line telecommunications
services, is generally not affected by seasonal variations. Our wireless
telecommunications services are affected by a seasonal increase in mobile
handset sales during the fourth quarter.
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Property, Plant and Equipment
Our principal properties consist of management, retail and customer
service offices located in sixteen states of Region I and network
infrastructure sites located throughout Region I. We currently own
approximately 5,359 properties, of which 94% are operational sites. We also
rent properties from 107 units and to 160 units third parties. Our plant and
equipment consist of transmission equipment (including outside plant and trunk
lines), exchange equipment and switching equipment and radio base stations.
Switches include local switches, mobile switches, "transfer" switches that
connect local switches to long-distance transmission facilities and "tandem"
switches that connect local switches with each other and with "transfer"
switches.
As of December 31, 2002, plant and equipment related to switching stations
represented approximately 31% of the net book value of our total fixed assets,
transmission equipment represented 16%, construction in progress represented
approximately 3%, buildings, underground equipment and lines represented
approximately 40% and other fixed assets represented approximately 10%. As of
December 31, 2002, the net book value of our property, plant and equipment was
R$16,842.9 million (18,146.6 million in 2001). All property and equipment
which are essential in providing the services described in the Concession
Agreement, are considered reversible assets. Upon expiration of the Concession
Agreement, these assets will automatically revert to Anatel. There are no other
encumbrances or environmental issues that may affect the utilization of our
property and equipment. For more details see Note 14 to the Consolidated
Financial Statements.
Insurance
During the concession period, Telemar and Oi must maintain the following
insurance policies in accordance with contractual terms: all risks insurance,
insurance covering the economic conditions required to continue providing the
service, and insurance to meet the obligations relating to the quality and
universal coverage. We believe that we have adequate insurance to meet our
obligations under our concession.
Our assets are covered by property insurance. We hold insurance policies
which guarantee coverage for material damage and loss of revenue arising from
damage. Our management considers the insured amount to be sufficient to assure
protection of its net worth and operational continuity. For more details see
Note 29 to the Consolidated Financials.
Regulation of the Brazilian Telecommunications Industry
General
Our business, including the services it provides and the rates it charges,
is subject to comprehensive regulation under the Brazilian General
Telecommunications Law and various administrative enactments thereunder.
Telemar operates under licenses that allow it to provide specified services and
sets forth certain obligations (See "Concessions and Licenses").
Anatel is the regulatory agency for telecommunications under the General
Telecommunications Law and the October 1997
Regulamento da Agência Nacional de
Telecomunicações,
(the "Anatel Decree"). Anatel is administratively
independent and financially autonomous. Anatel is required to report on its
activities to the Ministry of Communications and to the Brazilian Congress.
Any proposed regulation of Anatel is subject to a period of public comment, and
Anatel's decisions may be challenged only in the Brazilian courts.
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Concessions and Licenses
Telemar operates under two concessions (PSTN local and PSTN domestic
long-distance) which grant it the right to offer local and domestic long
distance services in Region I. In addition, Telemar is authorized to provide
Transport Telecommunication Network Service (SRTT), and Multimedia
Communication Service (SCM) through its subsidiary Pegasus Telecom.
Besides that, Oi has authorizations granted by Anatel to provide wireless
services (SMP) in Region I, international long distance services (PSTN
international long-distance) nationwide and domestic long distance services
(PSTN domestic long-distance) in Regions II and III.
Concessions to provide telecommunications services are granted under the
public regime, while such services are provided through authorizations under
the private regime.
In addition to Telemar, the companies that operate in the public regime in
Brazil ("public regime companies") include two other regional fixed-line
service providers, Embratel and certain other local operators. The four
primary public-regime companies (consisting of Telemar, the two other regional
fixed-line service providers and Embratel) are the primary providers of
fixed-line telecommunications services in Brazil, including local services and
intra-regional, interregional and international long-distance service. All
other telecommunications service providers, including the other companies
authorized to provide fixed-line services in Region I, operate in the private
regime ("private regime companies").
According to the terms of Article 13 of the Brazilian Telecommunications
Service Regulations, public regime companies are subject to certain obligations
as to quality of service, continuity of service, universality of service,
network expansion and modernization. Public-regime companies are also subject
to Anatel's supervision in regard to the tariffs that they may charge. On the
other hand, private regime companies are generally not subject to the
requirements as to universality of service or modernization, but they are
subject to certain network expansion and quality of service obligations set
forth in their licenses.
Public-regime companies, such as Telemar, also often offer certain
services in the private regime, of which the most significant are data
transmission services. Wireless services are offered by Oi, under the private
regime, according to a license acquired by the Company on February 13, 2001.
Termination of the Concession
There
are five possible ways that a public-regime company's concession
may terminate:
•
Non-renewal upon the expiration of the concession;
•
An extraordinary situation in which the public interest is in
jeopardy, during which time the Brazilian government may operate the
company, in which case the Brazilian government must be
legislatively authorized to terminate the concession and
indemnification must be paid to the company;
•
Termination by the company (by agreement with Anatel or
through legal proceedings) as a consequence of an act or omission of
the Brazilian government that makes the rendering of the services
excessively burdensome to the company;
•
Annulment of the concession due to a contractual term, which
is deemed by subsequent law to be illegal.
•
The occurrence of:
•
a split-up, spin-off, amalgamation, merger, capital
reduction or transfer of the company's corporate power without
Anatel's authorization,
39
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•
the transfer of the concession without Anatel's authorization,
•
the dissolution or bankruptcy of the company or
•
an extraordinary situation where Brazilian government
intervention, although legally possible, is not undertaken since
such intervention would prove to be inconvenient, unnecessary or
would result in unfair benefits for the company. In the event a
concession is terminated, Anatel may occupy the company's
properties and use its employees in order to maintain the
rendering of the services.
Fixed-Line Services—Public Regime
Each public-regime company operates under a concession that expires in
2005. Each public-regime company may extend its current concession for an
additional 20-year period. However, there will be new conditions set forth in
a new
Plano Geral de Outorgas
("General Plan on Quality") and a new
Plano
Geral de Metas de Universalização
("General Plan on Universal Service") and
new terms set forth in the extension to our Concession Agreement, in each case
to be determined by Anatel or the Ministry of Communications, as the case may
be. The Brazilian government publicly proposed drafts of the terms and
conditions for extending the current concessions in December 2002 and is
expected to finalize them in 2003. The concessions may also be revoked prior
to expiration. Every second year during the 20-year renewal period,
public-regime companies will be required to pay biannual renewal fees equal to
2% of annual net revenues from the provision of telecommunications services
(excluding taxes and social contributions) during the immediately preceding
year.
Fixed-Line Services—Private Regime
The Brazilian Telecommunications Regulations provide for the introduction
of competition in telephone services in Brazil by requiring the Brazilian
Federal Government to authorize four private-regime companies—one to provide
local services and intra-regional long-distance service in each of the three
fixed-line regions and one to provide intra-regional, interregional and
international long-distance service throughout Brazil. Anatel has already
granted to a private-regime operator, Vésper S.A., the licenses to operate in
Region I. Anatel has also granted to two other private regime companies the
licenses to operate in each of the other fixed-line regions and to another
private-regime company the licenses to provide intra-regional, interregional
and international long-distance service in competition with Embratel.
Concessions and authorizations have been granted in each fixed-line region for
regional fixed-line companies to provide local services, fixed-line companies
to provide intra-regional long-distance service and other companies to provide
interregional long-distance and international long-distance service. Since
2002, there is no more limitation with regard to the number of authorizations
which can be given by the Brazilian Federal Government.
Obligations of Telecommunications Companies
Like other telecommunications service providers, we are subject to
obligations concerning quality of service and network expansion and
modernization. The public-regime companies are also subject to a set of
special restrictions regarding the services they may offer contained in the
General Plan of Concessions and Licenses, and special obligations regarding
service quality, network expansion and modernization contained in the General
Plan on Universal Service and the General Plan on Quality. In December 2002,
Anatel distributed for public comment drafts of a new General Plan on Universal
Service and a new General Plan on Quality. The new General Plan on Quality is
expected to be finalized by June 2003. On June 5, 2003 Anatel proposed a final
version of the new General Plan on Universal Service which has yet to be
adopted. See "Recent Developments – New General Plan on Universal Service."
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Public Regime—Service Restrictions
Public regime companies are subject to certain restrictions on alliances,
joint ventures, mergers and acquisitions, including:
•
Mergers between regional fixed-line services providers and wireless
services providers are prohibited (a prohibition that also applies to
private-regime companies); and
•
Companies offering telephone services are prohibited from offering
cable television (unless they offer cable television pursuant to a
public auction to provide such services in the relevant region in
which no other bidder participates).
Network Expansion—General Plan on Universal Service
The following table sets forth our main network expansion and
modernization obligations as provided in the List of Obligations at the times
indicated and our performance with respect to each category of obligation at
December 31, 2002.
Company status
at December 31,
2002
2003
2004
2005
Minimum number of installed lines
(millions)
17.5
—
—
—
Fixed-line service available to all
communities larger than:
600.0
600
—
300
Maximum waiting time for installation
of a line (weeks)
(1)
2.0
2
1
—
Minimum number of public telephones
in service (thousands)
716.0
—
—
—
Minimum number of public telephones
per 1,000 inhabitants
9.1
7.5
—
8
Minimum public telephones as a
percentage of fixed-lines
4.5
2.5
—
3
n.
a.: Not available
n.
(1)
Applies only to areas where fixed-line service is fully available.
Quality of Services—General Plan on Quality
Each regional public and private regime company must comply with the
provisions of the General Plan on Quality and also with the terms of its
respective concessions, licenses and authorizations. All costs related to the
fulfillment of the quality goals established by the General Plan on Quality
must be exclusively borne by the respective telephone service provider. The
General Plan on Quality establishes minimum quality standards with regard to:
•
Responses to repair requests;
•
Availability of services to users;
•
Quality of public telephones;
•
Operator availability;
•
Personal services to users;
•
Issuance of bills;
•
Responses to requests for address changes;
41
Table of Contents
•
Modernization of the network; and
•
Responses to mail received from users.
The quality standards are measured according to the definitions and
quality indicators established by Anatel. The companies are obliged to report
monthly to Anatel in regard to the quality goals. Additionally, the companies
are obligated to provide Anatel an in-depth report and analysis in regard to
each quality goal that is not achieved. Anatel may also collect such data from
the companies at any time and without prior notice.
Companies that fail to achieve the Anatel quality goals may be subject to
warnings, fines, intervention by Anatel, temporary suspensions of service or
cancellations of concessions and authorizations. See "Fines and Penalties."
The following table sets forth information regarding our obligations at
year-end 2001 through 2005 and our performance with respect to each category of
obligation at year-end 2002.
Company status
By December 31,
at December 31,
2002
2000
2001
2002
2003
2004
2005
Dial tone within 3 seconds (% of cases)
99.8
—
99.0
—
99.5
—
99.5
Call completion rate during peak periods (%
of calls attempted)
(1)
66.5
—
65.0
—
70.0
—
70.0
Maximum number of uncompleted calls due to
network congestion
(% of calls attempted)
(1)
3.2
—
5.0
—
4.0
—
4.0
Maximum monthly repair requests (% of lines
in service)
3.6
—
2.5
—
2.0
—
1.5
Maximum monthly public telephone repair
requests (% of public telephones in service)
8.8
—
12.0
—
10.0
—
8.0
Residential repair response speed (% within
24 hours)
97.6
—
96.0
—
97.0
—
98.0
Nonresidential repair response speed (%
within 8 hours)
97.0
—
96.0
—
97.0
—
98.0
Public telephone repair response speed (%
within 8 hours)
98.4
—
96.0
—
97.0
—
98.0
Operator availability during peak periods (%
response within 10 seconds)
97.0
—
93.0
—
94.0
—
95.0
Billing complaints (per thousand bills issued)
2.5
—
3.0
—
2.0
—
2.0
Minimum digitalization level of network (%)
98.5
—
85.0
—
95.0
—
99.0
Credit issued within one billing cycle for
claimed inaccuracies (% of cases)
99.5
—
96.0
—
97.0
—
98.0
(1)
For local and domestic long-distance calls.
Anatel measures the performance of Telemar in each state individually. As
a result, our performance in any particular state may not meet one or more
quality performance targets even if our performance overall satisfies the
targets set forth in the table. Therefore, we could be subject to fines or
penalties as a result of our failure to meet the quality performance targets in
one or more states. See "Regulation of the Brazilian Telecommunications
Industry—Obligations of Telecommunications Companies" and "Regulation of the
Brazilian Telecommunications Industry—Quality of Service—General Plan on
Quality."
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Fines and Penalties
Failure to meet the network expansion and modernization obligations in the
List of Obligations may result in fines and penalties of up to R$50 million as
well as potential revocation of the concessions. Failure to meet the quality
of service obligations in the List of Obligations may result in fines and
penalties of up to R$40 million.
Interconnection
General rules regarding interconnection are described in the
Regulamento
Geral de Interconexão
, promulgated by Anatel. All operating companies
providing public-interest services are required, if it is technically feasible
to do so, to make their networks available for interconnection on a
nondiscriminatory basis, whenever such a request is made by any other
telecommunications provider. Anatel currently sets and adjusts the
interconnection rates between two fixed-line networks as well as between
fixed-line and wireless networks. Anatel has stated its plans to allow
fixed-line and wireless network operators to freely negotiate interconnection
rates.
Unbundling of Local Network
Anatel currently requires public regime regional fixed-line services
providers to unbundle network elements and services. 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
infrastructure sharing.
In June 2002, the Company signed a Letter of Agreement with Anatel, for
the unbundling of our local network and elaborated a standard agreement, which
is available for review by interested parties.
Rate Regulation
The concessions of the regional fixed-line companies and Embratel,
including our concessions, provide for a price-cap mechanism to set and adjust
rates on an annual basis. The price-cap mechanism consists of a maximum
amount, or price cap, established by Anatel, that may be charged for a
particular service and a weighted average rate for a basket of basic services.
The basket of local services covered by the price cap include all of the
services in the basic service plan, such as installation charges, monthly
subscription fees and switched local services (traffic). Other services
covered by the price cap include long-distance services and network usage fees.
The main baskets for the regional fixed-line companies are for local services,
including installation charges, monthly subscription fees and measured usage
charges and for long-distance services, which are determined based on five
rates that vary with the time of day and the distance called.
The initial price cap established by Anatel in the concessions was based
on previously existing tariffs. The initial price cap is adjusted on an annual
basis under a formula contained in the concessions. The formula allows two
adjustments to the price cap. First, the price cap is revised upward to
reflect increases in inflation by multiplying the price-cap by (1+y), where y
represents the rate of inflation as measured by the IGP DI. The K-factor is
applied by Anatel to the tariffs of the regional fixed-line companies in order
to provide an incentive to the regional fixed-line companies to increase their
efficiency for the benefit of consumers of telecommunications services. In the
period 2000 to December 31, 2005, our tariffs and the other regional fixed-line
companies will be adjusted downward, in real terms, as follows:
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K-Factor Annual Productivity Adjustments
2000
2001
2002
2003
2004
2005
Fixed-line companies—local (services)
0
%
1
%
1
%
1
%
1
%
1
%
Fixed-line companies—local (interconnection)
0
%
5
%
10
%
15
%
20
%
20
%
Fixed-line companies—intra-regional
long-distance and long-distance
interconnection
2
%
4
%
4
%
4
%
5
%
5
%
The tariffs for individual services within the basket may be increased to
the extent that the weighted average tariff for the entire basket of basic
services does not exceed the price cap. We may increase the tariff for any
individual service by up to 9% for local services and 5% for long-distance
services, 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 other prices are adjusted downward to ensure that the
weighted average tariff increase does not exceed the inflation- and
productivity-adjusted price cap.
We may also offer alternative plans in addition to the basic service plan.
Alternative plans must be submitted to Anatel for approval, but are not
currently subject to a price cap.
Companies holding personal mobile services (SMP) licenses are allowed to
freely price their wireless services provided they are linked to existing
service plans authorized by Anatel. Price-caps are adjusted annually, based on
the IGP-DI. The interconnection rates are also subject to price-caps fixed by
Anatel and adjusted on an annual basis, up to June 2004, when the values will
start to be freely negotiated between the parties.
For information on our current tariffs and service plans, see "Rates."
Regulation of SMP Wireless Services
In September 2000, Anatel promulgated regulations regarding SMP wireless
telecommunications services. The new rules allow companies to provide wireless
telecommunications services under SMP authorizations. The SMP authorizations
allow new entrants in the Brazilian telecommunications market to compete with
existing telecommunications service providers. The SMP regulations divide the
Brazilian territory into three separate regions, each of which is equal to the
regions applicable to the public regime fixed-line telephone service providers.
SMP services may be provided within the 1800 MHz band, which contains Bands
C, D and E. Accordingly, in addition to the conversion of the Band A and Band
B service providers to SMP authorizations, up to three SMP authorizations may
be granted in each SMP region. Anatel held auctions for SMP authorizations
during 2001 and 2002.
The SMP license sets forth certain obligations and targets that must be
met by a SMP subsidiary. Under these obligations, SMP subsidiary is required:
•
To cover an area equivalent to at least 50% of the urban area
in 50% of the state capitals and cities with more than 500,000
inhabitants by March 12, 2002;
•
To cover all state capitals and all cities with more than
500,000 inhabitants by March 12, 2003;
•
To cover an area equivalent to at least 50% of the urban area
in 50% of the cities with more than 200,000 inhabitants by March 12,
2004;
•
To cover all cities with more than 200,000 inhabitants by March 12, 2005; and
•
To cover all cities with more than 100,000 inhabitants by March 12, 2006.
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A locality is considered "covered" when the covered area contains, at
least, 80% of total urban area. The failure to meet these targets may result
in the penalties established in the regulations and, in extreme circumstances,
in termination of our PCS license by Anatel.
In June 2002 we received authorization from Anatel to begin providing
wireless telecommunication services. Our license to provide wireless
telecommunications services is valid for fifteen years and may be renewed for
another fifteen years. If the authorization is renewed, Oi will, as
consideration for such renewal, be required to pay, upon renewal and on every
second anniversary of the renewal, an amount equal to 2% of the prior year's
net revenue.
Recent Developments
Presidential Decree
On June 10, 2003 the Brazilian government promulgated a presidential
decree (the "Decree") setting forth a number of changes in the regulation of
Brazil's fixed-line telecommunications sector. The Decree still needs to be
implemented by Anatel. The Decree sets forth general declarations of policy
regarding, among other things, universal access to telecommunications services,
stimulation of employment and development of Brazilian industry in the
telecommunications sector, promotion of competition and adoption of tariff
readjustment policies and take into account Brazilian socioeconomic
considerations and the financial equilibrium of the existing concession
agreements. It also defines that the implementation of such changes should be
reflected in the terms of each concession agreement to be achieved as of
January 1, 2006. We are in the process of analyzing the directives of the
Decree in order to further understand its requirements and the impact they will
have on our business, results of operations and our financial condition.
Accordingly, we cannot currently determine what effect the Decree will have on
our business, results of operations and financial conditions in the future.
New General Plan on Universal Service
A new General Plan on Universal Service has been proposed which will
require fixed-line telecommunications services providers to achieve certain
targets as of January 1, 2006. The purpose of the plan is to afford access to
PSTN for use by all Brazilians regardless of location or socio-economic status.
The costs related to meeting the targets contemplated by the plan are to be
paid for solely by the incumbent telecommunications services providers pursuant
to terms stipulated in each provider's respective concession agreement. Anatel
may revise the universal service targets, pursuant to the concession
agreements, as well as propose additional targets and an acceleration of the
plan. The plan applies to local, domestic and long-distance service providers
in varying degrees.
Telecommunications services providers will be required to implant the PSTN
to individual access targets with individual accesses of residential,
non-residential and "trunk" classes in areas with more than 300 inhabitants.
Priority must be given to requests for individual access made by regular
educational establishments, health institutions, public security
establishments, public libraries and museums, judiciary agencies, federal
public prosecutor's agencies, and consumer protection agencies. Special care
and equipment must also be provided for the hearing and speech impaired.
Telecommunications services providers will be required to activate public
telephones ("TUP"), which make it possible for any person to use the PSTN
collective access, regardless of subscription or registration with the carrier,
in enough numbers to ensure that the density of TUPs per general license plan
sector is equal to or over 6.0 TUPs per group of 1,000 inhabitants. This
requirement is less stringent than the targets established under the current
General Plan on Universal Service, of 7.5 per 1,000 persons for year-end 2003
and 8.0 per 1,000 persons set for year-end 2005 and we believe this will have a
favorable impact on our costs and capital
45
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expenditures. Activation of TUPs must take place so that there are at
least three TUPs per group of 1,000 inhabitants evenly distributed over the
service area. Of the total number of TUPs installed in a service area, 50%
must be in areas that can be accessed twenty-four hours a day and 2% must be
adapted for every kind of physical impairment. Local services providers are
responsible for achieving targets for areas that are at a distance equal to or
less than thirty kilometers from any other service area; domestic and
international long-distance providers must be in compliance for those serving
areas at a distance equal to or more than thirty kilometers from any other
serving area.
Telecommunications services providers of local service will be required to
activate telecommunications services stations ("PST"), which are facilities for
collective use maintained by the service provider, in each general license plan
sector in varying numbers determined by population measured annually from 2007
to 2011. The PSTN incumbent services providers must also activate one PST per
general license plan sector in rural areas in cooperative service stations
("UAC"), which service a community with services such as storage, packaging,
refrigeration and credit facilities, depending on the size of the communities
in 2007 and 2008, and in all communities in 2009.
The Board of Directors of Anatel also approved the installation of a
public hearing with respect to the creation of a special individual access
("AICE"). The goal of AICE is to meet the needs of lower income classes of
households not yet serviced by the PSTN, and shall have its offer, utilization,
rates, payment conditions, call treatment, network usage remuneration and
taxation differentiated from those of regular residential telephone. Requests
for installation must be met after the subscriber's registration and
subscription payment within twelve months. The proposal also establishes that
the AICE will be accessed via prepaid cards, which could be used in any type of
telecommunications services.
Telephone message box service (SCPT), or voice mail, must be also
universally provided at cost within two weeks after a request, and regulations
regarding such service will be established by Anatel.
Item 5.
Operating and Financial Review and Prospects
Overview
Our results of operations are significantly affected by the following
factors, such as the:
•
Brazilian political and economic environment
and effects of inflation and foreign exchange rate
devaluation;
•
early attainment of the universal targets set
for completion by 2003 by Anatel and investments in new
business sections; and
•
general trends of the telecommunications
services industry.
Brazilian Political and Economic Environment and the Effects of Inflation
and Devaluation
We have been affected by the economic, political and social conditions in
Brazil. Most notably our operations have been impacted by the devaluation of
the
real
and the increases in interest rates by the Brazilian government in its
efforts to control inflation.
During 2000, the
real
devaluated by 9.3% against the US dollar while the
Brazilian Central Bank's average interest rate (SELIC) was 15.8%. In 2001, the
real
devaluated another 18.7% and the interest rate was increased to 19%. In
2002, various factors had a negative impact on the Brazilian economy including
the uncertainties relating to the political and economic future of Brazil
and the political and economic uncertainties of other South American
counties including Argentina and Venezuela. These factors were influential in
the increased unpredictability of the markets in
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Brazil, the decreases in the ability to obtain credit and decreased investor
confidence in the Brazilian marketplace.
Our business is affected by the effects of these conditions. As of
December 31, 2002, 72.6% of our indebtedness was in foreign currency. Even
though we have derivate instruments for hedging purposes in order to limit the
negative impacts (mainly agreements to swap the foreign exchange rate variation
to CDI interest rate variation) we were negatively affected by the increase in
the Brazilian interest rate. Further increases in interest rates and continued
devaluation of the real would likewise negatively affect the need for
telecommunications services. Continued devaluation would negatively impact the
purchasing power of our clients, which could negatively impact our results.
The following table shows the GDP growth, the inflation rate, the US
dollar exchange rate devaluation and the interest rate for the three-year
period ended December 31, 2002.
Year ended December 31,
2000
2001
2002
GDP growth
(1)
4.4
1.4
1.5
IGP-DI Inflation rate %
(2)
9.8
10.4
26.4
IPCA Inflation rate %
(3)
6.0
7.7
12.5
U.S. dollar exchange rate devaluation %
(4)
9.3
18.7
52.3
SELIC %
(4)
15.8
19.0
25.0
(1)
Source
:
Instituto Brasileiro de Geografia e Estatística
(IBGE)
(2)
Source
:
Fundação Getúlio Vargas
(3)
Source
: Consumer Price
Index - IBGE
(4)
Source
: Central Bank of Brazil
Early attainment of universal targets set for 2003 and investments in new
business segments
With the early attainment of the universal service targets established in
the Concession Agreement with Anatel for 2003, we started providing wireless
telecommunications services, long-distance inter-regional and international
services, as well as nationwide operations in the corporate data market.
In order to attain these targets, we greatly increased our capital
expenditures, maintenance and installation costs, as well as financial expenses
due to the loans and financing obtained to accomplish these targets.
Our 2001 and 2002 results were significantly impacted by increases in
capital expenditures and indebtedness caused by our expansion into wireless
telecommunications services. In addition, we have been providing wireless
telecommunications services since July 2002 and have expanded the operations of
our contact-center segment since the last quarter of 2001, which have resulted
in corresponding increases in personnel costs.
General trends of the telecommunications services industry
Since the privatization, huge capital expenditures have been made to
expand our local last-mile fixed-line network, mainly in order to attain
Anatel's universal service targets. However, the new fixed-lines in service
are in low-income areas, reducing our return on invested capital. The
following table demonstrates the estimated penetration of fixed-line services
per economic class, compiled by the
Associação Brasileira das Prestadoras de
Serviço Telefônico Fixo Comutado
(ABRAFIX) (Brazilian Association of PSTN
Companies).
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1998
2001
A (Higher)
94
%
98
%
B
79
%
95
%
C
35
%
74
%
D/E (Lower)
10
%
44
%
(According to ANEP – Associacão Nacional de Empresas de Pesquisa, there
are 7 income classes, as follows, with their respective average monthly income:
A1 – R$7,793; A2 – R$4,648; B1 – R$2,804; B2 – R$1,669; C – R$927; D – R$424;
and E – R$207)
In 1998, Brazil had 20.0 million fixed-line telephones and by the close of
2002 there were 38.8 million. Meanwhile, wireless subscribers increased from
7.4 million in 1998 to 34.9 million in 2002, according to Anatel. We are
observing a decrease in the growth of the fixed-line telecommunications
services, while the wireless telecommunications services segment of our
industry is demonstrating a constant increase. The growth of the wireless
telecommunications services industry is an important issue in the United States
and Europe. From trends in those regions we are aware of the necessity to
invest in our wireless telecommunications services segment in order to be able
to offer fixed-line and wireless telecommunications services, as well as data
transmission, as an integrated business.
We do not expect future material increases in the number of installed
fixed-lines and revenues from basic fixed-line telecommunications services;
however, we do expect an increase in revenues from wireless telecommunications
services. From owning both wireless and fixed-line telecommunications services
networks we will be able to minimize the interconnection costs for outgoing
calls and maximize interconnection revenues from incoming calls.
Presentation of Information
The following discussion of our consolidated financial condition and
results of operations for the three-year period ended December 31, 2002 should
be read in conjunction with the Consolidated Financial Statements, which are
included at the end of this annual report.
The Consolidated Financial Statements have been prepared in accordance
with the Brazilian Corporate Law, which differs in certain significant respects
from US GAAP. See Note 30 to the Consolidated Financial Statements for a
summary of the differences between the Brazilian Corporate Law and US GAAP,
Note 31 for a net income (loss) reconciliation of the differences between the
Brazilian Corporate Law and US GAAP for the years ended December 31, 2000, 2001
and 2002, Note 32 for a shareholders' equity reconciliation as of December 31,
2001 and 2002 and Notes 33 through 35 for presentations of statements of
operations, changes in shareholders' equity and additional disclosures prepared
in accordance with US GAAP.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1e to the
Consolidated Financial Statements included elsewhere in this annual report. In
preparing the Consolidated Financial Statements, we have relied on estimates
and assumptions derived from historical experience and various other factors
that we deemed reasonable and relevant. "Critical accounting policies" are
those that are important to the portrayal of our financial condition and
results and utilize management's most difficult, subjective or complex
judgments, estimates and assumptions. The application of these critical
accounting policies often requires judgments made by our management regarding
the effects of matters that are inherently uncertain on the carrying value of
our assets and liabilities and the results of our operations. Our results of
operation and financial condition may differ from those set forth in the
Consolidated Financial Statements, if our actual experience differs from
management's assumptions and estimates. In order to provide an understanding
of our critical accounting policies, including some of the variables and
assumptions underlying the estimates, and
48
Table of Contents
the sensitivity of those assumptions and estimates to different parameters
and conditions, set forth below is a discussion of our critical accounting
policies relating to:
•
Revenue recognition and accounts receivable;
•
Provision for doubtful accounts;
•
Depreciation of property, plant and equipment;
•
Contingencies; and
•
Derivatives.
Revenue recognition and accounts receivable
Our revenue recognition policy is significant because our revenue is a key
component of our results of operations. Management's determination of price,
collectibility and the rights to receive certain revenues for the use of our
network are based on judgments regarding the nature of the fee charged for
services rendered, the price for products delivered and the collectibility of
those revenues. Should changes in conditions or discussions cause management to
determine that these criteria are not met for certain transactions, accounts
receivable could be adversely affected. In addition, we follow both on
guidelines issued by Anatel and in measuring revenue.
Revenues from the usage of our network are recorded based on a formal
document of declared traffic and service rendered, the
Documento de declaração
de tráfego e prestação de serviço
("DETRAF"), issued by a third party.
Although the DETRAF provides a methodology for determining network usage, there
is extensive negotiation and debate among operators regarding values, volumes
and who has the rights to certain revenues. In many instances, the Company
decides to register and maintain accounts receivable based upon information
obtained in the course of discussions with other parties, from the opinions of
legal counsel, and from matters discussed with Anatel.
Provision for doubtful accounts
The provision for doubtful accounts is stated in an amount that we
consider sufficient to cover any probable losses on realization of our accounts
receivable from our customers and is included in selling expenses. Our
accounting policy for establishing the provision is consistent with our billing
and collection process.
This provision is established in order to recognize probable losses on
accounts receivable, taking into account the actions we take to limit service
provided to clients with past-due accounts and to collect delinquent accounts,
beginning when the account is 60 days past due, and increasing progressively
thereafter, as follows:
% loss
Outstanding bills
Service Restriction/collection process
provided for
Between 30 and 60 days
Restrict outgoing calls
0
Between 61 and 90 days
Restrict incoming and outgoing calls
40
Between 91 and 120 days
Disconnect after 15 days advance notice
60
Between 121 and 150 days
Judicial collection
80
Approx. 151 days
Judicial collection
100
We include government entities, corporate clients and other
telecommunications service providers in the calculation base of the provision.
We have also entered into agreements with certain clients to collect past-due
accounts, including agreements allowing clients to settle their
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Table of Contents
delinquent accounts in installments. The amounts that we actually fail to
collect in respect of these accounts may differ from the amount of the
provision established.
Depreciation
We depreciate property, plant and equipment using the straight-line method
at rates we judge to be compatible with the useful lives of the underlying
assets, principally 5 to 10 years for network and equipment, 10 years for
furniture and fixtures and 5 years for hardware and software. Depreciation
rates are adjusted, and may vary between fixed-line, wireless and data
segments, to take account of changes in estimated useful lives based on
technical obsolescence and assessment by outside experts. Impairment tests are
applied annually, or whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable.
Maintenance and repair costs are capitalized when, in the judgment of
management, such maintenance or increase installed capacity or useful life. We
have not capitalized any material costs during the three-year period ended
December 31, 2002, since most of our maintenance costs do not represent an
actual increase of useful life, and obsolescence is a major factor in
determining useful lives.
Contingencies
The preparation of our financial statements requires us to make estimates
and assumptions regarding contingencies that affect the valuation of assets and
liabilities at the date of the financial statements and the revenues and
expenses during the reported period. Such contingencies include the legal
proceedings discussed in Note 21 of the Consolidated Financial Statements.
Except as otherwise required by changes in accounting standards and
practices, we will continue to record liabilities in connection with these
contingencies in the same manner as we do currently, based on our assessment of
the risk of loss at each date of preparation of the financial statements. As
discussed in Note 1e to our Consolidated Financial Statements, we record as a
liability our estimate of the costs of resolution of such claims when we
consider loss of our claim to be probable. It may be possible that our
assumptions and therefore estimates of loss in respect of any given contingency
will change in the future based on changes in the related situation. This may
therefore result in changes in future provisioning for legal claims. We record
liabilities in connection with pending litigation based on estimates of the
amounts of probable losses.
Labor claims
. Brazilian employment and labor legislation is extensive and
complex, giving rise to many claims from current and former employees. These
relate principally to unsafe working conditions, premium, equalization of
salary scales, salary differences, dismissals and other matters. Our
management estimates the potential losses on outstanding labor claims based on
the advice of external legal counsel regarding the likelihood of unsuccessful
outcome. We record provisions for losses that are deemed probable in
connection with any given case.
Tax claims
. The complexity of the Brazilian corporate tax system often
results in disputes on a number of different taxes. We are currently involved
in tax proceedings regarding, and have filed claims to avoid payment of,
certain taxes that we do not believe are constitutional. The tax
contingencies, which relate primarily to value-added tax, service tax and taxes
on revenue, are described in detail in Note 21 to our Consolidated Financial
Statements. We record provisions for probable losses in connection with these
claims in consultation with external legal counsel and are based upon an
analysis of potential results, assuming a combination of litigation and
settlement strategies. We do not believe these proceedings will have a
material adverse effect on our financial position. It is possible, however,
that future results of operations could be materially affected by changes in
our assumptions, and the effectiveness of our strategies with respect to these
proceedings.
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Table of Contents
Civil claims
. We are currently involved in many claims brought by
Embratel regarding issues related to former resellers of pre-paid calling cards
and subcontractors, among others. We record provisions for probable losses
based on the opinion of our external legal counsel regarding the probable
outcome and estimated value involved.
Unrecognized exposures
. We have not recorded a provision for every labor,
tax or civil exposure, but only for those in connection with which an
unfavorable outcome, based on external legal advice, is probable. We have
estimated the total value of the unrecorded exposures of claims considered as
possible losses to be R$890.0 million as of December 31, 2002 (R$887.0 million
at December 31, 2001). We believe that our estimates are based on reasonable
assumptions and assessments of external legal counsel. In accordance with the
Brazilian Corporate Law and US GAAP, we do not record provisions in connection
with "possible" (as opposed to "probable") losses on contingencies.
At the moment, we do not have material contingent assets, where an inflow
of economic benefit is probable. Nevertheless, we periodically verify our past
and present tax procedures, in light of recent tax decisions in Brazilian
courts.
Derivatives
We employ financial risk management strategies using a variety of
derivatives, including foreign currency and interest rate swaps, forwards and
options. Our financial risk management strategy is designed to protect against
adverse changes in foreign currency exchange rates and foreign currency
interest rates. We do not enter into derivatives transactions for any other
purposes.
Results from swap operations are determined and recorded on a monthly
basis by comparing contractual exchange rates to month-end exchange rates, when
applicable, regardless of the terms of settlement in the applicable derivatives
contract. Gains on "options" and "forward" contracts are recorded as a
reduction in interest expense only when they are realized at the time the
contracts expire, while unrealized losses are recorded currently against
income. Under the options contracts, which relate to the purchase and sale of
US currency, we pay for and receive premium upon signing the option contract.
The premiums are recorded in the results for the year on the accrual basis from
the date of signing through the contract maturity.
For purposes of the reconciliation of the Brazilian Corporate Law to US
GAAP, as of January 1, 2001, we are applying SFAS 133 "Accounting for
Derivative Instruments and Hedging Activities." Since our transactions do not
qualify for hedge accounting under this standard, derivatives are recorded at
fair value. Therefore, we eliminate the gains and losses not yet financially
realized. Fair values are based on pricing models that take into account
current market and contractual prices for the underlying financial instruments
or commodities, as well as time value and yield curve or volatility factors
underlying the positions. If we maintain these instruments to maturity, the
unrealized gains and losses will substantially offset financial expenses due to
foreign exchange rate variations. As an example, our financial results for the
year-ended December 31, 2002, were impacted by a 52.2% US dollar exchange rate
variation, mainly due to long-term indebtedness in foreign currency, while the
gains of these instruments are mostly not recognized, generating a difference
in the US GAAP income statement of R$1,401.3 million.
For purposes of the reconciliation of the Brazilian Corporate Law to US
GAAP, derivatives are recorded at fair value, and unrealized gains and losses
are reflected in the statement of operations as interest income and expense.
Fair values are based on pricing models that take into account current market
and contractual prices for the underlying financial instruments or commodities,
as well as time value and yield curve or volatility factors underlying the
positions.
Pricing models and their underlying assumptions impact the amount and
timing of unrealized gains and losses recognized, and the use of different
pricing models or assumptions
51
Table of Contents
could produce different financial results. Changes in the fixed income,
equity, foreign exchange and commodity markets will impact our estimates of
fair value in the future, because some of these contracts will become due for
significant periods of time potentially affecting interest income and expenses.
Effects of Changes in Rates and Structure of Revenues and Expenses
Certain changes in telecommunications rates and the structure of our
revenues affected our results in 2000, 2001 and 2002.
•
Elimination of Embratel revenue sharing
. Until April 1998, we received
a fixed percentage of revenue from interregional and international
long-distance calls carried by Embratel that originated in Region I. This
revenue-sharing arrangement ended effective April 1, 1998. Since then, we have
received interconnection fees from Embratel on a per-minute basis for
interregional and international calls which are carried by Embratel and are
initiated or completed on our fixed-line network. In 1998, we began receiving
from Embratel a supplemental per-minute charge called the PAT, in order to
reduce the impact of the discontinuation of the revenue-sharing arrangement.
The PAT began at an average rate of R$0.018 per minute and was phased out by
June 30, 2001. See "Item 4. Information on the Company—Services—Interregional
and International Long-Distance Service" and "Network Usage Services." These
changes had a substantial adverse impact on revenues in 2000.
•
Network usage fees
. We have been receiving network usage fees from
wireless operators and, since April 1998, from Embratel and other fixed-line
service providers. The growth of wireless telecommunications and an increase
in long-distance usage volumes have resulted in substantial growth of the
network usage revenues in 2000, 2001 and 2002.
•
Rate increases
. On June 22, 2000, we were authorized by Anatel to
increase the average rate for the basic service plan by 14.1%. Monthly
subscription charges increased by 21.5%, while measured service charges
increased by 6.7%. In order to reduce the impact of this increase on
residential clients, we increased the number of pulses included in the monthly
subscription charge from 90 to 100. Long-distance rates were also increased by
11.9%. On June 21, 2001, Anatel authorized us to increase our monthly
subscription charges by an average of 17%. In February 2002, Anatel authorized
us an average increase of 10.7% in the maximum interconnection rates charged by
wireless operators in Region I.
•     Anatel also authorized an average increase of 10.7%, valid as of
February 2002, in the maximum interconnection rates charged by the wireless
operators in Region I. These maximum authorized rates, which we pay to
wireless operators to complete calls from our fixed-line and wireless units to
wireless units in their network, range from R$0.2190 per minute to R$0.3161 per
minute, net of indirect taxes.
Political, Economic, Regulatory and Competitive Factors
The following discussion should be read in conjunction with the
"Information on the Company" section included in Item 4 in this Annual Report.
As set forth in greater detail below, our financial condition and operations
are significantly affected by Brazilian telecommunications regulations,
including rate adjustments. See "Item 4. Information on the
Company—Regulation of the Brazilian Telecommunications
Industry—Rate
Regulation." Our financial condition and results also have been, and will
continue to be, affected by the economic and political environment in Brazil.
See "Item 3. Key Information––Risk Factors––Risks Relating to Brazil." In
particular, our financial performance will be affected by
•
economic growth in Region I and its impact on demand for telecommunication services;
•
the cost and availability of loans and financing;
52
Table of Contents
•
foreign currency exchange rates; and
•
the granting by Anatel of certain authorizations, certifications and licenses.
Until February 1999, we were the only authorized provider of local
fixed-line and intrastate telecommunications services in Region I. In February
1999, two licenses were auctioned to permit competitors to provide local
fixed-line and intra-regional long-distance telecommunications services in
Region I in competition with us. In July 1999, we were authorized and began to
provide interstate long-distance services between the states in Region I. By
March 2002, we attained our universalization targets of December 31, 2003, and
were authorized to provide inter-regional and international long distance
services in our region. Since July 2002, we are providing these services, and
are particularly interested in providing inter-regional long-distance services
between Region I and Region II and Region III. There is no assurance that the
entry of new competitors in the local market, in the long distance market or
the other markets in which we compete will not have a material adverse effect
on our business, financial condition, results of operations or prospects. Any
adverse effects on our results and market share from competition will depend on
a variety of factors that cannot now be assessed with precision, some of which
are beyond our control. Among such factors are the technical and financial
resources available to our competitors, their business strategies and
capabilities, prevailing market conditions, the regulations applicable to us
and to the new entrants, including those pertaining to providers of wireless
telecommunication services, and the effectiveness of our efforts to prepare for
increased competition. For further information see "Item 4. Information on
the Company—Competition."
Foreign Exchange and Interest Rate Exposure
The principal foreign exchange risk we face arises from the incurring part
of our indebtedness and capital expenditures in foreign currency while our
revenues are earned almost entirely in
reais.
As a result of this mismatch,
increased revenues may not compensate for increases in our financing expenses
or capital expenditures arising from currency fluctuations. At December 31,
2002, R$7,410.9 million (R$5,381.5 million at December 31, 2001), representing,
72.6% (57.6% at December 31, 2001) of our indebtedness (including debentures)
was denominated in foreign currency (US dollars, Japanese Yen and a mix of
currencies determined by Banco Nacional de Desenvolvimento Econômico e Social
("BNDES"). As of December 31, 2002 the indebtedness in foreign currency, taking
into account the results of swap agreements, showed a gain (thus reducing the
foreign currency indebtedness) of R$1,445.4 million and a loss (thus increasing
the foreign currency indebtedness) of R$575.4 million as of December 31, 2001.
Under US GAAP these results are recognized at fair value calculated at
year-end, altering significantly the net income (loss) of these years. These
loans and financing totaled US$2,507.3 million and US$2,072.9 million at
December 31, 2002 and 2001, respectively.
Consequently, we are exposed to foreign currency exchange rate risks that
may adversely affect the results of operations and financial position, as well
as our ability to meet our debt obligations. Devaluation of the
real
resulted
in exchange losses on foreign-currency indebtedness of R$2,551.8 million in
2002 (R$127.9 million in 2001). Net of hedging results, the losses totaled
R$876.4 million in 2002 and R$394.5 million in 2001. Under US GAAP the results
of derivative transactions are accounted for required by Financial Accounting
Standard ("FAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities," resulting in a loss of R$1,401.3 million in 2002 and a gain of
R$204.8 million in 2001.
We have used derivatives contracts (swaps, options and forwards) to limit
the risk of increases in our liabilities (expressed in
reais
) on our on foreign
currency debt as a result of currency fluctuations. The majority of the
derivatives contracts consist of currency swaps under which an obligation
denominated in foreign currency is exchanged for a real-dominated obligation
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Table of Contents
bearing interest at the CDI rate. The gain (loss) of swap transactions
recorded under Brazilian Corporate Law reducing or increasing the foreign
currency indebtedness will be effective if we maintain these agreements until
their maturity, in disregard of the fair-value at the year-ended.
On December 31, 2002, we had loans and financing subject to floating
interest rates based on the Brazilian long-term interest rate (TJLP) or
Interbank Deposit Certificate rates (CDI), in the case of real-denominated
debts, and based on LIBOR, in the case of US dollar-denominated debts. As of
December 31, 2002, we had derivatives agreements in order to swap obligations
under contracts bearing interest of LIBOR + 3% to 5.5% per annum, which totaled
85% of the total debt, to fixed rates, reducing our exposure to changes in
LIBOR to 64.7% of the total debt.
Downstream Merger
In December 1999, our shareholders approved a restructuring plan under
which a premium of R$2,464.8 million paid by Telemar Participações S.A. in
connection with the acquisition of shares representing control of TNL was
transferred to us in exchange for shares in the Company. As of December 31,
1999, we had recorded the premium as a permanent asset, to be amortized in 5
years, and as a share premium reserve under shareholders' equity. The
objective of the down-stream merger was to assure realization of the tax
benefit arising from the amortization of the Goodwill paid some book value by
Telemar Participações by transferring to the Company the tax benefit arising
from the amortization of the goodwill.
In March 2001, CVM issued a new rule that amended the accounting
principles for this downstream merger premium. The new rule required us to
write down the premium to the amount of the future tax benefit expected to be
generated by the amortization of such premium, retroactively to January 1,
2000. As a result, at January 1, 2000, we reduced the amount of the premium by
R$1,599.6 million and reclassified the resulting amount of R$824.1 million on
our consolidated balance sheet as current and non-current tax credits. At the
same time, we reduced the share premium reserve under shareholders' equity by
R$1,599.6 million to R$824.1 million. In addition, we reversed R$325.4 million
of amortization that had been recorded during 2000 in connection with the
portion of the premium that was reduced retroactively as of January 1, 2000.
We record the amortization of the goodwill in a manner that reduces our
taxable income, generating a tax benefit. The amortization of the provision is
not taxed, as it has already been reduced to the amount of the tax credit. See
Notes 5 and 7 to the Consolidated Financial Statements. Under the CVM rule,
the tax benefit generated by the amortization of goodwill may revert to the
benefit of Telemar Participações. Based on this rule, in April 2000 we
increased TNL's share capital by R$13.4 million, and in May 2001 by R$167.6
million. We also increased our capital in April 2002 by R$167.6 million, which
represents the tax benefit derived from the amortization of goodwill in 2001.
In April 2003, we increased our capital by R$167.6 million. See "Item 3. Key
Information—Effects of Downstream Merger" and Note 1(d) to the Consolidated
Financial Statements.
The amount recorded as deferred and recoverable taxes and as share
goodwill reserve may be adjusted by us as it corresponds to a future
expectation of tax benefits that will be realized only if we have taxable
income. We expect to continue generating taxable income in 2003 and 2004 and
therefore expect that the amortization of the goodwill will reduce our income
tax obligations, and thus increase our cash flow.
Network Expansion Obligations
We began offering inter-regional and international long-distance services
and Oi began offering wireless telecommunication services upon Anatel's
certification that we had met our network expansion and universal service
targets for December 31, 2003 for each state ahead of
54
Table of Contents
schedule and its authorization for us to provide such services, all of
which took place in June and July 2002.
In order to achieve the targets, we carried out a comprehensive investment
program, which resulted in the installation at 5.3 million lines in 2001. This
number is similar to the number of lines that were installed from 1997 to 2000.
This growth in line installations produced a substantial increase in our
revenues, operating costs, selling expenses and capital expenditures in 2001.
Because we had met our 2003 network expansion targets by the end of March,
2002, our capital expenditures for 2002 were significantly lower than in 2001,
and we expect our capital expenditures in 2003 to continue at levels similar to
those experienced in 2002.
55
Table of Contents
Statements of Operations for 2000, 2001 and 2002
The following table sets forth certain components of our statements of
operations, as well as the percentage change compared to the prior year, for
the three-year period ended December 31, 2002.
Year ended December 31,
% Change
2000
2001
2002
2000 v. 2001
2001 v. 2002
(millions of reais) (1)
Net operating revenue
8,127.0
10,103.1
11,874.0
24.3
17.5
Cost of services, handsets and accessories
(5,294.4
)
(6,806.6
)
(8,152.4
)
28.6
19.8
Gross profit
2,832.5
3,296.4
3,721.5
16.4
12.9
Operating (expenses) income, net
(1,593.4
)
(2,666.2
)
(2,313.0
)
67.3
(13.2
)
Operating income (loss) before interest
1,239.2
630.2
1,408.5
(50.0
)
123.5
Interest income
274.2
494.4
384.5
80.3
(22.2
)
Interest expense
(323.1
)
(918.8
)
(2,345.6
)
184.4
155.3
Operating income (loss)
1,190.2
205.9
(552.6
)
(82.7
)
(368.3
)
Net non-operating income (expense)
15.9
(2.1
)
28.4
(113.2
)
1,452.4
Employees' profit share
(64.8
)
(28.4
)
(130.9
)
(56.2
)
360.9
Income (loss) before taxes and
minority interests
1,141.3
175.4
(655.1
)
(84.6
)
(473.5
)
Income tax and social contribution
(174.6
)
21.7
371.3
(112.4
)
1611.1
Minority interests
(257.2
)
(56.7
)
(131.9
)
(78.0
)
132.6
Net income (loss)
709.4
140.4
(415.6
)
(80.2
)
(396.0
)
(1)
Columns may not add due to rounding.
56
Table of Contents
Comparison of Revenues in 2000, 2001 and 2002
The following table sets forth certain components of our operating
revenues, as well as the percentage changes, for the years indicated.
Year ended December 31,
2000
2001
2002
2000-2001
2001-2002
(millions of
reais
) (1)
% Change
Gross operating revenues:
Telephone services:
Local services:
Installation charges
157.6
359.5
141.3
128.1
(60.7
)
Monthly subscription fees
2,517.1
3,606.8
4,581.1
43.3
27.0
Fixed-to-mobile calls VC1
2,116.8
2,680.5
2,753.8
26.6
2.7
Pulses – measured services
1,889.7
2,026.5
2,247.2
7.2
10.9
Collect call revenues
85.2
112.1
124.9
31.6
11.4
Other local services
49.6
7.2
3.4
(85.5
)
(52.8
)
Total local services
6,816.0
8,792.6
9,851.7
29.0
12.0
Long distance services:
Intrastate
695.0
835.1
1,110.6
20.2
33.0
Interstate
222.3
274.0
399.9
23.3
45.9
Interregional
58.8
International
14.9
Fixed-to-mobile calls VC2 and VC3
346,9
459.3
482.1
32.4
5.0
Total long distance services
1,264.20
1,568.4
2,066.3
24.1
31.7
Other fixed-line services:
Public telephones
458.3
570.4
668.9
24.5
17.3
Advanced voice
115.4
177.6
259.5
53.9
46.1
Value-added services
229.0
257.8
302.5
12,6
17.3
Total services
8,882.9
11,366.8
13,148.9
28.0
15.7
Remuneration for the use of the fixed-line network:
Fixed-line to fixed-line network use
1,071.5
1,251.2
1,248.9
16.8
(0.2
)
Mobile to fixed-line network use
206.7
244.2
248.4
18.1
1.7
Total use of the network
1,278.2
1,495.4
1,497.3
17.0
0.1
Remuneration for use of the mobile network:
Use of mobile-mobile network
20.2
Use of fixed-line to mobile network
7.2
27.4
Mobile telephone services:
Monthly subscription fees
20.8
Originating calls
33.2
Sales of handsets and accessories
388.0
National roaming
0.4
International roaming
8.1
Additional services
5.1
455.6
Data network services (fixed-line):
Dedicated digital line services – SLD
251.1
275.4
275.6
9.7
0.1
Industrial dedicated line services – EILD
339.9
344.3
373.3
1.3
8.4
IP services
46.8
54.8
92.0
17.1
67.9
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Year ended December 31,
2000
2001
2002
2000-2001
2001-2002
Data transmission services
32.2
64.8
87.3
101.2
34.7
Other data services
8.9
48.0
77.5
439.3
61.5
Total Transport network services
678.9
787.3
905.8
16.0
15.0
Other services
10.6
10.0
56.3
(5.7
)
463.0
Total gross operating revenue
10,850.6
13,659.5
16,091.4
25.9
17.8
Value added and other indirect taxes
(2,629.7
)
(3,466.3
)
(4,071.1
)
31.8
17.4
Discounts
(93.9
)
(90.1
)
(146.3
)
(4.0
)
62.4
Net operating revenue
8,127.0
10,103.1
11,874.0
24.3
17.5
(1)
Columns may not add due to rounding.
Financial highlights by business segment
The table on the following page sets forth certain financial highlights by
business segment for the years ended December 31, 2002 and 2001. We have
segmented our business analysis and results with the start-up of Oi, with
separate presentations of actual results, budgets, targets, and business plan.
We are not presenting segmented information regarding year ended December 31,
2000, since it was mainly the fixed-line business segment.
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Table of Contents
Year ended December 31,
Fixed-line
Wireless
Contact-Center
2002
2001
2002
2001
2002
2001
Gross operating revenues:
Local
9,851.6
8,792.7
54.1
Long-distance
2,066.3
1,568.3
Use of the network
1,504.0
1,495.4
73.5
Sale of handset and accessories
388.0
Data transmission
967.8
824.8
Contact center
228.2
158.8
Other revenues
1,235.6
1,006.0
13.7
15,625.3
13,687.2
529.3
228.2
158.8
Value added and other indirect taxes
(3,988.7
)
(3,463.7
)
(80.9
)
(16.5
)
(13.0
)
Discounts
(124.1
)
(90.2
)
(22.2
)
Net operating revenues
11,495.9
10,133.4
442.3
211.7
145.8
Cost of sales:
Inteconnection
(2,401.0
)
(2,334.6
)
(21.0
)
Depreciation
(3,254.4
)
(2,726.2
)
(84.8
)
(7.8
)
(0.8
)
Cost of handsets and accessories
(414.4
)
Other costs
(1,663.0
)
(1,568.1
)
(129.5
)
(173.4
)
(114.4
)
Selling expenses:
Third-party services and advertising
(585.7
)
(568.5
)
(162.2
)
(2.1
)
(1.3
)
Provision for doubtful accounts
(614.0
)
(925.6
)
(1.8
)
(0.1
)
Other costs
(230.8
)
(231.4
)
(17.2
)
(1.7
)
(1.1
)
Administrative expenses
(883.4
)
(806.3
)
(50.8
)
(17.3
)
(11.8
)
Financial income
129.8
258.0
16.8
0.3
0.1
Financial expense
(1,527.0
)
(679.3
)
(418.4
)
(7.2
)
(3.3
)
Other operating results, net
261.6
(216.1
)
19.4
(0.9
)
(1.6
)
Net income (loss)
698.1
295.1
(738.4
)
0.9
6.2
Accounts receivable, net
2,526.0
2,140.5
291.2
25.8
37.5
Property, plant and equipment, net
14,636.7
16,831.0
1,913.1
1.012.6
79.0
29.8
Loans and financing
4,562.8
6,254.1
2,632.3
1,388.5
10.4
[Additional columns below]
[Continued from above table, first column(s) repeated]
Year ended December 31,
Other segments
Intercompany
And holding
eliminations
Consolidated
2002
2001
2002
2001
2002
2001
Gross operating revenues:
Local
9,905.7
8,792.7
Long-distance
2,066.3
1,568.3
Use of the network
(52.8
)
1,524.7
1,495.4
Sale of handset and accessories
388.0
Data transmission
147.2
93.4
(209.2
)
(130.9
)
905.8
787.3
Contact center
(182.1
)
(152.2
)
46.1
6.6
Other revenues
11.9
11.3
(6.4
)
(1.4
)
1,254.8
1,015.9
159.1
104.7
(450.5
)
(284.5
)
16,091.4
13,666.2
Value added and other indirect taxes
(10.9
)
(26.8
)
25.9
37.2
(4,071.1
)
(3,466.3
)
Discounts
(146.3
)
(90.2
)
Net operating revenues
148.2
77.9
(424.1
)
(254.0
)
11,874.0
10,103.1
Cost of sales:
Inteconnection
52.8
(2,369.2
)
(2,334.6
)
Depreciation
(15.8
)
(10.3
)
(3,362.8
)
(2,737.3
)
Cost of handsets and accessories
(414.4
)
Other costs
(178.7
)
(154.7
)
138.6
102.5
(2,006.0
)
(1,734.7
)
Selling expenses:
Third-party services and advertising
(1.3
)
(2.4
)
319.8
162.6
(431.5
)
(409.6
)
Provision for doubtful accounts
(0.1
)
(616.0
)
(925.6
)
Other costs
(10.6
)
(3.4
)
0.4
(259.9
)
(235.9
)
Administrative expenses
(70.2
)
(60.6
)
7.1
9.0
(1,014.6
)
(869.7
)
Financial income
1,023.1
1,292.9
(785.5
)
(1,056.6
)
384.5
494.4
Financial expense
(1,178.6
)
(1,312.1
)
785.6
1,075.9
(2,345.6
)
(918.8
)
Other operating results, net
(167.1
)
(15.0
)
(104.1
)
7.2
8.9
(225.5
)
Net income (loss)
(459.9
)
46.0
83.7
(207.7
)
(415.6
)
140.4
Accounts receivable, net
205.4
44.8
(323.5
)
(77.0
)
2,724.9
2,145.8
Property, plant and equipment, net
214.1
273.2
16,842.9
18,146.6
Loans and financing
4,231.9
3,004.4
(1,973.7
)
(3,037.5
)
9,453.3
7,619.9
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Table of Contents
Fixed-line services (Telemar)
Local services
Our revenues from local services increased 29% from R$6,816.0 million in
2000 to R$8,792.7 million in 2001. The growth of our revenue from local
services in this period resulted primarily from a 27.5% increase in the average
number of lines in service, from 10.2 million in 2000 to 13.0 million in 2001,
as well as from an increase in monthly subscription charges of 17% at the end
of the first half of 2001. The increase in the average number of lines
installed did not represent a similar increase in the average volume of pulses
since we are increasingly rendering services to lower income customers who
usually stay within the allowance of 100 pulses included in the monthly
subscription charges.
In 2002, our revenues from local services increased 12%, totaling R$
9,851.6 million. The growth in revenue from local services in this period
resulted primarily from a 8.4% increase in the average number of lines in
service, from 13.0 million in 2001 to 14.1 million in 2002, and also to a 14%
increase in monthly subscription fees and 15% in non residential subscription
fees during the second half of 2002. The 9% reduction in the number of
canceled lines, from 3.2 million in 2001 to 2.9 million in 2002, also
contributed to the increase in revenues. During 2002, we focused on customer
relationships to reduce cancellations on account of nonpayment, by developing
consumer educational products.
Installation fees.
Our revenues from installation fees increased 128.1%
from R$157.6 million in 2000 to R$359.5 million in 2001. This increase was
principally due to a 126.1% increase in the number of lines installed, from 2.1
million in 2000 to 5.3 million in 2001.
In 2002, revenues from installation charges decreased by 60.7% to R$141.3
million. This decrease resulted principally from a 40% decrease of the
reduction in the number of new lines installed during the year and the
partial-year effect of a 40% reduction in June 2002 in the per-line
installation fee. The number of new lines installed declined 40.4% from 5.2
million in 2001 to 3.1 million in 2002, due to the Company's de-emphasis on
installing new lines following the accomplishment of the Anatel targets for
2003 in late 2001 and 2002.
Monthly subscription charges
. Our revenues from monthly subscription
charges increased by 43.3% from R$2,517.1 million in 2000 to R$3,606.8 million
in 2001. The increase was due principally to a 27.5% increase in the average
number of lines in service in 2001 as well as to the partial-year effect of a
17% increase in subscription rates that went into effect in late June 2001.
In 2002, our revenues from monthly subscription charges increased 27% to
R$4,581.1 million, due principally to the full-year effect of the June 2001
rate increase and the partial-year effect of a further 14.1% increase in
monthly rates that went into effect in June 2002, as well as an 8.4% increase
in the average number of lines in service.
VC1 services.
Revenues in this category consist of charges for the calls
from fixed-line to mobile telephones, which are billed per minute at different
rates depending on the location of the caller and the distance of the call.
Calls within the same registration area (generally the same city) are billed at
the lowest rate (VC1) and accounted for as local services. Calls to a
different city within the same state, which are billed at a higher rate (VC2),
and interstate calls, billed at an even higher rate (VC3), are accounted for as
long-distance services. Approximately 92% of our fixed-line to mobile traffic
consists of VC1 calls. See "Item 4. Information on the Company – Rates-
Fixed-to-mobile Rates."
Revenues from fixed-line to mobile VC1 calls increased 26.6% from
R$2,116.8 million in 2000 to R$2,680.5 million in 2001, due to an increase in
traffic of 12.6%, from 5,658.9 million to 6,373.7 million minutes, and a 9.8%
increase in average rates in February 2001.
In 2002, revenues from VC1 calls increased only 2.7% to R$2,753.8 million,
due principally to an average rate increase of 9.9% in February 2002, which was
partially offset by a 7.4% decrease in the
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Table of Contents
volume of traffic, to 5,904.8
million minutes, attributable to campaigns to educate our clients about the
higher cost of placing calls to mobile telephones.
Pulses – measured services.
Pulse-based revenues increased 7.2%, from
R$1,889.7 million in 2000 to R$2,026.5 million in 2001, due primarily to a
27.5% increase in the average number of lines in service and the full-year
effect of a 6.7% increase in rates that became effective in June 2000.
Pulse-based revenues increased at a lower rate than the average number of lines
in service because most of the new lines installed were for lower-income
customers who usually stay within the allowance of 100 pulses included in the
monthly subscription charges. As a result, the total volume of pulses increased
2.2%, from 21,246 million in 2000 to 21,719 million pulses in 2001.
In 2002 pulse-based revenues increased by 10.9% to R$2,247.2 million, due
principally to the partial-year effect of an average rate increase of 9.7% as
of June 2002, and another 5.5% increase in the average volume of pulses, which
totaled 22,998 million in 2002.
Collect-call revenues
. Local collect-call revenues grew 31.6% in 2001 to
R$112.1 million from R$85.2 million in 2000. This increase was primarily due
to a 27.5% growth in the average number of lines in service and to a 33.3%
increase in the number of wireless users in Region I, which was concentrated
among users of pre-paid plans (who are frequent users of collect-call services
due to the lower per-minute rates for fixed-to-mobile calls than for pre-paid
mobile-to-fixed calls) and to the effect of an increase in January 2001 of a 9%
increase in collect-call rates.
In 2002 collect call revenues grew 11.4% to R$124.9 million, due mainly to
the expansion of the pre-paid mobile client base in Region I and the
partial-year effect of a 12% rate adjustment effective as of June 2002.
Other local services
. Revenues from other local services consist
primarily of charges for special services such as changes of address and
installation of extension telephones for existing customers, as well as the
rental of telephone lines and equipment. Revenues from other local services
decreased 85.5% from R$49.6 million in 2000 to R$7.2 million in 2001. This
decrease was mainly due to a change in the manner of charging for virtual PBX
services, from rental of equipment to monthly subscription charges, resulting
in a decrease of R$38.0 million in revenue from other local services.
Revenues from other local services decreased 52.8% to R$3.4 million in
2002. Such decrease was mainly due to a reduction in revenues from equipment
rentals.
Long distance services
Revenues from long-distance services increased 24.1% in 2001, from
R$1,264.1 million in 2000 to R$1,568.4 million in 2001, due primarily to an
average 2.2% increase in long-distance traffic, as well as to an average rate
increase of 7.6% in long distance services in June 2001 and to a 32.4% increase
in revenues from VC2 and VC3 calls, which represented an average of 28.5 % of
long distance services.
In 2002 revenues from long distance services increased 31.7% to R$2,066.3
million, due principally to an 18.8% increase in traffic, the partial-year
effect of an average rate increase of 8.8% in June 2002 and the effect on our
revenues of the start-up of interregional and international long-distance
services, beginning in July 2002. VC2 and VC3 revenues increased only 5% in
2002 due to our campaigns to reduce this traffic.
Intrastate long distance.
Revenues from intrastate long distance calls
increased 20.2% in 2001, from R$695.0 million in 2000 to R$835.1 million in
2001, due to an average rate increase of 7.6% in June 2001 and a 16.1% increase
in traffic.
Revenues from intrastate long distance increased 33% in 2002 to R$1,110.6
million, due to a 17.7% increase in traffic resulting primarily from an
estimated increase of 10% in market share, and the partial-year effect of an
average 8.5% rate increase in June 2002.
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Interstate long distance.
Revenues from interstate long distance services
increased 23.3%, from R$222.3 million in 2000 to R$274.0 million in 2001, due
mainly to a 10.7% increase in traffic, the full-year effect of an average 4%
rate increase in June 2000 and the partial-year effect of an average 7.6% rate
increase in June 2001.
In 2002, revenues from interstate long distance increased by 45.9%, from
R$274.0 million in 2001 to R$399.9 million, due mainly to a 23.6% increase in
total traffic, the full-year effect of the June 2001 rate increase and the
partial-year effect of an 8.5% rate increase in June 2002.
VC2 and VC3 services.
Revenues from VC2 and VC3 calls from fixed-line to
mobile units services increased 32.4% from R$346.9 million in 2000 to R$459.3
million in 2001, due principally to an 19.3% increase in traffic and an average
rate increase of 9.8% in February 2001.
In 2002, revenues from VC2 and VC3 calls increased 5%, to R$482.1 million,
due mainly to an average rate increase of 9.9% in February 2002, which was
partially offset by a 1.9% decrease in traffic.
Inter-regional
.
We commenced providing inter-regional long distance
services on July 20, 2002.
International
. Through the use of CSP 31 and the license acquired by Oi,
we began offering international long-distance services from Region I on July 6,
2002.
Other fixed-line services
Public telephones
. Revenues from the use of public telephones increased
24.5% from R$458.3 million in 2000 to R$570.4 million in 2001. This increase
was primarily due to the full-year effect of an increase, effective in June
2000, of 6.5% in per-unit public telephone rates as well as the partial-year
effect of a 12% increase in per-unit public telephone rates that became
effective in June 2001, and a 9% increase in sales of public telephone cards.
In 2001, we increased the number of public telephones by approximately 68.7%,
as part of our commitment to reach 2003 targets ahead of schedule.
In 2002, revenues from the use of public telephones increased 17.3% to
R$668.9 million, due mainly to the full-year effect of a 6.5% rate increase in
June 2001 and the partial-year effect of the 8% increase in June 2002. In
addition, sales of public telephone cards increased by 6.5%, reflecting
improved distribution of telephone cards and greater usage of our access code,
CSP 31, for long distance calls. Actions taken by Telemar to fight fraud, in
particular in long-distance calls, also contributed to this performance.
Advanced voice services
. Advanced voice services consist of "0800,"
"0300" and "0500" services providing businesses a number with agreed fees,
which may be charged to the caller or to the client. Revenues from these
services increased 53.9%, from R$115.4 million in 2000 to R$ 177.6 million in
2001, due to marketing campaigns and promotions to increase usage and the
increase in the average number of lines in service.
In 2002 these revenues totaled R$259.5 million, representing a 46.1%
increase compared to 2001, mainly due to new contracts signed during the year
with the main Brazilian TV "
Rede Globo
" for interactive shows.
Value-added Services
:
Value-added services consist primarily of services
such as directory assistance, caller ID, call waiting, voice mail and call
forwarding. Revenues from value-added services increased 12.6%, from R$229.0
million in 2000 to R$257.8 million in 2001, due primarily to higher demand for
such services through marketing campaigns and special promotions, and the
increase in the average number of lines in service.
In 2002 these revenues increased 17.3% to R$302.5 million, due principally
to an increase in the number of calls to our "102 information (directory
assistance) center," influenced by marketing campaigns included in our
invoices.
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Remuneration for the use of the network
Remuneration for the use of the network is charged depending on the volume
of usage of our local and long distance network and therefore, increases with
increases in market share and customer base as well as of both fixed-line and
wireless competitors.
Fixed-line network use
Revenues relating to fixed-line network use includes revenues received
from other telecommunication operators for the use of our fixed-line network in
completing local and long-distance calls, as well as, up to June 2001, the
"PAT," a supplemental per-minute charge that we received from Embratel in order
to reduce the impact of the termination of the revenue-sharing arrangement
between us. See "Item 4. Information on the Company—Our Operation—Network
Usage Services."
Fixed-line to fixed-line network use
. Revenues from fixed-line to
fixed-line network use increased 16.8% from R$1,071.5 million in 2000 to
R$1,251.2 million in 2001, due to a 16.1% growth in traffic, the full year
impact of the 14.1% increase in network usage rates in late June 2000, and the
partial–year effect of 8% average rate increase in June 2001. Such increases
were partially offset by the phasing out of the PAT, which decreased revenue
from R$84.5 million in 2000 to R$18.6 million in 2001.
In 2002 fixed-line-to-fixed-line network use revenues decreased 0.2% to
R$1,248.9 million, due to the final phase-out of the PAT, as well as to a
decrease in traffic in our network as our long-distance competitors made
investments in their own networks. With these investments, our competitors
have increased their points of presence in Region I, thereby reducing the
demand for the use of our network. In 2002 there was also a delay in the rate
increase conceded by Anatel, and only in December 2002 were we allowed an
increase of 1.7% in the local network usage and 5% in the long-distance usage
rate.
Mobile-to-fixed-line network use
. Revenues in this category consist
primarily of amounts paid by wireless telephone service providers for the use
of our network for completing calls initiated on their networks. Such revenues
increased 18.1%, from R$206.7 million in 2000 to R$244.2 million in 2001, due
primarily to growth in traffic, which resulted from an increase of 27.6%, from
10.5 million to 13.4 million in the number of wireless telephone subscribers in
Region I and the partial-year effect of a 8% increase in rates in June 2001.
In 2002 revenues from mobile-to-fixed-line network use increased 1.7% to
R$255.0 million, due to the full-year effect of the 8% rate increase in June
2001 which were almost completely offset by a decrease in traffic. The decline
in such revenues was also influenced by Oi's achieving an approximate 9% share
of the market for wireless services in Region I in 2002, as a result of which
part of our revenues from other wireless carriers were replaced by revenues
from Oi, which are eliminated upon consolidation.
Mobile network usage
This item, which includes revenues received from both fixed-line and
wireless telecommunication operators for the use of our wireless network in
completing calls since the start-up of Oi's in July 2002, represented
approximately 13.9% of our total wireless revenues, totaling R$27.4 million, in
the first six-month period of Oi's operations. Based on the best estimates
available in December 2002, Oi's market share within Region I was approximately
8.9%, while the penetration rate in this market is estimated at 17%. During
the six-month period of operations in 2002, we registered an average 84 minutes
per user.
Mobile-to-mobile network usage
: Since Oi's start-up in July 2002, these
revenues totaled R$19.8 million, mainly from the other mobile operators in the
main capitals in Region I.
Mobile to fixed-line network usage
: These revenues totaled R$53.7 million
during Oi's six months of operations during 2002, apart from R$45.9 million
from Telemar that was eliminated in the Consolidated Financial Statements.
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Table of Contents
Mobile telephone services (Oi)
Wireless services grew strongly throughout the first six months of
operations, with gross revenues of R$455.8 million, including R$388.0 million
in sales of handsets and accessories. Revenues from six months of wireless
telephone services operations accounted for 2.8% of gross consolidated
revenues.
Mobile telecommunications services in Brazil are offered on a "calling
party pays" basis, under which subscribers pay only for calls that they
originate, in addition to roaming charges.
Rates vary according to the service plan subscribed to, the call origin,
destination and length. Each call is billed for at least 30 seconds' duration
(for calls lasting 30 seconds of less) and thereafter for every additional 6
seconds. Under Oi's postpaid plans, customers pay subscription charges in
addition to usage charges.
Oi's average number of users grew from 278 thousand in the third quarter
to 869 thousand in the fourth quarter of 2002, and totaled approximately 1.40
million at December 31, 2002. Of this total, approximately 80% were users of
prepaid plans and 20% of postpaid plans, with an average revenue per user
(ARPU) of R$33.00. ARPU for prepaid users was R$23.90, and for postpaid,
R$66.90 in the six-month period of operations in 2002.
Monthly subscription charges
. Postpaid users pay a monthly subscription
charge and are billed on a monthly basis, varying according to the service plan
subscribed to. Subscription revenues totaled R$20.8 million in the six-month
period of operations, and the average subscription charge was R$24.
Originating calls
. Postpaid users are billed monthly based in their usage,
while prepaid service customers buy cards whose price varies according to the
number of minutes of usage allowed. Such cards are valid for a stated period
following activation. The revenues of these cards are only recognized when
used. These revenues totaled R$33.2 million in the six-month period of
operations.
Sales of handsets and accessories
. These revenues totaled R$388.0 million,
of which R$259.9 million represented revenues from sales of prepaid handsets
and R$101.0 million represented revenues from sales of postpaid handsets. The
remaining revenue of R$27.1 million was related to sales of "sim cards" (chips
containing information relating to the user's account, enabling the user to
change the handset used in connection with the account). We subsidize both
postpaid and prepaid handsets, and defer the subsidy of the postpaid handsets
for twelve months because the postpaid handsets do not have any value apart
from the future service contracts, whereby the subsidies are considered part of
the customer acquisition cost. Accordingly, we defer and amortize these
subsidies of the postpaid customers
during the minimum twelve-month contractual period. We do not defer the
subsidy of the prepaid customers because there is no early cancellation fee
under prepaid plans. The average price we charged in 2002 for a prepaid
handset was R$231.00, and for a postpaid handset, R$363.00.
National and international roaming.
We receive revenues from roaming
agreements with other local and international wireless operators. When a
subscriber of another wireless operator's services originates a call within
Region I, the other wireless operator pays us for the call at the applicable
rate. Roaming revenues totaled R$8.6 million, in 2002, of which international
roaming accounted for R$8.1 million.
Additional services.
In 2002 revenues from additional services totaled
R$5.1 million, mainly from GPRS (data), WAP (protocol for wireless data
networks) and SMS (short message). Combined revenues from these three services
amounted to R$4.2 million. GPRS service allows for wireless access to the
Internet through mobile telephones, laptops or palm pilots and permits
customers to use voice and data services simultaneously. The WAP portal is a
service and contents channel that permits customers to
64
Table of Contents
send and receive
e-mails, form contact groups, access bank accounts and buy tickets. Short
message services permit users to send messages, as well as to receive news,
sports information, horoscopes, jokes and other messages, with revenues based
on the volume of usage. Outgoing messages, used by 77% of our subscribers,
account for the bulk of revenues in this category
Data Transmission Services.
Dedicated digital line services – SLD
. Revenues from dedicated digital
line services consist of payments for the rental of dedicated digital lines for
data transmission, which are utilized primarily by corporate clients. Such
revenues increased 9.7% from R$251.1 million in 2000 to R$275.4 million in
2001. This increase was due to a migration from lower to higher speed (higher
cost) lines, which was partially offset by a reduction of the number of leased
lines.
In 2002 such revenues totaled R$275.6 million, as a result of revenue
increases from upgrades of speed and bandwidth, which was partially offset by a
price reduction in this segment and increasing offer by long distance
operators.
Industrial dedicated digital line services – EILD
. Revenues in this
category consist of payments for leases of dedicated data-transmission lines by
providers of telecommunication services, primarily wireless telephone
companies, which use such services to link their radio base stations to their
switching centers. Such revenues increased 1.3%, from R$339.9 million in 2000
to R$344.3 million in 2001. The increase resulted from the replacement of
low-speed data transmission lines to higher-bandwidth, higher-cost data
transmission lines, which was almost totally offset by a decrease in the number
of lines leased from us by wireless carriers, as they set up their own
networks. The impact of increasing competition in metropolitan area networks
also resulted in a reduction in prices, especially for higher-bandwidth lines.
In 2002, EILD revenues increased 8.4% to R$373.3 million, due to greater
demand for higher bandwidth. During 2002 we developed a product for data
transmission with speed greater than 2Mbps, denominated "Superlink," which
stimulated demand on the part of wireless operators. The increase of revenues
was partially offset by price reductions resulting from greater competition in
Region I.
Internet protocol ("IP") services
. IP services consist of dedicated and
dial-up access to the Internet for Internet service providers, as well as
virtual private network ("VPN") services that enable companies to set up
networks such as intranets and extranets. Revenues from IP services increased
17.1%, from R$46.8 million in 2000 to R$54.8 million in 2001, due to increases
in the amount of services provided, such as dial-up and dedicated VPN IP
services.
In 2002, revenues from IP services increased by 67.9% to R$92.0 million
due to continuous sales efforts to increase our share of this market segment,
including promotion of our product "TC IP Connect," through which we offer
higher speed and lower prices for long-term contracts.
Data transmission services
. Revenues from data transmission services
increased 101.2% in 2001 from R$32.2 million in 2000 to R$64.8 million in 2001,
due to increasing sales of new switched-packet and frame-relay services to
small and medium–sized businesses.
In 2002, revenues from data transmission services increased 34.7% to
R$87.3 million, due to continuous sales efforts of frame-relay services, market
acceptance of which has increased significantly.
Other data services.
Revenues from other data services consist principally
of the rental of dedicated data-transmission lines and circuits, including ADSL
lines for high-speed access to the Internet.
In 2001, revenues from other data services increased 444.3% from R$8.8
million in 2000 to R$47.9 million in 2001, due to the reclassification of
revenues from digital trunk and ISDN lines (R$29.6 million in 2000) to this
line item, which were previously recorded as monthly subscription charges.
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Such revenues increased 61.8% to R$77.5 million in 2002, due primarily to
an increase of 435% in the revenues of ADSL (Velox), from R$6.6 million to
R$32.9 million in 2002, as a result of our focus on increasing the penetration
by Velox of the Internet market. Velox is a broadband product launched April
2001, allowing for high-speed Internet access. The number of Velox
subscriptions increased 393.5% from 9,119 in December 2001 to 45,000 in
December 2002. The performance of Velox reflects the implementation of actions
such as the expansion of our network into new locations and specific marketing
and sales promotion efforts.
Other services, including contact center
Revenues recorded in this line item in 2001 and 2002 relate principally to
contact center services. Through 2000, revenues recorded in this line item
related primarily to publication of telephone directories and to billing and
collection services provided to other telecommunications operators. In 2000,
these other operators (mainly Embratel) began implementing their own billing
systems, as a result of which our revenues from such services declined.
We established our Contax contact center in late 2000 in order to offer
integrated telecommunications services, to attract business from corporate
clients, as another source of traffic revenue from the high volume required to
improve the quality of our services and to reduce our costs. Another purpose
of establishing Contax was to take advantage of significant growth
opportunities in the Brazilian market for outsourced call centers. The recent
increased use of remote contact channels between companies and their clients,
driven by the globalization of telephone services, significantly enhances the
prospects for growth in this market.
In April 2002 Contax launched its São Paulo call center, which is one of
Latin America's most advanced, accounting for 57% of the Brazilian contact
center market. In June 2002, in an attempt to acquire clients in the government
sectors, Contax established a branch in Brasilia. Its first client in that city
is Correios (Brazil's federal postal services agency).
Contax began rendering services in December 2000, recording revenues of
R$1 million in the first month of operations, all from Telemar (which are
eliminated upon consolidation).
Contax' revenues increased 43.7% from R$158.8 million in 2001 to R$228.2
million in 2002, mainly due to a 34.3% increase in the number of client service
positions, from approximately 6,000 in December 2001 to 8,055 in December 2002.
Of these revenues, a significant proportion (95.8%, or R$152.2 million in 2001,
and 71.2%, or R$162.4 million in 2002, represented services rendered to Telemar
and 8.1%, or R$18.4 million, to Oi).
As a result of the expansion in client service positions, in 2002 Contax
consolidated its leadership in its original operating areas, in addition to
ranking second in terms of outsourced contact centers, with a 20% market share.
Cost of Services
Cost of services increased 28.6%, from R$5,294.4 million in 2000 to
R$6,806.6 million in 2001, and by 19.8% in 2002 to R$8,152.4 million. The
following table sets forth certain components of our cost of services, as well
as the percentage change compared to the prior year.
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Table of Contents
Year ended December 31,
% Change
2000
2001
2002
2000 v.2001
2001 v.2002
(millions of reais)
Cost of services:
Depreciation and amortization
2,427.1
2,737.3
3,362.8
12.8
22.9
Interconnection
1,634.7
2,334.6
2,369.2
42.8
1.5
Third-party services
479.4
705.8
932.3
47.2
32.1
Personnel
397.2
525.4
440.4
32.3
(16.2
)
Materials
195.4
263.2
206.7
34.7
(21.5
)
Cost of handsets and accessories
414.4
Rental and insurance
147.0
220.4
390.6
49.9
77.2
Other
13.6
19.9
36.2
46.3
81.9
Total cost of services
5,294.4
6,806.6
8,152.4
28.6
19.8
Depreciation and amortization
Depreciation and amortization cost increased 12.8%, from R$2,427.1 million
in 2000 to R$2,737.3 million in 2001 due to the increase in the amount of our
depreciable assets resulting from capital expenditures made throughout 2001,
particularly in the second half of the year, in connection with our expansion
to meet Anatel's targets. In 2001 our average book value of property, plant
and equipment increased by R$7,027.9 million, reflecting our efforts to achieve
Anatel's targets and to launch our mobile services.
Depreciation increased 22.9% to R$3,362.8 million in 2002 (of which Oi
accounted for R$84.8 million), due in part to a 4.6% increase in the average
cost of property, plant and equipment between 2001 and 2002. The depreciation
costs of switching and transmission equipment will decline in 2003 and
thereafter because the useful life of this equipment was changed to five years
in the beginning of 1999, after the privatization.
Interconnection
Interconnection costs until 2001 consisted primarily of payments to
wireless service providers for the completion of calls originating on our
fixed-line network and terminating on wireless networks, and as of mid-2001 we
had increased costs due to the increased fixed-line and long-distance services
competition.
Interconnection service expenses increased 42.8% from R$1,634.7 million in
2000 to R$2,334.6 million in 2001, due primarily to a 12.6% increase in the
volume of calls from fixed-line to wireless units, which resulted from a 27.5%
increase in Telemar's lines in service, a 27.6% increase in the number mobile
subscribers in Region I and an average rate increase in mobile interconnection
rates of approximately 20% in the fourth quarter of 2000. Some of the cost
increase was also due to agreements signed between Vésper and Internet service
providers in Region I, increasing fixed-line competition.
Interconnection costs increased only 1.5% to R$2,369.2 million, despite
further growth of both the fixed and wireless networks and an average 12% rate
increase in February 2002. These increases were offset by our clients'
reductions in their volume of fixed-line to wireless calls, mainly due to our
campaigns to educate our clients about the higher cost of placing calls to
mobile telephones, which resulted in an increased number of our fixed-line
clients requesting us to restrict fixed-to-wireless calls. We were also able to
sign contracts with Internet service providers in Region I, increasing our
traffic against that of our competitors. Increased interconnection costs were
also offset by the migration of calls from fixed-line to mobile calls to
mobile-to-mobile calls, thus reducing our VC revenues and interconnection
costs.
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Table of Contents
Third-party services
Third-party services consist primarily of third-party "technical plant" services, principally:
•
installation services;
•
maintenance and repair of terminal equipment and infrastructure;
•
producing, publishing and distributing telephone directories; and
•
the measurement of traffic between the networks of
telecommunication services providers.
Costs of third-party services increased 47.2%, from R$479.4 million in
2000 to R$705.8 million in 2001, due principally to an increase of R$193.3
million in network maintenance and installation expenses as a result of the
41.4% growth in our number of installed lines, as a consequence of our
expansion to meet Anatel's targets.
Costs of third-party services increased by 32.1% to R$932.3 million in
2002, driven primarily by the growth of network maintenance expenditures
resulting from the growth of the network and Oi's start-up, the latter totaling
R$61.0 million and an increase of R$9.9 million in such costs incurred by
Contax, related to the increase in client service positions.
Personnel
Personnel expenses recorded under cost of services reflect expenses for
personnel involved in network maintenance, installation and repair. Personnel
expenses increased by 32.3% from R$397.2 million in 2000 to R$525.4 million in
2001. The increase was attributable to the increase of our average number of
employees and outsourced personnel, due to our expansion to meet Anatel's
targets, from an average of 39,461 in 2000 to 45,542 in 2001, an increase of
15.4%. In 2001, we began headcount reductions following the achievement of
Anatel's targets, and as a result incurred total layoff costs of R$94.6
million, and increase of 111% some 2000.
Personnel expenses decreased by 16.2% to R$440.4 million in 2002, as a
result of headcount reductions, mainly involving employees engaged in
installation of the network. The R$114.3 million reduction in personnel costs
was partially offset by a R$41.2 million increase in personnel costs at Contax,
reflecting the expansion of its services and an increase from 11,938 employees
in December 2001 to 18,082 in December 2002. Oi accounted for R$5.5 million in
personnel costs in 2002.
Materials
Materials expense increased 34.7%, from R$195.4 million in 2000 to R$263.2
million in 2001. The increase in materials costs in 2001 was related to:
Maintenance materials for the network, the cost of which increased by
82.5%, from R$77.6 million to R$141.1 million, during the year, due to the
growth in line installations in 2001 (5.3 million lines, compared to 2.1
million lines in 2000); and
Phone cards, the cost of which increased 20%, due to an 8.9% increase in
the number of cards purchased and a 10% increase in costs.
In 2002 the costs of materials decreased 21.5%, to R$206.7 million, due to
a decrease in the number of line installations to 2.13 million. The reduction
in the cost of materials was partially offset by an increase in costs of
fixed-line network maintenance, which grew throughout the year.
Materials costs incurred by Oi and Contax totaled R$0.8 and R$2.8 million,
respectively.
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Table of Contents
Rental and Insurance
Rental and insurance costs consist primarily of insurance and fees paid to
third parties as well as equipment rental for our network. These costs
increased 49.9%, from R$147.0 million in 2000 to R$220.4 million in 2001,
mainly in connection with the expansion of the network to meet Anatel's targets
and cost increases for several rental items, such as telephone and light poles,
satellite transponders, industrial dedicated line services and vehicles and
buildings.
Rental and insurance costs increased 77.2% to R$390.6 million in 2002,
principally as a result of increased fixed line rentals resulting from an
increased need for dedicated line services as Telemar rendered long-distance
services and the expansion of the network, which resulted in higher costs
regarding rights of way.
Oi incurred R$48.4 million in rental costs in 2002, mainly for radio base
stations and spaces to install its antennas.
Other
Other costs of services consist primarily of certain taxes, in particular
a tax imposed by Anatel on providers of telecommunication services, referred to
as
Taxa de Fiscalizacão de Telecomunicações
("FISTEL"), which is a fee for the
inspection of switching stations.
Other costs increased 46.3% from R$13.6 million in 2000 to R$19.9 million
in 2001, reflecting the increase in FISTEL fees resulting from the expansion of
our network to meet Anatel's targets. In 2002, other costs increased by 81.9%,
to a total of R$36.2 million, mainly due to network growth.
Oi recorded R$3.7 million in other costs of services in 2002. The FISTEL
fee for activation of postpaid and prepaid subscribers (R$26.83 per subscriber)
is being deferred as prepaid expenses and amortized some 24 months. As of
December 31, 2002, R$34.1 million of such costs was recorded on the balance
sheet as prepaid expenses.
Net Operating Expenses
Net operating expenses include selling, general and administrative and
other operating income (and expenses). Total net operating expenses increased
67.3%, from R$1,593.4 million in 2000 to R$2,666.3 million in 2001 and
decreased by 13.2% in 2002, totaling R$2,313.1 million. The following table
sets forth certain components of our net operating expenses, as well as the
percentage change compared to the prior year.
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Year ended December 31,
2000
2001
2002
2000-2001
2001-2002
(millions of reais)
% Change
Net operating (expenses) income:
Selling
(885.7
)
(1,571.1
)
(1,307.4
)
77.4
(16.8
)
General and administrative
(835.8
)
(869.7
)
(1,014.6
)
4.1
16.7
Other net operating income
(expense)
128.1
(225.5
)
(144.3
)
(276.0
)
(36.0
)
Other non-recurring
extraordinary income
153.2
Total net operating (expenses)
income
(1,593.4
)
(2,666.3
)
(2,313.1
)
67.3
(13.2
)
Selling Expenses
Selling expenses increased 77.4% from R$885.7 million in 2000 to R$1,571.1
million in 2001, due mainly to an increase in the provisions for doubtful
accounts, which grew 323.2% or R$706.9 million, reaching R$925.6 million and
secondarily to an increase in marketing expenditures, from R$150.0 million in
2000 to R$180.2 million in 2001. The increase in bad debt provisions resulted
from several factors, including: the increase in sales to lower-income
customers, the Brazilian economic slowdown in 2001, and the implementation of
an integrated accounts receivable system and improvement in information, which
resulted in a more rigorous analysis of outstanding accounts receivable during
the year. Additionally, we increased our provisions for doubtful accounts by
R$344.0 million to include certain government agencies, corporate customers and
other telecommunications service providers that could present some collection
risk especially in light of the increasing number of competitors offering
services in Region I. Selling expenses decreased 16.8% to R$1,307.4 million in
2002, due principally to a 33.4% reduction in provision for doubtful accounts
in 2002, which declined from R$925.6 million in 2001 to R$616.0 million in
2002, the reduction being attributable to the measures taken by management
throughout the year aimed at bringing down delinquency levels. The decline in
provision for doubtful accounts was partially offset by Oi's incurrence of
R$181.2 million in selling expenses, related mainly to call center, sales
commission and advertising costs.
The decline in selling expenses in 2002 was also due in part to a
reduction of R$41.4 million, in marketing expenses, due principally to a
reduction by Telemar of its marketing expenses by R$93.9 million, reflecting
decreased competitive pressure in the Region, which was partially offset by
marketing expenses of Oi, which spent R$65.3 million to launch its brand name.
General and Administrative Expenses
General and administrative expenses increased 4.1% from R$835.8 million in
2000 to R$869.7 million in 2001. The increase in 2001 was mainly due to
additional spending on consultancy, legal advisory and data processing
expenses, all related to the corporate restructuring process, as well as
systems integration and support for our corporate data processing center.
General and administrative expenses increased by 16.7% to R$1,014.6 million in
2002, due principally to an increase of R$53.6 million in third-party services,
mainly consultancy, the incurrence by Oi of R$50.8 million of personnel and
third-party services costs and a R$22.7 million in increased personnel expenses
of Telemar.
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Other Net Operating Income (Expense)
Other net operating income (expense) includes revenues from fines
collected for late payments by customers, technical and administrative services
(such as billing, computer services and similar) rendered by us to third
parties (principally wireless companies), expenses for research and development
provisions for contingencies and miscellaneous.
We recorded other net operating income of R$128.1 million in 2000,
compared to net operating expense of R$225.5 million in 2001. Other net
operating income recorded in 2000 resulted mainly from the reversal of certain
provisions for contingencies, which had been established to cover probable
losses from lawsuits based on reports of our external legal consultants that
exceeded the amount of losses incurred, as well as from fines applied on late
payments.
The increase in other operating expenses in 2001, from R$128.1 million in
income in 2000 to R$225.5 million in expenses, was due primarily to the
constitution of additional provisions for contingencies based on probable
losses, which went from a gain of R$57.3 million in 2000 (from reversals of
contingencies) to an expense of R$316.9 million in 2001. This change resulted
from a number of significant new and outstanding lawsuits, monetary
restatements of existing provisions for contingencies based on the reports of
our external legal consultants and the constitution of additional provisions
for interest accrued on the amount of tax claims and monetary restatement of
civil and labor claims. Interest on the amount of tax claims is accrued based
on the market rate (SELIC). Other operating expenses in 2001 were partially
offset by an increase in other operating revenue from fines applied on late
payments increased from R$75.3 million in 2000 to R$102.0 million in 2001 and
by the total amortization of R$175.4 million of negative goodwill in connection
with our August 2001 corporate restructuring.
Other net operating expenses declined by 36% to R$144.3 million in 2002.
The decline resulted principally from the reduction, from R$316.9 million to
R$38.7 million in our provisions for contingencies and from the variation of
total amortization of the negative goodwill in 2001, totaling R$174.5 million.
The extraordinary income refers to the reversal of R$153.2 million of
provisions for tax contingencies under the
Fundação Sistel de Seguridade Social
("SISTEL") defined contribution pension plan pursuant to a settlement agreement
with Brazil's Federal Government.
Interest Income
Interest income increased 80.3% from R$274.2 million in 2000 to R$494.4
million in 2001. The increase in interest income in 2001 was due primarily to
an improvement in our cash position, which was substantially higher (22.6% on
average) than in 2000, as well as to an increase in average interest rates
throughout the year.
Interest income decreased 22.2% to R$384.5 million in 2002, due
principally to a 9% decline in our average cash position, as well as to an
increase of R$64.3 million in option premium payments on hedging instruments.
Interest Expense
Interest expense increased by 184.4% from R$323.1 million in 2000 to
R$918.8 million in 2001, which resulted principally resulted from an increase
of 197.9% in our average level of gross debt, which increased from R$2,801.4
million at year-end 2000 to R$8,344.5 million at year-end 2001, devaluation of
28.5% of the Brazilian currency in 2001.
Interest expense increased 155.3% to R$2,345.6 million in 2002, as a
result of increases in domestic interest rates and an average 24.7%
depreciation of the currency throughout 2002. It should be noted that,
although a large portion of the foreign debt had been hedged via swap contracts
or call spread options, the cost of renewing such transactions in Brazil rises
substantially particularly during periods of
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uncertainty, as occurred in 2002. In addition, in 2002 we recorded as
interest expense R$418.4 million of start-up costs of Oi, which had to be
recognized in June 2002 as Oi began its operations.
Non-operating income (expense), net
Net non-operating expenses under the Brazilian Corporate Law consist
principally of equipment disposal in connection with the modernization of the
network, and gains and losses on equity investments in unconsolidated
companies.
In 2001, we had non-operating expenses of R$2.1 million, compared with
R$15.9 million of non-operating income in 2000. The expense in 2001
principally reflects the write-off of equipment in connection with the
modernization of the network, which was partially offset by gains in the
percentage of interest in share capital of subsidiaries.
We recorded R$28.4 million of non-operating income in 2002, principally as
a result of R$15.0 million in gains in the percentage of interest in share
capital of subsidiaries and R$28.7 million in gains from the assignment to a
satellite company of a right that we were granted by Anatel, free of charge on
the execution of the Concession Agreement, to place a geostationary C Band
satellite. This assignment was effected through the execution of a partnership
agreement between Telemar and Hispamar Satélites S.A., a subsidiary of Hispamar
Ltda., under which we obtained an ownership interest in Hispamar Satélites S.A.
Employees' Profit Sharing
The amount of our employee profit sharing is now determined entirely by
negotiations between us and our employees or the labor unions representing
them. Our employees' profit sharing totaled R$64.8 million in 2000, R$28.4
million in 2001 and R$130.9 million in 2002. The variation in employees'
profit sharing as a percentage of net income is due primarily to variability in
the income of our subsidiaries, which is the basis for calculating employees'
profit sharing, as well as variability of the targets that we have negotiated
with them.
Income Tax and Social Contribution
The composite statutory rate of income taxes was 34% in all three years.
We recorded income and social contribution tax expense of R$174.6 million in
2000 and a tax benefit of R$21.7 million in 2001, due primarily to a decline,
from R$1,141.3 million in 2000 to R$175.4 million in 2001, in income before
taxes, which is the primarily determinant of tax expense. In 2001 we recorded
write-off of accounts receivable in the total amount of R$147.4 million, which
is not tax deductible, which effectively increased the amount of our income tax
expenses by R$50.1 million. With the merger of the subsidiaries we recorded
another tax loss of R$61.5 million, since the merged companies may not maintain
tax loss carry-forwards. Despite these negative effects, a tax benefit of
R$110.7 million resulted from the amortization of the Goodwill, see "Item 3.
Key Information - Effects of Downstream Merger."
In 2002 we recorded a tax benefit of R$371.3 million, mainly due to a
R$655.1 million of loss before income tax. Furthermore, we recorded in 2002 a
tax benefit of R$227.2 million due to the payment of interest on capital, which
is tax deductible, instead of dividends.
Minority Interests
We recorded minority interest expense of R$257.2 million, R$56.7 million
and R$131.9 million in 2000, 2001 and 2002, respectively, which reflects the
participation of the Telemar's minority shareholders in the net income or loss.
The variations reflect fluctuations in Telemar's net income.
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Table of Contents
Net Income
As a result of the above, we had net income R$709.4 million in 2000 and
R$140.4 million in 2001, and a net loss of R$415.6 million in 2002.
Liquidity and Capital Resources
Uses of funds
Our principal use of funds is for capital expenditures and payments of
dividends to shareholders of TNL and Telemar. The Company is scheduled to make
approximately R$1.8 billion in capital expenditures in the course of 2003, of
which about 55% will be used by Telemar, essentially for network maintenance,
service improvements and new product development (ADSL, Dial IP, EILD, etc.),
approximately 40% will be used by Oi, mainly for network expansion and IT
systems development; and the remainder will be used by Contax.
Capital expenditures totaled R$2,936.8 million, R$10,042.0 million and
R$2,013.4 million for the years ended December 31, 2000, 2001 and 2002,
respectively. The expenditures were primarily related to the expansion of our
network to meet Anatel's targets and to build a network for Oi. See "Item 4.
Information on the Company—Capital Expenditures." The large amount of capital
expenditures in 2001 compared with 2000 and 2002 primarily reflects
expenditures made to meet Anatel's targets. In addition, we paid dividends and
interest on capital in the amount of R$315.0 million, R$386.5 million and
R$386.6 million in 2000, 2001 and 2002, respectively. At our annual
shareholders' meeting held on March 31, 2003, the distribution of dividends and
interest on capital of R$668.4 million in respect of 2002 income were approved.
Sources of funds
TNL relies almost exclusively on dividends and interest on capital from
Telemar to meet its needs for cash, including the payment of dividends to its
shareholders. TNL controls the payment of dividends and interest on capital by
Telemar, subject to limitations under the Brazilian Corporate Law.
Our primary source of funds is cash flow generated from continuing
operations of Telemar, net of taxes applicable to both continuing and
discontinued operations. Cash flow provided by operating activities was
R$3,063.3 million in 2000, R$4,928.3 million in 2001 and R$4,172.3 million in
2002. We consider that the cash flows provided by our operating activities
will be sufficient for our expected cash requirements.
We also obtain cash through bank debt and other forms of financing.
Disregarding the effects of our hedging agreements, we had R$12,219.8 million
of total indebtedness at December 31, 2002, compared with R$8,344.5 million of
total indebtedness at December 31, 2001. The principal source of the
indebtedness is bank debt. We also have issued R$1.3 billion in debentures
issued in the domestic market and have approximately R$0.5 billion in
supplier's credits. Net of our current cash position, our debt amounted to
R$9,121.0 million at December 31, 2002, up 18.4% from R$7,703.3 million at
year-end 2001. This increase resulted principally from the taking of new bank
debt and suppliers' credits to finance expenses associated with the start-up of
Oi.
Approximately 72.5% of our total financing at December 31, 2002 was
denominated in foreign currency (compared with 57.6% at December 31, 2001).
The average annual rate of interest on local currency debt, which totaled
R$3,363.5 million (including debentures) at the end of 2002, was approximately
18.5%, determined based on CDI at 25% per annum. The average cost of foreign
currency debt, which totaled R$8,856.4 million, is LIBOR plus 5% per annum, for
US dollar loans and 1.7% per annum for Japanese Yen loans. As of December
2002, approximately 84.8% of our financing bore interest at floating
rates.
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Taking into account the effects of our hedging agreements, our total debt
as of December 31, 2002, including debentures, was R$10,774.4 million, net of
swap operations in the amount of R$1,445.4 million.
In December 2000, we renegotiated our bridge loan with BNDES, increasing
the available credit from R$400 million at December 31, 1999 to R$2,700 million
at December 31, 2000, of which R$1,001 million had been disbursed at the end of
2000. In 2001, an additional R$1,869 million was disbursed by BNDES. The
difference between the amount disbursed and the total R$2,700 million amount of
the facility is due to monetary adjustments. The BNDES facility, 30% of which
denominated in foreign currency, provides for repayment in equal monthly
installments, beginning in January 2002 through the final maturity of the
facility in January 2008. The interest rate on the local currency portion of
the loan is the floating long-term interest rate of BNDES (TJLP) plus 3.85% per
year, and, on the foreign currency portion, a currency basket rate determined
by BNDES. Both interest rates are determined quarterly by BNDES. Our loan
agreement with BNDES requires that we comply with the following financial
covenants: (a) current assets divided by current liabilities (AC/PC) must be
equal to or greater than 1.20; and (b) EBITDA divided by current liabilities
(EBITDA/PC) must be equal to or greater than 1.20. As of December 31, 2001 and
2002, the Company had not met the AC/PC ratio. Banco Itaú S.A. and Banco do
Brasil S.A., as leaders of a syndicate of lenders, and BNDES, granted the
Company a waiver, by formal letters increasing the agreement's interest rate
from 3.85% per annum to 4.40% per annum.
An extraordinary General Shareholders' Meeting of TNL held on April 30,
2001 approved the issuance of R$1,300 million of five-year non-convertible
debentures in the domestic market, bearing a six-month floating interest rate
of CDI plus 0.7% per annum. The debentures were issued on June 1, 2001. We
accrued R$139.1 million and R$245.3 million of interest on the debentures in
2001 and 2002, respectively
On August 10, 2001, Oi, as issuer, and TNL as guarantor, signed a Note
Purchase Facility Agreement in the amount of R$1,040 million with Oi's main
suppliers Nokia, Siemens and Alcatel and with ABN AMRO Bank N.V as
administrative and participation agent and as arranger, together with seven
other international banks. This facility has a five-year term of amortization
from August 2004 to final maturity in August 2009, and bears a floating
interest rate of three-month LIBOR plus 3.3% to 5.5% per annum. We drew down
R$1,153.2 million under this facility in 2001. In addition, Oi drew down
R$417.0 million, R$319.0 million and R$168.0 million in February, May and
August 2002 under new facilities, on the same terms, negotiated with ABN AMRO.
As of December 31, 2002, our total indebtedness under these ABN AMRO facilities
amounted to R$3,131.5. This facility also restricts the amount of liens that
can be placed on equipment to be no more than the total amount drawn down.
In August 2001, TNL entered into a Loan Agreement with the Japan Bank for
International Cooperation (JBIC) for up to the Yen equivalent of US$300 million
(¥41 billion) to finance the expansion of TNL's telecommunications network in
an effort to meet Anatel's 2003 targets by the end of 2001. Outstanding
principal amounts under the JBIC Facility bear interest at 1.25% per annum,
payable semi-annually. Along with other covenants customary for financings of
this type, the JBIC facility requires that TNL's ratios of total consolidated
debt to consolidated EBITDA not exceed 4.5 to 1, and that TNL's ratio of
consolidated EBITDA to consolidated interest expense exceeds 1.75 to 1.
TNL has also entered into a number of smaller vendor financing
arrangements to support the purchase of equipment and services needed for the
continuous expansion of its telecommunications network. Like the facilities
described above, these vendor financings contain typical financing covenants,
such as restrictions on liens (similar to the restrictions described above),
sales of assets and mergers as well as the requirement to meet the financial
covenants described above. For additional information on our defaults see
"Item 13 Defaults, Dividend Arrearages and Delinquencies."
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Although we strongly believe this will not occur, in the case that credit
lines cease to be available, we will need to reduce our investments in order to
use our cash flow from operating activities. The Company does not have any
material off-balance sheet transactions.
The following table shows our known contractual obligations:
Payments due by period
Less than
More than
Total
1 year
1-3 years
3-5 years
5 years
Short term debt
1,747,472
1,747,472
Long term debt
7,705,869
4,064,273
2,683,881
957,715
Capital lease
obligations
46,755
28,904
16,540
1,311
Operating lease
137,910
137,910
Purchase obligations
177,138
177,138
Debentures
1,321,039
21,039
1,300,000
Total obligations
11,136,183
2,112,463
4,080,813
3,985,192
957,715
US GAAP Reconciliation
We have presented our Consolidated Financial Statements in accordance with
Brazilian Corporate Law, which differs in significant respects from US GAAP.
The differences are described in Note 30 to the Consolidated Financial
Statements. In 2000, US GAAP net income was R$962.4 million compared to
Brazilian Corporate Law net income of R$709.4 million. In 2001, US GAAP net
loss was R$90.1 million compared to a Brazilian Corporate Law net income of
R$140.4 million. In 2002, US GAAP loss was R$1,392.5 million compared to
Brazilian Corporate Law loss of R$415.6 million.
As of December 31, 2000, shareholders' equity under US GAAP was R$10,977.2
million, compared to R$10,331.4 million under the Brazilian Corporate Law.
Shareholders' equity under US GAAP was R$10,503.1 million on December 31, 2001,
compared to R$10,023.3 million under Brazilian Corporate Law. As of December
31, 2002, shareholders' equity under US GAAP was R$8,785.7 million compared to
R$9,163.2 million under the Brazilian Corporate Law.
The differences between Brazilian Corporate Law and US GAAP that have the
most significant effects on net income and shareholders' equity are the
inflationary accounting methodology and indices, the treatment of the corporate
reorganization, pension and other post-retirement benefits, funds for
capitalization, capitalization and depreciation of capitalized interest,
development stage subsidiaries (deferred charges), down-stream merger, earnings
per share and income taxes and social contribution.
The effect in 2002 refers to the fair value adjustment of derivative
transactions, required by FAS No. 133. The main derivative transactions refer
to swaps agreements that protect the Company from foreign exchange rate
variations. This adjustment, totaling R$1,401.3 million in 2002 will actually
offset the financial expenses from foreign currency indebtedness if we maintain
these agreements to maturity.
Item 6.
Directors, Senior Management and Employees
Board of Directors
TNL is managed by a Board of Directors
(Conselho de Administração)
and a
Board of Executive Officers
(Diretoria).
The Board of Directors is currently
made up of eleven regular members and eleven
alternates serving for a term of three years. The Board of Directors
holds a regular meeting once a month and holds special meetings when called by
the Chairman or by two members of the Board of Directors.
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The following are the members of the Board of Directors and their
respective positions.
Name
Position
Carlos Francisco Ribeiro Jereissati
Chairman
Fersen Lamas Lambranho
Director
Celso Fernandes Quintela
Director
Roberto Timotheo da Costa
Director
José Fernandes Pauletti
Director
Mauricio Borges Lemos
Director
Luiz Eduardo Franco de Abreu
Director
Eloir Cogliatti
Director
The following are brief biographies of the members of the TNL Board of
Directors:
Carlos Francisco Ribeiro Jereissati,
born on June 21, 1946, is the
Chairman of the Board of Directors. He was elected chairman in November 2002.
He has served as a member of the Board of Directors since August 1998 and was
Chairman of the Board of Directors from August 1998 to August 2000. He is an

Executive Officer and has been a member of the Board of Directors of Telemar
Participações S.A. since 1998. He served as Chairman of the Board of Telemar
from November 1998 to September 2000. He served as member of the Board of
Directors of the São Paulo Stock Exchange, as Vice Chairman of the Board of
Directors of Companhia Vidraçaria Santa Marina (Saint Gobain Group) and as
President of the Executive Council of ABRASCE (Brazilian Association of
Shopping Malls). He currently serves as the Chief Executive of the Jereissati
Group (La Fonte/Iguatemi) and is a member of the Consultant Council of SECOVI
(Union of the Companies engaged in the Purchase, Sale, Rental and Management of
Residential and Commercial Real Estate of São Paulo). He holds a degree in
economics from Mackenzie University of São Paulo.
Fersen Lamas Lambranho
, born on October 11, 1961, was elected substitute
member of the Board of Directors of the Company in August 1999, and was
appointed a regular member in August 2001. From August 29, 2001 to November 1,
2002, he served as the Chairman of the Board of Directors. He has also served
as a member of the executive board of Telemar Participações S.A. since August
25, 1999. He is also partner of GP Investmentos S.C. Ltda. and member of the
Board of Directors of many companies such as Playcenter S.A., ABC Supermercados
S.A., Lojas Americanas and São Carlos Participações e Investimento. Before
being appointed to the TNL Board of Directors he served in several positions at
Lojas Americanas S.A., including the CEO from 1996 to 1998. He holds a BSc. in
Engineering and an MBA from COPPEAD (Instituto de Pós Graduação e Administração
de Empresas), both from Universidade Federal do Rio de Janeiro and also an OPM
(Owner's President Management Program) from Harvard Business School in 1996.
Celso Fernandez Quintella,
born on January 29, 1944, has served as a
member of the Board of Directors since April 1999. He has been a director of
Construtora Andrade Gutierrez and of Andrade Gutierrez S.A. (the AG group
holding company) since 1991. He has also served as a member of the Board of
Directors since August 1999 and a Chief Executive Officer since November 2002
of Telemar Participações S.A. He was a member of the Board from Flexibrás
Tubos Flexíveis from 1986 to 1989 and member of the Board of Companhia
Eletromecanica (CELMA) from 1991 to 1995. He holds a degree in Engineering
from Universidade Federal do Rio de Janeiro and an OPM (Owner's President
Management Program) from Harvard Business School.
Roberto Timotheo da Costa
, born on May 14, 1945, was appointed to the
Board of Directors of the Company on February 26, 2003. Mr. Costa holds a
degree in Civil Engineering and a MSc in Economic Engineering (Catholic
University — Rio/1972), he took specialization courses in Business
Administration (London Business School/1978), MBA Executivo (COPPEAD)
Instituto de Pós
Graduação em Administração de Empresas/1994 and Finance and Capital
Markets (Fundação Getúlio Vargas/EPGE/1997). A retired employee of Banco
Nacional de Desenvolvimento Social – BNDES,
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Mr. Costa held several executive
positions at the bank, including head of Information and Budget department,
superintendent of AA and FAPES. As of January 2003, he rejoined BNDES in the
capacity of officer in charge of Administration and Finance. His prior
activities include: chief financial officer of FINEP; assistant general
secretary of the Ministry of Home Affairs; coordinator of the chief of staff of
the Brazilian President; chief executive officer of Cia. Nacional de Álcalis,
and Alcanorte; and general superintendent of Comissão de Valores Mobiliários.
He is also a member of FAPES' Deliberative Board, as a representative of
participants in 2002.
José Fernandes Pauletti
, born on February 17, 1949, has served as a member
of the Board of Directors since December 2001. He had previously served as the
acting CEO from July 2001 to January 2003, before which he had been the Chief
Operations Officer, a position he was elected to on May 5 1999. He has served
as Chairman of the Board of Directors of Telemar Norte Leste S.A. since July
2001. Before that, he also served as a top executive officer at Embratel, STC,
Elebra, Digital Equipment Corporation and Promon. He holds a degree in
Business Administration from the Universidade de Caxias do Sul- RS and an MBA
from Fundação Getúlio Vargas São Paulo.
Maurício Borges Lemos
, born on April 14, 1951, was appointed to the Board
of Directors of the Company on February 26, 2003. Mr. Lemos holds a degree in
Economics from the Federal University of Minas Gerais. He received his MSc.
and PhD. in Economics from the State University of Campinas (Unicamp) in 1977
and 1988, respectively. Mr. Lemos has been a professor of the Economics School
at the Federal University of Minas Gerais (Face/UFMG) since 1991. He was a
professor of economics in the Social Sciences Basic Course of UFMG in 1976, and
member of the faculty of Centro de Desenvolvimento e Planejamento Regional
(Regional Development and Planning Center — Cedeplar) of this university from
1977 to 1981. He was a professor of the Masters course of Cedeplar in 1982, in
1986-1991 and in 2000. In 2003, he joined Banco Nacional de Desenvolvimento
Econômico e Social as officer in charge of the Industrial Area. In 2002, he
served as Secretary of Government, Planning and General Coordination of the
Municipality of Belo Horizonte, State of Minas Gerais, where he also held other
positions as a Municipal Secretary (Social Policy Coordinador, from 2001 to
2002, and Planning, from 1993 to 2000).
Luiz Eduardo Franco de Abreu
, born on May 4, 1960, was appointed to the
Board of Directors of Telemar Participações S.A. and Tele Norte Leste
Participações S.A. on February 26, 2003. Mr. Abreu has been Vice-President of
Finance, Capital Markets and Investor Relations with Banco do Brasil since
January 29, 2003. He served as a member of the Audit Committee of ITAÚSA
Investimentos Itaú S.A., Chairman of the Boards of Directors of Cartões BRB
S.A. and BRB Banco de Brasília S.A., member of the Board of Directors of
CIBRASEC, member of the Deliberative Board of ABECIP and the Executive Board of
Federação Brasileira de Bancos (FEBRABAN). His prior positions include Chief
Executive Officer of BRB Banco de Brasília S.A., Financeira and Distribuidora
de Títulos e Valores Mobiliários (DTVM), Chief Operations Officer of ORMEC
Engenharia Ltda., Chief Finance Officer of GFC Global Finance Consulting S.C.
Ltda., and Chief Operations Officer of Pacific do Brasil Comércio Exterior
Ltda. Mr. Abreu holds a B.A. in Business Administration from the Universidade
Federal do Rio de Janeiro, with a specialization in Finance from Instituto
Brasileiro de Mercado de Capitais (IBMEC) and a degree in Business
Administration from Duke University.
Eloir Cogliatti
, born on November 30, 1955, served as deputy member of
the Board of Directors of Tele Norte Leste Participações S.A. from April 2001
to February 2003, when he was appointed as a full member, as well as member of
the Board of Directors of Telemar Participações S/A. An employee of Banco do
Brasil S.A., Mr. Cogliatti held several positions (financial transaction desk
Manager (GEROF-ADJOP), Executive Manager of Capital Markets and Executive
Superintendent of Capital Markets) prior to November 2001, when he was
appointed to his current position of Director of Capital Markets and
Investments. He served as a member of the Board of Directors of Sociedade
Operadora de Mercado de
Ativos – SOMA from November 1999 to December 2000, member of the Audit
Committee of PRONOR Petroquímica S.A. from April 1999 to April 2000. He has
been Chairman of the Board of Directors of
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Kepler Weber S.A. since May 2000,
member of the Board of Directors of TNL PCS since October 2001, member of the
Board of Directors of Guaraniana Participações since April 2002, and deputy
member of the Board of Directors of COELBA — Cia de Eletricidade do Estado da
Bahia since April 2002. Mr. Cogliatti holds a degree in Economics from the
Catholic University of Petrópolis RJ (1980) and took a post-graduate course at
Fundação Getúlio Vargas EPG MBA. Management – Formação de Gerentes e Diretores,
which he completed in February 2002.
Board of Executive Officers
The Board of Executive Officers of TNL consists of two Superintendent
Directors (CEOs), and three other Directors, with one acting as the CFO, and
the third position being currently vacant. The Executive Officers are elected
by the Board of Directors for a term of three years and may be removed from
office at any time.
The following are the Executive Officers and their respective positions.
Name
Position
Ronaldo Iabrudi dos Santos Pereira
Superintendent Director
Luis Eduardo Falco Pires Corrêa
Superintendent Director
Marcos Grodetzky
Director
Julio Cesar Pinto
Director
Ronaldo Iabrudi dos Santos Pereira,
born on May 14, 1955, was elected
Superintendent Director in October 2002 after being elected Vice-President of
Operations (COO) in December 2001. He has a degree in Psychology from the
Catholic University of Minas Gerais (1976) and has Masters degrees in
Organizational Management from the Université de Paris-Sorbonne (1981), and in
General Management from the Université de Paris-Dauphine (1982), where he also
received a Ph.D. in Organizational Change (1984). He has worked at Acesita
(1974), at the Fundação Dom Cabral (1984), and at the Gerdau Group for 11
years, as a member of the Executive Committee, and at the Centro-Atlantic
Railway where he was appointed CEO in October 1997. He joined TNL in November
1999 as Managing Director of the Northern Region.
Luiz Eduardo Falco,
born August 13, 1960, was elected Superintendent
Director in October 2002 after being elected President of Oi in October 2001.
He previously worked at Transportes Aéreos Marilia – TAM, where he held several
positions such as Production Manager, Director of Technology and Vice President
of Marketing and Sales. He received a degree in aeronautical engineering from
Instituto Tecnológico da Aeronáutica – ITA and has taken continuing education
courses in marketing and finance at Fundaçao Getúlio Vargas.
Marcos Grodetzky
, born on November 24, 1956, was elected to the Board of
Executive Officers on October 2, 2002, when he also became responsible for the
Company Treasury and was elected Investor Relations Officer. Since March 24,
2003, he has been CFO of the Company, a position that is held at the same time
with the CFO position at Telemar. Mr. Grodetzky holds a degree in Economics
from UFRJ, and from 1979 to 1991 was a financial executive with Citibank, where
he held several positions and was eventually appointed Vice-President. Prior
to this, he was Vice-President in the financial area of Banco
Nacional/Unibanco, Banco Safra and a partner in MJ Partners, a management
consultancy firm.
Júlio Cesar Pinto
, born on October 7, 1951, was elected to the Board of
Directors on October 2, 2002, when he also assumed responsibility for the
Company Controllership. Mr. Pinto held several positions in the financial area
of large companies such as MRS Logística, ATL — Algar Telecom Leste, Globex
Utilidades, Aracruz Celulose, Xerox do Brasil, and Minerações Brasileiras
Reunidas. He holds a
degree in Accounting from Faculdade Moraes Júnior, and took several
additional courses in the US,
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including the Stanford University Financial
Management Program Xerox Corporation Middle Management Program, and Citibank
N.A. The Bourse Game.
Conselho Fiscal
The
Conselho Fiscal
of TNL consists of five effective members and five
alternates, elected pursuant to a shareholders' meeting for a term of one year.
The
Conselho Fiscal
meets once every three months, on a regular basis, and
whenever necessary, in case of extraordinary circumstances. The
Conselho
Fiscal
operates according to the relevant provisions set forth in the by-laws
of the company.
The following are the Members of the
Conselho Fiscal
.
Name
Position
Pedro Wagner Pereira Coelho
Effective Member
Allan Kardec de Melo Ferreira
Effective Member
Fernando Linhares Filho
Effective Member
Carlos Fernando Costa
Effective Member and Representative of
Holders of Preferred Shares
Adelay Bonolo
Effective Member and Representative of
Minority Shareholders
Compensation
For the year ended December 31, 2002, the aggregate amount of compensation
paid by TNL to all directors and executive officers of TNL was approximately
R$16.0 million
.
This amount includes pension, retirement or similar benefits
for officers and directors of TNL.
TNL does not provide special pension, retirement (or similar benefits) to
its directors or senior management. Rather, TNL sponsors pension plans for the
benefit of all its employees. See "Pension Benefit Plans."
According to TNL's by-laws, the aggregate amount of compensation paid to
each effective member of the audit committee equals 10% of the average
compensation of TNL's executive officers.
TNL is not required under Brazilian law to disclose, and has not otherwise
disclosed, the compensation of its directors and officers on an individual
basis.
Options to Purchase Securities from TNL
In July 2000, May and October 2001, we established stock option plans
whereby 250.3 million, 1,449.3 million and 1,196.6 million TNL Preferred Shares
were respectively reserved for a selected group of our executives. The options
are exercisable at varying dates, on a cumulative basis up to 5 years, limited
to 18% a year. Options become fully exercisable after the fifth year. See
Note 22(g) to the Consolidated Financial Statements.
Share Ownership
The Common and Preferred Shares held by our directors and members of the
administrative, supervisory or management bodies, including the outstanding
options, do not exceed 1% of either type of outstanding shares of TNL. For
information about our stock option plan, see "Compensation" and "Options to
Purchase Securities from TNL."
Pension Benefit Plans
SISTEL
SISTEL is a private non-profit social security institution with several
sponsors. SISTEL was created by Telebrás in November 1977 with the objective of
supplementing the benefits assured and
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provided by the Federal Government to employees of the former Telebrás
System. Since 1991, SISTEL has also provided its members with health insurance
(medical and hospital care).
All operating telecommunications companies that formerly belonged to the
Telebrás System, including Telemar sponsor private pension and health insurance
plans, which are administered by Sistel. We sponsor two defined benefit private
pension plans (PBS Telemar and PB-CT) and one defined contribution plan
(TelemarPrev), all of which are administered by SISTEL. See Note 25 to the
Consolidated Financial Statements.
PBS Telemar
At the time of the SISTEL restructuring, the PBS-Telemar was introduced
and the rights established in the previous SISTEL plans ("PBS-A") were
maintained. In addition to the monthly income supplementation benefit, medical
care is provided to retired employees and their dependents, on a shared cost
basis.
PBS Telemar had total assets of approximately R$148.8 million as of
December 31, 2002.
This plan is being discontinued as no new members are being admitted. In
March 2001, the final period for motivated migrations, 96% of active members
had migrated to the TelemarPrev plan.
PB-CT
Telemar sponsors the Plano de Benefícios Complementados ("PB-CT"), a
defined benefit private pension plan. This plan was created to carry out the
charges, obligations and liabilities set forth in agreements related to former
employees of the sponsors which belonged to the former Companhia Telefônica
Brasileira - CTB and to the former Companhia Telefônica de
Pernambuco - CTP.
There were 722 beneficiaries of this plan as of December 31, 2002. On November
21, 2002, the Secretary of Supplementary Pensions approved the merger of PB-CT
into
Plano de Previdência Privada
("Telemar Prev"). See Note 26(a)(ii) of the
Consolidated Financial Statements.
TelemarPrev
As of September 2000, we began sponsoring TelemarPrev a defined
contribution private pension plan administered by SISTEL.
The members of TelemarPrev have two categories of benefits: (i) risk
benefits: funded according to the defined benefit method, and (ii) programmable
benefits: funded according to the defined contribution method. During the year
ended December 31, 2002, our contributions to the plan totaled R$3.87 million.
Employees
As of December 31, 2002, we had a total of 29,047 employees of which
10,044 worked for Telemar. All our employees are employed on a full-time
basis, divided into the following functions: plant operation, maintenance,
expansion and modernization, sales and marketing and administrative support,
corporate management, budget and finance. This breakdown relates to employees
of Telemar. As of December 31, 2002, the other relevant subsidiaries had
19,003 full-time employees: 18,082 at Contax (our call center subsidiary), 846
at Oi and 75 employees in the other relevant subsidiaries (TNext, Hicorp and
TNL Acesso).
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The following table provides our breakdown of
employees by main category of activity and geographic location in TNL as of the
dates indicated:
Year ended December 31,
2000
2001
2002
Total number of employees
21,090
27,298
29,047
Number of employees by category of activity:
Plant operation, Maintenance, Expansion and Modernization
12,396
8,138
5,195
Sales and Marketing
6,027
5,049
2,785
Administrative Support
1,110
1,138
2,003
Corporate Management, Budget and Finance
1,557
1,157
1,222
Contact Centers
11,816
17,842
Number of employees by geographic location:
Rio de Janeiro
9,246
12,394
11,097
Regional Minas:
Minas Gerais
4,539
5,070
5,793
Espírito Santo
634
407
360
Regional Bahia:
Alagoas
225
171
129
Sergipe
163
143
108
Bahia
1,758
3,077
3,571
Regional Pernambuco:
Rio Grande do Norte
338
239
208
Paraíba
394
244
230
Pernambuco
1,366
1,792
1,957
Regional Ceará:
Amazonas
340
221
159
Roraima
54
44
29
Pará
503
391
295
Amapá
54
50
36
Maranhão
356
219
177
Piauí
288
192
141
Ceará
832
2,644
2,639
São Paulo
2,118
During 2002, our primary target in relation to our employees has been to
focus employee efforts and loyalty toward the collective objectives of the
business and operations of TNL as a whole instead of the objectives of any
specific subsidiary. We invested approximately R$10.6 million in education and
training of our employees during 2002 and created the Telemar University
Project to train and motivate our employees.
Approximately 24% of all employees are members of state labor unions
associated either with the
Federação Nacional dos Trabalhadores em
Telecomunicações
("Fenattel") or with the
Federação Interestadual dos
Trabalhadores em Telecomunicações
("Fittel"). Some employees in particular job
categories are affiliated with other unions specific to such categories. We
negotiate separate collective agreements for each of the states in Region I and
for each subsidiary. New collective agreements are negotiated every year with
the local union. These negotiations are carried out under our supervision and
guidance on the one hand, and in each local labor union on the other.
Telemar's collective bargaining agreement will expire on November 30, 2003.
See "Item 8. Financial Information —Legal Proceedings-Labor Proceedings." We
have never experienced a strike that had a material effect on our operations.
Employee Benefits
We provide our employees medical and dental assistance, pharmacy and
prescription drug assistance, group life insurance and meal and food
assistance. The costs of these benefits are covered by
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the employees and us on
a shared basis. The meal and food assistance program has been implemented
under the Workers' Food Program (
Programa de Alimentação do Trabalhador
). Our
contribution to the meal and food assistance program varies from 80% to 95%,
depending on the employee's salary level.
Profit Sharing Plan
The profit sharing plan was implemented in 1999 as an incentive for
employees to pursue our goals and to ultimately benefit the shareholders. The
plan is effective upon achievement of the following goals:
•
Achievement of economic value added targets; and
•
An increase in net cash to reduce indebtedness.
In 2000, Telemar distributed R$64.8 million to 18,146 employees. In 2001,
the profit sharing amounted to R$28.4 million, which was paid to 11,500
employees and in 2002, the profit sharing amounted to R$130.9 million, which
was paid to 9,103 employees.
Career and Salary Plan
Our career and salary plan is organized following the Hay Methodology.
The plan is structured so as to take into account the employees' knowledge,
problem solving abilities and accountability with a view to increase the
competitiveness of the salary in the market and attract and retain skilled
employees, consistent with our cost management policies.
Item 7.
Major
Shareholders and Related Party Transactions
Major Shareholders
We have two classes of share capital outstanding, Common Shares and
Preferred Shares. Only the Common Shares have full voting rights. The
Preferred Shares have limited voting rights. See "Item 10. Additional
Information—Organization—Voting Rights." As of December 31, 2002, Telemar
Participações owns 52.96% of the Common Shares. Accordingly, Telemar
Participações is able to control the election of TNL's Board of Directors, its
direction and future operations. See "Telemar Participações Shareholders'
Agreements."
The following table sets forth information concerning the ownership of
Common Shares by Telemar Participações and by other shareholders holding five
percent or more of the Common Shares as of December 31, 2002. Except for the
shareholders listed below, we are not aware of any other shareholder of TNL
owning more than five percent of the Common Shares.
Number of
Percentage of
Holding Company
Common Shares
Outstanding
Shareholder
Owned
Common Shares
Telemar Participações S.A.
67,760,384,532
52.96
Caixa de Previdência dos Funcionários do Banco do Brasil-PREVI
6,731,214,191
5.26
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The following table sets forth information concerning the ownership of the
common voting stock of Telemar Participações as of December 31, 2002.
Number
Percentage
Common
Outstanding
Telemar Participações Shareholder
Shares Owned
Common Shares
Shares
BNDES Participações S.A. – BNDESPar
429,112,640
25.0
Fiago Participações S.A.
341,573,661
19.9
AG Telecom Participações S.A.
229,432,225
13.4
Asseca Participações S.A.
229,432,225
13.4
Lexpart Participações S.A.
229,432,225
13.4
Brasilcap Capitalização S.A.
85,822,528
5.0
Brasil Veiculos Companhia de Seguros
85,822,528
5.0
L.F. Tel S.A.
85,822,528
5.0
The following is a brief description of the major shareholders of Telemar
Participações as of December 31, 2002:
AG TELECOM PARTICIPAÇÕES S.A. is a company of the Andrade Gutierrez Group,
which manages telecommunications business of the Group. Currently, the Group
is focusing on four core businesses: (a) heavy construction throughout Brazil,
Portugal, and other Latin America countries; (b) public concessions in Brazil
(primarily highways and water treatment); (c) telecommunications in Brazil and
(d) real estate enterprises in Brazil.
ASSECA PARTICIPAÇÕES S.A. is a company of the Macal group, which holds
shares in several companies, principally in the telecommunications area,
including Mcom Wireless S.A. (trunking and radio services), Shoptime S.A. (a
television sales channel), Multicanal Participações S.A. (cable television) and
Almax Alumínio S.A.
BNDES PARTICIPAÇÕES S.A. — BNDESPar is a subsidiary of BNDES, a federal
public bank linked to the Brazilian Ministry of Development, Industry and
External Trade, dedicated to offering long-term financing to developmental
entrepreneurial activities. BNDESPar is dedicated to strengthening the capital
structure of private companies.
BRASIL VEÍCULOS COMPANHIA DE SEGUROS is a company created in March 1997
from the association of Banco do Brasil — Banco de Investimento S.A. and Sul
América, the corporate purpose of which is to engage in automobiles insurance
business. This partnership allowed Banco do Brasil to participate in the
insurance market. Brasilveículos is ranked eighth in the Automobile Sector
National Ranking par group with a 4.1% market share.
BRASILCAP CAPITALIZAÇÃO S.A. is a Company established in 1995 from the
association of Banco do Brasil, Sul América Capitalização, Icatu Hartford and
Companhia de Seguros Aliança da Bahia. The company has been a market leader
since its second year of operation: the company has already sold seven million
account certificates (títulos
de
capitalização), distributing in the last seven
years more than R$280 million in prizes in connection with such certificates.
FIAGO PARTICIPAÇÕES S.A. is a holding company controlled by the pension
funds PREVI, TELOS, FUNCEF, SISTEL and PETROS, formed to hold certain equity
investments of those funds.
LEXPART PARTICIPAÇÕES S.A. is a company of the Inepar group, which
operates in Brazil and in other countries in Latin America. The Inepar group
offers telecommunications, energy and construction services.
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L.F. TEL S.A is a subsidiary of La Fonte Telecom S.A., a holding company
that is part of the Jereissati Group. The Jereissati Group has investments in
the commercial real estate sector in Brazil. It partially owns and manages
nine shopping malls in the South and South-eastern regions of the country. In
1997, the group entered the telecommunications sector by acquiring a small
stake in B and B Wireless Operators, Americel and Telet, which were sold in
2001.
The rights of the shareholders Fiago and Lexpart to appoint members of our
Board of Directors and Board of Executive Officers are temporarily suspended by
Anatel pending resolution of administrative proceedings related to limitations
to cross-holding of telecommunications companies in Brazil. See "Item 8.
Financial Information—Legal Proceedings—Tax and Administrative Proceedings."
Telemar Participações Shareholders' Agreements
On July 28, 1999, the shareholders of Telemar Participações signed a
shareholders' agreement. The shareholders' agreement outlines the (i)
requirements in regard to the exercise of the right of first refusal and the
preemptive rights of the shareholders in the case of an assignment and
subscription of shares of Telemar Participações; (ii) conditions which would
constitute a burden on the shares or subscription right; and (iii) appraisal
rights in the case of an assignment of shares of Telemar Participações in the
event of a transfer of control of the shareholder.
On August 3, 1999, the shareholders of Telemar Participações signed a
second shareholders' agreement. The second shareholders' agreement outlines
the (i) rules in regard to voting rights during the general meetings of Telemar
which deal with subjects related to the management of Telemar Participações;
(ii) special procedures and quorum requirements for the approval of certain
corporate resolutions by the management; (iii) holding of meetings among the
shareholders prior to shareholders' meetings and meetings of the Board of
Directors of Telemar Participações, TNL and Telemar; (iv) installation of the
executive committee responsible for giving support to the Board of Directors;
(v) rules for the reelection of the members of Board of Directors and Board of
Executive Officers and (vi) guidelines for transactions entered into between
and among Telemar Participações, TNL and its subsidiaries.
Record Holders of ADSs
As of May 31, 2003, we had 107,855,975 outstanding ADSs, held by 206
record holders, representing 107,855,975,000 Preferred Shares. As of such
date, the number of Preferred Shares represented by ADSs constituted 41.4% of
the total amount of Preferred Shares outstanding and 27.6% of TNL's total
capital.
Related Party Transactions
Set forth below is a description of the related party transactions that
are material to TNL and of the loans made by TNL to its subsidiaries. Related
party transactions refer to any loans receivable, accounts receivable from
services rendered and any other debts with our shareholders, subsidiaries,
unconsolidated affiliates or shareholders. For further information about
transactions with related parties, see Note 24 to the Consolidated Financial
Statements.
Telemar Management Services Agreement
At an extraordinary general meeting of the shareholders of TNL held on
November 30, 1999, holders of the Common and Preferred Shares approved a
management services agreement between the 16 former operating subsidiaries in
each state in Region I and Telemar Participações, as contemplated by the
Concession Agreement. The management services agreement is effective until
December 31, 2003, and
its term may be extended. Telemar Participações' remuneration for
providing management services under the management services agreement is a
percentage of consolidated net revenues of Telemar, determined in accordance
with Brazilian Corporate Law, as follows: 1% in the period from August 1998 to
December 31, 2000, 0.5% in 2001 and 2002 and 0.2% in 2003. As of December 31,
2002, the payment
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due to Telemar Participações under the management services
agreement for the year 2002, in the amount of R$57.7 million, was recorded as
general and administrative expenses. See Note 5 and Note 3 to the Consolidated
Financial Statements.
Loans between TNL and the Subsidiaries
TNL makes loans to the subsidiaries to provide them with working capital
for their operating activities. The loans bear the same costs that TNL bears
in its own loans and have terms and conditions generally similar to loans made
by TNL to unrelated third parties.
As of December 31, 2002, the aggregate indebtedness of TNL's subsidiaries
to TNL, was R$3,691 million, the majority of which was represented by a R$1,371
million loan to Telemar and by a R$1,862 million loan to Oi.
Pegasus Telecom S.A.
On December 27, 2002 Telemar acquired 93.27% of the shares in Pegasus
Telecom S.A., including preferred shares held by TNL that represented 24.4% of
Pegasus' share capital. On February 19, 2003 Telemar acquired the remaining
6.73% of Pegasus' shares, and accordingly holds now 100% of its share capital.
Historically, Pegasus' primary purpose was the operations, marketing, project
development, execution and rendering of data transmission services in Regions
II and III. We expect that our acquisition of Pegasus will enable us to expand
our share in the corporate market by offering data transmission services in
Brazil on a nationwide basis. See Note 1(b) to the Consolidated Financial
Statements.
Loan Agreement with BNDES
In December 1999, some of the former fixed-line operating subsidiaries
which are now consolidated into Telemar, also referred to as the PSTN
Subsidiaries, entered into loan agreements with BNDES, the controlling
shareholders of BNDESPar, which holds 25% of Telemar's voting capital. The
total amount of these loans was R$400.0 million, with maturity in December 2000
and accruing interest based on the Selic base rate plus 6.5% per year. In
December 2000, these loan agreements were renegotiated and replaced by two new
loan agreements between the same parties, guaranteed by TNL. The new loan
agreements provide a credit line of up to R$2,700 million, with floating
interest rate based on the TJLP and on the variation of the exchange rate,
depending on the source of funds, plus 3.9% per annum, and is payable in equal
monthly installments with final maturity in January 2008. As of December 31,
2002, a total of R$2,869.7 million had been borrowed from BNDES. During 2002,
no withdrawals were made from this line, which started to be amortized, with
R$2829.9 million outstanding as of December 31, 2002.
Of this total, 30% of the credit line was disbursed directly from BNDES
and the other 70% was disbursed by a group of Banks. Banco Itaú and Banco do
Brasil led the group of banks formed by Bradesco, Banco Alfa, Unibanco,
Citibank, Safra, Votorantim, Sudameris and Santander.
Investment and Agreement with iG
Through our subsidiary TNL.Net Participações S.A, we hold indirectly
shares representing 17.5% of the total equity of Internet Group do Brasil Ltda.
(iG), owner of the iG Internet portal, which has among its shareholders some
related parties with major shareholders of Telemar, such as Global Internet
Investment (related to Asseca Participações) and Andrade Gutierrez Contractors
(related to AG Telecom
Participações). The iG Internet portal is the second largest portal in
access volume in Brazil. In February 2001, through our subsidiaries TNext and
TNL.Acesso, we signed an agreement with iG pursuant to which we agreed to
operate the entire access infrastructure of the iG Internet portal for five
years. On December 31, 2002, the Company terminated this contract and entered
into a new arrangement
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with iG to provide the portal's entire access
infrastructure in Region I under conditions equivalent to those that the
Company offers to other Internet access providers operating in Brazil.
Related-Party transactions prior to the Break-up of Telebrás
Until August 4, 1998, the Brazilian Government was the controlling
shareholder of most of the telecommunications companies in Brazil, and
therefore all transactions between the PSTN Subsidiaries and such other
telecommunications companies could be considered related-party transactions.
Our principal related-party transaction before August 1998 was with
Embratel in respect of long-distance telecommunications. We have operating
agreements with Embratel defining the charge per minute for interstate,
intrastate and international long distance calls that originate or are
completed in Region I. All charges to our customers, including long-distance,
are billed by us, and then the appropriate portion is transferred to Embratel.
For further information about related-party transactions prior to the Breakup
of Telebrás, see Note 27 to the Consolidated Financial Statements.
Transfer of the Company's shares in Oi to Telemar
In May 2003, the sale of all of TNL's shares in Oi to Telemar was approved
by the boards of directors of both TNL and TMAR and consummated. The sale
price was fixed at R$1.00, which is equal to the net equity value of Oi at
market price on the base date of March 31, 2003, as determined by an
independent asset evaluation performed by Ernst & Young in accordance with
article 256(II)(b) of Corporate Law 6404/76 and adjusted to reflect the
capitalization of Oi in the amount of R$563 million through the conversion of
part of Oi debt held by TNL prior to the sale. Following the consummation of
the sale, Oi maintained total indebtedness of R$4.76 billion, of which R$1.79
billion, was intercompany and R$2.97 billion was to third parties. The primary
reason for this transaction is to strengthen the strategic position of TNE and
to increase its capacity for growth by combining the potential of fixed
(Telemar) and wireless (Oi) telephone assets. The benefits arising from the
optimization of Telemar's and Oi's operating and support sectors and from the
alignment of the two companies' business interests and strategies will result
in more rational use of available resources, with consequent cost reductions
and productivity gains and the better use of the synergies between the
companies. Another important reason for having Telemar rather than TNL own Oi
is that Telemar will be able to use the tax benefits associated with the
transfer of all of the indebtedness of Oi to Telemar. We believe Telemar's
higher interest expense will decrease its pre-tax income and result in tax
savings.
Prior to consummating the sale of Oi, we obtained, from three law firms
that are recognized leaders in Brazilian corporate matters, opinions to the
effect that the transaction was consistent in all respects with Brazilian
corporate law. In addition, we obtained independent appraisal reports, one
from Ernst & Young relating to the asset valuation, and another from J.P.
Morgan relating to the strategic and economic valuation, in support of the
fairness of the price and the economic and financial desirability of the
transaction for Telemar. Nevertheless, subsequent to the sale of the shares in
Oi to Telemar, reports have appeared in the press containing allegations that
the transaction may have been unfair to the minority shareholders of Telemar.
As of the date of filing of this annual report, we have not received any formal
notice of any of these allegations, either from any Brazilian regulatory
authorities or any shareholders of Telemar.
Item 8. Financial Information
Consolidated Statements and Other Financial Information
See "Item 18. Financial Statements."
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Legal Proceedings
General
The legality of the breakup and privatization of Telebrás has been
challenged in numerous legal proceedings, some of which have now been
dismissed. A few, however, are still pending. We believe that the ultimate
resolution of those proceedings will not have a material adverse effect on our
business or financial condition.
We are a party to certain legal proceedings arising in the normal course
of business, including civil, administrative, tax, social security and labor
proceedings. We classify our risk of loss in legal proceedings as "remote,"
"possible" or "probable." Provisions taken by us on our financial statements in
connection with such proceedings reflect reasonably estimable, probable losses
as determined by our management on the basis of legal advice.
Telebrás, our legal predecessor, is a defendant in a number of legal
proceedings and subject to certain other claims and contingencies. Under the
terms governing the breakup of Telebrás, liability for any claims arising from
acts committed by Telebrás prior to the effective date of the breakup of
Telebrás remained with Telebrás, except for labor and tax claims (for which
Telebrás and the New Holding Companies are jointly and severally liable by
operation of law) and any liability for which specific accounting provisions
have been assigned to us or to one of the other New Holding Companies.
Creditors of Telebrás had until September 14, 1998 to challenge this allocation
of liability. We believe that the chances of any such claims materializing and
having a material adverse financial effect on our business are remote.
Liability for any claims arising out of acts committed by the former
operating companies in each state prior to the effective date of the spin-off
of the operating company's wireless assets and liabilities to the newly formed
wireless companies remains with the operating companies which following our
reorganization are part of the Telemar, except for labor and tax claims (for
which the former operating subsidiaries and the newly formed wireless companies
are jointly and severally liable by operation of law) and those liabilities for
which specific accounting provisions have been assigned to the newly formed
wireless companies. However, under the shareholders' resolution pursuant to
which the spin-off was effected, the newly formed wireless companies have
contribution rights against the former operating subsidiaries with respect to
the entire amount of any payments made by the newly formed wireless companies
in connection with any claims brought against the newly formed wireless
companies and relating to acts committed by the state subsidiaries prior to the
effective date of the spin-off, not related to the assets of the former.
Composition of our contingency provisions is as follows:
Year ended December 31
(in millions of reais)
2002
2001
Nature
Labor
260.2
272.2
Tax
1,294.0
1,001.5
Civil
218.5
217.7
Total
1,772.6
1,491.4
Our contingency provisions are subject to monetary restatements, on a
monthly basis.
For a detailed description of our provisions for contingencies see Note 19
to the Consolidated Financial Statements.
Labor Proceedings
The principal material labor proceedings to which we are a party are
listed below:
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Dangerous Work Conditions Premium
Under Brazilian law, employees working in dangerous conditions, as defined
in applicable laws, are entitled to payment of an extra amount equal to 30% of
their basic salary as a dangerous work conditions premium. There are
significant claims pending against us relating to this dangerous work premium
arising from an adjustment to the amount payable under trade union agreements
for employees working within an environment considered to be dangerous,
principally close to high-tension electric installations. In 1998, a
definitive ruling by the Superior Labor Tribunal ("TST") provided guidance on
determining dangerous work premiums. Because the premium paid by us in
accordance with the trade union agreement is inconsistent with the ruling of
the TST, our management believes that it is probable that these claims will
have an unfavorable outcome for us. The total amount of provisions that we
have made in connection with those claims is R$107.4 million. Based on the
advice that we have received from our legal counsel, we believe that such
amount is sufficient to cover losses arising from such claims.
Equalization of Salary Scales
We have claims against us to equalize salary scales among certain
employees who do the same work, within a given period of time, with the same
productivity and technical performance. This type of judicial proceeding
usually involves significant amounts of money because it relates to the
difference in monthly salaries some an entire period. In addition, the
proceedings usually depend on questions of evidence and the tribunals'
interpretation of the evidence. The total provision that we have for probable
losses on these lawsuits is R$39.7 million. Based on the advice that we have
received from our legal counsel, we believe that such amount is sufficient to
cover losses arising from such claims.
Indexation of Salaries to Inflation
Some of the labor claims filed by employees and unions challenge the
indices that we used for monetary restatement of salaries, given the inflation
write-offs determined by economic stabilization programs (Collor and Bresser
Plans).
Productivity Premiums / Voluntary Retirement Plan / Salary Differences /
Severance Fees
We entered into certain collective bargaining agreements in which we
agreed to implement a model to improve employees' productivity and share
profits with our employees based on productivity gains. However, the model and
consequent payment was not implemented, and consequently the employees filed
claims for such payment.
We established an employment termination incentive plan, the
Plano de
Incentivo à Rescisão Contratual
("PIRC"), in 1998 with a view to restructuring
our management. The PIRC generated a number of labor law suits brought by
different groups of employees including:
•
Employees dismissed before implementation of the PIRC who have brought
a claim arguing that the PIRC should apply equally to them;
•
Employees who did not elect to participate in the PIRC within the time
period stipulated, and therefore received only a portion of the
severance payments provided for under the PIRC, who have brought a
claim arguing that they should receive full payment under the terms of
the PIRC; and
•
Employees who elected to participate in the PIRC brought a claim
arguing that they are entitled to payment of a fine based on the terms
of the applicable collective bargaining agreement, which
provides that such a fine will be levied against us in instances where
employees are dismissed in the 30-day period preceding salary adjustments.
After analyzing the evidence produced in a number of proceedings and the
decisions in those proceedings, we came to the conclusion that the trend in
such proceedings was the issuance of decisions in favor of employees.
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Other claims that have been increasing in number as a result of increasing
termination rates that took place in the second half of year 2001 challenge
salary differences, labor compensation and claim severance fees. We have
established a provision of R$112.1 million for liabilities from the claims
described above. Based on the advice that we have received from our legal
counsel, we believe that such amount is sufficient to cover losses arising from
such claims.
Tax and Administrative Proceedings
The principal material tax and administrative proceedings to which we are
a party are listed below:
Administrative Proceeding before Anatel and CADE
We are party to a material administrative proceeding filed with Anatel and
CADE (Antitrust Regulatory Agency) against Telemar on April 15, 2003, whereby
Embratel and Intelig alleged that Telemar engaged in anti-competitive
practices. They claim that Telemar abused its dominant market position, by
making use of cross-subsidies from its local to its long distance business and
practicing price discrimination with regard to the utilization of its local
network by the long-distance operators. We believe that their claims lack
merit. Embratel and Intelig sought a preliminary injunction which would
suspend any new authorizations granted to regional fixed-line service providers
which anticipated network expansion and universal service targets of December
31, 2003 until a final decision of the claim. Anatel and CADE have denied the
request for a preliminary injunction. Moreover, Anatel has released a
technical report stating that there was no finding of anti-competitive conduct.
FINSOCIAL
In 1995, the Brazilian Supreme Court ruled in a leading case that certain
increases in the rate of the FINSOCIAL tax (a predecessor tax to COFINS) were
unconstitutional. Based on this decision, we recorded a credit of R$33.1
million under "other net operating income" in 1995 and offset such credit
against other federal taxes but did not obtain judicial recognition that such
precedent would apply specifically to us. In 1997, the Brazilian Supreme Court
narrowed the scope of its prior decision, concluding that such increases in
FINSOCIAL were unconstitutional for sellers of goods, but not for service
providers like us. In accordance with this decision, an increased (2%) rate of
FINSOCIAL became applicable to us, and as a consequence, various FINSOCIAL
assessments were issued against us in 1998 on account of the credit that we had
taken in 1995. Based on these assessments and other Supreme Court decisions,
Telemar decided to make a provision of R$48.5 million in connection with these
assessments, which was subject to a monetary restatement in 2001. In 2002
Telemar utilized benefits provided by Provisional Measures 66 and 75
promulgated by the President of Brazil and approximately R$32 million of such
provision was reversed. See Note 6 to Consolidated Financial Statement.
PIS/COFINS (Social Integration and Social Security Financing Contributions)
This is a claim which resulted from Law Nº 9718/98, which increased the
rate of COFINS and broadened the calculation basis for COFINS and PIS, to be
calculated on total gross revenue of the Company — it was formerly calculated
on telecommunications services revenue only. There is not a final court ruling
on this issue. As of December 31, 2002 we have provisioned R$483.8 million for
liabilities related to this claim.
ICMS Due On Installation and Related Services
On June 19, 1998, the State Finance Departments approved Agreement 69,
which increased the scope of ICMS to other services, including installation.
Under this new interpretation, ICMS may be levied on a retroactive basis to
other communications services provided in the past five years. We believe that
such enlargement in the scope of the ICMS to reach additional services to basic
telecommunications
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services is questionable because (i) State Secretariats have
acted beyond their authority, (ii) such an interpretation reaches services that
are not considered telecommunications services, and (iii) such interpretation
cannot be applied on a retroactive basis.
From 1999 through December 31, 2001, our former fixed-line operating
subsidiaries which are now a part of Telemar, were served notices of
infringement related to ICMS on additional services, including installation,
which are still pending a decision. These notices considered ICMS in arrears
with respect to installation fees covering periods before and after June 1998.
We consider the probability of a levy against Telemar as "remote" for those
procedures that cover periods before June 1998 and "probable" for periods after
June 1998. Based on advise from legal counsel, we have contingency provisions
(period after June 1998) in the amount of R$141.9 million as of December 31,
2002.
ICMS On International Telecommunications Services
There are legal and administrative proceedings currently pending against
us regarding the application of ICMS to telecommunications services involving
international calls. The State Government claims that international calls are
services rendered in Brazilian territory because the request and payment for
the services occur in Brazil and are therefore subject to ICMS. ICMS
assessments totaling R$64.0 million in connection with international calls were
issued against us in 1999. We have made no provision for such taxes in the
Consolidated Financial Statements because based on advice from our legal
counsel we do not believe that we would be required to pay ICMS on
international calls. In February 2000, a lower court issued an injunction
favorable to us in connection with this proceeding. Based on external
consultants, there is no risk for us related to this issue.
Instituto Nacional de Seguro Social – INSS (National Social Security
Institute)
Brazilian social security regulations establish that a company contracting
third-party services is jointly responsible for the payment of the
Instituto
Nacional de Seguro Social
("INSS") social contribution which is payable by the
contractor. Brazilian social security regulations also establish that any
indirect remuneration, usually called fringe benefits, shall be included in our
payroll for purposes of payment of the INSS social contribution. For legal
purposes, indirect forms of remuneration of employees, such as housing, health
insurance, transportation facilities and technical qualification courses,
constitute fringe benefits. We have provisioned R$122.3 million for such
liabilities, including R$27.7 million resulting from a new notice of default
served on us after January 1, 2002. The January 1, 2002 notice to the Company
was in the amount of R$243.3 million. However, based on the opinion of legal
counsel the Company believes that the likelihood of an adverse outcome is
"remote," and accordingly have not reserved funds to cover such liabilities.
Imposto Sobre Serviços – ISS (Tax on Service)
In 1999, a number of municipalities in which the former fixed-line
operating subsidiaries are located took the position that some supplementary
services offered by telecommunications service providers to their clients that
do not clearly fall within the definition of telecommunications services are
subject to services tax (
Imposto sobre Serviços
—ISS), which is generally levied
at the maximum rate of 5%. Several ISS tax assessments, totaling approximately
R$320.0 million, were issued against us. Since this issue remains unresolved,
we have taken the position that the tax assessments represent a probable
liability. As of December 31, 2002, we reserved R$38.0 million based on the
probable risk of loss regarding each of the several tax assessments issued
against us.
Contribuição Provisória para Movimentações Financeiras – CPMF (Tax on Cash
Transferring)
On August 26, 1999, the Company was granted an injunction exempting it
from the payment of the CPMF, until at least July 2003. However, because the
injunction may be reversed by the Supreme Court, the Company continues to
maintain a provision to cover possible losses, recorded and restated on a
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monthly basis according to the activity of its bank accounts. Based on the
opinion of its legal advisors, TNL recorded in July 2002 the amount of R$20,605
in connection with unpaid CPMF since January 2001. Increases in this amount
refer to the supplementation of reserves arising from the review of the
calculation criteria and information from the financial institutions.
Imposto sobre Lucro Líquido – ILL (Tax on Net Profit)
Telemar offset the ILL paid in previous years (up to calendar year 1992)
in reliance of Supreme Court decisions on the unconstitutionality of this tax
in similar cases involving other companies. Although several cases have been
successfully tried in higher courts, Telemar continues to maintain a provision
due to the fact that it has not been granted a final administrative or judicial
ruling on the criteria for restatement of tax credits. During 2002, Telemar
reversed part of the reserve, in the approximate amount of R$16,003, after
thoroughly reviewing the amounts offset in previous years, as well as the
criteria adopted to restate such amounts. See Note 7 to the Consolidated
Financial Statements.
Imposto Operações Financeiras – IOF (Tax on Financial Transactions)
Based on the opinion of its legal advisors, as well as the fact that
Supreme Courts are not in agreement regarding the possibility of this tax being
levied, the Company chose in December 2002 to record a provision to meet a
possible levy of this tax on intercompany credit lines. As was the case with
other provisions, IOF-related amounts were restated up to December 31, 2002.
Federal Taxes
On August 9, 2000, Telemar was served two notices of infringement by the
Federal Revenue Department which called for a penalty in the aggregate amount
of R$993.7 million. These are notices of tax default relating to income tax
and social contribution on net profit related to taxable events that occurred
in 1996 and, therefore, before the privatization of the Telebrás System.
Telemar has timely submitted to the Federal Revenue Department in Rio de
Janeiro the documents that demonstrate regular status of the accounting records
that had been disallowed as well as appropriate payment of taxes payable with
respect to the relevant period. Based on the opinion of our external legal
consultants, we have classified such notices as having a "remote" risk of loss
and, therefore, no provision is made.
Civil Litigation
Preferred Shares
In 1990, Telebrás' board authorized a capital stock increase by means of a
public share offering. During the offer, the Brazilian equivalent of the
Securities Exchange Commission (CVM) started an inquiry to investigate the
price of such new shares, issued at a discount relative to its book value.
Upon completion of such inquiry, CVM informed the Federal Public Attorneys'
Office that, in CVM's opinion, there had been no violation given that the price
as established was compatible with the price of Telebrás shares traded in
exchanges. Nevertheless, the Public Attorneys' Office decided to take the
matter to court. In April 1998, Telebrás was ordered to issue 13,718,350
thousand preferred shares to fulfill its obligation but it appealed the
decision. As of December 31, 2002 we have maintained R$67.2 million provision
for this claim.
Operational Income – Interconnection – Fixed-to-Mobile Calls
On July 6, 2000, Anatel decided that Embratel is entitled to income from
the so-called interstate fixed-to-mobile calls, while local operators are
entitled to income from intrastate calls in the period from June 1998, when the
concession agreements were signed, until July 1999, at which point the provider
selection code CSP 31 became effective for long distance services. Anatel's
decision established that, following introduction of the CSP, income belongs to
the provider selected by the user. In our opinion,
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Anatel misconstrued
fixed-to-mobile services and PSTN. We believe that pursuant to Anatel's rules
in force, irrespective of the distance, income from fixed-to-mobile calls
belongs to the local operator to which the subscriber who originated the call
is bound. Telemar obtained a preliminary injunction against Embratel and
commenced a lawsuit against Anatel. The preliminary injunction was granted by
a lower court (provisional judicial act) to prevent offsetting by Embratel, a
decision that has been affirmed to this date. However, such provisional
measures can be stayed or vacated at any time. In light of the uncertainties
surrounding the outcome of these actions, the Company maintains a provision of
R$50.7 million.
DETRAF
The Company understands that Embratel has not complied with the
Interconnection Agreement rule and Anatel's decision establishing that, in
order to challenge a DETRAF statement companies must first pay the stated
amounts. It is also the Company's understanding that Embratel did not
challenge the Detraf statements in the manner prescribed in the Interconnection
Agreement and Code of Conduct Agreement executed by the operators. Telemar has
filed two suits against Embratel, the first is a collection suit with respect
to the difference between the amounts billed Telemar and the amounts paid by
Embratel for the usage of the network from August 2001 to August 2002. The
second suit requests acceleration of tutelage so that Embratel refrains from
withholding any amounts for remuneration for the use of Telemar networks.
Telemar was granted the requested acceleration of tutelage, and the appeal
filed by Embratel was dismissed.
Common collection suits
Embratel filed three common collection suits against Telemar involving
amounts that are allegedly due to it for services provided including 0800
inter-regional and 0800 local calls, TU-COM tariffs and remuneration for
long-distance national and international calls placed through public
telephones. These claims total R$55.9 million and Telemar has contested them
all, in addition to filing a counterclaim, whereby the amount of R$36.4 million
is requested from Embratel.
Other Lawsuits
There are several other smaller lawsuits and administrative proceedings
that deal with civil matters for which we have a R$85.5 million provision, and
taxation matters for which a R$206.9 million provision has been made.
Policy on Dividend Distribution
The Preferred Shares are entitled under the TNL's by-laws to receive, to
the extent of available distributable profits and reserves, a non-cumulative
preferred dividend in an amount equal to the greater of (a) six percent per
year on the amount resulting from the division of the subscribed capital by the
total amount of the Company's shares, and (b) three percent of the equity value
of the share (the "Preferred Dividend"). To the extent there are additional
distributable profits, TNL is also required to distribute to all shareholders
an amount equal to 25% of the adjusted net income (the "General Dividend"),
determined in accordance with Brazilian Corporate Law. Payment of General
Dividends may be limited to the net realized income for the year, provided that
the difference is recorded as unrealized reserve. Net income recorded in
unrealized income reserve, when
realized and as long as not offset by losses for subsequent years, should
be added to the first dividend declared after realization. TNL's obligation to
pay General Dividends to holders of Preferred Shares will be met in as much as
a Preferred Dividend is paid. Should dividends be distributed in excess of
General Dividend, holders of Preferred Shares will share equally with holders
of Common Shares in such excess, after allocation to holders of Common Shares
of a dividend equivalent to the Preferred Dividend. TNL may also make
additional distributions to the extent of available distributable profits and
reserves. Telemar is also subject to mandatory distribution requirements and,
to the extent of distributable profits and reserves, is accordingly required to
pay
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dividends to the minority shareholders as well as to the TNL. All of the
aforementioned distributions may be made as dividends or as tax-deductible
interest on capital.
Significant Changes
See "Item 5. Operating and Financial Review and Prospects."
Item 9.
The Offer and Listing
Information Regarding the Price History of the Stock to be Offered or Listed
The principal trading market for the Preferred Shares is the BOVESPA.
Until 2000, the Preferred Shares were also traded on the
Bolsa de Valores do
Rio de Janeiro
(the Rio de Janeiro Stock Exchange) and the seven other
Brazilian stock exchanges. In May 2000, the nine Brazilian stock exchanges
merged. See "Trading on the Brazilian Stock Exchanges." As of December 31,
2002, TNL had approximately 2.0 million shareholders.
The Preferred Shares commenced trading separately on the Brazilian stock
exchanges on September 21, 1998. The following table sets forth the reported
high and low closing sale prices for Preferred Shares of TNL on the São Paulo
Stock Exchange for the periods indicated.
Reais per 1,000
Preferred Shares
High
Low
1998
(beginning September 21, 1998)
18.86
8.77
1999
48.50
11.23
2000
49.12
28.17
2001
48.95
20.81
1
st
Quarter
48.95
32.74
2
nd
Quarter
39.08
31.33
3
rd
Quarter
35.19
20.81
4
th
Quarter
37.04
22.60
2002
35.71
18.69
1
st
Quarter
35.71
26.98
2
nd
Quarter
31.20
24.40
3
rd
Quarter
26.50
20.30
4
th
Quarter
26.80
19.17
December
24.60
26.80
2003
1
st
Quarter
29.60
23.10
January
29.60
26.14
February
26.91
23.10
March
28.30
23.90
April
28.70
32.10
May
31.50
36.00
June (through June 12, 2003)
In the United States, the Preferred Shares trade in the form of ADSs, each
representing 1,000 Preferred Shares, issued by the Depositary pursuant to a
Depositary Agreement among TNL, the
Depositary and the registered holders and beneficial owners from time to
time of ADSs. The ADSs commenced trading separately on the NYSE on November
16, 1998 under the symbol TNE. As of February 28, 2003, there were
approximately 109.0 million ADSs outstanding. The following table sets forth
the reported high and low closing sales prices for ADSs on the NYSE for the
period indicated.
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US dollars per ADS
High
Low
1998
(beginning November 16, 1998)
20.00
11.75
1999
25.50
8.19
2000
28.81
15.63
2001
25.50
14.32
1st Quarter
25.50
22.00
2nd Quarter
23.79
20.83
3rd Quarter
22.60
15.40
4th Quarter
17.48
14.32
2002
16.82
5.02
1
st
Quarter
16.67
12.44
2
nd
Quarter
13.90
8.86
3
rd
Quarter
9.88
5.30
4
th
Quarter
7.35
6.08
December
8.40
6.88
2003
1
st
Quarter
9.13
6.47
January
9.13
7.22
February
7.71
6.47
March
8.43
6.59
April
8.72
11.05
May
10.49
12.32
June (through June 12, 2003)
Until August 21, 2001, the common shares and preferred shares of TELERJ,
Telemig and Telebahia traded on the BOVESPA. The common shares and preferred
shares of Telaima, Telamazon, Telasa, Teleamapá, Teleceará, Telepará, Telepisa,
Telergipe, Telern, Telest, Telma, Telpa and Telpe also traded on
Sociedade
Operadora de Mercado de Acesso
(SOMA), an some-the-counter trading system based
in Rio de Janeiro, until August 2001. The daily trading volumes on the SOMA
averaged approximately R$15.3 million in 2001.
After the corporate restructuring process, all these companies became part
of Telemar Norte Leste, which began trading on the BOVESPA on September 24,
2001. The daily trading volume of Telemar averaged approximately R$10.9
million in 2002.
Trading on the Brazilian Stock Exchanges
In May 2000, the nine Brazilian stock exchanges merged. Since the merger,
private equity and debt have been traded only on the BOVESPA. Brazilian
federal, state and municipal public debt has been traded exclusively on, and
privatization auctions have been carried out exclusively at, the Rio de Janeiro
Stock Exchange. In 2000, BOVESPA accounted for approximately 97% of the trading
value of equity securities on all Brazilian stock exchanges, and BOVESPA and
the Rio de Janeiro Stock Exchange together accounted for approximately 99% of
the trading value of equity securities on all Brazilian stock exchanges.
Each Brazilian stock exchange is a non-profit entity owned by its member
brokerage firms. Trading on the exchange is limited to member brokerage firms
and a limited number of authorized non-members. The BOVESPA 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 6:00 p.m. Trading is also conducted during this
time on an automated system on the BOVESPA.
On September 20, 1999, the BOVESPA launched the After-Market, with the
objective of expanding business opportunities and offering investors a more
flexible trading schedule. After-Market trading takes place from 6:00 to 10:00
p.m., that is, after regular trading hours. All stocks traded during
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the
regular trading session of the day may be traded on the After-Market. However,
only cash market trading via the BOVESPA's electronic trading system is
allowed. The maximum variation allowed for stock prices—whether positive or
negative—corresponds to 2% in relation to the closing price at the regular
trading session.
There are no specialists or market makers for TNL's shares on the BOVESPA.
Trading in securities listed on the Brazilian stock exchanges may be executed
off the exchanges in certain circumstances, although such trading is very
limited.
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 a separate clearinghouse, 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 BOVESPA is Companhia
Brasileira de Liquidação e Custódia S.A. ("CBLC"), which is controlled mainly
by the member brokerage firms and banks that are not members of that exchange.
As of December 31, 2002, the aggregate market capitalization of the 399
companies listed on the BOVESPA was approximately US$124 billion. Although all
the outstanding shares of an exchange-listed company may trade on a Brazilian
stock exchange, in most cases less than half of the listed shares are actually
available for trading by the public, the remainder are held by small groups of
controlling persons that rarely trade their shares. For this reason, data
showing the total market capitalization of Brazilian stock exchanges tend to
overstate the liquidity of the Brazilian equity securities market.
The Brazilian equity market is relatively small and illiquid compared to
major world markets. In 2002, the monthly trading volume on the BOVESPA
averaged approximately US$ 4.1 billion. In 2002, the five most actively traded
issues represented approximately 41% of the total volume of shares traded on
the BOVESPA.
Trading on Brazilian stock exchanges by nonresidents of Brazil is subject
to certain limitations under Brazilian foreign investment legislation.
Regulation of Brazilian Securities Markets
The Brazilian securities markets are regulated by the CVM, which has
authority some stock exchanges and the securities markets generally, and by the
Central Bank, which has, among other powers, licensing authority some brokerage
firms and regulates foreign investment and foreign exchange transactions. The
Brazilian securities market is governed by the Corporate Law and by Law No.
6,385, as amended (the "Securities Law").
Under the Corporate Law, a company is either public, a
companhia aberta
,
such as TNL, 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 BOVESPA or
in the Brazilian some-the-counter market. The shares of a public company may
also be traded privately, subject to certain limitations. To be listed on the
BOVESPA, a company must apply for registration with the CVM and the BOVESPA.
Once the BOVESPA has admitted a company to listing and the CVM has accepted its
registration as a public company, its securities may be traded on the BOVESPA.
Trading in securities on the BOVESPA may be suspended at the request of a
company in anticipation of the announcement of a material event. Trading may
also be suspended on the initiative of the BOVESPA 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 BOVESPA.
Trading of shares is disallowed under certain circumstances for the
following persons: the company itself, its controlling shareholders, officers,
directors or members of any technical or advisory
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body established pursuant to
its by-laws, or for persons who, as a result of their position, title or
relationship with the company, have access to information regarding relevant
acts or events, such as the impending disclosure of a relevant act or event,
and the 15-day period before disclosure of the company's quarterly and annual
financial statements.
The Brazilian securities markets are principally governed by Brazilian
Securities Law, by Brazilian Corporate Law and by regulations issued by the CVM
and the
Conselho Monetário Nacional
(National Monetary Council). These laws
and regulations, among others, provide for 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.
On October 31, 2001 the Brazilian Congress passed a law amending Law No.
10,303 (Brazilian Corporate Law), which became effective in March 2002.
Companies were given a one year period through March 2003 to amend their
by-laws in accordance with the amended Brazilian Corporate Law. This amended
law increases the right of minority shareholders, including holders of
Preferred Shares, with restricted voting rights and granted more regulatory
power to CVM. TNL modified its by-laws in accordance with this amended law
with respect to dividends on December 27, 2002.
Item 10.
Additional Information
Memorandum and Articles of Association
Except as described in this section, all relevant information with respect
to TNL's by-laws are described in Item 14 of its Registration Statement on Form
20-F filed with the Securities and Exchange Commission on September 18, 1998
(File No. 001-14487), which is incorporated by reference.
Under Brazilian Law, there is no memorandum or articles of association.
The only constitutive documents of TNL are the by-laws and the minutes of the
General Shareholders Assembly for the Incorporation of the Company.
Organization
TNL is a listed company duly registered with the CVM under No. 01765-5.
According to Article 2 of the Company's by-laws, its business purposes are:
•
to exercise control some the companies that exploit public fixed-line telephone services in Region I;
•
to promote, through subsidiaries or affiliates, the expansion and establishment of fixed-line telecommunications services
in its concession area;
•
to promote, carry out or direct the acquisition of funds from internal and external sources to be used by it or by its
subsidiaries;
•
to promote and foster study and research activities aimed at the development of the fixed-line telecommunications sector;
•
to provide, through subsidiaries or affiliates, specialized technical services in the fixed-line telecommunications area;
•
to promote, foster and coordinate, through its subsidiaries or affiliates, the education and training of the personnel
required in the fixed-line telecommunications sector;
•
to carry out and promote the importation of goods and services for its subsidiaries or affiliates;
•
to carry out other activities that are similar or related to its business purposes; and
•
to invest in shares or quotas of other companies.
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Except as described in this section, TNL's bylaws do not contain
provisions addressing the duties, authority, or liabilities of directors and
senior management, which are instead established by Brazilian Corporate Law.
Qualification of Directors
Brazilian law provides that only shareholders of a company may be
appointed to its board of directors. There is no minimum share ownership or
residency requirement for qualification as a director. If a director is living
abroad, he must appoint an attorney-in-fact to act as his representative as
required by Brazilian law.
Allocation of Net Income and Distribution of Dividends
The by-laws of TNL require the Board of Directors to recommend, at each
annual shareholders' meeting, the allocation of net income for the preceding
fiscal year as follows:
(i)     5% to a legal reserve, not to exceed 20% of the paid-in capital of
TNL; and
(ii)     25% of adjusted net income against payment of dividends. Such amount
will be increased if required to satisfy payment of dividends of Preferred
Shares. This is a requirement of Brazilian Corporate Law.
Whenever TNL accumulates or reserves profits, the Board of Directors can
authorize the allocation of interim dividends, as provided under Brazilian
Corporate Law. In general, the Company has to pay dividends first to the
Preferred Shares and then, to the Common Shares. The balance remaining will be
prorated on an equal basis for all shares of stock. The dividends not claimed
within 3 years will revert to TNL.
In lieu of the payment of dividends as stated in the preceding two
paragraphs, TNL may elect to make payments to shareholders characterized as
interest on capital of TNL. See "Taxation—Distribution of Interest on
Capital."
Shareholders' Meetings
The shareholders' meetings are held once a year, generally during the
first four months following the end of the fiscal year. The meeting can be
called at any other time, whenever TNL's interests so require.
TNL's shareholders have the power to decide any matters related to TNL's
corporate purpose and to pass any resolutions they deem necessary for TNL's
protection and development, through voting at a general shareholders' meeting.
TNL convenes the shareholders' meetings by publishing a notice in the
Gazeta Mercantil newspaper and in the Federal Official Gazette. The notice
must be published no fewer than three times, beginning at least 15 calendar
days prior to the scheduled meeting date. However, pursuant to TNL's by-
laws the meeting must be called with 30 days in advance if the meeting is
to decide on the following matters:
•
the creation of Preferred Shares or the increase of existing classes disproportionately to the other classes of shares, if
not yet forecasted or approved in the by-law;
•
changing the rights and buy back conditions or amortization of one or more classes of preferred shares, or the creation of
a class with more favorable benefits;
•
reducing mandatory dividends;
•
approving a merger, company spin-off or company merger into another company;
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•
approving the participation of TNL in a
"grupo de sociedades"
(a group of companies whose management is coordinated through
contractual relationships and equity ownership) as defined under the Brazilian Corporate Law;
•
changing TNL's business purpose;
•
creating founders' shares (
partes beneficiárias
);
•
ceasing TNL's state of liquidation; and
•
approving TNL's dissolution.
The notice must always contain the meeting's agenda and, in the case of a
proposed amendment to the by-laws, an indication of the subject matter.
The Board of Directors, or, in some specific situations set forth in the
Brazilian Corporate Law, the shareholders or the
Conselho Fiscal
, calls the
general shareholders' meetings. A shareholder may be represented at a general
shareholders' assembly by an attorney-in-fact so long as the attorney-in-fact
was appointed within a year of the meeting. The attorney-in-fact must be a
shareholder, a member of the management of the Company, a lawyer, or a
financial institution. The power of attorney given the attorney-in-fact must
comply with certain formalities set forth by Brazilian law.
In order to be held legally on the first call, the general shareholders'
meeting needs a quorum representing at least one quarter of the issued and
outstanding Common Shares; at a second call, the general shareholders' meeting
can be held without a required quorum. However, if the purpose of a general
meeting is to amend TNL's by-laws, shareholders representing at least
two-thirds of the issued and outstanding Common Shares must be present. If
quorum is not met, the Board of Directors may call a second meeting with notice
given at least eight calendar days prior to the scheduled meeting, in
accordance with the rules of publication described above. The quorum
requirements will not apply to a second meeting, subject to the voting
requirements for certain matters described below.
Voting Rights
Each Common Share entitles its holder to one vote at TNL's shareholders'
meetings. Except as otherwise provided by law, resolutions of a general
shareholders' assembly are passed by a simple majority vote by holders of the
Common Shares; abstentions are not taken into account.
Holders of non-voting Preferred Shares may acquire voting rights if TNL
fails to pay dividends for three consecutive years. They will continue to have
voting rights until dividends are duly paid by TNL. In addition, its preferred
shareholders have voting rights in the following circumstances:
•
approval of long-term agreements between TNL or its subsidiaries, on
one hand, and the controlling shareholder or its subsidiary or
affiliated companies, or companies that are under common control with,
or have control some, the controlling shareholder, on the other hand,
except for standard clause agreements; and
•
amendment or repeal of the provision above, as well as a provision
requiring a 30-day notice for calling a General Meeting to review
certain matters listed above, and a provision requiring that any
approval by the company of a merger, spin-off, consolidation or
dissolution of subsidiaries must be preceded by an economic-financial
analysis conducted by independent experts, ensuring fair treatment to
all interested companies.
Pursuant to Brazilian law, the approval of the holders of a majority of
the outstanding adversely affected preferred shares as well as shareholders
representing at least one-half of the issued and outstanding common shares is
required for the following actions:
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•
creating preferred shares or increasing an existing class of shares
without preserving the proportions of the shares, except as already
authorized by TNL's by-laws;
•
changing a preference, privilege or condition of redemption or
amortization of any class of preferred shares; and
•
creating a new class of preferred shares that has a preference,
privilege or condition of redemption or amortization superior to the
existing preferred shares.
These actions are put to the vote of the holders of the adversely affected
preferred shares at a special meeting, where each preferred share entitles the
shareholder to one vote. Preferred shareholders do not have a vote on any
other matter, beyond those mentioned here.
Notwithstanding those previously mentioned, the approval of holders of at
least one-half of the issued and outstanding common shares is required for the
following actions:
•
reducing the mandatory distribution of dividends;
•
approving a merger with or into another company or company spin-off;
•
approving the participation in a
"grupo de sociedades"
(a group of
companies whose management is coordinated through contractual
relationships and equity ownership) as defined under the Brazilian
Corporate law;
•
changing the business purpose;
•
creating founders' shares (partes beneficiárias);
•
ceasing the state of liquidation; and
•
approving the dissolution.
Pursuant to the Brazilian Corporate Law, holders of common shares, voting
at a general shareholders' meeting, have the exclusive power to:
•
amend the by-laws, including changes to the rights of the holders of the common shares;
•
elect or dismiss members of the Board of Directors and elect the majority of the members of the
Conselho Fiscal
;
•
receive the yearly accounts prepared by the management and accept or reject management's financial statements, including
the allocation of net profits for payment of the mandatory dividend and allocation to the various reserve accounts;
•
authorize the issuance of debentures and founders' shares (
partes beneficiárias
), with the exception of the Board of
Directors' ability to determine whether to issue simple debentures, not convertible into shares and with no real guarantee;
•
suspend the rights of a shareholder who has not fulfilled the obligations imposed by law or by the by-laws;
•
accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of capital stock;
•
pass resolutions to reorganize TNL's legal form, merge, spin off, dissolve or liquidate, elect or dismiss the liquidators
or examine their accounts; and
•
authorize TNL's management to file for bankruptcy or request concordat (similar to Chapter 11 proceeding under US
bankruptcy law).
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Rights of Withdrawal
The Brazilian Corporate Law provides that under certain circumstances a
shareholder has the right to withdraw from participation in a company and to
receive a payment for his or her equity interest if an independent valuation
were to determine based on its last approved balance sheet that the company's
economic value was lower than the company's net equity.
This right of withdrawal may be exercised:
(i)     by the dissenting or non-voting holders of the adversely affected
class of shares (including any holder of preferred shares of an adversely
affected class) in the event that a majority of all outstanding common shares
authorizes:
•
the creation of preferred shares or an increase in an existing class
of shares without preserving the proportions with the other classes of
shares, except as already authorized by TNL's by-laws;
•
the change of a preference, privilege or condition of redemption or
amortization of preferred shares;
•
the creation of a new class of preferred shares that has a preference,
privilege or condition of redemption or amortization superior to the
existing preferred shares; or
(ii)     by all dissenting or non-voting shareholders in the event that a
majority of all outstanding common shares authorizes:
•
a reduction in the mandatory distribution of dividends;
•
a change in the business purpose;
•
a transfer of all shares to another company, making the Company a
wholly-owned subsidiary of such company, known as an incorporação de
ações;
•
to revert winding up of the Company, to create founders' shares
(
partes beneficiárias
) or to dissolve the Company; or
(iii)     by the dissenting or non-voting shareholders, in the event that a
majority of all outstanding common shares authorizes:
•
the acquisition of control of another company at a price which exceeds
certain limits set forth in the Brazilian Corporate Law;
•
a merger with or into another company, or the spin-off of the Company
under certain circumstances defined in the Brazilian Corporate Law; or
•
participation in a
"grupo de sociedades."
In the event that the Company is merged with another one, becomes part of
a "group of companies" or has its control acquired by another company for a
price in excess of certain limits imposed by the Brazilian Corporate Law, or in
the event of "grouping of shares," holders of any type or class of shares that
are marketable and spread out in the market will not have the right to
withdraw. Shares are considered marketable when that type or class of share is
part of a general index, defined by the Comissão
de Valores Mobiliários, that is representative of the securities portfolio
listed in stock exchanges in Brazil or abroad. Shares are considered spread out
in the market when the controlling shareholder, the parent company or other
companies under its control hold less than half the total amount of that share
type or class.
In the event of a spin-off, the right to withdraw will exist only when the
spin-off implies a change in the company purpose (except if the spun-off assets
revert to companies whose main purpose is the same as the split company's), a
reduction in compulsory dividends, or a participation in a "group of
companies."
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Dissenting shareholders or those without voting rights are also entitled
to withdraw in the event that the entity resulting from a merger or spin-off
does not become a listed company whose shares are traded in the secondary
market within 120 days from the general shareholders' meeting that approved the
relevant merger or spin-off was taken.
Dissenting shareholders or shareholders with no voting rights are only
entitled to withdraw when they are shareholders of record at the time when the
first notice calling for a general meeting to deliberate on this matter is
published or at the time when a relevant event is announced, whichever is
earlier.
The right to withdraw lapses 30 days after publication of the minutes of
the meeting where the act was taken, except when the resolution is taken
pending confirmation by the holders of preferred shares (such confirmation to
be given at special meeting to be held within a year). In this event, the
30-day period for shareholders who disagree with the special meeting
deliberation begins at the date of publication of the special meeting minutes.
The Company is entitled to reconsider, within 10 days after expiration of the
exercise period of withdrawal rights, any act which gives rise to such rights,
should reimbursement of shares held by dissenting shareholders be deemed to
have a negative impact on its financial stability.
In any one of the situations above, shares would be redeemable at their
net book value, determined based on the most recent balance sheet approved by
shareholders. The reimbursement amount can only be lower than such amount if
established based on the economic value of enterprise, to be determined through
an appraisal. If the general meeting that gave rise to such redemption rights
is held more than 60 days after the date of the most recent approved balance
sheet, shareholders may require that the reimbursement value of their shares be
calculated based on a new balance sheet dated up to 60 days before the general
meeting.
Liquidation Procedures
In the event of the liquidation of TNL, the holders of Preferred Shares
would be entitled to priority some the holders of Common Shares in the
reimbursement of the capital, with no premium. The amount to which they would
be entitled is based on the portion of the capital stock represented by the
Preferred Shares, as adjusted from time to time to reflect any capital
increases or reductions. First, after all the creditors of TNL had been paid,
the residual assets would be used to return the amount of capital represented
by the Preferred Shares to its holders. Once the holders of Preferred Shares
had been fully reimbursed, the holders of the Common Shares would be reimbursed
on the portion of the capital stock represented by the Common Shares. All the
shareholders of TNL would participate equally and ratably in any remaining
residual assets.
Form and Transfer of Securities
TNL's shares are maintained in book-entry form with a transfer agent (the
"Transfer Agent"). To make the transfer, the Transfer Agent makes an entry in
the register, debits the share account of the transferor and credits the share
account of the transferee.
Transfers of shares by a foreign investor are made in the same way and
executed by the investor's local agent on the investor's behalf.
The BOVESPA and clearing systems, such as member brokerage firms and
banks, control the clearing entity CBLC. The shareholders may choose, at their
individual discretion, to hold their shares through CBLC. Shares are added to
the CBLC system through Brazilian institutions that have clearing accounts with
the CBLC. TNL's shareholder registry indicates which shares are listed on the
CBLC system.
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Transfer of Control
According to the General Telecommunications Law, the control of a
fixed-line service provider can only be transferred:
•
after the obtaining of Anatel's approval;
•
after 5 years from the start of the fixed-line services;
•
to a company which fulfills all technical, legal, economic and
financial requirements imposed by applicable regulations; and
•
if the transaction does not hinder competition and does not place the
performance of the obligations under the concession contract in risk.
Even after 5 years, a transfer of control, the result of which is that
direct or indirect control of concessionaires servicing different regions under
the Concession Agreement is assigned to a single shareholder or group of
shareholders, will not be allowed if Anatel considers such impediment necessary
to carry the Concession Agreement through.
The disposal of the control of a publicly-held company, such as TNL and
Telemar, can only be effected on condition that the acquirer undertakes to make
a public offering to purchase the voting shares of the remaining shareholders,
at a price equal to at least 80% of the amount paid for each voting share
included in the controlling block. Minority shareholders will have the option
to keep their shares, upon payment of a premium equal to the excess of the
market value of the shares some the amount paid for each share included in the
controlling block. The public offering must comply with the rules issued by
CVM.
Disposal of control is defined as the direct or indirect transfer of those
shares included in the controlling block, shares subject to shareholders'
agreements, securities convertible into voting shares, assignment of share and
other securities subscription rights, or rights attached to securities
convertible into shares which may result in the disposal of the company
control.
The Company's by-laws require that approval by its shareholders of
mergers, split-ups or dissolution of its subsidiaries be preceded by an
economic-financial analysis performed by an independent company of recognized
international standing, to confirm that all of the companies involved are being
treated equitably. The shareholders of the companies involved in the process
shall have full access to the report on the analysis.
Amendments
The by-laws were last amended on April 10, 2003.
Disclosure of Shareholder Ownership
Brazilian regulations establish that the controlling shareholders and
those shareholders who elected the members of the Board of Directors or
Conselho Fiscal
, as well as any other person or group of persons acting
together or representing the same interest, and who directly or indirectly hold
5% or
more of any type or class of the shares in a publicly-owned company,
disclose their shareholding to CVM and other stock exchanges. A statement to
this effect, setting forth the information required, must also be published in
adequate Brazilian newspapers. This publication requirement may be waived by
CVM when the company shares are spread out in the market and the purchaser
represents that it is not his/her intention to alter the share control or
administrative structure of the company, provided that the CVM deems the
disclosure satisfactory. Every 5% increment in shareholding must be similarly
disclosed thereafter.
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Material Contracts
The following is a summary of the material contracts to which the Company
is a party, other than contracts entered into in the ordinary course of
business.
As of November 30, 1999, Telemar and Telemar Participações entered into a
management services agreement, providing for consulting and management
assistance services by Telemar Participações to Telemar. This agreement
represents the only material contract not entered into in the ordinary course
of business. The management services agreement is effective until 2003, and
its term may be extended. Telemar Participações' remuneration for providing
management services under the management services agreement is a percentage of
net revenues of Telemar, determined in accordance with the Brazilian Corporate
Law, as follows: 1% in the period from August 1998 to December 31, 2000, 0.5%
in 2001 and 2002 and 0.2% in 2003. As of December 31, 2002, the payment due to
Telemar Participações under the management services agreement for the year
2002, in the amount of R$57.7 million, was recorded as general and
administrative expenses. See "Note 5 and Note 3 to the Consolidated Financial
Statements."
Exchange Controls
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 have been
registered with the Central Bank. Such restrictions on the remittance of
foreign capital abroad may hinder or prevent Banco Itaú S.A. (the "Custodian"),
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 into US dollars and
remitting such US 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
Preferred Shares underlying the ADSs.
In Brazil, there is a mechanism available to foreign investors interested
in trading directly on the São Paulo Stock Exchange. Until March 2000, this
investment mechanism was known as "Annex IV" after Annex IV to Resolution No.
1,289 of the National Monetary Council—the "Annex IV Regulations." Currently,
this investment mechanism is regulated by Resolution No. 2,689 dated January
26, 2000 of the National Monetary Council and by Instruction No. 325 dated
January 27, 2000 of the CVM, as amended (the "2,689 Regulation").
The 2,689 Regulation, which became effective on March 31, 2000, sets forth
new regulations on foreign portfolio investments in Brazil. Foreign
investments registered under Annex IV Regulations had to be conformed to the
2,689 Regulation by September 30, 2000. Such new regulations allow foreign
investors to invest in almost all of the financial assets and to engage in
almost all transactions available in the Brazilian financial and capital
markets, provided that some requirements are met. In accordance with the 2,689
Regulation, foreign investors are individuals, legal entities, mutual funds and
other collective investments resident, domiciled or headquartered abroad. The
2,689 Regulation prohibits the offshore
transfer or assignment of the title to the securities, except in the cases
of (i) corporate reorganization effected abroad by a foreign investor or (ii)
inheritance.
Pursuant to the 2,689 Regulation, foreign investors must:
•
appoint at least one representative in Brazil with powers to perform
actions relating to the foreign investment;
•
fill in the appropriate foreign investor registration form;
•
obtain registration as a foreign investor with CVM; and
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•
register the foreign investment with the Central Bank.
The securities and other financial assets held by the foreign investor
pursuant to the 2,689 Regulation must be registered or maintained in deposit
accounts or under the custody of an entity duly licensed by the Central Bank or
by the CVM or be registered in register, clearing and custody systems
authorized by the Central Bank or by the CVM. In addition, securities trading
is restricted to transactions carried out in exchanges or organized in
some-the-counter markets licensed by the CVM.
All investments made by a foreign investor under the 2,689 Regulation will
be subject to an electronic registration with the Central Bank. Foreign
investments registered under Annex IV Regulations had to be conformed to the
new regulations of capital registration by September 30, 2000.
The 2,689 Regulation also extends a favorable tax treatment to all foreign
investors investing pursuant to these new regulations. See "Taxation—Brazilian
Tax Considerations."
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, the holder will be
entitled to continue to rely on the Depositary's Certificate of Registration
for five business days after the exchange, following which the holder must seek
to obtain its own Certificate of Registration with the Central Bank.
Thereafter, any holder of Preferred Shares may not be able to convert into
foreign currency and remit outside Brazil the proceeds from the disposition of,
or distributions with respect to, such Preferred Shares, unless such holder
qualifies under Resolution No. 2,689 or 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."
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 Brazilian
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. There can be no assurance
that the Federal Government will not impose similar restrictions on foreign
repatriations in the future.
Registered Capital
Amounts invested in Preferred Shares by a non-Brazilian holder who
qualifies for benefits under Resolution 2,689 and obtains registration with the
CVM, or by the Depositary representing an ADS holder, are eligible for
registration with the Central Bank. Such registration (the amount so
registered is referred to as "Registered Capital") allows the remittance
outside Brazil of foreign currency, converted at the commercial market rate,
acquired with the proceeds of distributions on,
and amounts realized through dispositions of, such Preferred Shares. 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 US dollars). The Registered
Capital per Preferred Share withdrawn upon cancellation of an ADS will be the
US dollar equivalent of (i) the average price of a Preferred Share on the
BOVESPA on the day of withdrawal or, (ii) if no Preferred Shares were traded on
that day, the average price on the BOVESPA during the fifteen trading sessions
immediately preceding such withdrawal. The US dollar equivalent will be
determined on the basis of the average commercial market rates quoted by the
Central Bank on such date or dates.
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A non-Brazilian holder of Preferred Shares may experience delays in
effecting Central Bank registration, which may delay remittances abroad. Such
a delay may adversely affect the amount in US dollars received by the
non-Brazilian holder.
Taxation
The following summary contains a description of the principal Brazilian
and US federal income tax consequences of the acquisition, ownership and
disposition of Preferred Shares or ADSs, but it 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 the United States and regulations under these tax laws
as currently in effect, which are subject to change.
Prospective purchasers 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.
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. No assurance can be given, however, as to
whether or when a treaty will enter into force or how it will affect the US
holders of Preferred Shares or ADSs. 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 the principal 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 (a "non-Brazilian holder"). This discussion does not address all the
Brazilian tax considerations that may be applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult its own tax
advisor about the Brazilian tax consequences of investing in Preferred Shares
or ADSs.
Taxation of Dividends
Dividends paid by TNL 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, within five years after the distribution, the
stock is subsequently redeemed by TNL or the non-Brazilian holder sells the
stock in Brazil.
The only Brazilian tax treaty now in effect that would (if certain
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% under the circumstances set forth in the treaty.
Distribution of Interest on Capital
Brazilian corporations may make payments to shareholders characterized as
interest on capital of TNL 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 (the "TJLP") as determined by the Central
Bank from time to time (11% per annum for the three month period beginning
April 2003). The total amount distributed as interest on capital may not
exceed the greater of (i) 50% of net income (before taking such distribution
and any deductions for income taxes into account) for the year in respect of
which the payment is made or (ii) 50% of retained earnings for the year prior
to the year in respect of which the payment is made. Payments of interest on
capital are decided by the shareholders on the basis of recommendations of
TNL's Board of Directors.
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Distribution 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 TNL for Brazilian corporate
income tax purposes. Such payments are subject to Brazilian withholding tax at
the rate of 15%, except for payments to persons who are exempt from tax in
Brazil, which payments are free of Brazilian tax, and except for payments to
persons situated in tax havens, which payments are subject to tax at a 25%
rate.
No assurance can be given that the Board of Directors of TNL will not
recommend that future distributions of profits will 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 TNL is obligated to
distribute to its shareholders in accordance with its Charter and the Brazilian
Corporate 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 US dollars and remitted
outside of Brazil, subject to applicable exchange controls.
Taxation of Gains
Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs to another non-Brazilian holder are not subject to Brazilian tax.
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. Gains on the disposition of Preferred Shares obtained upon
cancellation of ADSs are not taxed in Brazil if the disposition is made and the
proceeds are remitted abroad within five business days after cancellation,
unless the investor is a resident of a jurisdiction that, under Brazilian law,
is deemed to be a "tax haven" (
i.e.
, a country that does not impose any income
tax or that imposes tax at a rate of less than 20%). Gains realized through
transactions with Brazilian residents or through transactions in Brazil off of
the BOVESPA are generally subject to tax at a rate of 15%. Gains realized
through transactions on the BOVESPA are generally subject to tax at a rate of
10%, unless the investor is entitled to tax-free treatment for the transaction
under Resolution 2,689 of the National Monetary Council Regulations, described
immediately below.
Resolution 2,689, which as of March 31, 2000 superseded the Annex IV
Regulations that previously provided tax benefits to foreign investors, extends
favorable tax treatment to a non-Brazilian holder of Preferred Shares who has
(i) appointed a representative in Brazil with power to take action relating to
the investment in Preferred Shares, (ii) registered as a foreign investor with
the CVM and (iii) registered its investment in Preferred Shares with the
Central Bank. Under Resolution 2,689 securities held by foreign investors must
be maintained under the custody of, or in deposit accounts with, financial
institutions duly authorized by the Central Bank and the CVM. In addition,
securities trading is restricted under Resolution 2,689 to transactions on the
BOVESPA or qualified some-the-counter
markets. The preferential treatment generally afforded under Resolution
2,689 and afforded to investors in ADSs is not available to residents of tax
havens.
There can be no assurance that the current preferential treatment for
holders of ADSs and non-Brazilian holders of Preferred Shares under Resolution
2,689 will be maintained.
Gain on the disposition of Preferred Shares is measured by 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. See "Registered
Capital."
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Effective on January 1, 2002, withholding taxes
for transactions on the BOVESPA have been increased from previous 10% to 20%.
Brazil's tax treaties do not grant relief from taxes on gains realized on sales
or exchanges of Preferred Shares.
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%.
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 (i) whether the sale or assignment is
made by the Depositary or the investor and (ii) whether the transaction takes
place on the BOVESPA. 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%.
The deposit of Preferred Shares in exchange for the ADSs may be subject to
Brazilian tax if the amount previously registered with the Central Bank as a
foreign investment in Preferred Shares is lower than (i) the average price per
Preferred Share on the BOVESPA on the day of the deposit; or (ii) if no
Preferred Shares were sold on that day, the average price on the BOVESPA during
the fifteen preceding trading sessions. In this case, the difference between
the amount previously registered and the average price of the Preferred Shares,
calculated as set forth above, shall be considered a capital gain subject to
income tax at a rate of 15% (unless the Preferred Shares were held in
accordance with Resolution 2,689, in which case the exchange would be
tax-free).
The withdrawal of Preferred Shares in exchange for ADSs is not subject to
Brazilian tax. On receipt of the underlying Preferred Shares, a non-Brazilian
holder entitled to benefits under Resolution 2,689 will be entitled to register
the US dollar value of such shares with the Central Bank as described in
"Exchange Controls—Registered Capital." If such non-Brazilian holder does not
qualify under Resolution 2,689, it will be subject to the less favorable tax
treatment described above in respect of exchanges of Preferred Shares.
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. There are no Brazilian stamp, issue, registration, or similar taxes or
duties payable by holders of Preferred Shares or ADSs.
A financial transaction tax (the "IOF tax") may be imposed on a variety of
transactions, including the conversion of Brazilian currency into foreign
currency
(e.g.,
for purposes of paying dividends and interest). The IOF 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.
IOF may also be levied on transactions involving bonds or securities
("IOF/Títulos") even if the transactions are effected on Brazilian stock,
futures or commodities exchanges. The rate of the IOF/Títulos with respect to
Preferred Shares and ADSs is currently 0%. The Minister of Finance, however,
has the legal power to increase the rate to a maximum of 1.5% of the amount of
the taxed transaction per each day of the investor's holding period, but only
to the extent of gain realized on the transaction and only on a prospective
basis.
In addition to the IOF tax, a second, temporary tax that applies to the
removal of funds from accounts at banks and other financial institutions (the
"CPMF tax") will be imposed on distributions by
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TNL in respect of ADSs at the time such distributions are converted into
US dollars and remitted abroad by the Custodian. The CPMF tax will be in
effect until June 2002, unless its term is extended, and is currently imposed
at a rate of 0.38%. On June 12, 2002, the Brazilian Congress approved an
extension of the CPMF tax until December 31, 2004. The rate of 0.38% is
maintained until December 31, 2003, changing to 0.08% for the subsequent
period. The Brazilian Congress also approved that, as of July 12, 2002, stock
exchange transactions are exempted from the CPMF tax.
US Federal Income Tax Considerations
The statements regarding US tax law set forth below are based on US law as
in force on the date of this Annual Report, and changes to such law subsequent
to the date of this Annual Report may affect the tax consequences described
herein. This summary describes the principal 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 US dollar, holders of 10% or more of the shares
of TNL (taking into account shares held directly or through depositary
arrangements), tax-exempt organizations, financial institutions, 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 such holder's own tax advisor concerning the
overall tax consequences to it, including the consequences under laws other
than US federal income tax laws, of an investment in Preferred Shares or ADSs.
In this discussion, references to ADSs also refer to Preferred Shares, and
references to a "US holder" are to a holder of an ADS (i) that is a citizen or
resident of the United States of America, (ii) that is a corporation organized
under the laws of the United States of America or any state thereof, or (iii)
that is otherwise subject to US federal income taxation on a net basis with
respect to the ADS.
For purposes of the US Internal Revenue Code of 1986, as amended, (the
"Code") holders of ADSs will be treated as owners of the Preferred Shares
represented by such ADSs.
Taxation of Distributions
A US holder will recognize ordinary dividend income for US federal income
tax purposes in an amount equal to the amount of any cash and the value of any
property distributed by TNL as a dividend to the extent that such distribution
is paid out of TNL's current or accumulated earnings and profits, as determined
for US federal income tax purposes, when such distribution is received by the
custodian, or by the US holder in the case of a holder of Preferred Shares.
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 US dollars in effect on the date the distribution is received by the
Custodian, or by a US holder in the case of a holder of Preferred Shares. If
the Custodian, or US holder in the case of a holder of Preferred Shares, does
not convert such
reais
into US dollars on the date it receives them, it is
possible that the US holder will recognize foreign currency loss or gain, which
would be ordinary loss or gain, when the
reais
are converted into US dollars.
Under new rules applicable to dividends received after 2002 and before 2009, an
individual US holder generally will be subject to US taxation at a maximum rate
of 15%. This reduced rate does not apply to dividends paid in respect of
certain short-term (less than 60 days) or hedged positions. You should consult
your own tax adviser regarding the implications of these new rules in light of
your particular
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circumstances. Dividends paid by TNL will not be eligible for the
deduction for dividends 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 US 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 US federal income tax liability of a US holder if such US
holder elects for that year to credit all foreign income taxes. Alternatively
such Brazilian withholding tax may be taken as a deduction against taxable
income. Foreign tax credits will not be allowed for withholding taxes imposed
in respect of certain short-term or hedged positions in securities and may not
be allowed in respect of arrangements in which a US holder's expected economic
profit is insubstantial. US 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 shareholders of TNL
generally will not be subject to US federal income tax.
Holders of ADSs that are foreign corporations or nonresident alien
individuals ("non-US holders") generally will not be subject to US federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for US federal income tax purposes unless such
dividends are effectively connected with the conduct by the holder of a trade
or business in the United States.
Taxation of Capital Gains
Upon the sale or other disposition of an ADS, a US holder will generally
recognize gain or loss for US federal income tax purposes. The amount of the
gain or loss will be equal to the difference between the amount realized in
consideration for the disposition of the ADS and the US holder's tax basis in
the ADS. Such gain or loss generally will be subject to US federal income tax
and will be treated as capital gain or loss and will be long-term capital gain
or loss if the ADS has been held for more than one year. The net amount of
long-term capital gain recognized by an individual holder after May 5, 2003 and
before January 1, 2009 generally is subject to taxation at a maximum rate of 15
percent. The net long-term capital gain recognized by an individual holder
before May 6, 2003 or after December 31, 2008 generally is subject to taxation
at a maximum rate of 20%. Long-term capital gains recognized by an individual
holder generally are subject to reduced rates. Capital losses may be deducted
from taxable income, subject to certain limitations. Gain realized by a US
holder on a sale or disposition of ADSs generally will be treated as US source
income. Consequently, if Brazilian tax is imposed on such gain, the US 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-US holder will not be subject to US federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (i) such gain is effectively connected with the conduct by the holder of
a trade or business in the United States, or (ii) such 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.
Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the
ADSs or Preferred Shares to a US holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup
withholding unless the US holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any backup
withholding collected from a
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payment to a US holder will be allowed as a credit against the US holder's
US federal income tax liability and may entitle the US holder to a refund,
provided that certain required information is furnished to the Internal Revenue
Service.
A non-US holder generally will be exempt from these information reporting
requirements and backup withholding tax, but may be required to comply with
certain certification and identification procedures in order to establish its
eligibility for such exemption.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in both foreign currency
exchange rates and interest rates. We are exposed to foreign exchange rate
risk because some of our costs are denominated in currencies (primarily the US
dollar) other than those in which we earn our 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. In 2000 we began to use
derivative instruments, such as foreign exchange swap and forward contracts,
foreign currency options, and interest rate swaps or forward rate agreements,
to manage these market risks. We do not hold or issue derivative or other
financial instruments for trading purposes.
Exchange Rate Risk
Since January 1999, the
real
has traded in a volatile market, reaching a
high in 1999 of R$2.1650 per US$1.00 on March 3. Between December 31, 1998 and
December 31, 1999, the
real
depreciated 32.4% against the US dollar, and at
December 31, 1999, the commercial market rate for purchasing US dollars was
R$1.7890 to US$ 1.00. In 2000, the fluctuations of the exchange value of the
real
were not as volatile as they were in 1999, ranging between R$1.7234 and
R$1.9847 per US$1.00, while the average exchange rate for 2000 was R$1.8294 per
US$1.00, showing a slight depreciation of the real in relation to the same
average rate in 1999, of 0.8%. However, in 2001 the
real
continued to devalue
against the US dollar. The exchange rate fluctuated in a range between
R$1.9353 and R$2.8007 per US$1.00 in 2001, while the average rate for the year
reached R$2.3519, showing a depreciation of 28.6% in the period. In 2002 the
exchange rate fluctuated in a range between R$2.2720 and R$3.9548 per US$1.00,
while the average rate was R$2.9185 per US$1.00, showing a depreciation of
24.2% in the period.
Approximately 72.5% of the Company's debt obligations are denominated in
foreign currency. As a result, we are exposed to currency exchange risks that
may adversely affect our business, financial condition and results of
operations, as well as our ability to meet debt service obligations. In 2002,
we continued our policy of limiting our exposure to foreign currency exchange
rate risks by entering into foreign currency swap and options agreements. As
of December 31, 2002, approximately R$1,002.9 million, or 8.2% of the total
Company's debt obligations were not hedged. Accordingly, an unfavorable 1%
change in the real-US dollar exchange rate would have resulted in a R$10
million increase in the Company's debt obligations as of December 31, 2002.
For further information about such swap agreements and other financial
instruments utilized by us, see Note 19 to the Consolidated Financial
Statements.
We continue to have exchange rate exposure with respect to our planned
capital expenditures. In 2002, approximately 39% of our capital expenditures
were made in US dollars. The potential loss in connection with our planned
capital expenditures for 2003 that would have resulted from each unfavorable 1%
change in the
real
-US dollar exchange rate, assuming that we carry out the
entirety of such planned capital expenditures notwithstanding such unfavorable
change in rates, would be approximately R$8.0 million.
Interest Rate Risk
As of December 31, 2002, we had approximately R$10,774.4 million in loans
and financing outstanding, considering the results of currency swap operations
and including R$1,321.0 million of local
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non-convertible debentures. Approximately 100% of our local-currency
denominated debt of R$2,042.4 million bears interest at floating rates based on
either the TJLP or the interbank certificates of deposits — CDI rate for
real
-denominated indebtedness and approximately 80% of our foreign
currency-denominated indebtedness bears interest at floating rates based on US
dollar LIBOR. As of December 31, 2002, we did not have any derivative
contracts outstanding that could limit our exposure to variation in the TJLP or
CDI rate. However, we invest our excess liquidity (R$1,484 million at December
31, 2002) mainly in short-term instruments, and our exposure to Brazilian
interest rate risk is therefore partially limited by our
real
-denominated
floating interest investments, which generally earn the overnight interest
rates paid on CDI. In addition to our exposure with respect to existing
indebtedness, we would also be exposed to interest rate volatility with respect
to future indebtedness in case we decide that a protection against interest
rate variation is not required.
Every increase of 100 basis points in the CDI rate or LIBOR implies an
additional interest exposure on local currency-denominated assets and
liabilities of R$78.0 million and R$45.0 million, respectively, if a
hypothetical, instantaneous and unfavorable change of 100 basis points in the
interest rates applicable to financial assets and liabilities on December 31,
2002 had occurred. The above sensitivity analysis is based on the assumption
of an unfavorable 100 basis point movement of the CDI rate or LIBOR as the case
may be, in 2003, in relation to December 31, 2002, applicable to each
homogeneous category of financial assets and liabilities and sustained some a
period of one year.
Item 12.
Description of Securities other than Equity Securities
Not applicable.
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PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Since the completion of our audited and consolidated financial statements
for the period ended on June 30, 2001, we have been out of compliance with the
following financial covenants set forth in our BNDES facility, dated as of
December 13, 2000, in which we are guarantors: (a) current assets divided by
current liabilities (AC/PC) must be equal to or greater than 1.20; and (b)
EBITDA divided by current liabilities (EBITDA/PC) must be equal to or greater
than 1.20. TNL has requested and been granted several waivers from BNDES, as
well as from Banco Itaú S.A., Banco do Brasil S.A., Banco Bradesco, Banco Alfa,
Unibanco, Citibank, Banco Safra, Banco Votorantim, Banco Sudameris and Banco
Santander as Lenders under the BNDES facility for failure to comply with these
covenants. The waivers from BNDES and the other banks excuse non-compliance
with these covenants through January 1, 2004. TNL expects to be able to comply
with these covenants by the end of June 2003 which will be the next time that
we will be required to determine if we meet the financial ratios set forth in
these covenants. For additional information regarding our BNDES facility see
"Item 5. Operation and Financial Review and Projects—Liquidity and Capital
Resources."
Item 14.
Material Modifications to the Rights of Security Holders and Use of
Proceeds
Law 10,303/01 introduced significant changes in the Brazilian Corporate
law, including minority shareholders rights, in particular preferred
shareholders. For more details on this, see Part I, Item 8 (Dividend
Distribution Policy) and Item 10.
Item 15.
Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officers and
Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon and as of the date of the
Company's evaluation, the Chief Executive Officers and Chief Financial Officer
concluded that the disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed in the reports
the Company files and submits under the Exchange Act is recorded, processed,
summarized and reported as and when required.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Item 16B. Code of Ethics.
The Company has adopted a Code of Conduct and Transparency that applies to
its directors, officers, controlling shareholders and members of the
Conselho
Fiscal
in accordance with CVM rules satisfying the requirements of Brazilian
Law. The Company's Code of Conduct and Transparency does not address all of
the principles set forth by the Securities and Exchange Commission in Section
406 of the Sarbanes-Oxley Act. However, Brazilian Law no. 6.404 Article 156
specifies that an officer is prohibited from taking part in any corporate
transaction in which he has an interest that conflicts with the interests of
the company. This disqualification must be disclosed to the board. Moreover,
an officer may only contract with the company under reasonable and fair
conditions, conditions which are identical to those that prevail in the market
or under which the company would contract with third parties. Any business
which is contracted in violation of this article is voidable and requires the
offending officer to disgorge any benefits he received from such violation.
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PART III
Item 17.
Financial Statements
TNL 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-95.
Item 19.
Exhibits
No.
Description
1.1
By-laws of the Company as of April 10, 2003.
2.1
Deposit Agreement, dated as of July 27, 1998 among the Company, The Bank of
New York, as Depositary, and Owners and Beneficial Owners of American
Depositary Receipts issued thereunder, filed as Exhibit 2.1 to the Company's
Registration Statement on Form 20-F filed with the Commission on September
18, 1998 (File # 001-14487), incorporated by reference.
2.2
Note Purchase Facility Agreement, dated as of August 10, 2001 among TNL PCS
S.A., as Issuer, Tele Norte Leste Participações S.A., as Guarantor, ABN AMRO
Bank N.V., as Administrative Agent, Initial Purchaser, Tranche A
Participation Agent, Tranche B Participation Agent, Tranche C Participation
Agent, US Collateral Agent, Book Runner, Chase Trust Bank, as Principal
Paying Agent, and the Tranche D Lenders.
2.3
Subloan Agreement, dated as of December 15, 2000, among the Company, as
Guarantor, BNDES and a syndicate of banks led by Banco do Brasil and Banco
Itaú in English.
4.1
Standard Concession Agreement for Local, Switched, Fixed-Line Telephone
Service and Schedule of Omitted Concession Agreements in Portuguese and with
a translation into English, filed as Exhibits 10.1 and 10.2 to the Company's
Registration Statement on Form 20-F filed with the Commission on September
18, 1998 (File # 001-14487), incorporated by reference.
4.2
Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements in
Portuguese and with a translation into English, filed as Exhibits 10.3 and
10.4 to the Company's Registration Statement on Form 20-F filed with the
Commission on September 18, 1998 (File # 001-14487), incorporated by
reference.
4.3
Statement of Authorization for Personal Mobile Services between Anatel and Oi.
4.4
Statement of Authorization for Domestic Long-distance Mode of Switched
Wireline Telephone service between Anatel and Oi.
4.5
Statement of Authorization for International Long-distance Mode of Switched
Wireline Telephone Service between Anatel and Oi.
4.6
Certifications of the Company's attainment of the targets established by
Anatel for the 16 states in which the Company operates.
8.1
List of the Subsidiaries.
10.1
Certifications of the co-Chief Executive Officers and the Chief Financial
Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
11.1
Code of Ethics of the Company.
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114
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Technical Glossary
The following explanations are not intended as technical definitions, but
to assist the general reader to understand certain terms as used in this Annual
Report.
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.
ADSL technology (Asymmetric Digital Subscriber Line):
A technology that
converts existing twisted-pair telephone lines into access paths for high-speed
communications of various sorts.
Analog:
A mode of transmission or switching which is not digital, e.g.,
the representation of voice, video or other modulated electrical audio signals
which are not in digital form.
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 Transfer Mode):
A broadband switching technology that
permits the use of one network for different kinds of information (e.g., voice,
data and video).
Band A Service Provider:
A former Telebrás operating subsidiary that has
been granted a concession to provide wireless telecommunications services in a
particular area within a radio spectrum frequency range referred to by Anatel
as "Band A."
Band B Service Provider:
A wireless service provider that has been granted
a concession to provide wireless 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 wireless 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 2
Mbit/s or more. According to international standards, these services are
divided into two categories: (i) 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; retrieval of sound programs or fixed and moving
images; and (ii) Broadcast services, such as sound programs, television
programs (including high-definition TV and pay TV) and selective document
acquisition.
CA TV (Cable television):
Cable or fiber-based distribution of TV
programs.
CDMA
(
Code Division Multiple Access
): A standard of digital wireless
telecommunications technology.
Cell:
The geographic area covered by a single base station in a wireless
telecommunications system.
Wireless 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 wireless telecommunications system
service area.
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 networks allow for higher capacity and
115
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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.
DWDM (Dense Wavelength Division Multiplex) transmission systems:
It is the
higher-capacity of a WDM (Wavelength Division Multiplex), which is a means of
increasing the capacity of fiber-optic data transmission system through the
multiplexing of multiple wavelengths of light.
Frame relay:
A data transmission service using fast protocols based on
direct use of transmission lines.
GPRS (General Packet Radio Service)
: Typically referred to as the "2.5" G
standard for companies employing GSM, which is not optimal for data (slow
speeds of 9.6kbps). GPRS is a relatively less expensive way (supposedly) of
enabling a GSM network with a data overlay; GPRS enables speeds in the range of
115kbps.
GSM (Global System for Mobile Communications)
: An international standard
for digital wireless service.
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.
IP (Internet protocol):
An interconnection protocol for sub-networks, in
particular for those with different physical characteristics. It is used by the
Internet.
ISDN (Integrated Services Digital Network):
A system in which several
services (e.g., speech and data) may be simultaneously transmitted end-to-end
in digital form.
Leased high-speed data communication:
The digital exchange of information
at speeds exceeding 64 Kbps transmitted through mediums 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.
Network:
An interconnected collection of elements. In a telephone network,
these consist of switches connected to each other and to customer equipment.
The 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 communication services:
Data services based on
parceling or breaking 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.
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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 mediums leased
to users for their exclusive use.
PSTN (Public Switched Telephone Network):
The public telephone network
that delivers basic telephone service and, in certain circumstances, more
advanced services.
Repeaters:
A device that amplifies an input signal for retransmission.
Satellite services:
Satellites 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 Hierarchy):
A hierarchical set of digital
transport structures, standardized for the transport of suitably adapted
payloads some 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.
SIM (Subscriber Identity Module) Cards
: A card designed to personalize the
customers information, a feature of the GSM standard.
SMP (Personal Mobile Services):
A networking system that provides secure
digital wireless communications in a high frequency range. It uses small
low-powered base stations and light-weight and compact handsets. It offers
voice and data transmission capabilities, enhanced mobile connection and
heightened subscriber capacity as well as features like caller ID and
alphanumeric messaging.
Specialized Services Companies:
Companies which were duly permitted by
Anatel to provide specialized limited services, such as (i) private mobile
services provided by means of radio communication system, in radio-frequencies
bands of 460, 800 and 900 MHz, (ii) private fixed-line services to allow
point-to-point or multi-point telecommunications through circuits, (iii)
private network services, and (iv) duplex radio communication services.
Switch:
These are used to set up and route telephone calls either to the
number called or to the next switch along the path. They may also record
information for billing and control purposes.
TDMA (Time Division Multiple Access):
A standard of digital wireless
telecommunications technology.
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.
VSAT (Very Small Aperture Terminal)
: A small satellite antenna used for
satellite based point-to-multipoint data communications applications.
WAP (Wireless Application Protocol)
: A protocol that simplifies standard
internet codes for the more limited transmission features of a wireless
handset.
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SIGNATURES
Tele Norte Leste Participaçõnes S.A. hereby certifies that it meets all of
the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
TELE NORTE LESTE PARTICIPAÇÕNES S.A.
By: /s/ Marcos Grodetzky
Name: Marcos Grodetzky
Title: Chief Financial Officer
Dated: June 12, 2003
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CERTIFICATIONS
I, Ronaldo Iabrudi dos Santos Pereira, certify that:
1.     I have reviewed this annual report on Form 20-F of Tele Norte Leste
Participações S.A.;
2.     Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4.     The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)     designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b)     evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and
c)     presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date:
5.     The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a)     all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6.     The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 13, 2003
By:   /s/ Ronald Iabrudi dos Santos Pereira
Name: Ronaldo Iabrudi dos Santos Pereira
Title:   Director Superintendent
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Table of Contents
I, Luis Eduardo Falco, certify that:
1.     I have reviewed this annual report on Form 20-F of Tele Norte Leste
Participações S.A.;
2.     Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4.     The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)     designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b)     evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and
c)     presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date:
5.     The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a)     all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6.     The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 13, 2003
By: /s/ Luis Eduardo Falco
Name: Luis Eduardo Falco
Title:   Director Superintendent
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Table of Contents
I, Marcos Grodetzky, certify that:
1.     I have reviewed this annual report on Form 20-F of Tele Norte Leste
Participações S.A.;
2.     Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4.     The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and internal
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a)     designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)     evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this
annual report the Evaluation Date;
d)     presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5.     The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a)     all significant deficiencies in the design or operation of internal
controls which would adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6.     The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 13, 2003
By: /s/ Marcos Grodetzky
Name: Marcos Grodetzky
Title:   Director
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Report of Independent Accountants
To the Board of Directors and Shareholders
Tele Norte Leste Participações S.A.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of Tele Norte Leste
Participações S.A. and its subsidiaries (together the "Company") at December
31, 2002 and 2001 and the changes in shareholders' equity and the results of
their operations and their changes in financial positions for each of the three
years in the period ended December 31, 2002, all expressed in Brazilian
reais
,
in conformity with accounting practices adopted in Brazil. 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 of these statements in accordance with
auditing standards generally accepted in Brazil and the United States of
America which require that we plan and perform the audit 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Although not required under accounting practices adopted in Brazil, the Company
has presented statements of cash flows. This supplemental information has been
subject to the same audit procedures described above and, in our opinion, these
statements fairly present in all material respects, the cash flows in relation
to the overall financial statements.
Accounting practices adopted in Brazil vary in certain important respects from
accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of consolidated
results of operations for each of the three years in the period ended December
31, 2002 and the determination of shareholders' equity at December 31, 2002 and
2001 to the extent summarized in Notes 31 and 32 to the consolidated financial
statements.
/s/PricewaterhouseCoopers
Rio de Janeiro, Brazil
Auditores Independentes
February 26, 2003, except as to the information
contained in Note 1 (a) (ii), for which the date
is May 30, 2003.
PricewaterhouseCoopers
Auditores Independentes
F-1
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
CONSOLIDATED BALANCE SHEETS
Years ended December 31
(Expressed in thousands of Brazilian
Reais
)
2002
2001
Current assets:
Cash and cash equivalents
1,512,703
1,234,443
Trade accounts receivable, net
2,724,931
2,145,844
Deferred and recoverable taxes
1,456,830
1,293,095
Prepaid expenses
179,354
97,018
Other assets
215,351
180,118
Total current assets
6,089,169
4,950,518
Long-term assets:
Deferred and recoverable taxes
1,680,699
1,561,173
Judicial deposits
313,269
273,201
Prepaid expenses
67,921
29,867
Other
299,888
84,444
Total long-term assets
2,361,777
1,948,685
Permanent assets:
Investments
98,577
98,219
Property, plant and equipment, net
16,842,860
18,146,569
Intangible assets
1,432,955
1,163,976
Deferred charges
636,246
458,049
Total permanent assets
19,010,638
19,866,813
Total assets
27,461,584
26,766,016
Current liabilities:
Payroll and related accruals
260,422
181,860
Suppliers
1,634,743
2,199,346
Dividends and interest on own-capital
703,169
538,042
Deferred taxes and taxes on income
283,489
86,958
Taxes other than on income
481,800
436,572
Loans and financing
1,747,472
1,370,561
Licenses payable
603,900
Consignment on behalf of others
113,449
85,720
Amounts payable relating to the Pegasus acquisition (Note 1(b))
153,911
Other
111,433
106,395
Total current liabilities
5,489,888
5,609,354
Long-term liabilities:
Deferred taxes
872
872
Taxes other than income
138
608
Loans and financing
7,705,869
6,249,321
Provisions for contingencies
1,772,648
1,491,438
Debentures
1,300,000
1,300,000
Other
37,411
30,906
Total long-term liabilities
10,816,938
9,073,145
Minority interest
2,034,179
2,057,180
Shareholders' equity:
Own-capital and reserves
5,323,850
7,396,342
Retained earnings
3,796,288
2,626,931
Total shareholders' equity
9,120,138
10,023,273
Funds for capitalization - expansion plan contributions
441
3,064
Total shareholders' equity and funds for capitalization
9,120,579
10,026,337
Total liabilities and shareholders' equity
27,461,584
26,766,016
F-2
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(Expressed in thousands of Brazilian
Reais
)
2002
2001
2000
Net operating revenue:
Services provided to third parties
11,568,296
10,103,066
8,126,990
Sales of handsets and accessories
305,657
Cost of services:
Provided by third parties
(7,738,089
)
(6,806,635
)
(5,294,442
)
Cost of handsets and accessories
(414,356
)
Gross profit
3,721,508
3,296,431
2,832,548
Operating (expenses) income:
Selling
(1,307,354
)
(1,571,070
)
(885,726
)
General and administrative
(1,014,602
)
(869,680
)
(835,782
)
Other operating (expense) income, net
(144,285
)
(225,455
)
128,124
Other non-recurring extraordinary income
153,233
Operating income before interest
1,408,500
630,226
1,239,164
Interest income
384,471
494,442
274,163
Interest expense
(2,345,573
)
(918,754
)
(323,119
)
Operating income (loss)
(552,602
)
205,914
1,190,208
Non-operating income (expenses), net
28,441
(2,120
)
15,884
Employees' profit share
(130,893
)
(28,410
)
(64,831
)
Income (loss) before income taxes and minority interests
(655,054
)
175,384
1,141,261
Income tax and social contribution (expense) benefit
371,312
21,679
(174,638
)
Minority interests
(131,856
)
(56,685
)
(257,216
)
Net income (loss)
(415,598
)
140,378
709,407
Shares outstanding at the balance sheet date (thousand)
375,065,248
369,469,693
369,752,180
Net income (loss) per thousand shares outstanding at the
balance sheet date (in
reais
)
(1.11
)
0.38
1.92
F-3
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(Expressed in thousands of Brazilian
Reais
)
2002
2001
2000
Financial resources were provided by:
Net income (loss) for the year
(415,598
)
140,378
709,407
Minority interests
131,856
56,685
257,216
Expenses (income) not affecting working capital:
Depreciation and amortization
3,863,109
2,926,421
2,803,282
Provision for tax incentives losses
71
19,284
5,253
Equity accounting adjustments and capital gain
3,596
(44,023
)
(1,483
)
Deferred income tax and social contribution
(364,894
)
(365,991
)
(29,635
)
Loss on disposals of property, plant and equipment
29,648
29,896
159,502
Provisions for contingencies
631,230
609,744
100,001
Interest (income) expense on long-term assets and liabilities
898,477
194,161
70,456
Other
(29,113
)
(23,563
)
(9,414
)
4,748,382
3,542,992
4,064,585
Increase in long-term liabilities
2,999,887
6,506,906
2,172,373
Transfer from long-term receivables to current assets
286,670
200,590
219,388
Dividends prescribed and reversal of dividends
21,271
21,069
4,791
Total funds provided
8,056,210
10,271,557
6,461,137
Financial resources were used for:
Increase in long-term receivables
451,847
848,271
95,003
Increase in treasury shares
169,492
Increase in permanent assets:
Investments
143,474
9,594
Goodwill on investments
278,201
61,969
Property, plant and equipment
2,013,382
8,940,031
2,936,827
Intangible assets
1,102,007
Deferred charges
221,024
479,222
2,964,454
11,744,466
3,041,424
Accrued dividends and interest attributable to capital
668,365
466,906
409,053
Transfer from long-term to current liabilities
2,986,791
1,230,009
343,389
Total funds used
6,619,610
13,441,381
3,793,866
Working capital of acquired investment (Pegasus)
(201,710
)
Increase (decrease) in working capital
1,234,890
(3,169,824
)
2,667,271
Changes in working capital
Current assets
At the end of the year
6,089,169
4,950,518
6,108,374
At the beginning of the year
4,950,518
6,108,374
2,915,149
1,138,651
(1,157,856
)
3,193,225
Current liabilities
At the end of the year
5,513,115
5,609,354
3,597,386
At the beginning of the year
5,609,354
3,597,386
3,071,432
(96,239
)
2,011,968
525,954
Increase (decrease) in working capital
1,234,890
(3,169,824
)
2,667,271
F-4
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31
(Expressed in thousands of Brazilian
Reais
)
2002
2001
2000
(i)
Cash flow from operating activities
Net income (loss) for the year
(415,598
)
140,378
709,407
Minority interests
131,856
56,685
257,216
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Interest on monetary and exchange variation on loans and financing
1,954,234
948,196
925,545
Depreciation
3,645,467
2,927,784
2,673,268
Amortization of deferred charges
43,840
6,455
Amortization goodwill Pegasus
6,196
Amortization of Goodwill (Note 1(d))
167,606
167,606
167,606
Amortization of negative goodwill
(175,424
)
(37,591
)
Equity accounting adjustments and capital gain
3,596
(44,023
)
(1,483
)
Net results of disposals of permanent assets
29,648
29,896
159,502
5,566,845
4,057,553
4,853,470
(Increase) decrease in assets
Accounts receivable
(559,868
)
356,635
(1,094,023
)
Deferred and recoverable taxes
(427,796
)
(924,745
)
(1,227,604
)
Prepaid expenses
(109,792
)
(89,773
)
(4,633
)
Inventories
(71,988
)
(9,299
)
(11,730
)
Judicial deposits
(40,068
)
(138,070
)
(54,217
)
Other assets
(136,247
)
99,098
5,963
Increase (decrease) in liabilities
Suppliers
(625,755
)
840,875
358,990
Payroll and related accruals
75,430
(3,811
)
29,039
Deferred taxes and taxes
238,306
65,828
127,023
Provisions for contingencies
281,210
609,744
(40,642
)
Other accounts payable
(17,213
)
64,214
121,640
Net cash provided by operating activities
4,173,064
4,928,249
3,063,276
(ii)
Cash flow from investing activities
Capital expenditures
(2,013,382
)
(10,042,038
)
(2,936,827
)
Acquisition of permanent investments
(50,000
)
(143,474
)
(8,611
)
Deferred charges
(221,024
)
(479,222
)
Acquisition of treasury shares
(169,492
)
Net cash used in investing activities
(2,284,406
)
(10,834,226
)
(2,945,438
)
(iii)
Cash flow from financing activities
Loans and financing obtained
2,296,595
5,044,206
2,174,854
Debentures issued
1,300,000
Loans granted that were received
15,614
11,547
Licenses payable
(603,900
)
603,900
Payment of principal amounts of loans and financing
(1,910,709
)
(986,864
)
(436,051
)
Interest paid on loans and financing
(1,021,362
)
(538,435
)
(144,995
)
Payment of dividend and interest on own-capital
(386,636
)
(386,505
)
(314,967
)
Net cash provided by (used in) financing activities
(1,610,398
)
5,047,849
1,278,841
Increase (decrease) in cash and cash equivalents
278,260
(858,127
)
1,396,679
Cash and cash equivalents at the beginning of the year
1,234,443
2,092,570
695,891
Cash and cash equivalents at the end of the year
1,512,703
1,234,443
2,092,570
F-5
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Capital reserves
Earnings reserves
Fiscal
Special
incentives
Unrealized
Share
reserve
and
Legal
income
capital
of goodwill
donations
reserve
reserve
At December 31, 1999
3,741,151
2,464,787
11,100
186,331
2,750,514
Share goodwill reserve provision
(1,599,647
)
Capitalization of reserves and retained
earnings
400,448
(13,367
)
(186,331
)
Realization of unrealized income reserve
(134,070
)
Net income for the year
Constitution of legal reserve
19,798
Dividends proposed
At December 31, 2000
4,141,599
851,773
11,100
19,798
2,616,444
Capitalization of reserves
167,606
(167,606
)
Reversal of the elimination of
capitalized
interest expense
Fiscal incentives
9,035
Acquisition of treasury shares
Net income for the year
Constitution of legal reserve
7,019
Dividends proposed
At December 31, 2001
4,309,205
684,167
20,135
26,817
2,616,444
Dividends prescribed
Capitalization of reserves
167,606
(167,606
)
Loss for the year
Realization of unrealized income reserve
(2,072,492
)
Interest on capital proposed
At December 31, 2002
4,476,811
516,561
20,135
26,817
543,952
[Additional columns below]
[Continued from above table, first column(s) repeated]
Retained
Treasury
earnings
shares
Total
At December 31, 1999
2,407,234
(90,934
)
11,470,183
Share goodwill reserve provision
(1,599,647
)
Capitalization of reserves and retained
earnings
(200,750
)
Realization of unrealized income reserve
134,070
Net income for the year
709,407
709,407
Constitution of legal reserve
(19,798
)
Dividends proposed
(248,496
)
(248,496
)
At December 31, 2000
2,781,667
(90,934
)
10,331,447
Capitalization of reserves
Reversal of the elimination of
capitalized
interest expense
11,905
11,905
Fiscal incentives
9,035
Acquisition of treasury shares
(169,492
)
(169,492
)
Net income for the year
140,378
140,378
Constitution of legal reserve
(7,019
)
Dividends proposed
(300,000
)
(300,000
)
At December 31, 2001
2,626,931
(260,426
)
10,023,273
Dividends prescribed
12,442
12,442
Capitalization of reserves
Loss for the year
(372,563
)
(372,563
)
Realization of unrealized income reserve
2,072,492
Interest on capital proposed
(499,979
)
(499.979
)
At December 31, 2002
3,839,323
(260,426
)
9,163,173
F-6
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
1.       Description of business and summary of significant accounting
policies
Tele Norte Leste Participações S.A.(the "Parent Company") and its
subsidiaries are referred to as ("the Company" or "TNL") in these financial
statements.
(a)  Description of business
The Company's business is carried out by three primary business segments:
(i)      Fixed-line telecommunications:
Fixed-line telecommunications services are provided by Telemar Norte Leste
S.A. ("Telemar") in its operating area - Region I - which comprises the States
of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas,
Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Maranhão, Pará,
Amazonas, Roraima and Amapá (but excluding the "Triângulo Mineiro" and certain
areas of "Alto Paranaíba" in the state of Minas Gerais) ("Region I"). These
services are provided under a concession granted by
Agência Nacional de
Telecomunicações
("Anatel"), the National Agency for Telecommunications, the
regulatory authority for the Brazilian telecommunications sector, which expires
on December 31, 2005. The concession may be extended for an additional 20-year
period, if the terms of such extension and the conditions regarding new
universal service and quality targets, in each case to be determined by Anatel
and the Ministry of Communications and they are met, at the cost of 2% of net
revenues payable every two years.
Anatel certified the early attainment by Telemar of the universal service
targets set in the concession agreement which had a deadline of December 31,
2003 and, as a result, starting July 20, 2002 Telemar started to provide
service for inter-regional long distance calls initiated in the 16 States
mentioned above. As the legality of such right gave rise to different
interpretations and challenging by other long distance operators, Telemar asked
for and was granted an injunction from the Regional Federal Court of Appeals -
2nd Region, pending confirmation by Anatel.
Telemar also offers international long distance services as of July 2002,
under a license granted to TNL PCS S.A. ("Oi") with the acquisition of the
license to operate wireless telecommunications.
(ii)    Mobile telecommunications:
Mobile telecommunications services are provided by Oi, by means of the
Personal Mobile Service ("SMP") license which was acquired on March 12, 2001,
for R$1,102,007, and will expire on March 12, 2016. The license authorizes the
services in the same region of Telemar, in addition to the "Triângulo Mineiro"
and certain areas within the "Alto Paranaíba" (certain areas in the state of
Minas Gerais). The license may be renewed for an additional 15-year period, for
a charge, payable every two years, based on the previous year's net income,
provided that the current license conditions are met. On June 26, 2002, Oi was
authorized by Anatel to start providing the service, using GSM/GPRS technology,
within Region I.
In May 2003, the sale of all of TNL's shares in Oi to Telemar was approved
by the boards of Directors of both TNL and TMAR and consummated. The sale
price was fixed at R$1.00, which is equal to the net equity value of Oi at
market price on the base date of March 31, 2003, as determined by an
independent asset evaluation preformed by Ernst & Young in accordance with
article 256(II)(b) of Corporate Law 6404/76 and adjusted to reflect the
capitalization of Oi in the amount of R$563 million through the conversion of
part of Oi debt held by TNL prior to the sale. Following the consummation of
the sale, Oi maintained total indebtedness of R$4.76 billion of which R$1.79
billion intercompany and R$2.98 billion with third parties.
F-7
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
F-8
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The primary reason for this transaction is to strengthen the strategic position
of TNE and to increase its capacity for growth by uniting the potential of
fixed (Telemar) and mobile (Oi) telephony assets. The benefits arising from
the optimization of Telemar's and Oi's operating and support sectors and from
the alignment of the two companies' business interests and strategies will
result in more rational use of available resources, with consequent cost
reductions, productivity gains and better use of the synergies between the
companies. Another important reason for having Telemar rather than TNL own Oi
is that Telemar will be able to use the tax benefits associated with the
transfer of all of the indebtedness of Oi to Telemar. We believe Telemar's
higher interest expense will decrease its pre-tax income and result in tax
savings.
(iii)   Contact center:
The subsidiary Contax S.A. ("Contax") operates a contact center, which
manages the total relationship between companies and clients, including
logistics and billing, through multiple interactive means such as e-mail, fax
and voice via IP.
(iv)    Other business activities:
•
Hosting and the placement of clients'
applications on hardware and software platforms, provided by
our subsidiary TNext S.A.;
•
Outsourcing of corporate telecommunications
services, including the implementation, operation, management
and service insurance, provided by our subsidiary HiCorp
Comunicações Corporativas S.A.; and
•
Interests in other companies which perform
internet-related activities, including an indirect
participation of 17.5% in Internet Group do Brasil Ltda. (iG)
and our subsidiaries TNL.Acesso S.A. and TNL.Net
Participações S.A.;
The General Plan on Quality for Personal Mobile Service, related to the
resolution promulgated by the
Comissão de Valores Mobiliáros
("CVM"), the
Brazilian Securities Commission, Resolution No. 249, issued on December 19,
2000, defines quality targets to be attained by the Company. These targets
include service quality, customer service and billing. In addition to these
targets, the General Plan on Quality for Personal Mobile Service also
stipulates deadlines for repairing malfunctions and deficiencies as well as
providing physical data to the regulator.
All telephone services are subject to the regulations and inspections by
Anatel, in accordance with Law No. 9472, issued on July 16, 1997.
(b) Acquisition of Pegasus
Pegasus' primary purpose was the operation, marketing, project
development, execution and rendering of data transmission services in the
states of Rio Grande do Sul, Santa Catarina, Paraná, Mato Grosso, Mato Grosso
do Sul, Goiás, Tocantins, Acre, Rondonia, Distrito Federal ("Region II") and
São Paulo ("Region III"). We expect that our acquisition of Pegasus will enable
us to expand our share in the corporate market, by offering data transmission
services in Brazil on a nationwide basis.
F-9
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
On January 19, 2001, the Company increased its capital in Pegasus to
approximately R$93,200. This investment increased its holding percentage from
9.33% to 23.26%. Goodwill in the amount of R$61,969 was calculated and recorded
considering financial viability studies carried out by third parties and the
expected future profitability. During 2001 the Company's participation
increased to 24.44%.
On December 27, 2002, Telemar entered into a purchase and sale contract
for the outstanding shares in Pegasus (including the 24.44% held by the
Company), following approval at an Extraordinary General Meeting held on
November 29, 2002. During such meeting, the Company abstained from voting on
the amount paid by way of synergy and savings. The transaction was priced
according to the average of two different economic-financial appraisals
prepared by experts, totaling R$560,950 based on the financial statements as of
June 30, 2002, in addition to future operating synergy gains in the amount of
R$114,000, proposed by the Board of Directors based on studies taking into
account the joint operation of the companies following the acquisition.
Pegasus' total liabilities, in the amount of R$397,552, were deducted from the
amount payable.
The shares purchase-and-sale contract provided for the adjustment of the
acquisition price to reflect the variations in (i) the working capital of
Pegasus between June 30, 2002 and the audited transfer balance sheet on
December 27, 2002, (ii) monetary restatement, based on the CDI rate, from
December 27, 2002 up to the dates that the payments occurred and (iii)
identified contingencies and aggregate indebtedness. Therefore, after
negotiations had been concluded at the end of the first quarter of 2003, the
purchase price was adjusted from R$307,809 to R$241,382.
On December 27, 2002, the Company paid a first installment of R$50,000,
and the remaining amount of R$191,382 was paid in February 2003.
The acquisition price of Pegasus, giving effect to the value paid to third
parties, was in excess of the book value and generated a goodwill of R$254,974,
which was justified by the expectation of future profitability based on the
economic-financial appraisals and synergy gains by the joint operations of
Telemar and Pegasus. In addition, the goodwill of R$55,772 paid by the Company
upon acquisition of the 24.44% participation is included as part of the total
goodwill in connection with the acquisition of Pegasus and will be amortized
over the same period.
The purchase price does not include income tax and social contribution
credits, totaling R$57 million as of December 27, 2002, arising from tax loss
carryforwards, which will only be paid when utilized by Telemar and/or Pegasus.
The transfer balance sheet of Pegasus, as of December 27, 2002, is as
follows:
F-10
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Current assets
51,192
Current liabilities
433,648
Accounts receivable
23,003
Loans and financing
335,727
Recoverable taxes
12,691
Suppliers
62,786
Prepaid expenses
10,999
Amounts received in advance
23,713
Other
4,499
Other
11,422
Long-term assets
67,380
Long-term liabilities
91,634
Related parties
54,533
Loans and financing
61,825
Recoverable taxes
11,401
Amounts received in advance
29,809
Other
1,446
Permanent assets
332,658
Investments
4,828
Property, plant and
equipment
326,810
Deferred charges
1,020
Total assets
451,230
Unsecured liabilities (Negative
shareholders' equity)
74,052
Total assets and unsecured liabilities
(Negative shareholders' equity)
525,282
525,282
Pegasus' balance sheet was consolidated as of December 31, 2002.
(c)      Corporate restructuring
On June 28, 2001, the Board of Directors and the
Conselho Fiscal
of
Telemar - RJ (the predecessor of Telemar) and the Company's other 15 fixed-line
telephone subsidiaries approved the merger of the net book values of these
subsidiaries into Telemar - RJ, as proposed by the Board of Executive Officers.
The objective of the merger was to simplify the existing corporate structure,
improving the operation of public switched fixed-line telephone services.
As a result of the merger, holders of common shares of the other
subsidiaries who opted to migrate exchanged their shares for common shares of
Telemar - RJ, and holders of preferred shares of the other subsidiaries,
regardless of the class, exchanged their shares for preferred class "A" shares
of Telemar - RJ.
The corporate restructuring resulted in the acquisition of minority
interests in a number of subsidiaries and sale of shares in others. The table
below demonstrates the change in ownership of subsidiaries.
F-11
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
% change in
% of total capital December 31,
ownership as a
result of corporate
2000
2001
restructuring
Telemar (previously
Telemar-RJ)
86.20
80.79
(5.41
)
Telemar-ES
83.02
80.79
(2.23
)
Telemar-CE
78.00
80.79
2.79
Telemar-RN
68.89
80.79
11.90
Telemar-PA
55.13
80.79
25.66
Telemar-PB
64.38
80.79
16.41
Telemar-MG
79.49
80.79
1.31
Telemar-BA
81.61
80.79
(0.66
)
Telemar-SE
61.87
80.79
19.45
Telemar-PE
75.90
80.79
5.02
Telemar-PI
73.40
80.79
7.39
Telemar-MA
63.59
80.79
17.20
Telemar-AP
81.08
80.79
(0.29
)
Telemar-RR
59.72
80.79
21.07
Telemar-AM
75.18
80.79
5.61
Telemar-AL
69.99
80.79
12.32
All of the subsidiaries were merged into Telemar as of August 2, 2001.
With the merger the deferred income tax assets related to loss
carryforwards recorded by Telemar - AM, Telemar - AL and Telemar - PE were
written-off against net income for the year, totaling:
Social
Income tax
contribution
Total
Telemar - AM
24,235
9,448
33,683
Telemar - AL
13,166
4,776
17,942
Telemar - PE
7,450
2,392
9,842
44,851
16,616
61,467
The appraisal rights paid to the shareholders who exercised their right to
withdraw from the group as a result of the corporate reorganization within the
legal period of thirty days from the date of the shareholders meetings, which
was held on August 2, 2001, totaled R$185,914. The shares of the dissenting
shareholders will be held in treasury for cancellation or sale.
(d)      Goodwill on down-stream merger
On December 14, 1999, as permitted by Article 157 of Brazilian GAAP and
Instructions Nos. 31/84, 319/99 and 320/99 of CVM, Telemar Participações S.A.
("Telemar Participações"), the controlling shareholder of the Company (52.96%
of common shares), subscribed for and paid in, through
F-12
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
transfer of its investment and corresponding goodwill asset ("Goodwill")
in the Company, 100% of the capital in a new entity, 140 Participações S.A.
F-13
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The objective of the down-stream merger was to assure realization of the
tax benefits arising from the amortization of the Goodwill paid over book value
by Telemar Participações on its acquisition of the Company by transferring to
the Company the tax benefit arising from the amortization of their Goodwill.
Telemar Participações subscribed for and paid in the capital of 140
Participações S.A. The purchase consideration included Telemar Participações
shares in the Company and the corresponding Goodwill which arose at the time of
the privatization of the Company. The down-stream merger of 140 Participações
S.A. was approved by the shareholders on December 29, 1999, whereupon 140
Participações S.A. was merged into the Company. In the downstream merger, the
shareholders of Telemar Participações received shares of the Company in
exchange for their shares in 140 Participações S.A. The net book value of the
assets merged into the Company as of November 30, 1999 were as follows:
Permanent assets
Investments
Tele Norte Leste Participações S.A.
1,800,358
Goodwill
2,464,787
4,265,145
Shareholders' equity
Capital (special goodwill)
4,267,024
Accumulated deficit
(1,879
)
4,265,145
This transaction was recorded in shareholders' equity as a special reserve
of goodwill in the amount of R$2,464,787 against a corresponding Goodwill asset
to be amortized over five years based on expected profits. The tax benefit
realized from the amortization expense of the Goodwill will be transferred to
Telemar Participações through shares to be issued at no par value, at which
time the minority shareholders will be granted the right to acquire shares in
proportion to their participation in the Company's share capital.
On March 6, 2001, the CVM issued Instruction No. 349, which amended
Instruction No. 319 and related to the accounting for the down-stream merger.
The new Instruction allowed the Company to write-down the Goodwill asset to the
amount of the future tax benefit expected to be generated by the amortization
of the Goodwill retroactive to January 1, 2000.
As a result, on January 1, 2000, the Company reduced the Goodwill asset
and the corresponding special reserve of goodwill by R$1,599,647. The remaining
value of R$824,060 corresponds to the amount of the expected future tax
benefit. The Goodwill, which had been recorded in permanent assets, was
reclassified to current and non-current deferred and recoverable taxes on the
balance sheet. In addition, the Company reversed R$325,352 of amortization that
had been recorded during 2000 in connection with the portion of the Goodwill
that was reduced, retroactively as of January 1, 2000.
On May 9, 2001 and April 26, 2002, the Company increased its capital by
R$167,606, which represented the prior year tax benefit realized and derived
from the amortization of the Goodwill recorded during the years ended December
31, 2001 and 2000 of R$492,958 in each year. Amortization expense of the
Goodwill, net of amortization of the provision, for the years ended December
31, 2002, 2001 and 2000, was R$167,606 (Note 5).
F-14
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(e)      Summary of significant accounting policies
Basis of presentation
The consolidated financial statements, which are used as the basis for
determining income tax and mandatory minimum dividend calculations, have been
prepared in accordance with accounting practices adopted in Brazil ("Brazilian
GAAP"), which are based on Brazilian GAAP (Law No. 6,404/76, as amended), the
rules and regulations issued by
Comissão de Valores Mobiliários
(the Brazilian
Securities Commission, or "CVM"), and the accounting standards issued by the
Instituto dos Auditores Independentes do Brasil
(the Brazilian Institute of
Independent Accountants, or "IBRACON"). The consolidated financial statements
include the financial statements of the Company's wholly-owned subsidiaries and
subsidiaries in which it has a controlling financial interest. Investments in
businesses in which the Company does not have the ability to exercise
significant influence over operating and financial policies are accounted for
under the cost method.
Certain amounts in these financial statements were reclassified to conform
to the 2002 presentation.
The consolidation process for the balance sheet and the statement of
income accounts reflects the aggregate of the balances of the assets,
liabilities and income and expense accounts, according to their nature,
together with the elimination of intercompany transactions and unrealized
profits/losses within the group.
Statements of cash flows (supplemental information)
These consolidated financial statements include the consolidated
statements of cash flows prepared in accordance with Brazilian accounting
standards and procedures - NPC 20, which reflect the source and use of cash and
cash equivalents in addition to the consolidated statements of changes in
financial position which are required by Brazilian GAAP.
Use of estimates
The consolidated financial statements include estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingencies and the amounts of revenues and expenses. Actual results could
differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents are considered to be all highly liquid
investments with an original maturity of three months or less.
Foreign
currency transactions
Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the related transactions. Foreign currency-denominated
assets and liabilities are translated using the exchange rate at the balance
sheet date. Exchange gains and losses on transactions denominated in foreign
currencies are generally included in results of operations as incurred.
F-15
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Accounts receivable
Accounts receivable from telecommunication services are valued by applying
the rates on the date the service is provided. These accounts receivable also
include credits for services rendered but not yet billed up to the balance
sheet date. The value of services rendered but not yet billed is determined by
the valuation of the metered services at year-end or by estimates that take
into account the performance for the previous month. The related taxes are
similarly determined and accounted for on the accrual basis.
The accounts receivable from handsets and other accessories sold are
recorded when these goods are transferred to the customers.
Late-payment interest is accounted for following the liquidation of the
overdue bill.
Provision for doubtful accounts
This provision is established progressively in order to recognize probable
losses in relation to the collection and call-restriction actions, as of 60
days past due, as follows:
% loss
Overdue bills
provided for
Between 61 and 90 days
40
Between 91 and 120 days
60
Between 121 and 150 days
80
Over 151 days
100
Commencing September 2001, government entities, corporate clients and
other telecommunications service providers are being included in the
calculation base for the provision, as are the agreements with clients in
default to settle their debts in installments.
Accounts receivable more than 180 days overdue and the related provision
are eliminated from the balance sheet.
Inventories
Inventories of materials for resale are stated at realizable value, which
does not exceed replacement cost or realizable value.
Inventories of maintenance materials are stated at average purchase cost,
which does not exceed replacement cost. Inventories of materials for network
expansion are stated at average acquisition cost and recorded in "Inventories
for expansion" under Property, plant and equipment.
Prepaid expenses
Subsidies for postpaid handsets sold by Oi are recorded as prepaid
expenses considering that they represent subscriber acquisition costs,
amortized over a 12 month-period since the client agreement provides for
reimbursement in the event of disconnection or migration to the prepaid system
before completion of this period.
The amount of the Fundo de Fiscalização das Telecomunicações ("FISTEL"),
the Telecommunication Inspection Fund, fees paid by Oi on activations in the
course of 2002 was also recorded as prepaid expenses, taken to income over the
average churn (retention) period, which is usually
F-16
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
24 months. Since these fees are necessary to install the mobile terminals
to be used by our clients, we consider them as subscriber acquisition costs.
Premiums on foreign exchange options, and prepaid commissions and fees
related to the drawdown of loans are amortized in accordance with the term of
the related contracts.
Revenue recognition
Revenues are recognized on the accrual basis i.e. at the time the service
is rendered. The services provided between the last billing date ("cycle") and
the end of each month are estimated and recognized in the month of accrual.
Revenues consist of the rental of lines, service tariffs based on the
number and length of calls (tariffs for local and long distance calls are based
on the time and length of calls, the distance involved and the services used),
network services, interconnection and leasing of high-capacity lines,
maintenance fees and other value-added services rendered to clients. These
revenues also include telephone installation fees and pre-paid calling cards.
The Company's management considers that the installation fees should not be
deferred since the margins are negative or low. Revenues from public telephone
pre-paid calling cards are recognized when the cards are sold and the related
costs are recognized when incurred.
Revenues from sales of handsets and accessories are recognized when title
to the products is transferred to the customers.
Investments
Investments consist primarily of (i) investments in affiliated companies,
which are accounted for under the cost method, (ii) fiscal incentives, which
are also accounted for under the cost method but indexed by inflation through
December 31, 1995, less a provision for losses when considered necessary, and
(iii) investments in affiliated companies accounted for under the equity
method.
Under Brazilian Corporate Law, equity investments are investments in
companies in which the Company has more than 20% participation (voting or
non-voting shares) and/or influence over the management, but without control.
Equity accounting adjustments arising from gains and losses due to changes in
the holding percentage in the share capital of investees are recorded in
non-operating income (expenses), net.
Under US GAAP, the equity method is permitted if the company holds 20% or
more of the voting shares (Note 30(n)).
Property, plant and equipment
The investment in property and equipment is stated at original cost,
indexed for inflation through December 31, 1995. Materials used for specific
network expansion projects are stated at average original cost and are
presented as "Construction-in-progress." Improvements to existing property are
capitalized while maintenance and repair costs are charged to expense as
incurred. Property and equipment is depreciated using the straight-line method
over their estimated useful lives. The principal depreciation rates are
detailed in Note 14.
Prior to January 1, 2000, interest on construction-in-progress was
calculated monthly at a rate of 12% per annum, and capitalized as part of
property and equipment until the asset was placed in service.
F-17
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Interest capitalized, which exceeded interest expense on loans obtained to
finance construction-in-progress, was recorded in a restricted capital reserve
directly in shareholders' equity.
F-18
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Beginning January 1, 2000, the Company changed its interest capitalization
policy on property and equipment in compliance with the new CVM rule No. 193,
"Capitalized Interest on Financing of Construction-in-progress." This new rule
requires interest to be capitalized on construction-in-progress at the rates
represented by current loans. As of December 31, 2002 and 2001, the Company
capitalized R$323,413 and R$504,836, respectively.
Management reviews long-lived assets, primarily buildings and equipment to
be held and used in the business, for the purpose of determining and measuring
impairment on a recurring basis or when events or changes in circumstances
indicate that the carrying value of an asset or group of assets may not be
recoverable. Write-down of the carrying value of assets or groups of assets is
made if and when appropriate. No impairment losses were identified in 2002 and
2001.
Intangible assets
Intangible assets consist of (i) the wireless license ( license), acquired
by the Company's new wireless telecommunications subsidiary, Oi, which is
amortized using the straight-line method over the license period of 15 years
and (ii) goodwill related to the excess of the acquisition cost over the book
value of acquired investment (Pegasus – Note 1 (b)), which is amortized on a
straight-line basis over a five-year period.
Deferred charges
Under Brazilian GAAP, pre-operational costs are deferred until the
start-up of operations, at which time the costs are amortized on a
straight-line basis over five years.
Derivatives
The Company has entered into derivative transactions to manage its
exposure to fluctuations in foreign currency exchange and interest rates. The
company employs risk management strategies using a variety of derivatives
including cross-currency interest rate swaps, forwards and options. The Company
does not hold derivatives for trading purposes.
Under Brazilian GAAP, results from swap operations are determined and
recorded on a monthly basis by comparing contractual exchange rates to month
end exchange rates, when applicable, regardless of the respective terms for
settlement. Gains on "options" and "forward" contracts are recorded in interest
income when the contracts expire while losses are recorded currently against
income.
Under US GAAP, derivatives are recorded at fair value (Note 30 (f)).
Vacation pay accrual
Vacation benefits payable to employees are accrued in proportion to the
period vested.
Provisions for contingencies
Provisions for contingencies are established for contingent risks
considered as "probable losses" by the Company's management and external legal
consultants. The basis, amounts involved and nature of the main provisions are
described in Note 21.
Dividends and interest on own-capital
Dividends and interest on own-capital are recorded at year-end based on
the proposed amount by the Directors, which is expected to be approved in the
annual Shareholders' Meeting.
F-19
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Income tax and social contribution
Provisions for deferred and payable income tax and social contribution and
tax credit on temporary differences are established at the base rate of 34%.
Prepaid income tax and social contribution are recorded as "Deferred and
recoverable taxes." Tax credits arising from tax loss carryforwards are
recognized as tax assets when management considers future realization to be
probable, pursuant to CVM Resolution No. 273 and CVM Instruction No. 371 (Note
10).
Advertising and marketing costs
Advertising and marketing costs are expensed as incurred. As of December
31, 2002, 2001 and 2000, total expenses were R$138,750, R$180,205 and
R$150,048, respectively.
Research and development
Research and development costs are charged to expense as incurred. Total
costs were R$34,411 and R$47,418 in 2001 and 2000, respectively. There were no
research and development costs in 2002.
Earnings per share
Earnings per share is computed based on number of shares outstanding at
the end of each year.
Pension plans
Contributions to pension are based on payroll and on actuarial
calculations, being recorded on an accrual basis. At December 31, 2000, CVM
issued Deliberation CVM No. 371 that approved the technical pronouncement of
IBRACON on specific accounting procedures for the recording of obligations of
employees' benefits. This pronouncement was adopted by the Company and its
subsidiaries as from the year ending December 31, 2001.
Although, the plans' assets exceed the actuarial liabilities at December
31, 2002 and 2001, those excesses will not be recognized, as the reimbursement
is not determined by law.
F-20
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
2.      Operating revenues
2002
2001
2000
Local:
Monthly subscription fees
4,581,099
3,606,831
2,517,132
Fixed-line to mobile calls VC1
2,753,750
2,680,471
2,116,769
Pulses (metered services)
2,247,179
2,026,486
1,889,712
Installation charges
141,302
359,476
157,600
Collect calls
124,856
112,145
85,172
Other revenue
3,386
7,241
49,639
9,851,572
8,792,650
6,816,024
Long distance:
Long distance services (Intra-state)
1,110,585
835,129
694,953
Fixed-line to mobile calls VC2 and VC3
482,089
459,256
346,911
Long distance services (Interstate)
399,936
274,015
222,268
Long distance services (Inter-regional)
58,759
Long distance services (International)
14,921
2,066,290
1,568,400
1,264,132
Other fixed-line services:
Public telephone services (telephone cards)
668,875
570,379
458,346
Value-added services
302,513
257,820
228,963
Advanced voice
259,459
177,622
115,504
1,230,847
1,005,821
802,813
Revenue from the use of the fixed-line network:
Fixed-line to fixed-line network use
1,248,931
1,251,214
1,071,498
Mobile to fixed-line network use
248,380
244,148
206,678
1,497,311
1,495,362
1,278,176
Remuneration for the use of the mobile network:
Mobile to mobile network use
20,222
Fixed-line to mobile network use
7,242
27,464
Mobile telephone services:
Sales of handsets and accessories
388,035
Originating calls
33,246
Monthly subscription fees
20,809
International roaming
8,131
Additional services
5,110
National roaming
436
455,767
Data network services (fixed-line):
Industrial
Dedicated Digital Line Service - EILD
373,323
344,337
339,883
Dedicated Digital Line Service - SLD
275,642
275,386
251,059
IP services
91,992
54,807
46,824
Data communication services
87,329
64,803
32,243
Other services
77,543
47,933
8,847
905,829
787,266
678,856
Other services, including contact center
56,276
10,050
10,577
Gross operating revenue
16,091,356
13,659,549
10,850,578
Value added and other indirect taxes
(4,071,139
)
(3,466,281
)
(2,629,686
)
Discounts
(146,275
)
(90,202
)
(93,902
)
Net operating revenue
11,873,942
10,103,066
8,126,990
F-21
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(a)      Description of the services
(i)
Local
Local services refer to installation charges, monthly subscription fees
(including 100 free pulses), exceeding pulses, collect calls and local
fixed-line to mobile calls. In-dialing service (direct transmission of external
calls to extensions) is also offered by the Company to those corporate clients
that work with PBX systems. For corporate clients in need of a large number of
phone lines, the Company offers digital trunk services that allow up to 30
simultaneous connections within a single physical loop of 2 Mbps, increasing
the speed and optimization of the client's telephone system.
(ii)
Long distance intra-state and interstate services
Each State in the Company's operating region is divided into a number of
local areas. Calls from one local area in the region to another are referred to
as "intra-regional long distance" calls. Intra-regional long distance service
includes intra-state long distance calls and interstate long distance calls.
(iii)
Long distance inter-regional and international services
The Company commenced providing inter-regional and international long
distance services in July 2002, after having met in June 2002 our fixed-line
network expansion and universal targets set for December 31, 2003.
Inter-regional long distance services are offered from the 16 States in Region
I to Region II and Region III.
(iv)
Fixed-line to mobile services
These refer to calls made by the Company's fixed-line clients to mobile
service providers operating within the region. These services also include
collect calls from mobile customers to fixed-line clients.
(v)
Revenue from the use of the network
Revenues from the use of the network include only those amounts charged by
the Company to other telephone operators.
In March 1999, the Company signed an interconnection agreement with
Embratel in order to formalize the use of its network for long distance calls
carried out by Embratel (Empresa Brasileira de Telecomunicações S.A.). The
Company received from Embratel. Until June 30, 2001, a supplemental per-minute
fee called the
Parcela Adicional de Transição
("PAT") which in 2001 totaled
R$18,624 (R$84,500 - 2000). This fee was introduced to offset the impact caused
by the elimination of the shared-revenue system.
The Company maintains contracts for voice interconnection and transmission
with all fixed-line and wireless telecommunications service providers operating
in Region I.
(vi)
Sale of handsets and accessories
Refers to revenues from the sale of mobile handsets, 'sim-cards' and other
accessories, recorded when delivered to the dealers.
F-22
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(vii)
Data network services
The Company provides low and high-speed data transmission services through
switched circuits.
The Company leases telecommunications equipment and lines to other
telecommunication companies under monthly operating leases, which expire at
various dates. Leased line revenues (denominated SLD and EILD) for the years
ended December 31, 2002, 2001 and 2000 were R$648,965, R$619,723 and R$590,942,
respectively. These services are recorded and billed on a monthly basis.
Data network services also comprise certain additional and value-added
services such as ISDN, which allows voice, data, image and sound transmission
supported by a single digital line permitting the client to use simultaneously,
for example, voice transmission and the Internet
(viii)
Other services, including contact center
The Company provides other services that include equipment rentals,
technical assistance and other telecommunication services. The Company also
offers integrated telecommunications services for corporate clients via our
contact center.
(b) Main rates
Telecommunications service rates are subject to a comprehensive
regulation. The concessions establish a price-cap mechanism for annual rate
adjustments, which places an upper limit based on a weighted average of the
rates for local, long distance and for interconnection charges.
On June 28, 2002, Anatel approved the following tariff adjustments to the
standard plan for local and long distance services (unaudited):
Previous
Current
Local service
tariff
tariff
Variation
Installation charges
70.08
42.04
-40.01
%
Residential subscription
23.32
26.58
13.98
%
Commercial subscription
36.33
41.75
14.92
%
PBX
48.30
41.75
-13.56
%
Local pulse
0.09259
0.10159
9.72
%
Calling card credits
0.07500
0.08100
8.00
%
Previous
Current
Long distance (Km) (*)
tariff
tariff
Variation
0-50
0.23964
0.26936
12.40
%
50-100
0.36298
0.38403
5.80
%
100-300
0.37746
0.40236
6.60
%
+300
0.39243
0.43363
10.50
%
(*)     Tariff for minute of long distance national calls, between 9 am and 12 am,
and between 2 pm and 6 pm, business days.
F-23
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
In February 2002, Anatel also approved the maximum rates for the
fixed-mobile service:
VC1 = R$0.5098
VC2 = R$1.0371
VC3 = R$1.1800
The subsidiaries Telemar and Oi rent telecommunication equipment and lines
from/to fixed-telephone and mobile telephone operators and other private
companies in order to enable the completion of calls (dedicated circuits, cable
connections, satellites, posts, right of way and physical space), as well as to
provide data transmission under a number of operating agreements expiring at
different dates. Rental revenues and expenses, according to the related
agreements, were as follows:
2002
2001
Rental revenues
648,965
619,723
Rental expenses
(349,824
)
(209,903
)
3. Cost of services and operating
expenses - by nature
2002
General
Cost of
and adminis-
services
Selling
trative
Total
Interconnection (i)
2,369,158
2,369,158
Depreciation (ii)
3,362,792
63,738
218,937
3,645,467
Personnel
440,373
172,902
187,899
801,174
Materials (iii)
206,670
17,099
13,779
237,548
Cost of handsets and accessories (iv)
414,356
414,356
Third party services (v)
932,324
292,756
438,211
1,663,291
Management fee (vi)
57,708
57,708
Advertising
138,750
138,750
Rental and insurance (vii)
390,618
4,778
55,911
451,307
Provision for doubtful accounts
616,038
616,038
Other consumables (viii)
36,154
1,293
42,157
79,604
Total
8,152,445
1,307,354
1,014,602
10,474,401
F-24
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
2001
General
Cost of
and adminis-
services
Selling
trative
Total
Interconnection (i)
2,334,608
2,334,608
Depreciation (ii)
2,737,303
50,118
146,818
2,934,239
Personnel
525,376
167,310
202,819
895,505
Materials (iii)
263,197
6,542
15,862
285,601
Third party services (v)
705,816
229,364
384,445
1,319,625
Management fee (vi)
50,665
50,665
Advertising
180,205
180,205
Rental and insurance (vii)
220,412
11,082
61,116
292,610
Provision for doubtful accounts
925,611
925,611
Other consumables (viii)
19,923
838
7,955
28,716
Total
6,806,635
1,571,070
869,680
9,247,385
2000
General
Cost of
and adminis-
services
Selling
trative
Total
Interconnection (i)
1,634,716
1,634,716
Depreciation (ii)
2,427,132
67,975
178,161
2,673,268
Personnel
397,204
221,725
180,338
799,267
Materials (iii)
195,374
4,364
15,058
214,796
Third party services (v)
479,393
189,628
320,652
989,673
Management fee (vi)
81,186
81,186
Advertising
150,048
150,048
Rental and insurance (vii)
147,010
32,229
43,343
222,582
Provision for doubtful accounts
218,699
218,699
Other (viii)
13,613
1,058
17,044
31,715
Total
5,294,442
885,726
835,782
7,015,950
(i)
Interconnection costs refer essentially to rates for the use of
fixed-mobile networks charged by the cellular operators, substantially reducing
the margin of such services.
F-25
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(ii)
Depreciation increased in 2002 due to the completion of the early
target attainment plan at the end of 2001.
(iii)
Materials costs comprise mostly network maintenance, fuel and
lubricant expenses.
(iv)
This refers to the cost of selling mobile handsets, sim-cards (chips
with subscribers' information) and other accessories.
(v)
Third-party services included in "Cost of services" refer mainly to
operating technical network services, such as installation, line and
infrastructure equipment maintenance and electricity. Services included in
"Selling" refer to customer collection expenses, commissions and sales support
services, and services considered "General and administrative" include data
processing, consultancy, legal advice and utilities (water, among others).
(vi)
At the Extraordinary General Meeting held on November 30, 1999,
shareholders approved a management and administrative services agreement
between Telemar and Telemar Participações establishing a management fee, as
provided for in the concession contracts. Such contract will be in force until
2003 and may be extended. Remuneration is based on a percentage of Telemar's
net revenues, as follows: 1% from August 1998 to December 31, 2000; 0.5% during
2001 and 2002, and 0.2% from 2003 onwards.
(vii)
Rental and insurance costs mostly include amounts currently paid for
rental of circuits, posts of electricity companies, satellites, right of way,
dedicated lines from other telephone operators, as well as areas for the
installation of Oi towers. They also include those amounts paid by TNL.Acesso
to the internet provider, iG, by way of passing on traffic enhancement. This
contract was terminated by the parties on December 31, 2002, and a new
arrangement was signed.
(viii)
This refers mostly to indemnity, donations and fines.
4. Interest income (expense)
2002
2001
2000
Interest income
Interest on marketable securities (i)
139,841
176,888
157,893
Interest on the receipt of overdue bills
80,407
89,970
60,268
Amortization of option premiums
1,577
65,870
Exchange gains on financial investment
61,715
Other
100,931
161,714
56,002
384,471
494,442
274,163
Interest expenses
Interest and monetary/foreign exchange losses
on loans
payables to third parties (iv)
(3,089,144
)
(50,020
)
(255,769
)
Derivatives results (iv)
1,675,399
(266,645
)
20,161
Interest on own-capital (ii)
(668,365
)
(152,736
)
Reversal of interest on own-capital (ii)
668,365
152,736
Amortization of option premiums (iii)
(73,182
)
(94,771
)
Bank charges, including CPMF
(205,599
)
(120,300
)
(46,594
)
Monetary restatement of interest on own-capital
and dividends proposed
(6,013
)
(7,912
)
(5,215
)
Interest on debentures
(245,473
)
(139,089
)
Monetary restatement of provisions
for contingencies (v)
(132,995
)
(98,809
)
(2,209
)
PIS/COFINS on financial income and IOF
(239,349
)
(61,284
)
(25,028
)
Other
(29,217
)
(79,924
)
(8,465
)
(2,345,573
)
(918,754
)
(323,119
)
Total
(1,961,102
)
(424,312
)
(48,956
)
F-26
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
Interest on marketable securities basically represents interest on
short-term investments in Bank Deposit Certificates and Investment Funds.
(ii)
Giving effect to the tax benefit introduced by Law 9.249/95, which
amended the income tax legislation, and the generation of taxable income in the
Company, in 2002 and 2001 Telemar recorded interest on own-capital of R$849,997
and R$670,311, respectively. To comply with the tax provisions, such interest
was accounted for as "Interest expenses" and "Interest income," and reversed to
"Retained earnings" by Telemar and "Investments" by the Company, as it
represents profit distribution. In 2002, the Company recorded R$499,979 as
interest on own-capital, also reversed to "Retained earnings."
(iii)
Expenses and income from premiums on options are taken to income
during the term of the related contracts.
(iv)
In 2002, indexation charges and foreign exchange losses on loans
obtained from third parties were strongly impacted as a result of the
significant valuation of the US dollar against the Real (52.3%). Under
Brazilian GAAP, net results from swap operations are recognized in the income
for the year on the accrual method, thus reducing the interest expenses arising
from exchange variations. Gains on options transactions are recognized upon
contract maturity.
As of December 31, 2002, gains on options transactions amounted to
R$66,600, which were not accounted for, while the exchange losses on loans were
fully recorded. This gain will be realized during the first quarter of 2003, if
the US dollar to Real quotation is equal to or above R$2.90 (should the
quotation be less than R$2.70, than there will be no gain).
All the outstanding swap operations were signed between October 2001 and
August 2002, and therefore, during a period of increasing devaluation of the
Real, these operations guaranteed that this devaluation did not materially
effect income since 72.8% (2001 – 57,6%) of our indebtedness is denominated in
foreign currencies.
As part of its risk management strategy, the Company entered into swap
agreements to reduce its foreign currency exposure on loans and financing. As a
result, during 2002 the Company recognized gains in the swap transactions in
the amount of R$ 1,603,468, relating to the difference between the devaluation
of the Real against the US Dollar and the CDI rates, which partially offset the
exchange loss on loans and financing in the amount of R$ 2,551,800.
See Note 25 for details on derivative transactions.
(v)
Restatement of provisions for contingencies of the amounts to be
actually paid in the event of loss and/or settlement is stated as "Interest
expenses." Such procedure applies primarily to tax assessments and proceeding,
since reserves for most civil and labor claims are estimated.
F-27
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
5.
Other operating income (expenses), net
2002
2001
2000
Funds reimbursed by the SISTEL pension plan (i)
153,233
Amortization of down-stream merger Goodwill (Note 1(d))
(492,958
)
(492,958
)
(492,958
)
Amortization of provision of down-stream merger Goodwill
325,352
325,352
325,352
Amortization of negative goodwill (ii)
175,424
37,591
Amortization of goodwill on Pegasus
(6,196
)
Amortization of deferred charges
(43,840
)
(6,455
)
Equity accounting adjustment
(18,600
)
17,679
Research and development (iii)
(34,411
)
(47,418
)
Taxes (iv)
(188,907
)
(181,302
)
(25,626
)
Technical and administrative services
64,015
53,566
35,343
Fines on late-payment (Note 9)
118,103
102,057
75,323
Recovered expenses (v)
132,505
74,498
86,435
Reserves for contingencies (vi)
(197,438
)
(376,162
)
(91,896
)
Reversal of contingencies (vii)
158,722
59,320
149,177
Rental of infrastructure (viii)
62,685
56,073
65,060
Other, net
(57,728
)
1,864
11,741
Total
8,948
(225,455
)
128,124
(i)
During the first half of 2002, Telemar received and recorded R$153,233
(recovery of expenses) with respect to excess funds from
Fundação Sistel de
Seguridade Social
("SISTEL"), the Sistel Foundation for Social Security, as a
result of the reversal of part of SISTEL's provisions for tax contingencies
under the defined contribution benefit plan, arising from the amnesty of legal
fines as a result of SISTEL's adherence to the Special Taxation Regime, as
permitted by Provisional Measure No. 2222, of December 4, 2001.
(ii)
At an Extraordinary General Meeting of the subsidiary
Telecomunicações do Rio de Janeiro S.A. (currently Telemar) held on April 12,
1999, the settlement of the subsidiary debt value of R$1,681,427, owed to the
Company, with the issue of 37,766,387,915 common nominative shares to the
Company, with no par value was approved.
The capital increase of this subsidiary generated a negative goodwill of
R$238,075, attributed to the expectations of future results. The negative
goodwill balance was fully amortized in the year ended December 31, 2001, as a
result of the merger of the subsidiaries into Telemar – RJ.
(iii)
Prior to the spin-off of Telebrás, the subsidiaries and other
companies of the Telebrás System contributed to
Centro de Pesquisa e
Desenvolvimento
- ("CPqD"), Research and Development Center, which was operated
by Telebrás and conducted its own independent research and development.
Subsequent to the spin-off, a private, independently administered research and
development center was created. According to an agreement signed in May 1998
between the Company and the research and development center, the Company was
required to contribute R$128,594 in total to the center over a three-year
period which expired in May 2001.
F-28
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(iv)
During the years ended December 31, 2002 and 2001, the Company
recorded R$99,343 and R$81,537, respectively, with respect to the
Fundo de
Universalização de Serviços de Telecomunicações
("FUST"), Fund for Universal
Telecommunication Services. FUST was approved on August 17, 2000 and provides
funds to cover the necessary costs to comply with the obligations established
in the General Plan on Universal Service. The FUST's revenues include a
contribution of 1% of gross operating revenue from telecommunications services
earned by Telemar and Oi, net of ICMS, PIS and COFINS taxes. Such contribution
has been paid on a monthly basis since January 2001.
In October 2000, the Brazilian Senate passed a bill establishing the
Fundo
para o Desenvolvimento Tecnológico das Telecomunicações Brasileiras
("FUNTTEL"), Fund for the Technical Development of Brazilian
Telecommunications. FUNTTEL's main objective is to encourage research and
development of new technologies. It started activities on March 28, 2001, with
funds arising from 0.5% of net operating revenues of telecommunications service
providers. In the years ended December 31, 2002 and 2001, the Company recorded
expenses of R$49,672 and R$31,965, respectively, with FUNTTEL.
(v)
This refers basically to fines and arrears interest arising from the
late delivery of services and the recovery of several expenses. The increase in
the 2001 figure is due to the recognition of extemporaneous ICMS credits in the
approximate amount of R$25 million. In November 2002, a provision for
insufficient technical reserves of the
Plano de Benefícios de Complementados
("PB-CT"), the Complementary Benefit Plan, was reversed, because the plan was
merged into the TelemarPrev plan and the amount was no longer payable. This
reversal amounted to R$30,315 (Note 26(a)(ii)).
(vi)
Reserves for contingencies refer primarily to new tax claims in the
amount of R$61,493 (2001 – R$103,305), labor claims of R$84,898 (2001 -
R$115,528) and civil claims of R$51,047 (2001 – R$157,329), plus interest and
charges on arrears arising from the recalculation of claims for which
provisions had already been established. Increases to provisions for tax
contingencies, included: a) challenging of the tax on certain revenues from
telecommunication services (R$20.2 million); b) INSS tax foreclosures
concerning the joint responsibility for the contribution collection, and the
assessment of the contribution on severance pay and other social benefits (R$16
million); and c) supplementation and restatement of claims related to the
increase in FINSOCIAL rates (R$19 million). Increases to provisions for labor
contingecies, include: provision for dangerous work premium (R$13 million), and
creation of new provisions, as well as the restatement of individual claims
under R$1,000 (R$60 million). As to civil claims, provisions were established
for Anatel fines (R$17 million), indemnity to SISTEL (R$15 million) and other
claims the individual amounts of which are under R$1,000 (R$12 million). The
changes in provisions for contingencies are fully described in Note 21.
Provisions related to the probable incidence of PIS/COFINS, ICMS -
Convênio 69/98, IOF, ILL, IR/CS, FGTS and CPMF are recorded in the
results/operations accounts of such taxes:
F-29
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
2002
2001
2000
Deductions from gross revenue:
ICMS Convênio 69/98 - additional services
(20,270
)
(65,894
)
(29,247
)
COFINS rate increase
(127,409
)
(115,587
)
(107,535
)
Personnel cost:
FGTS
(1,478
)
(8,426
)
SAT offset
(13,398
)
(26,361
)
(15,392
)
Other operating expenses:
PIS/COFINS – base increase
(27,092
)
(9,662
)
(13,646
)
Financial expenses:
PIS/COFINS – base increase
(28,726
)
(60,426
)
(24,610
)
CPMF
(94,043
)
(19,172
)
(12,912
)
IOF – loans to subsidiaries
(101,075
)
Monetary restatements
(122,260
)
(61,284
)
(2,209
)
Income tax and social contribution:
7,003
(12,002
)
Total
(528,748
)
(378,814
)
(205,551
)
The restatement of reserves representing amounts that will be actually
paid is recorded as "Interest expenses" (Note 4).
(vii)
Reversal of contingencies in 2002 arose basically from a) settlement
of INSS-related judicial proceedings, previously provided for by Telemar,
through the acquisition of Government securities at a discount, generating
revenues of R$12 million; b) utilization of benefits provided by Provisional
Measures 66 and 75 (rules issued by the President of Brazil, with effect of law
valid from 60 to 120 days), whereby interest and fines due by Telemar were
reduced/waived, and a provision (substantially FINSOCIAL) of approximately R$32
million was reversed; c) reversal of R$8.5 million for amounts recorded to
cover the retroactive increase in the FGTS rate pursuant to a Supreme Court
ruling; d) reversal of R$11.5 million related to negotiations with Embratel
(VC2/VC3) e) recognition of an asset of R$16 million associated with ILL paid
in previous years, based on a Supreme Court ruling stating the
unconstitutionality of this tax in this particular instance; f) reversal of
R$26 million regarding the settlement of several labor claims, the most
important of which is the payment of the claim involving the adjustment of
salaries in accordance with inflation indices under the "Verão Plan" (economic
plan) in the state of Pará, with a reversal of approximately R$5 million; g)
reversal by the Company of a portion of the provision for convertible
debentures, in the amount of R$21 million, as a result of the decrease in the
market value of the related shares. The remaining amounts refer to reversals on
account of several suits completed by ruling or settlement. The material
reversals are fully described in Note 21.
(viii)
Mobile operators use radio base stations (ERB) located in the
buildings of Telemar. Telemar charges a rental fee for the use of these
facilities, called rental of infrastructure, which is recorded under "Other
operating revenues and expenses – Rental-infrastructure."
F-30
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
6.
Non-operating income (expense), net
2002
2001
2000
Gain (loss) on disposal of permanent assets
22,471
(29,896
)
2,685
Equity in earnings of affiliates
15,004
26,344
14,881
Other non-operating income (expense), net
(9,034
)
1,432
(1,682
)
Total
28,441
(2,120
)
15,884
As a result of the merger of the 15 subsidiaries into Telemar (Note 2
(c)), the Company's interest in Telemar reduced from 86.20% to 79.56%. The
capital gain recorded as a result of the merger operation totaled R$50,669.
In November 2001, Telemar entered into a partnership agreement with
Hispamar Ltda. in order to reduce costs to cover the northern region of Brazil,
in particular transponders rented from Embratel. On December 31, 2002, Telemar
entered into an agreement with Hispamar Satélites S.A., a subsidiary of
Hispamar Ltda., providing for the assignment, at a charge, of the right to
utilize the geostationary C Band satellite. Such right had been granted to
Telemar by Anatel, free of charge, included in the concession agreement. The
assignment price was based on a report of independent appraisers, totaling
R$28,659 to be received over five years, inflation-indexed based on the
Consumer Price Index ("IPC"). The proceeds of this transaction were recorded as
gain on disposal of permanent assets as a contra-entry to "Other assets,"
Gains and losses on disposal of permanent assets consist mainly of
write-offs of equipment in connection with the modernization of the network.
7.
Income tax and social contribution
Brazilian income taxes comprise federal income tax and social contribution
tax. The composite statutory rate is 34% for all three years presented.
The following is an analysis of the income tax and social contribution
(expense) benefit:
2002
2001
2000
Social contribution (expense) benefit
107,520
(7,018
)
(50,635
)
Income tax (expense) benefit
247,789
28,697
(142,924
)
Offset of tax on net income-ILL
16,003
18,921
Total tax (expense) benefit
371,312
21,679
(174,638
)
F-31
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The following is a reconciliation of the amount calculated by applying the
combined statutory tax rates to the reported income before taxes and the
reported income tax expense (benefit):
2002
2001
2000
Income (loss) before income taxes and minority interests
(655,054
)
175,384
1,141,261
Tax (charge) benefit at the composite
222,718
(59,631
)
(388,029
)
Write-off of net operating losses ("NOL's") of subsidiaries
merged into Telemar (Note 1(c))
(61,467
)
Tax benefit on the amortization of the Goodwill (i)
110,619
110,619
110,619
Non-taxable amortization of negative goodwill (ii)
43,856
12,781
Tax benefit of interest on own-capital (iii)
227,244
49,747
54,673
Offset of tax on net income – ILL (iv)
16,003
18,921
Unrecognized tax credits (v)
(185,273
)
(12,695
)
Non-taxable equity accounting adjustments
(89,122
)
14,968
5,060
Tax effects on permanent differences (vi)
(10,037
)
(50,130
)
Other, net
79,160
(13,588
)
11,337
Total benefit (provision) of income taxes and
social contribution
371,312
21,679
(174,638
)
Effective tax rate
52.24
%
(12.4
%)
15.3
%
(i)
Pursuant to the downstream-merger (Note 1(d)), the Company recorded a
provision for the reduction of the Goodwill to the amount of the tax benefit to
be generated. In order to produce the tax benefit, the amortization of this
provision, included in the income (loss) before income taxes and minority
interests is not taxed.
(ii)
Up to December 31, 2001, the Company recorded a negative goodwill
arising from a capital increase of Telemar - RJ. The amortization of such
negative goodwill (Note 5 (ii)) was excluded from the calculation basis of the
income tax.
(iii)
Brazilian companies are permitted to determine a tax-deductible
interest on own-capital expense attributable to shareholders' equity, which is
treated as a dividend and distributed in a manner similar to a dividend. For
financial reporting purposes, interest on own-capital is recorded as a
deduction from unappropriated retained earnings, payable by the Company on
behalf of the shareholders. However, the tax benefit remains in the income
statement.
(iv)
Considering Supreme Court rulings on the unconstitutionality of this
tax, in the second half of 2000 the Company offset the payment of other federal
taxes with this tax credit. Based on administrative proceedings and the opinion
of outside counsel, the Company reversed that portion of the provision during
2002, while maintaining a provision for the possible challenging of the
criteria for the restatement of tax credits (Note 21).
F-32
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(v)
Certain subsidiaries did not recognize deferred taxes on the tax
losses of 2002 and 2001 in the absence of past experience and/or expectation of
future taxable income to ensure full utilization. Such tax assets may be
recorded in the event that these subsidiaries demonstrate the capability of
realizing such credits over the next ten years (Note 10).
(vi)
Tax effects on permanent differences refer basically to write-offs of
accounts receivable recorded in 2001 and 2000 which are not tax deductible.
Deferred tax assets are presented in the balance sheet under "Deferred and
recoverable taxes" (Note 10), and comprise the following:
2002
2001
Tax benefit on down-stream merger goodwill (Note 1(d))
321,243
488,849
Allowance for NOL's (Note 10(ii))
(185,273
)
(12,695
)
NOL's
609,101
322,901
Provisions for contingencies
577,418
462,559
Temporary differences, mainly provision for doubtful accounts
351,805
160,966
Total
1,674,294
1,422,580
Current
443,641
389,216
Long-term
1,230,653
1,033,364
The tax loss carryforwards do not expire and may be carried forward for an
indefinite period. Utilization of the tax carryforwards in any year, however,
is limited to 30% of taxable income generated in such year. However, Telemar
holds an injunction authorizing the offsetting of 100% of its accumulated tax
loss carryforwards determined in 1998 and prior years, and maintains a
provision for contingencies relating to charges and interest in arrears in the
amount of R$23,001 (2001 – R$3,611) (Note 21 – Tax (ix)). Tax credits at
December 31, 2002, described in Note 10, include R$138,437 relating to 1998 and
prior years.
Deferred tax liabilities and taxes on income are comprised as follows:
2002
2001
Federal income tax payable
55,697
16,478
Social contribution tax payable
19,952
21,770
Income tax withheld at source on interest on own-own-capital
180,256
12,691
Deferred tax liabilities:
Additional indexation expense from 1990 (i)
28,446
35,999
Others
10
892
Total
284,361
87,830
Current
283,489
86,958
Long-term
872
872
F-33
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
Additional indexation expense from 1990 relates to the non-tax
deductible increase in depreciation arising from pre-1990 indexation
adjustments to property, plant and equipment, according to Brazilian tax
legislation.
8.
Cash, cash equivalents and government securities
2002
2001
a)   Cash and cash equivalents
Cash and bank accounts
72,839
43,657
Certificate of deposits (i)
994,035
906,593
Investment funds (ii)
321,095
219,298
Remunerated deposits
116,576
Debentures (iv)
64,895
Government bonds
8,158
1,512,703
1,234,443
b)   Government securities
Government exchange securities (iii)
141,455
Total
1,654,158
1,234,443
(i)
Short-term investments in
Certificados de Depósitos Bancários
("CDB"),
Bank Deposit Certificates, are partially indexed to
Certificado de Depósitos
Interbancários
("CDI"), Interbank Deposit Certificates rates, with immediate
liquidity and an average yield of 19.04% p. a. (2001 – 16.05% p. a.).
(ii)
Investment funds have immediate liquidity and had an average yield of
55.18% per annum in 2002, being primarily collateralized by US and Austrian
government securities.
(iii)
Investments in government bills such as NTN – Notas do Tesouro
Nacional mature from February 2004 through February 2005, while bills
of NBC – Notas do Banco Central mature in November 2005. The average returns of these
bills range from 10.2% to 11.7% per annum, plus exchange variations. Government
securities are presented in the balance sheet under other long-term assets.
(iv)
Debentures refer to Itaú Leasing S.A. securities negotiated by Banco
Itaú S.A., with a yield of 100% of CDI, and were redeemed in 2002.
9.
Accounts receivable, net
2002
2001
Services billed
2,594,530
2,029,745
Services measured not yet billed
461,068
451,056
Provision for doubtful accounts
(330,667
)
(334,957
)
Total
2,724,931
2,145,844
F-34
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The aging-list of accounts receivable is as follows:
2002
%
2001
%
Not yet due
1,416,703
46.4
1,039,730
41.9
To receive from other providers
527,042
17.2
272,213
11.0
Overdue up to 30 days
475,684
15.6
544,003
21.9
Overdue from 31 to 60 days
233,205
7.6
174,967
7.1
Overdue from 61 to 90 days
130,246
4.3
110,409
4.4
Overdue more than 90 days
272,718
8.9
339,479
13.7
Total
3,055,598
100.0
2,480,801
100.0
Overdue accounts are subject to a 2% fine (recorded in "Other operating
income") on the total debt and late-payment interest of 1% per month (recorded
in "Financial income"), on a pro rata basis, which are recorded when the
subsequent bill is issued after payment of the overdue bill.
Accounts receivable from other providers include credits with Embratel,
currently under discussion with Anatel and being litigated in court. The
receivables and payable from Embratel are summarized as follows:
2002
2001
Accounts receivable
318,431
237,538
Consignment on behalf of others
(57,483
)
(99,212
)
Provision for contingencies (Note 21 - civil (ii))
(50,713
)
(62,201
)
Balance to receive, net
210,235
76,125
Since September 2002, Embratel is depositing in to court the amounts
disputed regarding the interconnection traffic (remuneration on the use of the
fixed-line network), totaling R$34,435. These amounts are maintained as
accounts receivable since there is no final decision as to the ownership of
these amounts.
10.
Deferred and recoverable taxes
2002
2001
Tax credit on down-stream merger goodwill (Note 1(d)) (i)
321,243
488,849
Deferred income tax and social contribution (ii)
1,353,051
935,329
Income tax recoverable
178,629
191,838
Social contribution recoverable
44,199
36,963
ICMS (value-added tax) and other taxes recoverable
1,070,691
1,053,524
Withholding income tax (iii)
169,716
147,765
Total
3,137,529
2,854,268
Current
1,456,830
1,293,095
Long-term
1,680,699
1,561,173
(i)
As a result of the goodwill transaction on the downstream merger (Note
1(d)), an income tax and social contribution credit and a special reserve of
goodwill were recorded.
F-35
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(ii)
The Company records deferred tax credits arising from timing
differences and tax loss carryforwards, under the terms of CVM Resolution No.
273 and CVM Instruction No. 371. These credits are shown under current assets
and long-term receivables, according to the expectation of their realization.
During the year ended December 31, 2002, the Company recorded tax credits and
tax loss carryforwards in the amount of R$113,622, included under current
assets and long-term receivables.
Pursuant to a technical study approved by the Conselho Fiscal in November
2002, the generation of taxable income over the next ten years, brought to
present value, will be sufficient to absorb such tax credits, as follows:
Until December 31(non-audited):
2003
443,641
2004
434,328
2005
321,912
2006
292,969
2007
40,977
2008
11,149
2009
22,026
2010
28,657
2011
32,222
2012
46,413
Total
1,674,294
However, it is not possible to foresee with reasonable precision the years
in which the assets will be realized. The estimates for the generation of
future taxable income include several assumptions related to the performance of
the Brazilian economy, exchange rates, service volume, tariffs, tax rates and
other factors which could differ from current estimates. Management can provide
no assurance that the tax assets will be realized within the years specified
above.
For those subsidiaries that do not have a past history of profitability
and/or expectation of future generation of taxable income, management has
chosen not to recognize tax credits arising from timing differences and tax
loss carryforwards, which amount to R$185,273 at December 31, 2002 (2001 -
R$12,695).
(iii)
In May 2000, the Company was authorized to offset, in order to
extinguish the tax claim, approximately R$100 million of withheld income tax
arising from interest on own-capital, received in 2000 and 2001, against the
contingent liability related to PIS/COFINS (Note 21 – Tax (ii)).
11.
Prepaid expenses
2002
2001
Subsidies on handsets (i)
68,689
FISTEL fee (ii)
34,102
Insurance
17,719
1,410
Financial charges (iii)
88,271
85,629
Other
38,494
39,846
Total
247,275
126,885
Current
179,354
97,018
Long-term
67,921
29,867
F-36
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
This refers to the number of postpaid handsets sold during the year,
with a minimum subsidy of R$300 reais. This amount is recoverable over 12
months, considering that the agreements provide for this amount as early
termination fee or upon migration to prepaid plans.
(ii)
The amount of the "
Fundo de Fiscalização das Telecomunicações
("
FISTEL"), Telecommunication Inspection Fund, fee paid each month based on the
number of installations in the course of the year is deferred to be amortized
during the estimated period of client churn (retention), which is equivalent to
24 months. In addition, the FISTEL fee related to the annual operation and
inspection of radio base and fixed-line and mobile switches active in the prior
year paid in April is amortized during the same year.
(iii)
This refers basically to premiums paid on option contracts,
amortized during the term of the related contracts, in addition to prepaid
commissions and fees in advance for loans.
12.
Other assets
2002
2001
Government exchange securities (Note 8 (iii))
141,455
Maintenance inventories (i)
108,890
36,051
Other debtors
87,243
33,047
Tax incentive investments
73,873
84,302
Recoverable advances and deposits (ii)
68,659
107,834
Other
35,119
3,328
Total
515,239
264,562
Current
215,351
180,118
Long-term
299,888
84,444
(i)
Maintenance inventories relate to new and reusable materials in the
operating telephone subsidiaries which are stated at the lower of average
original cost or market.
(ii)
Recoverable advances and deposits as of December 31, 2002 relate
primarily to advances to suppliers in the amount of R$44,337 (2001 – R$99,711)
and advances to employees in the amount of R$24,322 (2001 – R$8,123).
13.
Investments
2002
2001
Investment in Pegasus, recorded up to December 2001 under
the equity method (Note 1(b)), and not consolidated
31,386
Investments at cost
65,971
41,927
Fiscal incentives
32,356
24,658
Other investments
250
248
Total
98,577
98,219
F-37
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The fiscal incentives and other investments are stated at cost and refer
mainly to equity interests obtained by converting into shares or capital quotas
the tax incentive investments in regional funds, information technology
companies and audiovisual projects.
14.
Property, plant and equipment, net
2002
2001
Annual
depre-
Accumulated
ciation
Cost
depreciation
Net
Net
rate (%)
Fixed switching equipment
11,475,532
(8,499,319
)
2,976,213
3,939,411
20
Oi switching equipment (i)
316,197
(9,223
)
306,974
10
Fixed transmission equipment
6,266,487
(4,198,224
)
2,068,263
2,338,697
20
Oi transmission equipment (i)
661,518
(18,749
)
642,769
10
Terminal equipment
2,252,209
(1,730,426
)
521,783
639,283
20
Trunking (switches)
6,039,599
(4,178,372
)
1,861,227
2,192,631
5 to 20
Cables (access network)
4,167,620
(1,374,788
)
2,792,832
2,344,345
5 to 20
Cables and network Pegasus
194,103
(6,291
)
187,812
3 to 4
Machines and equipment Pegasus
113,670
(10,658
)
103,012
4 to 33
Other equipment
1,526,711
(855,042
)
671,669
564,969
10 to 20
Underground ducts
1,894,915
(999,645
)
895,270
932,844
4
Posts and towers
806,485
(264,559
)
541,926
458,358
4 to 5
Hardware and software
1,214,216
(546,655
)
667,561
557,328
20
Buildings
2,083,499
(1,110,282
)
973,217
957,411
4 to 10
Other assets
1,045,451
(376,299
)
669,152
319,613
10 to 20
Construction in-progress
556,058
556,058
1,875,129
Materials for expansion projects
407,122
407,122
1,026,550
Total
41,021,392
(24,178,532
)
16,842,860
18,146,569
(i)
The depreciation rate for Oi's transmission and switching equipment is
supported by an internal report on the assessment of the useful life. This
assessment is based primarily on technical obsolescence and is consistent with
the practices followed by the wireless telecommunications sector.
In compliance with CVM Resolution No. 193/96, during 2002 the subsidiary
companies capitalized the amount of R$323,413 (2001 – R$504,836) arising from
financial charges in connection with financing of permanent assets, during
their construction period. Capitalized interest is subsequently depreciated
over the same period as the related assets.
Pursuant to clause 21.1 of the Concession Agreement, all of Telemar's
property, plant and equipment which are essential to provide the services
described thereunder are considered reversible assets and comprise the
concession's assets. Upon expiration or termination of the Concession Agreement
these assets will automatically revert to Anatel.
Management reviews its potential for profit generation on a regular basis,
especially buildings and equipment to be maintained and used in the activities,
to determine and assess possible impairment. No impairment losses were
identified in 2002 and 2001.
F-38
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
15.
Intangible assets
2002
2001
License
-  Oi
1,122,209
1,102,007
Goodwill
-  Pegasus
310,746
61,969
Total
1,432,955
1,163,976
In February 2001, Oi acquired for R$1,102,007 the license to operate and
market Personal Mobile Service in the same areas within Region I that Telemar
operates and the "Triângulo Mineiro" area and certain cities within the "Alto
Paranaíba" region of the State of Minas Gerais, in competition with CTBC
Celular S.A. This license is valid through March 12, 2016 and may be renewed
for an additional 15-year period. Oi was authorized by Anatel to start
operations on June 26, 2002 and began billing its customers as of July 2002. We
began amortizing the license, as of July 2002, upon the commencement of
operations, on a straight-line basis through the expiration date in March 2016.
16.
Deferred charges
Deferred charges consist of expenses incurred during the pre-operating
period of the new subsidiaries Oi, TNext, HiCorp, Contax and TNL.Acesso, which
will be amortized over periods based on the economic studies carried-out by a
third party (average period of five years), and comprise of the following:
2002
2001
Third party services
235,598
79,060
Rental and interest expenses
332,410
409,417
Personnel
54,652
26,287
Materials (mainly handsets)
30,720
1,254
Revenues of handset sales
(19,838
)
Rental and insurance
30,060
Other
3,075
Accumulated amortization
(30,431
)
Interest income
(57,969
)
Total
636,246
458,049
Total per subsidiary:
2002
2001
Accumulated
Cost
amortization
Net
Net
Oi
628,486
(30,431
)
598,055
409,964
TNext
30,036
(9,511
)
20,525
26,532
HiCorp
10,778
(2,693
)
8,085
10,239
TNL.Acesso
10,000
(3,667
)
6,333
8,333
Contax
3,726
(1,491
)
2,235
2,981
Pegasus
3,333
(2,320
)
1,013
Total
686,359
(50,113
)
636,246
458,049
F-39
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
17.     Payroll and related accruals
2002
2001
Wages and salaries
74,663
82,054
Accrued social security charges
22,562
34,365
Employee's profit sharing
131,612
28,410
Accrued benefits
654
692
Payroll withholdings
20,357
29,184
Other
10,574
7,155
Total
260,422
181,860
The employees' profit sharing is performance-based on operating revenues
and is measured on an annual basis (Note 26 (b)).
18.
Dividends and interest on own-capital
2002
2001
Proposed dividends and interest on own-capital
499,979
300,000
Interest on own-capital to minority shareholders of Telemar
160,040
147,442
Prior years' dividends and interest on own-capital not claimed
43,150
90,600
703,169
538,042
The dividends and interest on own-capital not claimed refer to the amounts
available to shareholders, which if not claimed within three years of the
annual Shareholders' Meeting that such dividends and interest on own-capital
were approved will be reversed to retained earnings.
19.
Taxes other than on income
2002
2001
Value-added taxes – ICMS
342,322
388,039
Employees' Profit Participation Program – PIS
32,692
8,410
Tax for Social Security Financing – COFINS
93,276
26,742
Other indirect taxes on operating revenues
13,648
13,989
Total
481,938
437,180
Current
481,800
436,572
Long-term
138
608
F-40
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
20.
Loans and financing
Draw-
down
Financial
date
Maturity
Guarantees
charges
2002
2001
(a) Local currency
Banco de Desenvolvimento de Minas Gerais S.A.
06/97
07/05
Receivables
TJLP + 4.20%
p.a.
15,328
20,501
Banco de Crédito Nacional S.A. (vi)
02/02
02/03
Conditional investment and promissory note
CDI + 0.15% and 0.4% p.m.
7,626
Banco Nacional de Desenvolvimento Econômico e Social - BNDES "Credit line" (i)
12/00
01/08
Endorsement  and receivables
TJLP + 3.85%
p.a.
1,909,881
2,173,697
Banco Bilbao Vizcaya Argentaria S.A. (ii)
06/02
06/05
None
IGPM + 12% p.a.
50,000
Banco do Brasil S.A. (vi)
12/01
03/03
Promissory note
104% to 110% of CDI and 2.18% p.m.
18,852
Banco Mercantil do Brasil S.A. (vi)
03/02
08/03
Promissory note and receivables
CDI + 0.30% p.m.
10,000
Banco ABC Brasil S.A. (vi)
04/02
03/03
Promissory note
24.60% p.a.
2,317
Banco Fibra S.A. (vi)
11/02
03/03
Promissory note and receivables
1.05% p.m.
3,000
Telcon Fios e Cabos para Telecomunicações S.A. (vi)
02/02
02/04
Promissory note
112% of CDI
3,085
Accrued interest
22,335
44,198
Total in local currency
2,042,424
2,238,396
F-41
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Draw-
down
Financial
date
Maturity
Guarantees
charges
2002
2001
(b) Foreign currency
US Dollar
Banco
Nacional de Desenvolvimento Econômico e Social - BNDES "Credit line" (i)
12/00
01/08
Endorsement and receivables
UMBND (ix)+
3.85% p.a.
920,017
695,953
ABN AMRO Bank N.V.
12/00
05/06
None
LIBOR + 5.00%
p.a
298,892
262,586
ABN AMRO Bank N.V. (iii)
08/01
08/09
Endorsement
Libor + 5.50%
p.a.
3,131,512
1,153,239
Banco Itaú S.A.
12/00
04/06
Promissory note
LIBOR + 2.75%
to 3.125% p.a.
324,866
233,827
BBA Creditanstalt S.A.
10/00
05/05
None
LIBOR + 4.20%
p.a.
211,998
185,632
BankBoston N.A.
06/01
03/06
None
LIBOR + 4.80%
p.a.
169,598
139,224
BankBoston N.A.
12/99
01/06
Endorsement
LIBOR + 4.25%
p.a.
103,455
91,934
Banco Santander do Brasil S.A.
06/01
06/04
None
LIBOR + 4.40%
p.a.
123,666
81,214
Banco Santander do Brasil S.A.
08/02
08/03
None
1% p.a.
13,386
EDC-Export Development Corporation
01/00
04/07
None
LIBOR + 1.50%
to 3.00% p.a.
246,482
196,715
Fuji Bank, Limited
11/00
09/06
None
LIBOR + 3.10%
p.a.
256,967
210,945
KFW-Kreditanstalt Für Wiederaufbau
06/00
10/09
None
8.75% to 11.87% p.a.
506,440
398,335
KFW-Kreditanstalt Für Wiederaufbau (iv)
07/02
10/09
None
8.75% to 11.87% p.a.
346,086
Unibanco União de Bancos Brasileiros S.A.
08/00
08/03
Promissory note
12.01% p.a. and
10.85% p.a.
176,665
151,565
Banco Bilbao Vizcaya Argentaria S.A.
07/00
12/06
Guaranteed by THE COMPANY
6.84% p.a.
31,378
25,759
Sumitomo Corporation do Brasil S.A.
10/97
01/03
Promissory note
LIBOR +2.5% and
3% p.a.
28,600
28,998
Electro Banque S.A. (v)
12/02
12/05
None
LIBOR + 4.5%
p.a.
60,066
F-42
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Draw-
down
Financial
date
Maturity
Guarantees
charges
2002
2001
SEB Merchant Banking (ii)
03/02
10/06
None
LIBOR + 2.75%
p.a.
173,432
Société Générale (ii)
12/02
06/07
None
LIBOR +  5% p.a.
83,033
Suppliers (viii)
Bosch Telecom Ltda.
01/95
12/02
Promissory note
LIBOR + 2.50% to 3.30% p.a.
106,675
SIEMENS Ltda.
12/99
12/02
Promissory note
LIBOR + 5.4375% p.a.
16,776
SIEMENS Ltda.
01/00
09/05
Promissory note
LIBOR + 5.00% p.a.
77,624
69,617
SIEMENS Ltda.
06/02
10/07
None
LIBOR + 4.71% p.a.
37,099
Alcatel Telecomunicações S.A. (vii)
12/02
04/04
None
LIBOR + 5% to 6.2% p.a.
131,869
Alcatel Telecomunicações S.A. (vi)
10/99
04/04
Promissory note
LIBOR + 5% to 6.2% p.a.
203,134
Alcatel Telecomunicações S.A.
12/02
04/04
Promissory note
6.91% p.a.
9,343
SIEMENS Ltda.
02/02
08/09
Promissory note
6.91% p.a.
10,638
Nokia do Brasil Ltda.
12/02
08/09
Promissory note
6.91% p.a.
22,255
Other suppliers
10/96
05/04
Promissory note
LIBOR + 1.125% to 6.6% p.a.
126
12,521
Yen currency
Japan Bank for International Cooperation – JBIC
08/01
01/10
None
1.65% p.a.
1,043,568
661,776
Accrued interest
114,154
82,830
Total in foreign currency
8,856,349
4,806,121
Results of swap operations (x)
(1,445,432
)
575,365
Total loans and financing
9,453,341
7,619,882
F-43
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Draw-
down
Financial
date
Maturity
Guarantees
charges
2002
2001
Short term
1,747,472
1,370,561
Long-term
7,705,869
6,249,321
F-44
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
Refers to the use of funds provided by special lines of credit for the
acquisition and assembly of infrastructure equipment, electronic equipment,
network management software, among others, under the terms of the
"Telecommunication Investment Support Program." Financial charges were due on a
quarterly basis up to December 2001, and from February 2002 through January
2008, financial charges and the principal are due on a monthly basis.
As of December 31, 2002, the Company, in the capacity of an endorsing
guarantor, had not met certain indices established in covenants under the
R$2,829,898 loan obtained by Telemar from BNDES and ten financial agents,
starting in December 2000 with final maturity in January 2008. Banco Itaú S.A.
and Banco do Brasil S.A., as consortium leaders and BNDES, granted a waiver, in
connection with the noncompliance of current liquidity ratio and debt coverage
as of December 31, 2002, upon increase of the interest from 3.85% per annum to
4.40% per annum for 2003. Based on these waivers and the opinion of legal
counsel, management believes to be in compliance with the covenants up to
January 2004.
(ii)
The Company obtained funds from Skandinaviska Enskilda Banken AD
("SEB Merchant Bank") in March 2002, from Banco Bilbao Vizcaya Argentaria S.A.
in June 2002 and from Société Générale in December 2002, all to finance the
acquisition of Ericsson equipment by Telemar.
(iii)
In 2001, Oi obtained loans from ABN AMRO Bank, to make investments
and pay the first installment of the right to use a radio frequency. During
2002, additional drafts were made; to cover investments made in Oi's operating
network.
(iv)
In July 2002, the Company obtained funds from KFW-Kreditanstalt Fur
Wiederaufbau, in the amount of R$258 million, and in October 2002, in the
amount of R$31 million, to finance the acquisition of Siemens equipment by
Telemar.
(v)
In December 2002, the Company obtained funds from Electro Banque, in
the amount of R$60 million, to finance the acquisition of Alcatel equipment by
Telemar.
(vi)
Refers to loans and financing obtained by Pegasus, which was acquired
and consolidated by Telemar on December 27, 2002 (Note 1(b)).
(vii)
In December 2002, the Company assumed part of the debt of its
subsidiary Pegasus with Alcatel Telecomunicações S.A., in the amount of R$134
million
(viii)
Loans from suppliers refer to contracts for the supply and
installation of equipment in order to comply with the network expansion
program.
(ix)
"UMBND" is a currency basket published by BNDES on a daily basis.
(x)
The results of swap operations refer to the gains and losses of
existing transactions at the balance sheet dates, considering the difference
between an average of 103.31% of the variation in the CDI rate and the exchange
rate variation of the US Dollar and Yen plus the bank spread. These gains and
losses are reducing or increasing our foreign currency indebtedness in US
Dollars and Yen. Management expects to maintain these transactions until their
maturity, which is similar to the disbursements relating to the loans and
financing in foreign currency.
F-45
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The maturity dates of long-term debt are as follows:
2002
2001
Local currency
2003
368,004
2004
381,710
368,004
2005
442,388
365,620
2006
375,714
362,283
2007
375,714
362,283
2008 and thereafter
31,310
30,190
Total
1,606,836
1,856,384
Foreign currency
2003
713,462
2004
1,531,074
1,098,305
2005
1,709,101
1,104,405
2006
1,286,858
909,547
2007
645,594
247,249
2008 and thereafter
926,406
319,969
Total
6,099,033
4,392,937
Total
2003
1,081,466
2004
1,912,784
1,466,309
2005
2,151,489
1,470,025
2006
1,662,573
1,271,830
2007
1,021,308
609,532
2008 and thereafter
957,715
350,159
Total
7,705,869
6,249,321
F-46
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
21.
Provisions for contingencies
2002
2001
Tax
(i)
FINSOCIAL
72,659
(ii)
PIS/COFINS
483,814
357,301
(iii)
ISS (service tax) on services which are
not subject to ICMS (value-added tax)
38,024
34,558
(iv)
ICMS
141,961
139,407
(v)
INSS
122,277
114,205
(vi)
CPMF
155,890
44,599
(vii)
ILL
27,694
39,139
(viii)
IOF
117,396
(ix)
Other claims
206,959
199,699
1,294,015
1,001,567
Labor
(i)
Unsafe work conditions premium
107,385
106,418
(ii)
Inflation indexation adjustments
1,035
15,343
(iii)
Equalization of salary scales
39,738
35,579
(iv)
Salary differences/indemnities/productivity
36,583
34,616
(v)
Other actions
75,435
80,246
260,176
272,202
Civil
(i)
Preferred shares
67,192
87,149
(ii)
Embratel VC2/VC3
50,713
62,201
(iii)
SISTEL indemnity
15,000
(iv)
Claims - small claim courts
35,478
23,171
(v)
Other claims
50,074
45,148
218,457
217,669
Total (Long-term)
1,772,648
1,491,438
The provisions for contingencies are monetarily restated on a monthly
basis, according to legally established criteria, as follows:
Tax :Variation
Sistema Especial de Liquidação e Custódia
(SELIC) (Special
System for Settlement and Custody);
Labor : Variation in the TR –
Taxa Referencial
("TR") (Referential Rate)
plus 1% per month; and
Civil : Variation in the TR plus 0.5% per month.
F-47
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Probable contingencies
Tax
(i)
FINSOCIAL
- During 2002, Telemar accepted to withdraw its claim and
pay the contested tax, totaling R$40,043 after a reduction of interest and fine
granted pursuant to Provisional Measures No. 66/02 and No. 75/02. This resulted
in a reduction and reversal of R$31,672 of the Company's provisions for
contingencies (Note 5).
(ii)
PIS/COFINS
- Based on the opinion of its legal advisors and
unfavorable interpretation by the Federal Court of Appeals, Telemar maintains a
provision to cover the discussion about the rate increase of COFINS and
broadening of the calculation basis of
Programa de Integração Social
("PIS")
and
Contribução para Financiamento da Seguridade Social
("COFINS") (Law
9.718/98), despite having obtained preliminary injunctions, authorizing the
nonpayment of these taxes, as well as the offsetting of amounts collected in
accordance with this broadened calculation basis. However, Telemar has suffered
unfavorable decisions in some states where it operates: a) Minas Gerais, where
the amount due, plus arrears interest, totaling R$72,680, was judicially
deposited; and b) Roraima and Pará, where appeals were denied on June 26, 2001.
Utilizing Provisional Measure No. 66/02, Telemar paid R$1,743 in connection
with COFINS in the State of Amapá, with benefit of R$193 as reduction of
interest and fines.
In the case of the Company, although an interlocutory appeal is still
pending judgment in order to stay an unfavorable decision at the second
judgment phase, and in view of the likelihood of a negative outcome, management
decided to use credits of withheld income tax to offset against the amount due
being challenged, in the approximate amount of R$100 million (Note 10).
(iii)
ISS
- Telemar maintains provisions for tax assessments suffered as
from 1998, challenging the incidence of this tax on several services, such as
equipment rental, value-added services, and other technical and administrative
services. The provision reflects the assessed services which are considered as
probable losses by the legal consultants. Changes occurred during the year
primarily refer to the restatement of the existing provision.
Assessments in connection with the incidence of
Imposto Sobre Seruiços
("ISS") on services relating to outsourcing of personnel, equipment rental,
wake-up call services, and others, in the approximate amount of R$320 million,
have not been provided for, since these contingencies are considered possible
or remote, as some activities are not within the scope of the ISS and are
already taxed by the ICMS. These assessments are reviewed by the Legal
Department, in connection with a comprehensive study of the legislation
applicable to all service revenues that was prepared by external legal counsel.
Furthermore, adding to the defense rationale, the Supreme Court ruled, in the
last quarter of 2001, that ISS should not be levied on equipment rental. A
substantial portion of the assessed amounts refers equipment rental.
(iv)
ICMS
- On June 19, 1998, State Financial Secretaries approved
Convênio
69, which increased the scope of
Imposto Sobre Circulação de
Mecadorias e Serviços
("ICMS") to other services, including installation.
Pursuant to this interpretation, the ICMS tax may be applied retroactively to
such telecommunication services during the last five years. Management believes
that the extended incidence of the ICMS tax on supplementary services to the
basic telecommunication services is questionable, because: a) the State
Secretaries acted beyond the scope of their authority; b) their interpretation
considers, for taxation purposes, certain services which are not
telecommunications services; and c) new taxes cannot be applied retroactively.
This is a complex matter as it involves technical definitions of services,
which would give rise to the incidence of ICMS, ISS or neither one of them.
F-48
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Following the disclosure of the
Convênio
, Telemar filed a court injunction
against the incidence of ICMS on installation and activation services (main
revenues being discussed), recording the provision and respective restatement
on a monthly basis. From 1999 until December 2001, Telemar was assessed for
ICMS on additional services, including activation and installation fees, in the
approximate amount of R$260 million. Based on the opinion of its legal
consultants, management considers the probability of loss for notifications
related to periods prior to June 1998 as "remote," and for those after June
1998 as "possible or probable," and accordingly recorded a provision for the
probable notifications of approximately R$142 million (R$14 million for
assessments, in addition to R$128 million related to the court injunction since
the Convênio was published).
As support for the opinion that the risk is remote for periods prior to
the
Convênio
, Telemar was granted a favorable judicial decision (in rem
judicatam) in the State of Minas Gerais, stating that the ICMS collection of
amounts for activation services prior to issuance of the Convênio is
unconstitutional.
In July 2002, in the light of unfavorable ruling regarding periods
subsequent to the
Convênio
, judicial deposits in the amount of R$27 million
were transferred to the State Treasury of Bahia. However, Telemar may an appeal
to this judgment.
(v)
INSS  -  This refers to the tax assessment on joint responsibility for
the payment of this tax by service providers, in the amount of R$35,199 (2001 -
R$53,165), as well as for contributions on the compensation and suspension of
SAT
Seguro de Acidente de Trabalho
("SAT") (Workers' Compensation Insurance) in
the amount of R$68,065 (2001  -  R$46,041). Although the amounts are being
complemented and restated in the light of existence of new tax executions,
there has been a settlement through an auction of Government securities
promoted by
Instituto Nacional de Seguro Social
("INSS") according to Law No.
9.711/99 of claims provisioned for and considered as likely losses, in the
amount of R$33,100. Such settlements generated a R$12,141 revenue due to the
discount obtained at the auction.
CPMF  -  The Company was granted an injunction relieving it from the payment of
Contribuição
Provisória para Movimentações Financeiras
("CMPF"). In view of the
pro-tax authorities attitude adopted by the Supreme Court, the Company
maintains a provision to cover probable losses, recorded and restated on a
monthly basis according to the activity of its bank accounts.
(vii)
ILL  -  Telemar offset
Imposto Sobre Lucro Liquido
("ILL") paid in
previous years (up to calendar year 1992), based on Supreme Court decisions on
the unconstitutionality of this tax in similar cases involving other companies.
However, although several cases have been successfully tried in higher courts,
Telemar continues to maintain a provision due to the fact that it has not been
granted a final administrative or judicial ruling on the criteria for
restatement of tax credits. During 2002, Telemar reversed part of the reserve,
in the approximate amount of R$16,003, after thoroughly reviewing the amounts
offset in previous years, as well as the criteria adopted to restate such
amounts (Note 7).
(viii)
IOF  -  Based on the opinion of its legal advisors, as well as the
fact that Supreme Courts are not unanimous regarding the possibility of this
tax being levied, the Company chose in December 2002 to record a provision to
meet a probable incidence of this tax on intercompany credit lines. As was the
case with other provisions,
Imposto Operações Financeiras
("IOF") related
amounts were restated up to December 31, 2002.
(ix)
Other claims  -  This account consists substantially of: (a) a
provision to cover offsetting of PIS and FINSOCIAL credits, currently being
discussed at the highest court with respect to the restatement index, totaling
R$103,161 (2001  -  R$92,969), and (b) a provision for SELIC interest
F-49
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
calculated
on the amounts of tax losses and tax loss carryforwards in excess of the annual
limit of 30%, based on an injunction, but pending final decision, of R$23,001
(2001  -  R$3,611).
F-50
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Labor
(i)
Dangerous work conditions premium  -  This provision reflects the amount
payable under possible trade union agreements for employees working within an
environment considered to be unsafe, principally close to high-tension electric
installations. Increases refer to new claims and monetary restatement in the
amount of R$12,585, in addition to settlement of claims in the amount of
R$5,955 and the reversal of R$5,663 having given rise to a gain.
(ii)
Inflation indexation adjustments  -  Provision related to labor claims
discussing the inflation indexation adopted for the adjustment of salaries
under certain economic stabilization programs ("Collor Plan" and "Bresser
Plan"). In July 2002, several processes in connection with this indexation
criteria of February 1989 in the State of Pará were settled, through payment of
R$10,534 which excluded interest and fines, the provision for which was
reversed in the amount of R$5,092.
(iii)
Equalization of salary scales  -  Provision to reflect the probable
loss arising from claims to equalize salary scales among certain classes of
employees. Increase reflects the restatement of this contingent liability.
(iv)
Salary differences/indemnities/productivity  -  Claims in connection
with collective suits, with loss expectations considered as probable, in view
of unfavorable decisions in lower courts.
(v)
Other actions  -  These refer to the challenging of individual amounts
which are less than R$1,000. The increase during the year can be substantially
attributed to the emergence of new suits and restatement in the aggregate
amount of R$59,818. In addition, settlement payments totaled R$50,320 which
excluded interest and fines, and a gain arising from reversals related to fines
and interest was recorded in the amount of R$16,514.
Civil
(i)
Preferred shares  -  In 1990, the Telebrás Board of Directors approved
an increase in its share capital by means of a public offer. During the call
for tender, CVM started to investigate the price of the new shares, which were
issued at a discount to the book value. Upon completion of the investigation,
CVM informed the
Ministério Público Federal
(Brazilian public prosecution
service) that in its opinion there had been no infringements as the price
established for the new shares was compatible with the market price for
Telebrás shares. Nevertheless, the public prosecutor decided to take the issue
to court. In April 1998, Telebrás was ordered to issue 13,718,350 thousand
preference shares in order to comply with the obligation, but the Company
appealed against this decision. The Company maintains a provision in connection
with the 2,516,572 thousand preference shares transferred to it at the spin-off
and privatization of Telebrás, which varies in accordance with the share
quotation on the
Bolsa de Valores de São Paulo
("BOVESPA"), (São Paulo Stock
Exchange). In July 2002, the amount of R$21,292 was reversed to income due to
the movement in the quoted market value of the shares (Note 5).
(ii)
Embratel VC2/VC3  -  On July 6, 2000 Anatel decided that Embratel is
entitled to income from the revenue arising from the long distance fixed-mobile
calls, and for Telemar's right over revenues arising from local calls, for the
period between June 1998, when the Concession Agreements were executed, and
July 1999, when the CSP (carrier dialing code) was introduced for long distance
services. Anatel's decision establishes that, following the introduction of the
CSP, the corresponding revenue belongs to the service provider selected by the user. In the Company's
opinion, Anatel misinterpreted the fixed-mobile and switched fixed-line
telephone services as being equivalent. Management understands that the
revenues generated by fixed-mobile services, irrespective of the distance
called, belong to
F-51
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Telemar, as it is the service provider to the caller who
originated the call, in conformity with the regulations established by the
Ministry of Telecommunications.
F-52
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Telemar obtained a favorable decision from Anatel with regard to the
reconsideration request submitted to the Directors Council of Anatel and,
therefore, contested the matter judicially, challenging not only Embratel's
right to offset amounts, but also the regulation of this type of revenue. With
regard to the first issue, Telemar obtained a legal instruction that prevents
Embratel from discounting the related amounts; this procedure, however, has a
temporary nature and may be revoked or overruled at any time. As for the
regulation matter, the suit is in its initial stage. The decision to maintain
the withheld amount recorded is based on the lack of evidence favorable to
Telemar and taking into consideration Anatel's decision (Note 5).
(iii)
SISTEL indemnity – Based on the opinion of its legal advisors,
Telemar management recorded a provision for the suit in connection with the
indemnity of SISTEL, arising from the termination of a property rental
agreement.
(iv)
Claims – small claims courts – These refer mostly to suits filed by
customers, the individual indemnity amounts of which do not exceed the limit of
forty minimum wages. Increase in the period is attributable to the provisioning
of R$63,615, of which R$51,308 have been paid.
(v)
Other claims – These refer to indemnity suits filed by former
resellers of prepaid calling cards, indemnity for termination of contracts with
subcontractors, indemnity for expansion plans with the issuance of shares,
among many others.
Possible contingencies
The Company has also several cases for which losses are considered as
"possible" in the opinion of its legal advisors, with no recorded provisions
for contingencies. The main contingencies total approximately R$890,000 (2001 –
R$887,000) and relate to matters such as the incidence of ISS (See
item (iii) –
Tax) and ICMS on services (See item (iv) – Tax), termination of contracts with
former resellers of prepaid calling cards, subcontractors and other suppliers,
indemnity for expansion plans/issuance of shares and losses due to failure in
the initial stage of long distance carrier code.
The main contingencies classified as possible or remote losses in the
opinion of the Company's legal advisors are as follows:
•
ICMS on international calls – In July 1999, the legal dispute
in Rio de Janeiro relating to international calls originating in
Brazil was estimated at approximately R$70,000 (tax assessments).
Tax authorities claim that international call services are provided
in Brazil, being therefore subject to ICMS. However, the law opposes
another legal interpretation, which considers international calls as
exported services, being therefore exempt from ICMS. Additionally,
there is doubt as to the responsibility for the payment of this tax,
if charged, since Telemar does not have revenues from these
services.
In February 2000, in Rio de Janeiro, Telemar obtained a favorable
decision from the
Conselho de Contribuintes
(Taxpayers' Council),
countered by a partially unfavorable ruling from the State Revenue
Secretary, according to whom the responsibility for payment, before
the introduction of CSP, lies with Telemar. Telemar obtained a court
injunction from a lower court assuring that, even after the
introduction of CSP, in July 1999, the international long distance
service provider is responsible for paying this tax.
F-53
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
•
Federal taxes – On August 9, 2000, Telemar was assessed by the
Brazilian Internal Revenue Service in Rio de Janeiro for alleged
infringements related to taxable events occurred in 1996, prior to the
privatization, totaling R$993,700, relating to IRPJ, CSL, PIS, COFINS
and IRRF. Telemar submitted to the State Federal Revenue Service of
Rio de Janeiro the documentation supporting the conformity of the
accounting records, which were disallowed for tax purposes, as well as
proof of the correct payment of the corresponding taxes in the period
assessed.
Telemar requested and was granted a new proceeding to submit
supplementary documentation, and is now awaiting a decision of the
lower court on the analysis of the documents. The assessment has been
reduced by tax authorities to approximately R$152 million, after a
first inspection of some of these documents. The ruling should be
based on the quality of the documentation submitted which, management
believes, was adequate and presented on timely basis. Accordingly,
this contingency is substantially considered remote.
•
The
Instituto de Defesa do Consumidor
("IDEC") (Consumer's
Protection Institute) filed a civil claim in the first half of 2001,
against Telemar in Rio de Janeiro, questioning the increase in
tariffs at a higher percentage than IGP-DI. Telemar appealed
against the decision and the effects of the injunction granted to
IDEC were suspended. Based on the opinion of its legal advisors,
grounded on the fact that this increase complies strictly with the
terms of the Concession Contract signed by the Company and Anatel,
management did not record a reserve for this claim, as it believes
that no losses are likely to be incurred from this claim.
22.
Debentures
In July 2001, the Company issued 13,000 simple, non-convertible debentures
of R$100 each, totaling R$1,300,000. These debentures are due in five years and
bear interest at the CDI rate plus 0.7% per annum, recorded under current
assets and amortized every six months. During 2002, interest in the amount of
R$242,699 (2001 – R$121,189) was settled.
23.
Shareholders' equity
(a)
Share capital
The authorized capital comprises 700 billion shares. At a meeting held on
April 26, 2002, the Board of Directors approved a capital increase of
R$167,606, by issuing 1,865,185 thousand common shares and 3,730,370 thousand
preferred shares at R$27.14 per thousand common shares and R$31.36 per thousand
preferred shares. These prices were defined based on the average closing prices
traded on BOVESPA at the most recent floor sessions. This capital increase
corresponds to the capitalization of part of the special reserve of goodwill,
as determined in CVM Instruction No. 319/99 (Note 1(d)). Minority shareholders
have 30 days, from the date when the related notice was published, to exercise
their right of preference to the subscription of the increase, in proportion to
their holdings.
Number (lot of 1,000 shares)
2002
%
2001
%
Common shares
127,948,562
33.3
126,083,377
33.3
Preferred shares
255,897,123
66.7
252,166,753
66.7
Total
383,845,685
100.0
378,250,130
100.0
Common treasury shares
(4,156,100
)
(4,156,100
)
Preferred treasury shares
(4,624,337
)
(4,624,337
)
Total outstanding
375,065,248
369,469,693
F-54
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
F-55
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Change in issued shares (lot of 1,000 shares):
Common shares
Preferred shares
Total
December 31, 1999
124,369,031
210,029,997
334,399,028
Issued May, 2000
156,529
39,021,123
39,177,652
December 31, 2000
124,525,560
249,051,120
373,576,680
Issued May, 2001
1,557,817
3,115,633
4,673,450
December 31, 2001
126,083,377
252,166,753
378,250,130
Issued April, 2002
1,865,185
3,730,370
5,595,555
December 31, 2002
127,948,562
255,897,123
383,845,685
(b)
Capital reserves
Special reserve of goodwill
This refers to the contra entry to Goodwill recorded upon the downstream
merger described in Note 1(d), net of the provision recorded in accordance with
CVM Instruction No. 349.
Fiscal incentives and donations
Donations and subvention of assets received in accordance with the
self-financing plan, as well as fiscal incentives – substantially FINAM (Amazon
Investment Fund) and FINOR (Northeast Investment Fund).
(c)
Earnings reserves
Legal reserve
In accordance with Art. 193 of the Brazilian GAAP, the Company must
appropriate 5% of net income for the year to a legal reserve, up to the limit
of 20% of its total share capital. This appropriation is optional when the
legal reserve, added to the capital reserves, exceeds the share capital by 30%.
This reserve may be used for capital increase or absorption of losses, but may
not be distributed as dividends.
Unrealized income reserve
The unrealized income reserve represents net income not yet realized
financially, arising from the restatement of certain permanent asset accounts
and equity adjustments of investments accounted for using the equity method.
This reserve is realized when the permanent assets from which it originated are
depreciated or disposed of or when dividends are received, or when the reserve
is appropriated to the payment of minimum compulsory dividends. The Company has
currently realized a substantial part of this reserve, and the remaining
balance is explained by the difference between dividends received and equity in
earnings of subsidiary companies, which posted positive results in recent
years.
(d)
Retained earnings
The retained earnings balance was used to fund investments under the
investment plan of the Company and its subsidiaries.
F-56
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(e)
Treasury shares
On June 16, 1999, the Company's Board of Directors authorized a share
buy-back program limited to 3% of the shares in circulation and up to
R$250,000. On October 27, 1999 the limit was increased to 6%.
At December 31, 2002 and 2001, the Company held treasury shares of
4,624,337 thousand preferred shares and 4,156,100 thousand common shares, which
were acquired during 2001 at a cost of R$45,528 and R$123,964, respectively.
(f)
Dividends and interest on own-capital
Pursuant to its by-laws, the Company is required to distribute as
dividends in respect of each fiscal year to the extent amounts are available
for distribution, an aggregate amount equal to at least 25% of "Adjusted Net
Income" (as defined below) (the "Compulsory Dividend"). The annual dividend
distributed to holders of preferred shares (the "Preferred Dividend") has
priority in the allocation of Adjusted Net Income in determining the Preferred
Dividend in relation to the Compulsory Dividend. Remaining amounts to be
distributed are allocated first to the payment of a dividend to holders of
common shares in an amount equal to the Preferred Dividend and the remainder is
distributed equally among holders of preferred shares and common shares.
The Preferred Dividend corresponds to a non-cumulative preferred dividend
equal to 6% of share capital determined in accordance with accounting
principles prescribed by Brazilian GAAP, in proportion of preferred shares to
total capital.
For purposes of Brazilian GAAP, and in accordance with the Company's
by-laws, the Adjusted Net Income is an amount equal to the Company's net
profits determined in accordance with accounting principles prescribed by
Brazilian GAAP adjusted to reflect allocations to or from (i) the statutory
reserve, (ii) an equity contingency reserve for anticipated losses, if any, and
(iii) an unrealized income reserve, if any.
The Company's by-laws also provide for distribution of interest on
own-capital as an alternative form of payment to shareholders. The interest is
limited to the average
Taxa de Juros de Longo Prazo
("TJLP") (Long-Term
Interest Rate) during the applicable period and cannot exceed the greater of
50% of net income (before distribution and deductions for income taxes) for the
period or 50% of retained earnings. Distribution of interest may also be
accounted for as a tax-deductible expense, for both income tax and social
contribution purposes. The amount paid to shareholders as interest on
own-capital, net of any withholding tax, may be included as part of a
Compulsory Dividend. Under Brazilian GAAP, the Company is obligated to
distribute interest on own-capital in an amount sufficient to ensure that the
net amount received by the shareholders, after payment by the Company of
applicable Brazilian withholding taxes (15%) is at least equal to the
Compulsory Dividend.
The Annual General Meetings of March 31, 2003 and April 25, 2002 approved
the distribution of common dividends in respect of 2002 and 2001 income of R$
499,979 and R$300,000, respectively. These dividends had been proposed by the
Board and recorded in the December 31, 2002 and 2001 financial statements.
F-57
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Minimum compulsory dividends (25%) were calculated as follow:
2002
2001
Net income for the year
(372,563
)
140,378
Realization of unrealized income reserve
2,072,492
Appropriation to legal reserve
(7,019
)
Adjusted net income
1,699,929
133,359
424,982
33,340
Number of common shares in circulation (lots of 1,000)
123,792,462
121,927,277
Number of preferred shares in circulation (lots of 1,000)
251,272,786
247,542,416
Minimum dividends of the preferred shares were calculated as follow:
Preferred
shares
Share capital
4,476,809
Proportion of preferred shares
66.67
%
Proportion of capital
2,984,539
Percentage of dividends
6
%
179,072
Dividends and interest on own-capital proposed are as follow:
Common
Preferred
shares
shares
Interest on own-capital proposed in 2002
165,020
334,959
Interest on own-capital per lots of one thousand
shares – (in r
eais
)
1.33
1.33
Dividends proposed in 2001
99,000
201,000
Dividends per lots of one thousand shares – (in
reais
)
0.81
0.81
Management proposed the payment of dividends and interest on own-capital of
R$74,997 in 2002 and R$166,641 in 2001 in excess of the adjusted net income,
through the use of retained earnings.
(g)
Stock options
In July 2000, the Company established the Stock Option Plan whereby
preferred shares are reserved for a selected group of executives. The options
are exercisable at varying dates and on a cumulative basis up to five years.
Options become fully exercisable after the fifth year.
Executives who opt for the plan must pay the Company 10% of the shares
valued at the offer price upon signing the contract. The amount paid will be
deducted from the exercise price after the five year vesting period. In the
event of a forfeiture prior to the 5-year vesting period, the executive may
receive, at the Company's discretion, a number of shares equivalent to the 10%
paid or receive cash for the 10% paid at the average market value based on the
last 90 days trading price in the stock exchange.
F-58
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The offer price is restated in accordance with the IGP-M (General Market
Price Index) variation, plus 6% per annum. Executives may opt to receive the
value resulting from the difference between the market price and the exercise
price or to receive the equivalent shares.
F-59
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
In the event of a dividend distribution, the related amount will be
deducted from the exercised options.
Should an executive decide to sell the acquired shares after the exercise
period, he/she must grant the Company a right of first refusal in the
acquisition of the shares at the market value on the date of sale.
The following table summarizes stock option operations carried-out up to
December 31, 2002:
In reais
Number
of shares
Initial
Adjusted
(lots of 1,000)
option price
option price(*)
Shares offered in July 2000
250,330
30.00
38.63
Shares offered in May 2001
1,449,304
33.00
36.72
Shares offered in October 2001
1,198,635
24.73
25.48
2,898,269
Offerings extinguished due to rescissions
(821,656
)
Options outstanding at December 31, 2002
2,076,613
(*) The option price is adjusted by IGP-M plus 6% from the date of grant to
December 31, 2002.
The market value of preferred shares at December 30, 2002 was R$27.30
(2001 - R$36.25) per lot of one thousand shares. Differences between the actual
offer price and the market value at the balance sheet date, which may result in
losses to the Company, are recorded on the accrual basis.
24. Funds for capitalization
Self-financing was one of the ways by which Telebrás financed part of the
expansion of the telecommunications network. As from July 1, 1997, the scheme
was extinguished by Ordinance No. 261 issued on April 30, 1997, by the Ministry
of Telecommunications. These amounts are to be used for future capital
increases.
25. Financial instruments
(a) Foreign currency exchange risk
Since January 1999, the Brazilian Reais exchange rate has been volatile.
At December 31, 2001, the commercial US dollar selling rate was R$2.32 to
US$1.00. In 2002, there was significant devaluation of the Brazilian Real
against the US dollar, and at September 30, 2002 the rate was R$3.91 to US$
1.00, closing at December 31, 2002 at R$3.53 to US$1.00.
At
December 31, 2002, 72.6% (2001 - 57.6%) of the Company's debt,
including debentures, was denominated in foreign currency (US dollar, Japanese
Yen and a currency basket of BNDES bank). Consequently, the Company is exposed
to foreign currency exchange rate risks that may adversely affect the results
of operations and financial position, as well as the ability to comply with
debt liabilities.
These balances of loans and financing totaled US$2,507,347 thousand and
US$2,072,876 thousand at December 31, 2002 and 2001, being covered by financial
derivatives (swaps and options) for 103.98% and 104.79%, respectively.
F-60
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(b) Derivatives
The Company limits its use of derivatives to managing risk that could
negatively impact its financing and operating flexibility. The Company's risk
management strategy is designed to protect against adverse changes in foreign
currency exchange rates and foreign currency interest rates. The Company does
not hold derivatives for trading purposes.
Commencing in May 2000, the Company entered into foreign currency exchange
rate and interest rate swap agreements to limit its exposure to foreign
exchange rate risks related to its US dollar and Yen denominated long-term
debt. Due to the devaluation of the Real against the US dollar during 2001 and
2002, the Company significantly increased its use of exchange rate derivatives
in order to reduce additional losses principally on its foreign currency debt.
The total notional amount of the cross-currency interest rate swaps and
derivatives at December 31, 2002 and 2001 was US$2,614,127 thousand and US$
2,172,097 thousand, respectively, with maturities ranging from January 2003
through January 2010. These values represent 103.98% and 104.79% of the loans
and financing, respectively.
Results related to
Derivatives contract value
derivatives
2002
2001
2002
2001
Swap
7,431,442
3,260,386
1,603,468
(181,373
)
Options
1,342,654
1,396,881
52,035
(74,272
)
Forward
382,866
9,113
(35,920
)
Total
8,774,096
5,040,133
1,664,616
(291,565
)
Deferred charges and property, plant and equipment include the amounts of
R$128,931 (2001 - R$206,776) and R$41,407 (2001 - R$37,110), respectively,
which relate to financial charges related to derivative transactions which were
capitalized during the year.
Under the terms of the swap arrangements, the Company pays to or receives
from the counterparts at maturity the amounts, if any, on an average of 103.31%
of the variation in the CDI rate (Brazilian bank certificate of deposit rate)
on the portion of the notional value which exceeds the variation on the US
dollar and Yen exchange rates plus the bank spread on the notional amount from
7.9% to 11.5% per annum in the US dollar and 1.65% per annum in the Yen debts.
If the variation in the US dollar and Yen exchange rates exceeds the variation
in the CDI rate, then the Company is entitled to receive the difference from
its counterparts. The gains and losses attributable to these instruments
resulting from changes in rates are accrued and recognized as an adjustment to
interest expenses in the statement of operations. The gains and losses are paid
or received to or from the counterparts, and these amounts are recorded
reducing or increasing the amounts of loans and financing. At December 31,
2002, the Company has receivables of R$3,445,432 while at December 31, 2001,
the Company had payables of R$575,365.
The foreign exchange rate options (put and call) allow the Company, by the
means of payment of premiums, to acquire US dollar at pre-established exchange
rates, limited to a maximum gain in some contracts. The Company also signed
foreign exchange rate forward contracts, establishing a fixed exchange rate.
The weighted average US dollar rate of these contracts was R$2.73 per US$1.00,
with an average premium of 2.76%. The premiums on the foreign exchange rate
options are recorded in the
results of the year on the accrual basis up to the contract maturity,
using the straight-line method. The gains on these options and forward contacts
contracts are only recorded when financially realized, while the losses are
recorded on the accrual basis.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The estimated fair value of cross-currency interest rate swap and
derivatives at December 31, 2002 and 2001 was R$234,286 and R$324,855,
respectively. The estimated weighted average coupon rate of the cross-currency
interest rate swaps at December 31, 2002 was 2.89% for US dollar and 1.86% for
Yen (2001 – 7.91% for US dollars). The difference between the contract values
and fair values would only be incurred if the Company liquidates prior to
maturities.
(c) Interest rate risk
At December 31, 2002, the Company had loans and financing subject to
floating interest rates based on the Brazilian long-term interest rate (TJLP)
of R$1.93 billion and CDI of R$1.36 billion for the Reais-denominated debts,
and based on LIBOR for the US dollar-denominated debts of R$6.01 billion and
based on LIBOR for the Yen-denominated debt of R$1.04 billion, and also based
on a currency basket (UMBND) for a debt of [R$0.92 billion.] The Company's
financial investments are indexed substantially at CDI rate variation.
(d) Concentration of credit risk
Financial instruments that subject the Company to concentration of credit
risk, consist primarily of cash and cash equivalents, certificate of deposits,
treasury and corporate bonds, trade accounts receivables, advances to suppliers
and derivative contracts. The Company limits its credit risk on cash and cash
equivalents, certificate of deposits, treasury and corporate bonds by
depositing and holding these funds with major financial institutions. The
Company limits its credit risk related to trade accounts receivables by selling
to a geographically dispersed customer base and by performing credit
evaluations on all new customers. Credit risk related to customer accounts is
diversified. For the periods presented, no single external customer amounted to
10% or more of the Company's annual operating revenues. Advances to suppliers
are made only to a select group of long-standing suppliers. The financial
condition of these suppliers is analyzed on an ongoing basis to limit credit
risk. Counterparts to the Company's derivative contracts are also major
financial institutions and organized exchanges. The Company considers exposure
to credit loss due to nonperformance of their counterparts to be remote. The
Company depends on the fixed-line telecommunications concession granted by the
Federal Government. Should this concession be rescinded, the Company's
operations and financial results would be materially affected.
(e) Fair value of financial instruments
The fair value of financial instruments and book value at December 31 are
as follows:
2002
2001
Book
Fair
Book
Fair
value
value
value
value
(i) Investments in marketable securities
1,581,312
1,427,892
1,190,786
1,190,786
(ii) Loans and financing
10,898,773
10,888,346
7,044,517
7,023,168
(ii) Debentures
1,321,039
1,243,799
1,317,899
1,317,899
(iii) Derivatives
1,430,800
234,286
(529,668
)
(324,855
)
The carrying amounts of cash and cash equivalents, accounts receivable,
suppliers and short-term financing approximates fair value due to the short
maturity of these instruments.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
Investments in marketable securities
The book value approximates market value due to short-term maturities
and/or interest rates used for these instruments.
(ii)
Loans and financing and debentures
The market value of loans and financing was calculated in accordance with
the present value of these financial instruments considering market interest
rates for operations of similar terms and risks, and approximates the book
value.
(iii)
At December 31,
2002, the fair value of derivatives used for currency protection was:
Book value
Fair value
2002
2001
2002
2001
Swap
1,427,510
(441,221
)
167,686
(329,077
)
Options
3,290
(19,620)(*
)
66,600
52,071
Forward
(68,827
)
(47,850
)
Net liability
1,430,800
(529,668
)
234,286
(324,855
)
(*) Net of options recorded as prepaid assets of R$45,697
The fair value of derivatives differs substantially from the book value
due to the timing these instruments were acquired and the future expectations
of foreign exchange variation. The values recorded under Brazilian GAAP are
reducing the losses over loans and financing due to the devaluation of the
Brazilian Real. The reduction of these book values to fair value would only
occur if the Company were to terminate these contracts before maturity.
Management expects to maintain these instruments to maturities.
26. Provision for pensions
(a) SISTEL
Fundação Sistel de Seguridade Social ("SISTEL") is a private, non-profit
pension plan created on November 9, 1977, with the purpose of establishing
private plans for granting assistance or benefits, supplementing the retirement
benefits assured by the Federal Government to SISTEL sponsored employees and
their families.
With the statutory changes approved by the Secretariat for Complementary
Pensions on January 13, 2000, the sponsors negotiated conditions to create
individual plans per sponsor, and limited the benefits to those participants
who retired up to January 31, 2000 (pension plan denominated PBS-Assistidos
PBS-Assistidos - "PBS-A").
In December 2001, SISTEL opted for the Special Taxation System provided
for in art. 2 of Provisional Measure No. 2222, of September 4, 2001, to take
advantage of the tax amnesty in connection with the payment of income tax and
tax on financial transactions, then contested in court and provided for. Such
amnesty required the payment of the provided principal amount only, with no
interest and restatement.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Since the balance provided was greater than the payment made, remaining
funds from provisions for tax contingencies were transferred to the benefit
plans. As to the TelemarPrev plan, however, due to its characteristics and
nature, part of the resources, totaling R$153,233 (Note 5) were returned to the
sponsors in March and April 2002, based on legal and actuarial reports and
authorization from the Secretariat for Complementary Pensions.
The accounting for pension and assistance plans is totally separated,
allowing for the determination of results by benefit plan.
The Company sponsors two defined benefit plans (PBS-A and PBS-Telemar) and
one defined contribution plan (TelemarPrev). In November 2002, the defined
benefit plan denominated PB-CT was merged into the TelemarPrev plan, as
described below.
The information and effects, for reporting purposes, required by the
pronouncement issued by IBRACON with respect to recording benefits granted to
employees, approved by CVM Resolution No. 371, of December 31, 2000, are
presented below.
(i)
Defined benefit plans (PBS-A and PBS-Telemar)
At the time of the SISTEL restructuring, the PBS-Telemar plan was
introduced, maintaining the rights established in PBS-A. In addition to monthly
income supplementation benefit, medical care is provided (PAMA) to retired
employees and their dependents, on a shared cost basis.
The actuarial method to determine the cost of benefits is the
capitalization method. During 2002, contribution of the Company was 9.5% of
payroll cost of employees that participate in the plan, of which 8% is
allocated to PBS-Telemar and 1.5% to PAMA. These percentages are the same as in
the year ended December 31, 2001.
The contribution from active participants is the sum of: a) between 0.5%
and 1.5% of the participation salary (minimum of the total participant's salary
and R$12,942.73), depending on the age of the participant); b) 1% of the
participation salary that exceeds half the contribution salary (minimum of the
participant's salary and one Sistel Standard Unit), limited to the value of the
Sistel Standard Unit (R$1,255.32, annually adjusted, in June, by the discount
rate of the plan's liabilities); and c) 11% of the amount which exceeds the
participation salary.
In 2002,
the Company's contribution totaled R$302 (2001 - R$1,672).
This plan has not admitted new members since the creation of TelemarPrev
in September 2000.
Reconciliation of assets and liabilities at December 31:
2002
2001
PBS-
PBS-
PBS-A (*)
Telemar
PBS-A (*)
Telemar
Fair value of plan assets
2,044,839
148,815
1,787,446
118,303
Present value of actuarial liabilities
(1,621,795
)
(113,326
)
(1,562,352
)
(106,490
)
Fair value of assets in excess of
actuarial liabilities
423,044
35,489
225,094
11,813
(*) This plan does not include active participants and there is sufficient
technical surplus to cover future actuarial liabilities.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Evolution of plan assets:
PBS-
PBS-A (*)
Telemar
Fair value of plan assets at December 31, 2001
1,787,446
118,302
Benefits paid during the current year
(141,610
)
(9,163
)
Reversed contributions during the current year
749
Effective yields of the plans' assets
399,003
38,926
Fair value of plan assets at December 31, 2002
2,044,839
148,814
Evolution of actuarial liabilities:
PBS-
PBS-A (*)
Telemar
Liabilities at December 31, 2001
(1,562,352
)
(106,490
)
Gross current service cost (including interest)
(1,627
)
Interest on actuarial liability
(169,592
)
(11,747
)
Benefits paid during the current year
141,610
9,163
Actuarial loss
(31,461
)
(2,625
)
Liabilities at December 31, 2002
(1,621,795
)
(113,326
)
The amounts above do not consider the assets and liabilities of PAMA, a
multi-sponsored plan similar to the "defined contribution" plans (payment of
benefits is limited to the amount of contributions received by the plan), and
no liabilities exist beyond current balances.
Although the plan's assets exceed the actuarial liabilities at December
31, 2002 and 2001, those excesses will not be recognized, as the reimbursement
is not determined by law; in addition, PBS-A is not a contribution plan.
(ii)
Complementary Pension Plan (PB-CT)
This plan assumed charges, obligations and responsibilities laid down in
Individual Complementary Pension Contracts and Collective Labor Agreements
related to ex-employees of the sponsors, which belonged to the former Companhia
Telefônica Brasileira ("CTB") and to Companhia Telefônica de Pernambuco
("CTP"). The change from Consortium to Administration and Payment of Pension
Benefits in the PB-CT complied with the provisions of arts. 80 and 81 of Law
No. 6435 of July 5, 1977, which expressly forbids direct management of pension
benefit plans by the employer.
On November 21, 2002, the Secretariat for Complementary Pensions approved
the merger of the PB-CT plan into the TelemarPrev plan, and therefore the
provision for recognized actuarial liabilities at Telemar, to cover insufficiency of technical reserves of the benefit plan,
was reversed. The reversal amounted to R$30,315 and was recorded as "Other
operating income" (Note 5).
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(iii)
Defined contribution pension plan (TelemarPrev)
The Company sponsors the TelemarPrev plan of SISTEL, approved by the
Secretariat for Complementary Pensions on September 21, 2000.
On November 21, 2002, the Secretariat for Complementary Pensions approved
a series of alterations to the TelemarPrev regulations, submitted by SISTEL.
The changes focus on providing participants with much more flexibility,
conforming the plan to the ruling legislation, and enabling implementation of
procedures to enhance the safety of the plan investment policy, i.e. Asset
Liability Modeling (ALM).
The plan assures to participants benefits categorized as follows: (i) risk
benefits, and (ii) programmable benefits.
The usual participants' contributions consists of two parts: (i) basic -
equivalent to 2% of the participation salary, and (ii) standard
-  equivalent to
3% of the positive difference between the total participation salary and the
amount allocated to the pension plan. Additional participants' contributions
are optional, in a percentage representing multiples of 0.5% of the
participation salary and must be made for no less than 12 months. Occasional
participants' contributions, which are also optional, may not be less than 5%
of the participation salary (minimum of the participant's salary and
R$12,942.73) cap.
The plan establishes contribution parity for participants' and sponsors'
contributions, up to a limit of 8% of the participation salary, however the
sponsor is not required to follow any additional or occasional contributions by
the participant. The actuarial method to determine the cost of benefits is the
capitalization method.
In 2002,
the Company's contributions totaled R$3,872 (2001 - R$3,660).
The reconciliation of assets and liabilities at December 31, 2002 and 2001
is not presented herein, as this is a defined contribution plan.
(iv)  Plan results expected for 2003 are as follows:
PBS-A
PBS-Telemar
Estimated remuneration of assets
285,891
21,091
Current service cost
(1,114
)
Unrecognized actuarial gains
372
Interest cost
(175,711
)
(12,418
)
Total income expected for 2003
110,180
7,931
Revenues will not be recognized, due to lack of evidence that such assets
could reduce future sponsors' contributions and because they are not
reimbursable.
(v)  Main actuarial assumptions
Main actuarial assumptions used in the calculation of PBS-A, PBS-Telemar
and TelemarPrev plans are as follows:
Annual %
2002
2001
Discount rate of actuarial liability (includes 5% inflation)
11.30
11.30
Expected remuneration rate of assets (includes 5% inflation)
14.45
14.45
Estimated inflation rate for salary increase
5.00
5.00
Estimated inflation rate for benefit increase
5.00
5.00
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Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(b) Employees' profit sharing
The employees' profit sharing is defined on an annual basis, according to
the accomplishment of targets to increase operating revenues the Company's
value, pursuant to Law No. 10101, of December 19, 2000. At December 31, 2002,
the Company recorded provision based on the best estimate of the accomplishment
of these targets, in the amount of R$131,612. The difference between this
amount and the expense shown in the statement of income reflects the reversal
of prior year's excess of provisions.
27. Transactions with related parties
In December 2000, the Company entered into a loan agreement with BNDES (a
shareholder of the Company). At December 31, 2002 and 2001 the outstanding
balances were R$2,869,650 and R$2,869,650, respectively.
At the November 30, 1999 Extra-ordinary General Meeting, the common and
preferred shareholders of the Company approved a management services agreement
between Telemar Participações and Telemar, in accordance with the Concession
Agreement. This management services agreement is effective until December 31,
2003 and may be extended. The remuneration is based on a percentage of
consolidated net revenues of the Company determined under Brazilian GAAP, as
follows: 1% in the period from August 1998 to December 31, 2000; 0.5% in 2001
and 2002; and 0.2% in 2003. For the years ended December 31, 2002 and 2001,
management fees totaled R$50,665 and R$50,665, respectively.
In 2001, Pegasus received and recorded as indemnity for damages and losses
caused by contract defaults, a credit in the amount of R$31,744, and recorded
also the right to rent 1,573 km of fiber optic cable ducts for 20 years, at
R$4.50 per meter, originally recorded as property, plant and equipment at
R$1.00 and subsequently adjusted to market value and sold to Companhia AIX de
Participações for R$21,710, accounted for as "Non-operating income."
28. Commitments
(a) Anatel (unaudited)
The Company accomplished most targets established by Anatel. Accordingly,
the Company announced, during the year ended December 31, 2001, the early
attainment of universal service and expansion targets through 2003 in 15
states, excluding Rio de Janeiro, which attained its targets in February 2002.
Besides this, the Company prepares, on a monthly basis, statements of quality
indicators, which are audited by Anatel. In the event of possible defaults
regarding those indicators, the Company will be assessed and the related
provisions will be in accordance with management's risk assessment.
(b) Rentals
The Company has operating leases for facilities, electrical energy posts,
dedicated lines and equipment used in operations, which expire at different
dates. Rental expense under operating leases was R$129.7 million, R$102.1
million and R$176.2 million for 2002, 2001 and 2000, respectively.
The following table summarizes the approximate future minimum rentals
under non-cancelable operating leases in effect at December 31, 2002 that
expire in 2003:
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Minimum rental
2003
137,910
Total
137,910
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(c) Capital expenditures (unaudited)
At December 31, 2002, the Company had forecast approximately R$1,800,000
of capital expenditures for the year 2003.
These capital expenditures are to be incurred on continuing expansion of
our wireless and fixed-line network.
(d) Other commitments
Approximately 24% of all employees are members of state labor unions
associated either with the
Federação Nacional dos Trabalhadores em
Telecomunicações
("Fenattel"), or with the
Federação Interestadual dos
Trabalhadores em Telecomunicações
("Fittel"). Management negotiates new
collective labor agreements every year with the local unions.
The corporate restructuring that arose from the downstream merger
anticipates the annual issuance of shares by the Company to Telemar
Participações equal to the tax benefit derived from the amortization of the
Goodwill (Note 1(d)). Minority shareholders of the Company will have a
preemptive right to subscribe for shares issued in proportion to their
percentage interest in the share capital the Company. In the event that a
minority shareholder elects to exercise such right, it will be required to pay
to Telemar Participações an amount equal to the value of the shares with
respect to which the right is exercised.
All assets of the concessionaire are deemed to be part of the concession's
equity. If the concession contract were to be terminated, the assets would
automatically revert to Anatel.
29. Insurance
During the concession period, the concessionaire must maintain the
following insurance policies, in accordance with contractual terms: all risks
insurance, insurance covering the economic conditions required to continue
providing the service, and insurance to meet the obligations relating to
quality and universal coverage.
Assets and liabilities of material value and/or high risk are covered by
insurance. The Company holds insurance policies which guarantee coverage for
material damage and loss of revenue arising from such damages (loss of
profits), etc. Management considers the insured amount to be sufficient to
guarantee full protection of their net worth and operational continuity, as
well as the rules established in the Concession Agreement.
Insurance policies held by the Company comprise the following coverage,
according to risks and nature of assets:
Insurance type
Amount covered
Operating risks/profit interruption
558,000
Third party liability – comprehensive
20,000
Third party liability – vehicles
3,000
Third party liability – third parties
70,666
Insurance guarantee
42,189
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
30. Summary of the differences between Brazilian GAAP and US GAAP
The Company has presented its primary financial statements based on
accounting principles established under Brazilian GAAP with a reconciliation to
US GAAP.
The accounting policies comply with Brazilian GAAP, which differs
significantly from US GAAP as described below:
(a) Inflation accounting methods and indices
In Brazil, because of highly inflationary conditions that prevailed in the
past, a form of inflation accounting had been in use for many years to minimize
the impact of the distortions in financial statements caused by inflation. Two
methods of inflation accounting were developed: one that is required under
Brazilian GAAP and the other that is known as the constant currency method. The
primary difference between Brazilian GAAP and constant currency methods relates
to accounting for the effects of inflation. Under Brazilian GAAP inflation
accounting was discontinued effective January 1, 1996. Prior to that date,
Brazilian GAAP required inflationary indexation of property, plant and
equipment, investments, deferred charges and shareholders' equity, the net
effect of which was reported in the statement of operations as a single line
item. The constant currency method is similar to US Accounting Principles Board
Statement No. 3 ("APS 3"), except that the former continues to apply
inflationary accounting in periods of low inflation. Under US GAAP, the
Brazilian economy ceased to be highly inflationary effective July 1, 1997. The
other significant difference between the two sets of principles relates to the
present-value discounting of fixed-rate receivables and payables, which is
required by the constant currency method and prohibited by Brazilian GAAP.
Financial statements prepared in accordance with Brazilian GAAP have been,
and continue to be, required of all Brazilian corporate entities and are used
by the Brazilian tax authorities to determine taxable income. Financial
statements prepared in accordance with the constant currency method were
required through 1995 for those entities whose securities were registered with
the CVM. Since 1996, presentation of supplemental financial statements under
the constant currency method has been optional.
(i)
Additional inflation restatement in 1996 and 1997 for US GAAP
In the reconciliation from Brazilian GAAP to US GAAP, an adjustment for
inflation accounting has been included in relation to the period from January
1, 1996 to December 31, 1997. During this period, inflation accounting was
prohibited by Brazilian GAAP but still required by APS 3 under US GAAP.
Shareholders' equity under US GAAP was increased by R$289,052 and
R$526,502, respectively, at December 31, 2002 and 2001 due to the additional
inflation restatement adjustments, net of depreciation.
(ii)
Inflation indices
The indexation of the financial statements through 1995, except for the
year 1990, under Brazilian GAAP was based on an official government index, the
Unidade Fiscal de Referência
("UFIR") and for the year ended December 31, 1990
on a consumer price index the
Índice de Preços ao Consumidor
("IPC"). For US
GAAP purposes, a general price index, the
Índice Geral de
Preços – Mercado
,
("IGP-M"), was used to record the additional inflation restatement in 1996 and
1997.
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Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(b)
Corporate Reorganization
(i)
Date of acquisition
Under Brazilian GAAP, the date of accounting for a corporate
reorganization can be defined as a date several months prior to the approval of
the operation by the shareholders. The corporate reorganization described in
Note 1(c) was recorded based on accounting balances as of March 31, 2001
despite the approval of the operation by the shareholders on August 2, 2001.
Under US GAAP, the corporate reorganization is accounted for as the
acquisition of minority interests in a number of subsidiaries and the sale of
participation in other subsidiaries to third parties. The date of acquisition
of a company should ordinarily be the date that assets are received and other
assets are given or securities are issued. For convenience, an effective date
at the end of an accounting period between initiation and consummation may be
designated if a written agreement transfers effective control to the acquiring
company on that date and the acquisition does not require approval of
shareholders or others. However, in this case shareholder and regulatory
approval was required and was only received on August 2, 2001 which is thus the
acquisition date. Likewise the date of the sale of the participation in
subsidiaries to third parties is the date of shareholders' approval.
(ii)
Basis of accounting
Under Brazilian GAAP, the corporate reorganization was accounted for based
on book values of the interests sold and acquired. The net impact of the
corporate reorganization was an increase in the net book value of the Company's
investments in subsidiaries of R$50,669 which was recorded as a capital gain in
non-operating income.
Under US GAAP, the consideration given, in the form of shares in listed
subsidiaries, for the purchase of minority interests was recorded based on the
fair value (quoted market value) of those shares. The difference between the
book value and quoted value of the shares given is recorded as a profit or loss
in the income statement in accordance with EITF 90-13 "Accounting for
Simultaneous Common Control Mergers." The fair value of the shares given is
based on the listed value of such shares immediately after shareholders'
approval of the corporate reorganization. The consideration paid for the
acquired minority interests is allocated to the fair values of the assets and
liabilities of the respective subsidiaries in accordance with SFAS No. 141,
"Business Combinations." The consideration received for the sale of interests
in subsidiaries to third parties is recorded at fair value and the gain or loss
on the sale is recorded in income.
(iii)
Determination of differences between Brazilian GAAP and US GAAP
Shareholders' equity
Net income
2002
2001
2002
2001
Reversal of gain recorded under Brazilian GAAP
(50,669
)
Recognition of gain recorded under US GAAP
33,267
Minority interest impact due to difference in
acquisition date for US GAAP
(26,765
)
Fair value adjustment on property, plant and
equipment acquired
(44,167
)
(44,167
)
Reduction in depreciation of property, plant
and equipment due to fair value adjustments
8,541
1,840
6,701
1,840
(35,626
)
(42,327
)
6,701
(42,327
)
F-71
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(c)
Pension and other post-retirement benefits
Under Brazilian GAAP, amounts due to a multi-employer pension plan are
treated on an accrual basis as the obligations fall due. In December 1999, the
Company split-up the SISTEL multi-employer defined benefit pension plan and
formed a single-employer defined benefit plan. However, the Company and the
co-sponsors of the multi-employer pension plan agreed to jointly maintain a
plan offering the current levels of benefits under SISTEL for those employees
who have retired before January 30, 2000. Under Brazilian GAAP, amounts due to
a single-employer defined benefit plan are also treated on an accrual basis as
the obligations fall due. On September 21, 2000, the Company created a new
defined contribution plan, which replaced the defined benefit plan by migrating
all active employees to the new plan. In March 2001, the final period for
voluntary migrations, 96.0% of the active participants of the previous plan had
migrated to the new defined contribution plan and the accrual of future
benefits under the defined benefit plan relating to the post-retirement health
care plan for these participants was eliminated. Under Brazilian GAAP, there is
no requirement to recognize a gain or loss caused by a curtailment of a benefit
plan. A summary of the actuarial position of plans which the Company sponsors,
including the Company's allocated assets and liabilities of multi-employer
plans such as the PBS – A plan, is to be disclosed under Brazilian GAAP
accounting principles. Because the plans have an unfunded status or a funded
status which the Company believes will lead to future benefits, the Company has
elected at December 31, 2001 to record that deficit over the next five years at
20% per year in accordance with IBRACON and CVM regulations. If a plan has a
positive funded status, which is not expected to generate future benefits, the
company does not recognize the funded status.
The funded status of the plan at December 31, 2002 and 2001, in accordance
with US GAAP, is presented in Note 35(c). To calculate the funded status in
accordance with the provisions of SFAS No. 87, "Employers' Accounting for
Pensions" were applied with effect from January 1, 1992 because it was not
feasible to apply them from the effective date specified in such provisions.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits" revises and standardizes employers' disclosures about pension and
other post-retirement benefit plans. It does not change the measurement or
recognition of those plans. The supplemental disclosures under US GAAP are also
provided in Note 35(c). US GAAP does not require the sponsor to record
actuarial calculations for multi-employer pension plans such as the PBS-A and
contributions to such plans are recorded on an accrual basis.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(d)
Funds for capitalization
Under Brazilian GAAP, expansion plan contributions received are included
in the balance sheet after total shareholders' equity until the proposed
subscribers have paid for their telephone connection in full. A general
shareholders meeting approves the capital increase. Until December 31, 1995,
expansion plan contributions were indexed from the month in which they were
received to the end of the subsequent fiscal year-end and transferred to
shareholders' equity when shares were issued to the subscriber, at a value per
share equal to the equity value per share shown on the latest fiscal year-end
balance sheet. As from January 1, 1996, indexation was no longer applied and
for contracts signed as from that date the subsidiaries have the option of
using a value per share equal to the market value, provided that it is higher
than the equity value. The difference between the value per share at the moment
of payment and the value per share at the moment of capitalization has been
booked as share premium under capital reserves.
In addition to the expansion plan, which they promoted directly, the
subsidiaries also sponsored agreements between companies or individuals in a
particular community and independent contractors who developed the
telecommunications infrastructure required to connect them to the national
telephone network (Community Expansion Plan). The Company or individuals paid
the contractor. On completion of the project, the Company incorporated the
completed equipment into their fixed assets at the appraised value and credited
expansion plan contributions which were then treated in the same manner as the
expansion plan contributions received from prospective telephone subscribers,
as described above.
Under US GAAP, a portion of the expansion plan contributions is allocated
to shareholders' equity (if the Company issues shares - up to 1996) or minority
interests (if the subsidiaries issues shares - as from 1997) based on the
market value of the shares to be issued to subscribers. The remainder of the
expansion plan contributions would be classified as a deferred credit and
amortized to reduce depreciation expense from the time the related
construction-in-process was completed.
(e)
Different criteria for capitalizing interest and depreciating capitalized
interest
Until December 31, 1993 capitalized interest was not added to the
individual assets in property and equipment under Brazilian GAAP, instead it
was capitalized separately and amortized over a time period different from the
useful lives of the related assets. However, as applied to public companies in
the Brazilian telecommunications industry, interest attributable to
construction-in-progress was computed at the rate of 12% per annum of the
balance of construction-in-progress and the part which relates to interest on
third party loans is credited to interest expense based on actual interest
costs with the balance relating to capital being credited to capital reserves
up to December 31, 1999. As from January 1, 2000, following a regulation issued
by the CVM (
Deliberação CVM No. 193
), management changed its interest
capitalization policy. Similar to US GAAP, under the new policy interest
incurred on loans is capitalized to the extent that loans do not exceed
construction-in-progress, except that under Brazilian GAAP the amount of
capitalized interest: includes i) monetary gains and losses associated with
loans and financing in foreign exchange currency and ii) charges resulting from
currency derivatives. The capitalization excludes financial charges on loans,
which are not associated with specific construction-in-progress. Similar to US
GAAP, the interest is capitalized to individual assets and amortized over their
useful lives.
Under US GAAP, in accordance with the provisions of US SFAS No. 34,
interest incurred on loans is capitalized to the extent that loans do not
exceed construction-in-progress, added to the individual assets and amortized
over their useful lives. Under US GAAP, the amount of interest capitalized
excludes: (i) the monetary gains and losses associated with the loans and
financing in foreign currency; (ii) charges resulting from currency
derivatives; however, (iii) interest on loans that are not associated with
construction-in-progress can be capitalized.
F-73
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(f)
Derivatives
Under Brazilian GAAP, foreign currency derivatives are recorded on a
monthly basis by comparing contractual exchange rates to exchange rates at
month end. Under the swap agreement, the Company pays or receives at maturity
the amounts of the difference between the variation corresponding to an average
103.31% of the CDI rate and the US Dollar and Yen exchange rate plus the bank
spread. Gains and losses on swap agreements are recorded on a monthly basis,
reducing or increasing the foreign currency indebtedness. Gains on "options"
and "forward" contracts are recorded under interest income (expense) when the
contracts expire while losses are recorded currently against income.
Under US GAAP, derivatives were accounted for in the same manner as under
Brazilian GAAP through December 31, 2000. However, as from January 1, 2001 all
derivatives are recorded at fair value on the balance sheet and all variations
in fair value are being recorded in the statement of operations. The impact of
the initial application of SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" on January 1, 2001 resulted in recognition of a gain in
the amount of R$8,920, presented in the Statement of Operations under
accumulative effect of change in accounting policy. The Company does not
account for any activities as hedging activities.
(g)
Deferred charges on development stage subsidiaries
Under Brazilian GAAP, expenses incurred during the pre-operational phase
of a subsidiary are deferred until the entity is fully operational, at which
time the expenses are amortized as a charge to income over the expected future
benefit of the new subsidiary (Note 16).
Under US GAAP, in accordance with Statement of Position 98-5,
"Reporting
on the Costs of Start-Up Activities,"
costs incurred during the start-up and
organization of a development stage entity are to be expensed as incurred.
(h)
Revenue recognition
Under Brazilian GAAP, installation revenues are recognized in the period
in which the installation services are provided while related costs of services
are recognized when incurred.
Under Brazilian GAAP, prepaid card revenues are recognized when sold while
the costs are recognized when the cards are used.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101) which provides guidance on revenue recognition. SAB 101 requires the
deferral of certain non-recurring fees, such as service activation,
installation fees and associated incremental costs that are recognized over the
expected term of the customer relationship, approximately five years. Because
an equal amount of revenue and expense was deferred, there was no impact on net
income for the change in accounting principle. The adoption of the new rule
resulted in a net reduction in revenues and costs during 2002, 2001 and 2000 of
R$141,302, R$359,475 and R$118,444, respectively.
Under US GAAP, prepaid card revenues are deferred and recognized as
income, based on customer usage.
F-74
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(i)
Capital leases
Under Brazilian GAAP, through December 31, 2002, there is no requirement
to capitalize assets acquired through capital leases and depreciate them over
the respective economic life. All lease contracts are recorded as operational
leases, with charges made to income on a monthly basis during the contractual
period.
Under US GAAP, material lease contracts which meet at least one of the
following four criteria according to SFAS No. 13, "Accounting for Leases" are
to be capitalized as property, plant and equipment and depreciated over the
life of the asset: (i) automatic transfer of title at the end of the lease
term; (ii) the contract includes a bargain purchase option to buy the asset at
the end of the lease term; (iii) the lease term equals or exceeds 75 percent of
the remaining estimated economic life of the leased asset; or (iv) the present
value of the minimum lease payments equals or exceeds 90 percent of the excess
of fair value of the leased asset over any related investment tax credit.
(j)
Stock option plan (the "Plan")
Under Brazilian GAAP, compensation expense is recorded on an accrual basis
when the market value at the balance sheet date is higher than the option
price.
Under US GAAP in accordance with APB 25,
"Accounting for Stock Issued to
Employees,"
the employee's stock option is deemed to give rise to compensation
expense to the extent of the excess of the market price of the shares purchased
over the option price. The market value discount at which the employees can buy
the shares identifies a stock option plan as a compensatory plan. Terms of the
Plan determine the amount of shares to be granted but do not determine a fixed
price. According to the Plan, the exercise price is reduced by dividends paid
on a preferred share until the option is exercised. In addition, the exercise
price is adjusted for IGP-M plus 6% per annum from the date of grant until the
date the options are exercised. Since the ultimate option price is not known
until the date of exercise, the Plan is considered a variable plan. In a
variable plan, compensation cost is measured at each year-end between the grant
date and the measurement date, based upon incremental changes in the market
value of the company's shares. Compensation cost is calculated at the end of
each year using the expected number of options or awards to be issued. These
options or awards are multiplied by the year-end market price less the
employees' expected share price. The incremental change in compensation cost is
then amortized as a charge to expense over the period in which the employees
perform the related services; such period normally includes a vesting period.
In addition, under US GAAP pro forma disclosures of net income and earnings per
share are presented using the fair value method of accounting. Using this
method, fair value is determined using an option-pricing model (Black-Scholes
or the binomial option models) which takes into account the share price at the
grant date, the exercise price, the expected life of the option, the volatility
of the underlying share and its expected dividends, and the risk-free interest
rate over the expected life of the option. However, based on the terms of the
Company's Plan and as it is probable that compensation will be paid in the form
of cash rather than shares, an accrual is recorded for the cash amount payable
and no pro forma calculations are made. The required calculations and
disclosures under US GAAP are provided in Note 35(d).
(k)
Earnings per share
Under Brazilian GAAP, net income per share is calculated using the number
of shares outstanding at the balance sheet date. Information is disclosed per
lot of one thousand shares, because generally, this is the minimum of Company's
shares to be traded on the Brazilian stock exchanges.
F-75
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Under US GAAP, since the preferred and common shareholders have different
voting and liquidation rights, basic and diluted earnings per share have been
calculated using the "two-class" method, pursuant to SFAS No. 128 "Earnings per
share." This statement provides computation, presentation and disclosure
requirements for earnings per share. The "two-class" method is an earnings
allocation formula that determines earnings per share for preferred and common
stock 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 and preferred shareholders by the weighted-average
number of common and preferred shares outstanding during the period. Net income
available to preferred shareholders is the sum of the preferred dividend (up to
a minimum of 6% of preferred share capital) and the preferred shareholders
portion of undistributed net income (Note 23). Remaining amounts to be
distributed are allocated primarily to the payment of a dividend to holders of
common shares in an amount equal to the preferred dividend and the remainder is
distributed equally among holders of preferred shares and common shares.
Undistributed net income is computed by deducting the preferred dividend and
common stock dividends from net income. Undistributed net income is shared
equally by the preferred and common shareholders on a pro rata basis. The
common shares mandatory dividend is calculated up to 25% of adjusted net income
or an amount equal to the preferred dividend, whichever is less.
Diluted earnings per share are computed by reducing net income for an
increase to net earnings allocated to minority shareholders and dividing such
net income available to common and preferred shareholders by the monthly,
weighted-average number of common and preferred shares outstanding during the
period. The weighted average shares outstanding for diluted earnings per share
is not higher than the number of shares used in the basic earnings per share
calculation because the diluted share issue is that of the Company's
subsidiaries.
The weighted-average number of common and preferred shares used in
computing basic earnings per share for (i) 2002 was 123,170,734 thousand and
250,029,329 thousand, respectively, (ii) 2001 was 120,154,738 thousand and
248,880,409 thousand, respectively, and (iii) 2000 was 121,768,289 thousand and
239,924,679 thousand, respectively. The Company has received certain
contributions from customers or customers have independently paid suppliers of
telecommunications equipment and services for the installation of fixed-line
services. These amounts are reflected as "Funds for capitalization" in the
balance sheets. Once the installation is essentially complete and the
contributions have been received, the funds will be converted into equity (Note
23). These activities are dilutive in nature to the shareholders of the
Company, whether the shares to be issued are those of the Company's
subsidiaries (which will impact the minority interest recognized) or of the
Company itself. The expectation is that the shares will be issued by the
Company's subsidiaries rather than by the Company based on the manner in which
such shares were issued in 2002, 2001 and 2000. The Company's management
determined that this manner of issuing shares in these three years was
appropriate as a result of the dilution of the Brazilian Government's share of
common shares of the Company below the 50% level which would have occurred if
the shares had been issued by the Company. The shares are treated as
outstanding and included in the basic earnings per share calculation only when
such funds are converted to equity and the shares are issued. The shares are
treated as outstanding for diluted earnings per share purposes when expansion
plan contributions are received or when Community Expansion Plan agreements are
approved (Note 23). Pursuant to SFAS No. 128, no potential issue of these
shares was included in the computation of diluted earnings per share for the
years ended December 31, 2002, 2001 and 2000 as such effect would have had an
antidilutive effect on earnings per share.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The Company's preferred shares are non-voting except under certain limited
circumstances and are entitled to a preferential, noncumulative dividend and to
priority over the common shares in the event of liquidation of the Company. The
preferred shareholders were entitled to a non-cumulative dividend, of R$1.33
per thousand preferred shares in 2002, R$0.81 per thousand preferred shares in
2001 and R$0.67 per thousand preferred shares in 2000.
(l)
Income tax and social contribution
Under Brazilian GAAP, the Company fully accrues for deferred income taxes
on temporary differences between tax and reporting records. The existing
policies under Brazilian GAAP for providing for deferred taxes are
substantially in accordance with SFAS No. 109, "Accounting for Income Taxes".
The tax credits relating to loss carryforwards are recognized to the extent
future realization is considered certain, pursuant to CVM Instruction No. 391
issued on June 27, 2001, based on estimates of future taxable income over a
ten-year period, at present value. At December 31, 2002 the Company has not
recognized tax credits in the amount of R$197,968 (December 31,
2001 – R$12,695) relating to tax loss carryforwards of subsidiaries that do not
demonstrate future realization.
In Brazil, the tax law is sometimes significantly altered by provisional
measures ("
medidas provisórias
") announced by Presidential decree. The
provisional measures can affect tax rates as well as other areas that could
impact deferred taxes. These measures remain in force for 30 days and expire
automatically if they are not extended for an additional period. When
calculating the effect of tax changes or other changes on deferred income taxes
in Brazil, the provisional measures are substantively considered as enacted
law. For the calculation of deferred taxes, Brazilian GAAP requires the use of
the tax rate that is expected to be in effect when the temporary differences or
tax loss carryforwards will be realized.
Under US GAAP, only enacted tax rates may be used to calculate deferred
taxes. Tax rates for future periods, which have been established by provisional
measures, are not considered to have been enacted and are ignored. However, the
provisional measure is still used for determining the amount of current tax
payable. During 1999 legislation was introduced in order to permit the
compensation of social contribution obligations with amounts payable as a
result of an additional 1% increase of the COFINS rate (from 2% to 3%) in that
year. Although a provisional measure introduced by December 31, 1999 prevented
such compensation, management provided for its deferred tax asset of R$89,491
related to negative basis of social contribution at that time as they estimated
that under the existing legislation the additional amounts payable of COFINS
would completely compensated future amounts of social contribution payable and
that it was no longer "more likely than not" that the deferred tax asset could
be realized based on legislation at that time. By 2001, the right to offset
social contribution with the additional amounts of COFINS payable was no longer
permitted by law and the valuation allowance against the deferred tax asset for
the negative basis of social contribution was reversed.
(m)
Provision for dividends and interest on own-capital
Under Brazilian GAAP, at each balance sheet date the directors are
required to propose a dividend distribution from earnings and accrue for this
in the financial statements. Under Brazilian GAAP, companies are permitted to
distribute or capitalize an amount of interest on own-capital, subject to
certain limitations and calculated based on a government interest rate, on
shareholders' equity. Such interest is deductible for tax purposes and is
presented as a deduction from shareholders' equity. Although not affecting net
income, except for the tax benefit, in the Company includes this nominal charge
in interest expense and reverse out the same amount before the net income
total.
F-77
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Under US GAAP, since proposed dividends may be ratified or modified at the
annual Shareholders' Meeting, such dividends are not considered declared at the
balance sheet date and therefore not accrued. However, interim dividends paid
or interest on own-capital credited to shareholders as capital remuneration
under Brazilian legislation is considered declared for US GAAP purposes. Under
US GAAP, no similar interest on own-capital distribution concept exists.
(n)
Equity method accounting
Under Brazilian GAAP, investments in affiliated companies can be accounted
for under the equity method if the company has influence over the
administration or holds more than a 20% participation (voting or non-voting
shares) in the investee. Until December 27, 2002, the Company owned only
preferred shares of Pegasus, and under Brazilian GAAP accounted for the
investment using the equity method.
Under US GAAP, the equity method is permitted if the Company holds 20% or
more of the voting shares of an investee and the ability to exercise
significant influence over the investee's operational and financial decisions.
(o)
Segment reporting
Under Brazilian GAAP, no separate segment reporting is required.
Under US GAAP, SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" establishes the standards for the manner in which
public enterprises are required to report financial and descriptive information
about their operating segments. The standard defines operating segments as
components of an enterprise for which separate financial information is
available and evaluated regularly as a means for assessing segment performance
and allocating resources to segments. Measures of profit or loss, total assets
and other related information are to be disclosed for each operating segment.
In addition, this standard requires the annual disclosure of information
concerning revenues derived from the enterprise's products or services,
countries in which it earns revenues or holds assets, and major customers (Note
35(b)).
(p)
Disclosure requirements
Under US GAAP, disclosure requirements differ from those required by
Brazilian GAAP. However, in these Brazilian GAAP financial statements, the
level of disclosure has been expanded to comply with US GAAP.
(q)
Permanent assets
Under Brazilian GAAP, the financial statements present a class of assets
called permanent assets. This is the collective name for all assets on which
indexation adjustments were calculated under Brazilian GAAP and Tax law
accounts of Brazilian companies through 1995.
Under US GAAP, some assets would be classified as non-current assets,
especially intangible assets.
F-78
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(r)
Retained earnings
Under Brazilian GAAP, a company formed as a result of a split-off may
present retained earnings in its balance sheet if the parent company
shareholders' resolution adopting the split-off deems so by allocating retained
earnings from the parent company to the new company.
Under US GAAP, "retained earnings" allocated in the split-off are not
considered historical retained earnings because such amount represents capital
allocated from the parent company and is described as "distributable capital."
(s)
Statement of cash flows
Under Brazilian GAAP, a statement of changes in financial position that
reflects the source and application of funds in terms of movement in working
capital is required to be presented. The statement of cash flows may be
presented as supplemental information based on NPC 20.
Under US GAAP, presentation of a statement of cash flows describing the
cash flows provided by or used in operating, investing and financing activities
is required. SFAS No. 95, "Statement of Cash Flows," establishes specific
presentation requirements and requires additional disclosures, such as the
amount of interest and income taxes paid and non cash transactions such as
acquisition of property, plant and equipment through capital leases,
utilization of escrow deposits in settlement of liabilities and debt for equity
conversions, among others (Note 35(a)).
(t)
Classification of income statement line items
Under Brazilian GAAP, as noted above, the classification of certain income
and expense items is presented differently from US GAAP. A number of
significant presentation differences have arisen in the years ended December
31, 2002, 2002 and 2000. Accordingly, the consolidated income statement under
Brazilian GAAP has been recast to present a condensed consolidated statement of
operations in accordance with US GAAP (Note 33). The reclassifications are
summarized as follows:
•
Interest in subsidiaries, whereby credits made directly to equity -
which represent amounts recorded by the Company's subsidiaries in
their respective shareholders' equity accounts without affecting net
income but which are recorded by the Company in a separate line item
in the consolidated statement of operations in accordance with
Brazilian GAAP. Such amounts have been reclassified to the respective
line items to which they relate in the condensed consolidated income
statement of operations in accordance with US GAAP.
•
Interest income and interest
expense - such items, together with other
financial charges are displayed within operating income in the
consolidated statement of operations in accordance with Brazilian
GAAP. Such amounts have been reclassified to non-operating income and
expenses in the condensed consolidated statement of operations in
accordance with US GAAP.
•
Employees' profit sharing - these expenses have been classified in the
consolidated statement of operations in accordance with Brazilian GAAP
after non-operating expenses. Such amounts have been reclassified to
operating expenses in the condensed consolidated statement of
operations in accordance with US GAAP.
•
The net income (loss) differences between Brazilian GAAP and US GAAP-
as detailed in the reconciliation in Note 31, were incorporated in the
condensed consolidated statement of operations in accordance with US
GAAP.
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TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
•
Gains and losses on disposal of permanent assets are classified as
non-operating income (expense) under Brazilian GAAP. Such amounts have
been reclassified to operating income (expense) in the condensed
consolidated statement of operations in accordance with US GAAP.
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Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(u) Acquisition of Pegasus
•
On December 27, 2002, Telemar acquired 93.27% of the outstanding
common shares of Pegasus (including the 24.4% owned by the Company).
The results of Pegasus' operations have not been included in the
consolidated financial statements considering the acquisition date,
since the four-day-results are not material. On February 19, 2003
Telemar acquired the remaining 6.73% of the outstanding common shares
of Pegasus.
•
The aggregate purchase price was R$258,798 including R$80,671
corresponding to the Company's 24.4% participation.
•
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. Telemar
is in process of obtaining third-party valuations of Pegasus'
intangible assets to determine fair values and, when applicable, the
amortization periods, in accordance with the provisions of SFAS No.
142 "Goodwill and Other Intangible Assets;" thus, the allocation of
the purchase price is subject to refinement.
At December 31, 2002
Current assets
51,192
Long-term assets
69,954
Property, plant, and equipment
483,990
Intangible assets
107,181
Goodwill
71,917
Total assets acquired
784,234
Current liabilities
433,648
Long-term debt
91,634
Total liabilities assumed
525,282
Total purchase price
258,952
(v) New US GAAP accounting pronouncements
(i)  Accounting for asset retirement obligations and asset disposal costs
In June 2001, the Financial Accounting Standards Board or "FASB" issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" on the accounting
for obligations associated with the retirement of long-lived assets. SFAS No.
143 requires a liability to be recognized in the financial statements for retirement obligations meeting specific criteria. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The Company
believes that adoption of this statement will not have a significant impact on
its financial position of results of operation.
F-81
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 provides guidance
related to accounting for costs associated with disposal activities covered by
SFAS No. 144 or with exit or restructuring activities previously covered by
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 supercedes
EITF 94-3 in its entirety. SFAS 146 requires that costs related to exiting an
activity or to a restructuring not be recognized until the liability is
incurred. SFAS 146 will be applied prospectively to exit or disposal activities
that are initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. The transition and annual disclosure
requirements of SFAS No. 148 are effective for the Company's fiscal year ending
after December 15, 2002. The Company does not expect SFAS No. 148 to have a
material effect on its results of operations or financial condition.
(ii)  Goodwill and other intangible assets
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under prescribed conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The goodwill impairment test under SFAS No. 142
requires a two-step approach, which is performed at the reporting unit level,
as defined in SFAS No. 142. Step one identifies potential impairments by
comparing the fair value of the reporting unit to its carrying amount. Step
two, which is only performed if there is a potential impairment, compares the
carrying amount of the reporting unit's goodwill to its implied value, as
defined in SFAS No. 142. If the carrying amount of the reporting unit's
goodwill exceeds the implied fair value of that goodwill, an impairment loss is
recognized for an amount equal to that excess. The amortization of goodwill
included in our investments in equity investees and subsidiaries will also no
longer be recorded. Intangible assets that do not have indefinite lives will
continue to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
Adoption of SFAS No. 142 on January 2002 did not have a material effect on
the Company's results of operations or financial position.
(iii)  Impairment or disposal of long-lived assets
In August 2001, the FASB issued SFAS No. 144. This standard supersedes
SFAS No. 121 and the provisions of APB Opinion No. 30, "Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" with regard to reporting the effects of a disposal of a
segment of a business. SFAS No. 144 establishes a single accounting model for
assets to be disposed of by sale and addresses several SFAS No. 121
implementation issues. Adoption of SFAS No. 144 on January 2002 did not have a
material effect on the Company's results of operations or financial position.
F-82
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(iv)  Guarantor's accounting and disclosure requirements for guarantees,
including indirect guarantees of indebtedness of others
In November 2002, the FASB issued FIN No.45, an interpretation of SFAS No.
5, 57, and 107 and rescission of FIN No. 34. This interpretation clarifies that
a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligations undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued are
modified after December 31, 2002.
(v)  Consolidation of variable interest entities
In January 2003, the FASB issued FIN No. 46, an interpretation of
Accounting Research Bulletin No. 51 Consolidated Financial Statements.
This FIN No. 46 addresses consolidation by business enterprises of
variable interest entities, which have one or both of the following
characteristics:
o
The equity investment at risk is not
sufficient to permit the entity to finance its activities
without additional subordinated financial support from
other parties, which is provided through other interests
that will absorb some or all of the expected losses of the
entity, or
o
The equity investors lack a controlling
financial interest.
FIN No. 46 applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. FIN No. 46 applies to public enterprises as of the beginning of the
applicable interim or annual period, and it applies to nonpublic enterprises as
of the end of the applicable annual period.
FIN No. 46 may be applied prospectively with a cumulative-effect
adjustment as of the date on which it is first applied or by restating
previously issued financial statements for one or more years with a
cumulative-effect adjustment as of the beginning of the first year restated.
Management understands that these new accounting pronouncements will have
no significant impact on the Company's consolidated financial statements.
F-83
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
31.     Net income (loss) reconciliation of the differences between Brazilian GAAP
and US GAAP
For the years ended December 31
Note 30
2002
2001
2000
Net income (loss) under Brazilian GAAP
(415,598
)
140,378
709,407
Depreciation of additional inflation restatement in 1996 and 1997:
(a
) (i)
(237,449
)
(266,853
)
(270,917
)
Different criteria for:
Corporate reorganization US GAAP differences:
(b) (iii)
Reduction of gain on corporate reorganization
(17,402
)
Minorities interest credit due to difference in acquisition
date for US GAAP purposes
(26,765
)
Reduction in depreciation of property, plant and equipment
due to fair value adjustments
6,701
1,840
Pension and other post-retirement benefits:
(c
)
Change in prepaid pension cost under US GAAP
38,699
21,894
Settlement and curtailment of the defined benefit pension plan
355,067
Amortization of deferred credit on expansion plan contributions
(d
)
46,058
124,458
145,965
Capitalizing interest and depreciating capitalized interest:
(e
)
Capitalization of interest on construction-in-progress
(170,338
)
(27,644
)
170,613
Depreciation of capitalized interest
(33,294
)
(82,355
)
42,458
Derivatives
(f
)
Impact of initial application of SFAS No. 133
8,920
Fair value adjustment
(1,401,327
)
195,893
Write-off of deferred charges on development stage subsidiaries,
principally start-up costs
(g
)
(207,137
)
(479,222
)
Amortization of deferred development stage costs
50,113
Deferred revenues on prepaid calling cards
(h
)
(1,651
)
(16,043
)
Valuation allowance for social contribution
(l
)
89,491
Pegasus (equity method adjustment)
(n
)
55,719
7,099
Other
(1,756
)
(4,683
)
5,886
Deferred tax on adjustments
645,942
186,145
(144,440
)
Minority interest on adjustments
232,781
54,794
(51,661
)
Net income (loss) under US GAAP
(1,392,537
)
(90,055
)
962,378
F-84
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
32.  Shareholders' equity reconciliation of differences between Brazilian GAAP
and US GAAP
Years ended December 31
Note 30
2002
2001
Consolidated shareholders' equity under Brazilian GAAP
9,120,138
10,023,273
Additional inflation restatement in 1996 and 1997 for US GAAP:
(a
) (i)
Property, plant and equipment cost
1,564,826
1,564,826
Depreciation of inflationary effects
(1,275,774
)
(1,038,325
)
Different criteria for:
Corporate reorganization US GAAP differences:
(b) (iii)
Fair value adjustment on property, plant and equipment acquired
(44,167
)
(44,167
)
Reduction in depreciation of property, plant and equipment due to
fair value adjustments
8,541
1,840
Prepaid pension cost
(c
)
192,567
153,868
Funds for capitalization:
(d
)
Deferred credit on expansions plan contributions
(622,603
)
(622,603
)
Amortization of deferred credit on expansions plan contributions
622,603
576,545
Different criteria for capitalizing and depreciating capitalized interest:
(e
)
Capitalization of interest on construction-in-progress
(370,491
)
(200,153
)
Depreciation of difference on capitalized interest adjustment
295,033
328,327
Fair value adjustment on derivative instruments
(f
)
(1,196,514
)
204,813
Write-off of deferred charges on development stage subsidiaries
(g
)
(686,359
)
(479,222
)
Amortization of deferred development stage costs
50,113
Deferred revenue on prepaid calling cards
(h
)
(17,694
)
(16,043
)
Reversal of provision for dividends not yet declared
(m
)
499,979
300,000
Pegasus (equity method adjustment)
(n
)
62,818
7,099
Other
(334
)
(1,087
)
Deferred tax on adjustments
503,286
(141,803
)
Minority interest on adjustments
79,697
(114,096
)
Consolidated shareholders' equity under US GAAP
8,785,665
10,503,092
US GAAP supplementary information:
Property, plant and equipment
41,700,707
39,440,944
Accumulated depreciation
(24,528,128
)
(21,824,849
)
Net property, plant and equipment
17,172,579
17,616,095
Intangible assets
1,347,837
1,163,976
Accumulated amortization
(43,740
)
Net intangible assets
1,304,097
1,163,976
Net property, plant, equipment and intangible assets
18,476,676
18,780,071
Total assets
27,785,362
27,006,952
F-85
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
33.  Condensed consolidated statements of operations prepared in accordance with
US GAAP
Years ended December 31
2002
2001
2000
Gross operating revenue
15,948,403
13,284,031
10,732,134
Deductions (primarily indirect taxes such as ICMS, PIS and COFINS)
(4,217,403
)
(3,556,483
)
(2,723,588
)
Net operating revenue
11,731,000
9,727,548
8,008,546
Cost of services
(8,179,013
)
(6,804,267
)
(5,244,302
)
Gross profit
3,551,987
2,923,281
2,764,244
Operating (expenses):
Selling
(1,307,354
)
(1,427,468
)
(888,903
)
General and administrative
(975,903
)
(1,037,110
)
(547,484
)
Other operating (expense) income, net
(276,207
)
(293,429
)
118,636
Operating income
992,523
165,274
1,446,493
Interest (expense) income, net
(3,532,767
)
(508,704
)
128,984
Other non-operating (expense) income, net
25,231
(47,085
)
13,199
Income (loss) before taxes and minority interests
(2,525,013
)
(390,515
)
1,588,676
Income tax and social contribution benefit (expense)
1,021,551
296,374
(317,421
)
Income (loss) before minority interests
(1,493,462
)
(94,141
)
1,271,255
Impact of initial application of SFAS No. 133 on January 1, 2001
(R$8,920 less deferred tax of R$2,944)
5,976
Minority interests
100,925
(1,890
)
(308,877
)
Net income (loss) and comprehensive income (loss)
(1,392,537
)
(90,055
)
962,378
Net income (loss) applicable to each class of shares
Preferred
(932,945
)
(60,734
)
633,840
Common
(459,592
)
(29,321
)
328,538
Net income (loss)
(1,392,537
)
(90,055
)
962,378
Net income (loss) per thousand shares:
Common shares – Basic (in
Reais
)
(3,73
)
(0.24
)
2.71
Weighted average (thousand) common shares outstanding
123,170,734
120,154,738
121,768,289
Common shares – Diluted (in
Reais
)
(3,73
)
(0.24
)
2.64
Weighted average (thousand) common shares outstanding
123,170,734
120,154,738
121,768,289
Preferred shares – Basic (in
Reais
)
(3,73
)
(0.24
)
2.71
Weighted average (thousand) preferred shares outstanding
250,029,329
248,880,409
234,924,679
Preferred shares — Diluted (in
Reais
)
(3,70
)
(0.24
)
2.64
Weighted average (thousand) preferred shares outstanding
252,305,316
249,815,220
234,959,538
F-86
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
34.  Consolidated statements of changes in shareholders' equity in accordance
with US GAAP
Share
capital and
additional
Unrealized
Treasury
paid-in
Statutory
income
shares
Retained
capital
reserve
reserve
reserve
earnings
Total
Balances at December 31, 1999
4,721,231
186,331
2,750,514
(90,934
)
2,735,435
10,302,577
Realization of unrealized income
(134,070
)
134,070
Appropriations:
Transfer to reserves
19,798
(19,798
)
Dividends and interest on
own-capital
(314,967
)
(314,967
)
Employee stock options issued
309
309
Capitalization of reserves and
retained earnings
400,448
(186,331
)
(214,117
)
Funds for capitalization
transferred to minority interest
26,872
26,872
Net income for the year
962,378
962,378
Balances at December 31, 2000
5,121,988
19,798
2,616,444
(90,934
)
3,309,873
10,977,169
Acquisition of treasury shares
(169,492
)
(169,492
)
Appropriations:
Transfer to reserves
7,019
(7,019
)
Dividends and interest on capital
(248,496
)
(248,496
)
Employee stock options issued
798
798
Capitalization of retained earnings
167,605
(167,605
)
Funds for capitalization
transferred to minority interest
33,168
33,168
Loss for the year
(90,055
)
(90,055
)
Balances at December 31, 2001
5,290,391
26,817
2,616,444
(260,426
)
2,829,866
10,503,092
Dividends reverted to the Company
12,442
12,442
Realization of unrealized income
(2,072,492
)
2,072,492
Dividends and interest on capital
(300,000
)
(300,000
)
Capitalization of retained earnings
167,605
(167,605
)
Funds for capitalization
transferred to
minority interest
(37,332
)
(37,332
)
Loss for the year
(1,392,537
)
(1,392,537
)
Balances at December 31, 2002
5,457,996
26,817
543,952
(260,426
)
3,017,326
8,785,665
F-87
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
35. Additional disclosures required by US GAAP
(a)  Consolidated statements of cash flows based on Brazilian GAAP balances for
the years ended December 31:
2002
2001
2000
Operating activities:
Net income - Brazilian GAAP basis
(415,598
)
140,378
709,407
Adjustments to reconcile net income to cash provided by
Operating activities:
Minority interests
131,856
56,685
257,216
Depreciation and amortization
3,863,109
2,926,422
2,803,282
(Gain) loss on permanent asset disposals
29,648
79,896
(2,685
)
Provision for doubtful accounts
616,038
925,611
218,698
Contingencies and other provisions
284,806
565,721
61,713
Deferred tax asset, net
238,306
(248,354
)
92,938
(Increase) in accounts receivable
(1,175,906
)
(568,976
)
(1,458,443
)
(Increase) decrease in other current assets
(166,166
)
37,968
(43,450
)
Increase in other non-current assets
(176,315
)
(323,087
)
(70,740
)
Increase (decrease) in payroll and related accruals
75,430
(3,811
)
29,039
Increase (decrease) in accounts payable and accrued
expenses
(625,755
)
781,839
371,096
Increase (decrease) in other current liabilities
(17,213
)
(38,124
)
212,734
Increase in accrued interest
1,954,234
1,270,304
253,531
Decrease in deferred and recoverable taxes
(427,796
)
(574,614
)
(299,245
)
Increase (decrease) in other non-current liabilities
(26,092
)
(71,815
)
Cash provided by operating activities
4,188,678
5,001,766
3,063,276
Investing activities:
Additions to sale of investments, net
(50,000
)
(205,443
)
(8,611
)
Additions to property, plant and equipment
(2,617,282
)
(9,438,138
)
(2,936,827
)
Deferred charges
(221,024
)
(479,222
)
Cash used in investing activities
(2,888,306
)
(10,122,803
)
(2,945,438
)
Financing activities:
Proceeds from long-term loans
2,296,595
3,554,634
1,174,275
Proceeds from related party long-term loans - BNDES
1,489,572
1,000,579
Repayments of long-term loans
(2,932,071
)
(1,525,299
)
(410,748
)
Proceeds from debentures
1,300,000
Proceeds from line of credit
Repayments on line on credit
(170,298
)
Purchase of treasury shares
(169,492
)
Dividends and interest on capital, paid
(386,636
)
(386,505
)
(314,967
)
Cash provided (used) by financing activities
(1,022,112
)
4,262,910
1,278,841
Increase in cash and cash equivalents
278,260
(858,127
)
1,396,679
Cash and cash equivalents at beginning of year
1,234,443
2,092,570
695,891
Cash and cash equivalents at end of year
1,512,703
1,234,443
2,092,570
F-88
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Supplemental cash flow information
:
Income and social contribution tax paid
38,906
236,356
199,927
Interest paid
988,783
538,435
59,823
Cash paid against provisions for contingencies
350,023
105,530
197,010
Non cash transactions:
Tax incentive investment credits received
4,318
14,098
Donations received of property and equipment
7,103
Conversion of expansion plan contributions into share capital
1,125
1,750
Net Goodwill on downstream merger
(167,606
)
(167,606
)
(1,767,252
)
Net negative goodwill on share capital increase in
subsidiary
175,424
237,591
(b) Financial highlights by business segment:
The following segment information has been prepared in accordance with
SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
information." Since January 2002, the Company has operated under the following
segments, which as described as follows:
•
Fixed-line: This segment refers to the
services rendered by Telemar using the fixed-line network.
•
Mobile: This segment refers to the services
rendered by Oi, authorized to operate in June 2002.
•
Contac center: This segment is managed
separately and refers to the services rendered by Contax.
Although not required to present segment information up to 2001 under SFAS
No.131, the Company is presenting information relating to 2001 balance sheet
and income statement by segment, prepared on the same basis as that of 2002,
for comparison purposes
Since each segment is a different entity, the balances and results are
segmented.
F-89
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Year ended December 31,
Fixed-line
Mobile
Contact-Center
2002
2001
2002
2001
2002
2001
Gross operating revenues:
15,482,293
13,305,194
529,303
228,161
158,773
Taxes on revenues and discounts
(4,112,816
)
(3,553,783
)
(103,077
)
(16,502
)
(12,968
)
Net operating revenues
11,369,477
9,751,411
426,227
211,659
145,805
Cost of sales:
(7,395,115
)
(6,626,666
)
(599,392
)
(181,161
)
(115,167
)
Selling expenses:
(1,430,564
)
(1,582,503
)
(181,183
)
(2,699
)
(1,272
)
Administrative expenses
(844,671
)
(973,731
)
(50,746
)
(17,362
)
(11,883
)
Financial result, net
(2,160,782
)
(244,074
)
(1,004,817
)
(6,923
)
(3,232
)
Other operating results, net
313,978
(284,048
)
(187,292
)
(862
)
(1,581
)
Net income (loss)
(121,889
)
64,636
(895,344
)
914
6,175
Accounts receivable, net
2,525,982
2,140,464
291,195
25,825
37,515
Property, plant and equipment, net
14,814,327
16,300,476
1,912,975
1,012,508
79,015
29,760
Loans and financing
4,562,828
6,254,095
2,632,300
1,388,485
10,352
[Additional columns below]
[Continued from above table, first column(s) repeated]
Year ended December 31,
Other segments
Intercompany
and holding
eliminations
Consolidated
2002
2001
2002
2001
2002
2001
Gross operating revenues:
159,093
104,722
(450,447
)
(284,658
)
15,948,403
13,284,031
Taxes on revenues and discounts
(10,928
)
(26,721
)
25,920
36,989
(4,217,403
)
(3,556,483
)
Net operating revenues
148,164
78,001
(424,527
)
(247,669
)
11,731,000
9,727,548
Cost of sales:
(186,469
)
(165,717
)
183,124
103,283
(8,179,013
)
(6,804,267
)
Selling expenses:
(13,054
)
(6,345
)
320,146
162,652
(1,307,354
)
(1,427,468
)
Administrative expenses
(70,193
)
(60,496
)
7,069
9,000
(975,903
)
(1,037,110
)
Financial result, net
(155,433
)
(19,200
)
(2,132,500
)
(3,327,955
)
(2,399,006
)
Other operating results, net
(167,083
)
(15,000
)
(104,055
)
7,200
(145,314
)
(293,429
)
Net income (loss)
(459,918
)
46,543
83,700
(207,409
)
(1,392,537
)
(90,055
)
Accounts receivable, net
205,542
44,865
(323,613
)
(77,000
)
2,724,931
2,145,844
Property, plant and equipment, net
214,177
273,351
17,020,494
17,616,095
Loans and financing
4,232,141
3,004,448
(1,973,928
)
(3,037,498
)
9,453,341
7,619,882
F-90
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
(c) Pension and post-retirement benefits
The Company, together with other companies in the former Telebrás group,
sponsors a multi-employer defined benefit pension and other post-retirement
benefit plans, which are operated and administered by SISTEL. In addition, the
Company sponsors single-employer defined benefit pension plans (PBS-Telemar and
TelemarPrev 2), which are also operated and administered by SISTEL. In November
2002, the deferred benefit plan "PB-CT" was merged into TelemarPrev.
On September 21, 2000, the Company created new defined contribution plans
(TelemarPrev 1) which replaced the defined benefit plan. The migration process
created a curtailment and settlement impact on the post-retirement health care
plan under SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits" as employees
transferring to the defined contribution plan automatically lost their rights
to participate in the post-retirement health care plan in the future. In March
2001, the final period for voluntary migration, 96.0% of the Company's active
employees had transferred to the new plan. A similar percentage of participants
transferred to the TelemarPrev 2 plan, which is a defined benefit plan for
death, invalidity and other benefits, for which the Company recorded the funded
status resulting from actuarial calculations.
The following table sets forth the defined benefit pension plans' change
in projected benefit obligation:
2002
2001
Projected benefit obligation at beginning of year
276,697
265,675
Service cost
14,457
12,338
Interest cost
30,170
29,840
Benefits paid
(74,131
)
(18,213
)
Actuarial gains
(28,596
)
(44,448
)
Transfers from PB-CT
57,010
31,505
Projected benefit obligation at end of the year
275,607
276,697
The following table sets forth the change in the fair value of the defined
benefit pension plans' assets:
2002
2001
Change in plan assets:
Fair value of plan assets at beginning of year
553,491
430,024
Actual return on plan assets
82,678
63,204
Employee contributions
501
681
Employer contributions
249
2,156
Assets transferred from other plans and PB-CT
57,010
75,639
Benefits paid
(74,131
)
(18,213
)
Fair value of plan assets at end of year
619,798
553,491
Prepaid pension cost recognized is computed as follows for the defined
benefit pension plans at December 31:
2002
2001
2000
Funded status of plan
344,192
276,795
164,350
Unrecognized net actuarial gain
(169,339
)
(143,194
)
(55,196
)
Unrecognized transition obligation
17,714
20,267
22,820
Prepaid pension cost
192,567
153,868
131,974
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Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
F-92
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
Net periodic defined benefit pension cost for the years ended December 31,
includes the following:
2002
2001
Net service cost
14,457
12,338
Interest cost
30,170
29,840
Return on plan assets
(78,728
)
(62,149
)
Amortization of unrecognized net actuarial gain
(6,165
)
(871
)
Amortization of initial transition obligation
2,553
2,553
Participants'contributions
(738
)
(1,449
)
Net periodic benefit cost
(38,451
)
(19,738
)
The following actuarial assumptions were used to determine the actuarial
present value of the Company's projected benefit obligation:
2002
2001
2000
Discount rate to determine projected benefit obligations
11
%
11
%
11
%
Expected long-term rate of return on plan assets
14
%
14
%
14
%
Rate of compensation increase
5
%
5
%
8
%
Inflation rate assumption used in the above
5
%
5
%
5
%
The Company also participates in a multi-employer defined benefit pension
plan (PBS-Assistidos) for employees that had retired prior to the split-up of
the SISTEL plan. The Company made no contributions to this plan during 2002 and
2001.
Other post-retirement benefit plans
The Company is also a sponsor of a multi-employer defined benefit health
care plan (PAMA). Contributions by the Company to this plan, for the years
ended December 31, 2002, 2001 and 2000 were R$1,071, R$10,101 and R$9,697,
respectively.
(d) Stock option plan
In July 2000, the Company established a stock option plan (the "Plan")
under which stock options were issued for a selected group of key full time
executives. The options are exercisable at varying dates on a cumulative basis
beginning after one year and expiring after five years. After five years, all
stock options are fully exercisable.
The employee has the option to receive, in cash, the difference between
the market value at the exercise date and the exercise price of the shares or
exercise the option.
The exercise price per thousand shares stated in the contract varies by
the variation of IGP-M plus 6% per year. In the event of a dividend
distribution, the exercise price per thousand shares is reduced by the amount
of dividends paid per share as from the option date.
The options granted under the Plan were awarded with an exercise price
less than the estimated fair market value of the shares on the date of grant.
Compensation expense charged to income under US GAAP was R$798 and R$309 in
2001 and 2000, respectively. There was no compensation cost in 2002.
F-93
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The expense represents the excess of the quoted market value over the
exercise price at year-end, pro rata over the period for which benefits are
expected to be generated for the Company.
F-94
Table of Contents
TELE NORTE LESTE PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of Brazilian
Reais, unless otherwise stated
)
The executive directors, granted an option under the Plan, must pay the
Company 10% of the value of the shares at the exercise price upon signing the
contract, which will be used towards the purchase price of the options when
they are exercisable at the end of the five year vesting period. Should
employment terminate before the end of the fifth year, the Company has the
option to deliver the shares related to the 10% paid or pay the average market
value of the shares (based on the last 90 days of trading) at the termination
date.
In the event the employee decides to sell the shares acquired under the
Plan, after the stated grace period in the Plan, the employee must grant the
Company the right-of-first-refusal to purchase such shares at the stated market
value on the date of sale.
For US GAAP purposes, the Company accounts for participation in the Plan
in accordance with US Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees." Because management's intention is
to settle its stock option obligations under the Plan in cash, the pro forma
compensation expense under SFAS No. 123 is the same as the expense calculated
under APB 25.
This table summarizes the Company's variable stock option plans:
In reais
Number
Initial
Actual
of shares
offer
offer price
(lots of 1,000)
price
2002
2001
Shares offered in July 2000
250,330
30.00
52.02
38.63
Shares offered in May 2001
1,449,304
33.00
50.15
36.72
Shares offered in October 2001
1,198,635
24.73
34.80
25.48
2,898,269
Offerings extinguished due to rescissions
(821,656
)
Options outstanding at December 31,
2002 (0.54% of issued shares)
2,076,613
The market value of preferred shares at December 30, 2002 was R$27.30
(2001 - R$36.25) per lot of one thousand shares. A provision is not recorded
because the exercise price of the options is higher than the market value.
Possible differences between actual offer price and the market value that
may result in losses to the Company are recorded using the accrual method.
The following table summarizes information about stock options outstanding as
of December 31, 2002:
Stock options outstanding
Stock options exercisable
Range of exercise
Weighted
Weighted
prices on the
average
Weighted
average
contracts' settlement
Shares (in
remaining Life
average
Shares (in
exercise
date
thousands)
(in years)
exercise price
thousands)
price
R$20.00 - 29.99
1,198,635
3.83
34.80
199,278
34.80
R$30.00 - 39.99
1,699,634
3.28
50.47
204,463
50.42
Forfeited
(821,656
)
Total
2,076,613
403,741
42.71
F-95