<HTML>
<HEAD>
<TITLE>TELE CELULAR SUL PARTICIPACOES S.A.</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>


<P align="right"><FONT size="2"><B>As filed with the Securities and
Exchange Commission on June&nbsp;18, 2003</B>
</FONT>

<HR size="4" noshade color="#000000" style="margin-top: -5px">
<HR size="1" noshade color="#000000" style="margin-top: -10px">





<P align="center"><FONT size="4"><B>SECURITIES AND EXCHANGE COMMISSION
</B></FONT>


<DIV align="center"><FONT size="3"><B>Washington, DC 20549</B>
</FONT></DIV>


<P align="center"><FONT size="5"><B>FORM 20-F
</B></FONT>


<P align="center"><FONT size="2"><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B><br>

<B>For the fiscal year ended December&nbsp;31, 2002</B>
</FONT>


<P align="center"><FONT size="2"><B>Commission file number: 001-14491</B>
</FONT>


<P align="center"><FONT size="6"><B>TELE CELULAR SUL 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>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>Tele Cellular Sul Holding Company</B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>The Federative Republic of Brazil</B></FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><FONT size="2"><B>(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>(Jurisdiction of Incorporation or Organization)</B></FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2"><B>Rua Comendador Ara&#250;jo, 299 &#151; 3&#186; andar<BR>
80420-000 Curitiba, PR, Brazil</B>
</FONT>





<DIV align="center"><FONT size="2"><B>(Address of Principal Executive Offices)</B>
</FONT></DIV>


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

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <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>
</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="left"><FONT size="2">
<div style="margin-left:75px">Preferred Shares, without par value*<BR>
American Depositary Shares, each<BR>
representing 10,000 Preferred Shares</DIV></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>
</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">*</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2"><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="center"><FONT size="2"><B>Indicate the number of outstanding shares of each of the issuer&#146;s classes of<BR>
capital or common stock as of the close of the period covered by the annual report:</B>
</FONT>


<P align="center"><FONT size="2"><B>129,357,833,871 </B>Common Shares, without par value
</FONT>


<P align="center"><FONT size="2"><B>213,612,105,811 </B>Preferred Shares, without par value
</FONT>


<P align="center"><FONT size="2"><B>Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed<BR>
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12&nbsp;months<BR>
(or for such shorter period that the registrant was required to file such
reports)<BR>
and (2)&nbsp;has been subject to such filing requirements for the
past 90&nbsp;days.</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="45%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2"><B>Yes <FONT face="Wingdings">&#120;</FONT></B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>No <FONT face="Wingdings">&#111;</FONT></B></FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2"><B>Indicate by check mark which financial statement item the registrant has
elected to follow.</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="45%">
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top" align="center"><FONT size="2"><B>Item&nbsp;17 <FONT face="Wingdings">&#111;</FONT></B></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="center" valign="top"><FONT size="2">
<B>Item&nbsp;18 <FONT face="Wingdings">&#120;</FONT></B></FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<HR size="1" noshade color="#000000" style="margin-top: -2px">
<HR size="4" noshade color="#000000" style="margin-top: -10px">




<P align="center"><FONT size="2">&nbsp;</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>




<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<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 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#004">ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#005">ITEM 3. KEY INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">ITEM 4. INFORMATION ON THE COMPANY</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#009">ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">ITEM 8. FINANCIAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">ITEM 9. THE OFFER AND LISTING</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">ITEM 10. ADDITIONAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">ITEM 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 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#017">ITEM 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 15. CONTROLS AND PROCEDURES</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#019">ITEM 16. 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 17. FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#022">ITEM 18. FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#023">ITEM 19. EXHIBITS</A></TD></TR>
<TR><TD colspan="9"><A HREF="#024">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv1w2.txt">BY-LAWS</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv4w8.txt">AUTHORIZATION AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv4w9.txt">AUTHORIZATION AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv4w10.txt">AUTHORIZATION AGREEMENT</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv8w1.txt">SUBSIDIARIES</A></TD></TR>
<TR><TD colspan="9"><A HREF="y87502exv10w1.txt">CERTIFICATION OF CEO AND CFO</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<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>TABLE OF CONTENTS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="82%">&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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Page</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3" valign="top" align="left"><FONT size="2">Presentation of Information</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">2</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><FONT size="2">Forward Looking Information</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">3</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 I</B></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">&nbsp;</FONT></TD>
    <TD 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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">4</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">4</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">4</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">15</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 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" 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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">54</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">58</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">59</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">63</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">68</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">79</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 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">&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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD 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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">81</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">81</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">81</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Item&nbsp;16.</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">81</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD 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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">82</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">82</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</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 nowrap align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">83</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>




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

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


<!-- 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;In this annual report, Tele Celular Sul Participa&#231;&#245;es S.A. is referred to
as &#147;Tele Celular Sul&#148; or the &#147;Holding Company,&#148; a corporation organized under
the laws of the Federative Republic of Brazil. References to &#147;we,&#148; &#147;us&#148; and
&#147;our&#148; are to Tele Celular Sul together with Telepar Celular S.A. (&#147;Telepar
Celular&#148;), Telesc Celular S.A. (&#147;Telesc Celular&#148;) and CTMR Celular S.A. (&#147;CTMR
Celular&#148;), each a subsidiary of Tele Celular Sul and a corporation organized
under the laws of the Federative Republic of Brazil. References to
&#147;Subsidiaries&#148; are to Telepar Celular, Telesc Celular and CTMR Celular,
collectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Holding Company was formed as a result of the breakup (the &#147;Breakup&#148;)
of Telecomunica&#231;&#245;es Brasileiras S.A. (&#147;Telebr&#225;s&#148;) by Brazil&#146;s federal
government (the &#147;Federal Government&#148;) in May 1998. Before the Breakup,
Telebr&#225;s and the Predecessor Companies were jointly known as the &#147;Telebr&#225;s
System,&#148; and were the primary providers of telecommunications services in
Brazil. Each of the Subsidiaries was formed in January 1998 by transferring
the assets and liabilities of the cellular telecommunications operations of
Telecomunica&#231;&#245;es do Paran&#225; S.A. (&#147;Telepar&#148;), Telecomunica&#231;&#245;es de Santa Catarina
S.A. (&#147;Telesc&#148;) and Companhia Telef&#244;nica Melhoramentos e Resist&#234;ncia S.A.
(&#147;CTMR&#148;), at their indexed historical cost, to Telepar Celular, Telesc Celular
and CTMR Celular, respectively. Telepar, Telesc and CTMR were operating
companies controlled by Telebr&#225;s. References to &#147;Predecessor Companies&#148; are to
Telepar, Telesc and CTMR, collectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;References in this annual report to the &#147;Preferred Shares&#148; and the &#147;Common
Shares&#148; are to the preferred shares and common shares, respectively, of Tele
Celular Sul. References to the &#147;American Depositary Shares&#148; or &#147;ADSs&#148; are to
Tele Celular Sul&#146;s American Depositary Shares, each representing 10,000
Preferred Shares. The ADSs are evidenced by American Depositary Receipts
(&#147;ADRs&#148;), which are listed on the New York Stock Exchange (&#147;NYSE&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide cellular telecommunications services in the Brazilian states of
Paran&#225; (other than the municipalities of Londrina and Tamarana) and Santa
Catarina and in the cities of Pelotas, Cap&#227;o do Le&#227;o, Morro Redondo and Turu&#231;u
in the state of Rio Grande do Sul (collectively, the &#147;Region&#148;) under
authorizations obtained from the Brazilian Federal Government (&#147;Federal
Government&#148;).
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Brazilian Corporate Law accounting method and U.S. GAAP</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our audited consolidated financial statements for each of the years ended
December&nbsp;31, 1998, 1999, 2000, 2001 and 2002, are our consolidated financial
statements (&#147;Consolidated Financial Statements&#148;), which were prepared in
accordance with the Brazilian Corporate Law accounting method and in conformity
with accounting requirements and procedures established by the Brazilian
securities commission, the Comiss&#227;o de Valores Mobili&#225;rios (&#147;CVM&#148;), and the
related rules applicable to telecommunications service operators. The rules
according to which our Consolidated Financial Statements were prepared differ
in certain material respects from generally accepted accounting principles in
the United States (&#147;U.S. GAAP&#148;). See Note 31 to our Consolidated Financial
Statements for a summary of the differences between the Brazilian Corporate Law
accounting method and U.S. GAAP, as well as a reconciliation to U.S. GAAP of
our shareholders&#146; equity as of December&nbsp;31, 2001 and 2002 and net income for
the years ended December&nbsp;31, 2000, 2001 and 2002.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Currency References</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All references herein 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">&#147;<I>real,</I>&#148; &#147;<I>reais</I>&#148; or &#147;R$&#148; are to the Brazilian <I>reais</I>
(plural)&nbsp;and to the Brazilian <I>real </I>(singular), the official
currency of the Federative Republic of Brazil; and</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">&#147;U.S. dollars,&#148; &#147;dollars&#148; or &#147;US$&#148; are to United States dollars.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">2</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<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;This annual report contains certain forward-looking statements. We, and
our representatives, may also make forward-looking statements in press releases
and oral statements. Statements that are not statements of historical fact,
including statements about the beliefs and expectations of our management, are
also forward-looking statements. The words &#147;anticipates,&#148; &#147;believes,&#148;
&#147;estimates,&#148; &#147;expects,&#148; &#147;forecasts,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;predicts,&#148; &#147;projects&#148;
and &#147;targets&#148; and similar words are intended to identify these statements,
which necessarily involve known and unknown risks and uncertainties. Known
risks and uncertainties, some of which are discussed on pages 9 to 14 herein,
include, but are not limited to, those resulting from the short history of our
operations as an independent, private-sector entity and the introduction of
competition to, and the size of, the Brazilian telecommunications sector, as
well as those relating to the cost and availability of financing, the
performance of the Brazilian economy generally, the levels of exchange rates
between Brazilian and foreign currencies and the Federal Government&#146;s
telecommunications policy. Accordingly, the actual results of our operations
may be different from our current expectations, and the reader should not place
undue reliance on these forward-looking statements. Forward-looking statements
speak only as of the date they are made, and we do not undertake any obligation
to update them in light of new information or future developments.
</FONT>

<P align="center"><FONT size="2">3</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<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 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<!-- link2 "ITEM 3. KEY INFORMATION" -->
<DIV align="left"><A NAME="005"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 3. KEY INFORMATION</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;The selected financial data presented below for the five years ended
December&nbsp;31, 2002 are derived from our Consolidated Financial Statements. In
2002 and 2001, our Consolidated Financial Statements were audited by Ernst &#038;
Young Auditores Independentes S/C. In 2000, our Consolidated Financial
Statements were audited by PricewaterhouseCoopers Auditores Independentes. In
1999, our Consolidated Financial Statements were audited by Arthur Andersen
S/C. In 1998, our Consolidated Financial Statements were audited by Deloitte
Touche Tohmatsu S/C. The data should be read in conjunction with our
Consolidated Financial Statements, related notes, and other financial
information included herein.
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Brazilian Corporate Law Accounting Method, Brazilian GAAP and U.S. GAAP</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Consolidated Financial Statements have been prepared in accordance
with the Brazilian Corporate Law accounting method, which differs in certain
material respects from U.S. GAAP. For many years prior to 2000, we prepared
our financial statements for purposes of filing reports with the Securities and
Exchange Commission (the &#147;Commission&#148;) in accordance with a specific rule
published by the Brazilian Institute of Accountants (&#147;Brazilian GAAP&#148;). The
accounting principles embodied in Brazilian GAAP and the Brazilian Corporate
Law accounting method are generally identical, except that Brazilian GAAP
requires historical financial information to be restated in constant <I>reais </I>as
of the end of the period presented, using the integral restatement method
(<I>corre&#231;&#227;o monet&#225;ria integral</I>), except when, by determination of the Brazilian
Institute of Accountants, the rate of inflation for the period is so low as to
render insignificant the effect of any such restatement. Early in 2001, the
Commission announced that Brazilian companies could present their financial
information in accordance with the Brazilian Corporate Law accouting method,
which has excluded monetary restatement of historical financial information
since 1995, following the end of hyperinflation in Brazil in the early 1990&#146;s.
In connection with the change in accounting methods in fiscal year 2000, we
restated our financial statements for all prior periods for consistent
presentation. The Brazilian Corporate Law accounting method differs in certain
material respects from U.S. GAAP. See Note 31 to our Consolidated Financial
Statements for a summary of the differences between the Brazilian Corporate Law
accounting method and U.S. GAAP, as well as a reconciliation to U.S. GAAP of
our shareholders&#146; equity as of December&nbsp;31, 2001 and 2002, and net income for
the years ended December&nbsp;31, 2000, 2001 and 2002.
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The formations of the Holding Company and the Subsidiaries have been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. In January 1998, the assets and liabilities
of the cellular telecommunications businesses of Telepar, Telesc, and CTMR were
transferred to our Subsidiaries at their indexed historical cost. In addition,
the assets that were transferred from Telebr&#225;s to us resulted in an increase of
R$90.0&nbsp;million to the book value of our total assets, compared to the assets
carried by our Subsidiaries before the break-up. The amount of our current
distributable retained earnings includes retained earnings allocated to us in
the Breakup of Telebr&#225;s.
</FONT>

<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>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Corporate Reorganization to Transfer Goodwill</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2000, our management implemented a corporate restructuring to
transfer to our Subsidiaries the premium (&#147;Goodwill&#148;) paid by Bitel
Participa&#231;&#245;es S.A. (&#147;Bitel&#148;) for the acquisition of control of Tele Celular
Sul. The Goodwill was recorded as an asset. The transfer of Goodwill resulted
in a potential tax benefit, increasing our ability to generate free cash flow.
Commencing in 1998, the Goodwill was amortized by Bitel using an amortization
rate of 4% per annum. After the transfer to our Subsidiaries, the balance of
the Goodwill has been amortized under the straight-line method over the
remaining eight years. See Note 1.b to our Consolidated Financial Statements.
The amortization of Goodwill is expected to reduce our consolidated operating
income in future years, and to reduce our Subsidiaries&#146; income and social
contribution taxes payable in those years, not affecting the consolidated net
operating income.
</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;For 1998, 1999, 2000 and 2001, &#147;minority interests&#148; reflect the interest
of shareholders other than Tele Celular Sul in each of Telepar Celular, Telesc
Celular and CTMR Celular. In December 2002, we completed a corporate
restructuring in which Telesc Celular and CTMR Celular became wholly-owned
subsidiaries of Telepar Celular. As of December&nbsp;31, 2002, we retained a 90.2%
interest in the voting capital of Telepar Celular, and minority
shareholders owned interests amounting to 9.8% of the voting capital of Telepar Celular. See Note 3.r to our Consolidated Financial
Statements.
</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="center"><FONT size="2"><B>Selected Financial Data</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following selected financial data for the five years ended December
31, 2002 are derived from our Consolidated Financial Statements. In 2002 and
2001, our Consolidated Financial Statements were audited by Ernst &#038; Young
Auditores Independentes S/C. In 2000, our Consolidated Financial Statements
were audited by PricewaterhouseCoopers Auditores Independentes. In 1999, our
Consolidated Financial Statements were audited by Arthur Andersen S/C. In
1998, our Consolidated Financial Statements were audited by Deloitte Touche
Tohmatsu S/C. The data should be read in conjunction with our Consolidated
Financial Statements, related notes, and other financial information included
herein.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&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>
    <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="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
<i>reais</I>, unless otherwise indicated)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Statement of Income 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"><I>Brazilian Corporate Law</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">R$504,201</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">R$680,447</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">R$716,887</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">R$791,429</FONT></TD>
    <TD><FONT size="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$891,264</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 goods and 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">(183,618</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(417,020</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">(364,468</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">(406,033</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(486,383</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">320,583</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">263,427</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">352,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">385,396</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">404,881</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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 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">(68,176</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(139,834</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(201,150</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,424</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">(185,446</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
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">(40,514</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(64,211</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(76,300</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">(71,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(83,346</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 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">6,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,133</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">(14,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,584</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,902</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">Equity investment</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,888</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,288</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 financial
income (expenses)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,148</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">65,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,447</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">114,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">116,899</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 financial 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">24,654</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">(32,188</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(57,904</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,405</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">18,959</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" bgcolor="#eeeeee">
    <TD colspan="2"><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">242,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33,327</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">2,543</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">70,186</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">97,940</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 non-operating (income)&nbsp;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">(38,241</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,823</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">3,507</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">10</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">(127</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 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">204,561</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">27,504</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,050</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">70,196</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">97,813</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
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">(48,507</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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</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">6,320</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">672</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">(19,473</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">(32,059</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">7,357</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">2,998</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">(10,979</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,566</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">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">123,995</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">34,332</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income (loss)&nbsp;per 1,000
shares outstanding (<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">0.37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.10</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">0.05</FONT></TD>
    <TD><FONT size="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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
<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"><I>U.S. GAAP</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <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">495,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">689,596</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">716,887</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">791,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">891,264</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 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">217,815</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">20,832</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">(4,875</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">56,214</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">104,414</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</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$110,322</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">R$20,317</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$6,673</FONT></TD>
    <TD><FONT size="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$48,111</FONT></TD>
    <TD><FONT size="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$87,992</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">Earnings per 1,000 common
shares (<I>reais</I>) <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">R$0.330</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">R$0.061</FONT></TD>
    <TD><FONT size="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">R$0.143</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">R$0.257</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">Earnings per 1,000 preferred
shares (<I>reais</I>) <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">R$0.330</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">R$0.061</FONT></TD>
    <TD><FONT size="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$0.032</FONT></TD>
    <TD><FONT size="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$0.143</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">R$0.257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="35%">&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="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="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="19"><FONT size="1"><B>As of 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
<I>reais</I>, unless otherwise indicated)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><I>Brazilian Corporate Law</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">623,499</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">791,022</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">837,165</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">775,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">655,949</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">905,178</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,152,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,461,553</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">1,502,179</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">1,647,885</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, financing and debentures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,194</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">222,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">352,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">334,386</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">321,085</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">Shareholders equity</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">540,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">560,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">770,081</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">808,329</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">845,330</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">Capital stock</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">175,872</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">175,872</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">175,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">245,033</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">324,666</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">Number
of shares outstanding: <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">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><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</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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">124,369</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129,358</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</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">213,612</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 1,000 shares &#150; in
Reais <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">R$0.11</FONT></TD>
    <TD><FONT size="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$0.04</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">R$0.04</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">R$0.06</FONT></TD>
    <TD><FONT size="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$0.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2" nowrap><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends per 1,000 shares &#150; in
U.S. dollars <sup>(3)(4)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$0.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$0.02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$0.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$0.02</FONT></TD>
</TR>
<TR>
<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"><I>U.S. GAAP</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">667,668</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">850,234</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">907,502</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">791,442</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">668,049</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">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">937,790</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,181,699</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">1,476,327</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">1,505,553</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">1,713,002</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">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">60,194</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">222,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">352,785</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">343,558</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">349,356</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">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">562,468</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">563,163</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">772,823</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">790,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">849,271</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Earnings per share are determined based upon the weighted average
number of shares outstanding during the period. See Note 31.III.h to
our Consolidated Financial Statements.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Refers to millions of shares.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Dividends per share have been computed as the sum of dividends and
interest on shareholders&#146; equity (&#147;juros sobre capital pr&#243;prio,&#148;
according to Brazilian law), an alternative under Brazilian Corporate
Law to the distribution of dividends to shareholders. The
distribution of dividends and interest on shareholders&#146; equity, in
each year, proceeded according to the terms set forth by our common
shareholders, at the relevant annual ordinary meeting. Dividends per
share have been determined as the sum of declared dividends and
interest on shareholders&#146; equity, divided by the total number of
Common Shares and Preferred Shares outstanding as of the common
shareholders&#146; meeting date. See &#147;&#151;Additional
Information&nbsp;&#151;&nbsp;Taxation&nbsp;&#151;&nbsp;Brazilian Tax
Considerations&nbsp;&#151;&nbsp;Distribution of
Interest on Capital.&#148;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Amounts expressed in U.S. dollars, according to the exchange rate
applicable at the date of the relevant common shareholders&#146; ordinary
meeting that approved the distribution of dividends and interest on
shareholders&#146; equity.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">In 2002, in accordance with a new CVM rule, we began classifying employees&#146;
profit sharing expense as general and administrative expense instead of as a
separate line item below operating income before interest. All years prior to
2002 were restated for consistent presentation. Employees&#146; profit sharing
expenses amounted to R$965 thousand, R$2,103 thousand, R$2,262 thousand,
R$4,129 thousand and R$4,222 thousand in 1998, 1999, 2000, 2001 and 2002,
respectively.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We pay any cash dividends, interest on shareholders&#146; equity and any other
cash distributions with respect to our Preferred Shares in <I>reais</I>. Accordingly,
exchange rate fluctuations will affect the U.S. dollar amounts received by the
holders of ADSs on conversion by the Depositary of dividends and other
distributions in Brazilian currency on our Preferred Shares represented by
ADSs. Fluctuations in the exchange rate between Brazilian currency and the
U.S. dollar will affect the U.S. dollar equivalent of the price of our
Preferred Shares on the Brazilian stock exchanges. In addition, exchange rate
fluctuations may also affect our results of operations. See &#147;Item&nbsp;5. Operating
and Financial Review and Prospects Foreign Exchange and Interest Rate
Exposure.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are two legal currency exchange markets in Brazil: the commercial
rate currency exchange market (&#147;Commercial Market&#148;) and the floating rate
currency exchange market (&#147;Floating Market&#148;). The Commercial Market is
reserved primarily for currency exchange transactions in connection with
foreign trade transactions, and transactions that generally require prior
approval from Brazilian monetary authorities, such as the purchase and sale
</FONT>
<P align="center"><FONT size="2">7</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"> of foreign investments registered with the Brazilian Central Bank
(&#147;Central Bank&#148;). Commercial Market transactions may be carried out
exclusively through a Brazilian financial institution authorized to operate in
this market. As used herein, the Floating Market applies to currency exchange
transactions in connection with transactions other than the ones conducted
through the Commercial Market.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Between March 1995 and January 1999, the Central Bank maintained a band
within which the exchange rate between the <I>real </I>and the U.S. dollar fluctuated,
and the Central Bank intervened in the foreign exchange markets from time to
time in order to keep the currency exchange rate within these limits. In early
January 1999, the Central Bank attempted a controlled devaluation of the <I>real</I>
by widening the band within which the <I>real</I>/U.S. dollar rate was permitted to
fluctuate, but subsequent Central Bank intervention failed to keep the exchange
rate within the new band. On January&nbsp;15, 1999, the Central Bank announced that
the <I>real </I>would be permitted to float freely, with Central Bank intervention to
take place only in times of extreme volatility. Since January&nbsp;20, 1999, there
has been no exchange rate band between the <I>real </I>and the U.S. dollar, and the
<I>real </I>value of the dollar has been allowed to float. During this time, the
Central Bank has intervened only occasionally to control unstable movements in
foreign exchange rates, and the <I>real</I>-U.S dollar exchange rate has experienced
considerable fluctuations. From January&nbsp;20, 1999 to June&nbsp;6, 2003, the <I>real</I>
depreciated by approximately 45.23% relative to the U.S dollar. We cannot
predict whether the Central Bank will continue to allow the <I>real </I>to float or
whether <I>real </I>foreign-exchange rates will remain stable. See &#147;&#151;Risk Factors.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the Noon Buying Rate, published by the
Federal Reserve Bank of New York, expressed in <I>reais </I>per U.S. dollar, for the
periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="55%">&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="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>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
<sup>(1)</sup></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>
</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">1.1604</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.2090</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">1.1162</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">1.8135</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.2000</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">1.8330</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.9840</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">2.3220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.7850</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.9720</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">2.9969</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.9450</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.2650</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">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">3.6268</FONT></TD>
    <TD><FONT size="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">3.4375</FONT></TD>
    <TD><FONT size="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">3.5955</FONT></TD>
    <TD><FONT size="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">3.4567</FONT></TD>
    <TD><FONT size="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">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">2.9517</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">2003 (through June&nbsp;6, 2003)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.1935</FONT></TD>
    <TD><FONT size="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">2.8750</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><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">On June&nbsp;6, 2003, the Noon Buying Rate was R$ R$2.8850 to US$1.00.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian law provides that, whenever there is a serious imbalance in
Brazil&#146;s balance of payments or serious reasons to foresee such imbalance,
temporary restrictions may be imposed on remittances of foreign capital abroad.
For approximately six months in 1989, and early 1990, for example, the Federal
Government froze all dividend and capital repatriations that were owed to
foreign equity investors. These amounts were subsequently released in
accordance with Federal Government directives. There can be no assurance that
similar measures will not be taken by the Federal Government in the future.
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Risks Relating to Us</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The conversion of our SMC concessions into PCS authorizations will have a
significant impact on our business.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December 2002, our Subsidiaries converted their respective concessions
to operate under Cellular Mobile Service (&#147;SMC&#148;) regulations into
authorizations to operate under Personal Communications Services (&#147;PCS&#148;)
regulations. The SMC regulations differ significantly from the PCS
regulations. We expect to meet our obligations under the PCS regulations, but
there is no assurance that we will be able to do so. A failure to comply with
the PCS regulations may have a material adverse effect on our business,
financial condition and results of operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>We may not receive as much interconnection revenue as we receive today.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order for a customer of another telecommunications service provider to
connect to one of our customers, it will be necessary to use a portion of our
network. In situations like these, when our network is used for a call
initiated by a customer of another telecommunications service provider
(&#147;Incoming Call&#148;), we are paid a fee by that service provider for every minute
our network is used. Similarly, we pay a fee to other telecommunications
service providers for every minute that their network is used in connection
with calls originating from our customers (&#147;Outgoing Call&#148;). Our customers may
spend more time placing Outgoing Calls than receiving Incoming Calls. As a
result, we may receive less interconnection revenue or pay more interconnection
fees than we presently do, with adverse effects to our financial condition and
results of operation. Furthermore, as a result of our conversion to PCS
authorizations, we will be subject to the CSP (<I>C&#243;digo de Sele</I>&#231;<I>&#227;o de Prestadora</I>)
Program promulgated by Anatel under the PCS regulations, which will allow
customers to choose long distance carriers on a per call basis. While under
the concessions, we had the right to charge VC2 and VC3 rates for long distance
calls placed by our customers. Upon the effectiveness of the CSP Program, we
will no longer have the right to charge VC2 and VC3 rates for long distance
calls. As a result, we may receive less interconnection revenue, with adverse
effects to our business, financial condition and results of operations.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">


    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>The technology we use has limitations that could restrict our ability to
switch to more advanced technologies.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian wireless telecommunications market is experiencing
significant technological changes, as evidenced by:
</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 introduction by Anatel of the PCS regime, under
which telecommunications service providers are allowed to use the
advanced global system for mobile communication technology
(&#147;GSM&#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">shorter time periods between the introduction of new
telecommunication products and their required enhancements or
replacements; 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">ongoing improvements in the capacity and quality of
digital technology available in Brazil.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently use time-division multiple access technology (&#147;TDMA&#148;) in our
cellular telecommunications services we provide and plan to offer GSM, as well,
during the second half of 2003.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">


    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><B>We rely on a small number of suppliers and vendors, and if they fail to
provide us with services or equipment on a timely and cost-effective
basis, our business could be adversely affected.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on a small group of vendors for our switch and cellular site
equipment. If we had to replace our primary suppliers of switch and cellular
equipment, we would suffer additional costs and delays on our current
replacement schedules. We may have to change our suppliers and vendors in the
future, resulting in material adverse effects to our business, financial
condition and results of operations.
</FONT>



<P align="center"><FONT size="2">9</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"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Our business is dependent on our ability to expand our services and to
maintain the quality of the services provided.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business, as a cellular telecommunications services provider, depends
on our ability to manage successfully our expansion and on continuous
investments in connection with our cellular telecommunications services
network. We believe our expected growth will require, 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">continuous development of our operational and administrative 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">increasing marketing activities; 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">attracting, training and retaining qualified management, technical and sales personnel.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These activities are expected to place significant demand on our
managerial, operational and financial resources. Failure to successfully
manage our expected growth could impair our ability to maintain the quality of
our services, with adverse effects to our business, financial condition and
results of operations.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Significant competition in our market may adversely affect our results of operations.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1998. Several licenses have been granted for cellular telecommunications
services in the our areas of authorization, and the Federal Government
auctioned additional licenses for PCS on frequency ranges referred to as Bands
C, D and E during 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increasing competition may continue to adversely affect our market share
and margins. Increased competition may cause increasing rates of customer
turnover, adversely affecting our business, financial condition and results of
operations. Our ability to compete successfully will depend on marketing and
our ability to anticipate and respond to competitive factors affecting the
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. We may face competitors with greater access to
financial resouces and capital markets than us. We cannot predict which of
many possible factors will be important to maintaining our competitive position
or what expenditures will be required to develop and provide such technologies,
products or services.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>We may be unable to respond to the recent trend toward consolidation in
the Brazilian wireless telecommunications market.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe there has been a trend of consolidation in the Brazilian
telecommunications market, with possible joint ventures, mergers and
acquisitions among telecommunications service providers in the future. If such
consolidation occurs, it may result in increased competition within our market.
We may be unable to adequately respond to pricing pressures resulting from
consolidation in our market, adversely affecting our business, financial
condition and results of operations.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Our controlling shareholder may exercise its control in a manner that
differs from the best interests of other shareholders.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telecom Italia Mobile S.p.A. (&#147;TIM&#148;), a corporation organized under the
laws of Italy, indirectly owned approximately 52.06% of our Common Shares and
20.68% of our total capital on December&nbsp;31, 2002. TIM has had the ability to
determine those actions of ours that require shareholder approval, including
the election of a majority of our directors and, subject to Brazilian law, the
payment of dividends and other distributions. In addition, TIM may exercise
this control in a manner that differs from the best interests of other
shareholders.
</FONT>

<P align="center"><FONT size="2">10</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"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Risks Relating to the Brazilian Telecommunications Industry</I></B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>We are subject to various obligations in the performance of our
activities, with which we may be unable to comply.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to compliance with various obligations arising from
different laws and regulations in the performance of our telecommunications
services, including, but not limited to, the obligations arising from the
following:
</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 rules set forth by Anatel;</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 authorizations granted to our Subsidiaries; 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 General Telecommunications Law (<I>Lei no. 9, 472/97</I>, as amended).</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe we are materially in compliance with our obligations arising out of
such laws, regulations and authorizations, but we cannot give you any assurance
that we will be able to continue to do so in the future. In addition, changes
in the laws and regulations to which we are subject, including those changes in
response to technological advances that we may not be able to implement, may
render us unable to comply with our obligations in the future, with material
adverse effects to our business, financial condition and results of operations.
Furthermore, the Lula administration has indicated that it will take a more
active role in regulating the telecommunications sector. We cannot predict the
impact of any of these regulatory developments on our business, financial
condition and results of operations.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Risks Relating to Brazil</I></B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Brazilian political and economic conditions may have a material adverse
effect on our business and a direct impact on the market price of the
Preferred Shares and ADSs.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian economy has been characterized by significant involvement on
the part of the Brazilian government, which often changes monetary, credit and
other policies to influence Brazil&#146;s economy. The Brazilian government&#146;s
actions to control inflation and effect other policies have often involved,
among other things, high interest rate environments, currency devaluations and
exchange controls, tariff and import quotas, electricity consumption controls,
and other measures, such as the freezing of bank accounts, which occurred in
1990.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Actions taken by the Brazilian government concerning the economy may have
important effects on Brazilian corporations and other entities, including us,
and on market conditions and prices of Brazilian securities, including our
Preferred Shares and ADSs. Our financial condition and results of operations
may be adversely affected by the following factors and the Brazilian
government&#146;s response to these factors:
</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">devaluations and other exchange rate movements;</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">inflation;</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">exchange control policies;</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">social instability;</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">price instability;</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">energy shortages;</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">interest rates;</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">liquidity of domestic capital and lending markets;</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<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">tax policy; 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">other political, diplomatic, social and economic developments in or affecting Brazil.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we cannot predict the effect that the policies of the Lula
administration, which took office in January 2003, may have on Brazilian
economic conditions or on our financial condition or results of operations.
The Lula administration has announced that it expects to implement reforms in
the Brazilian social security and welfare systems to address underfunding and
in Brazil&#146;s tax and bankruptcy laws. To date, no significant legislative or
regulatory changes have been made by the Brazilian government. Future
developments or non-developments in the Brazilian economy and government
policies may reduce demand for our services or products, adversely affect its
financial condition and results of operations, and impact the market price of
the Preferred Shares and ADSs.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Devaluation of the real may adversely affect Brazilian economic
conditions and our financial condition.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Devaluation of the real relative to the U.S. Dollar could create
additional inflationary pressures in Brazil by generally increasing the price
of imported products and requiring recessionary governmental policies to curb
inflation. On the other hand, appreciation of the real against the U.S. Dollar
may lead to a deterioration of the country&#146;s current account and the balance of
payments, as well as dampen export-driven growth. The potential impact of the
floating exchange rate and of measures by the Brazilian government aimed at
stabilizing the real is uncertain.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>A devaluation of the real may affect our ability to meet our foreign
currency-denominated obligations and result in a decline in the market
prices of our Preferred Shares and ADSs.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian currency historically has suffered frequent devaluations. As a
result of inflationary pressures, the <I>real </I>and its predecessor currencies have
been devalued periodically over the last four decades. During this period, the
Brazilian government has implemented various economic plans and utilized a
number of exchange rate policies, including sudden devaluations, periodic
mini-devaluations, during which the frequency of adjustments has ranged from
daily to monthly, floating exchange rate systems, exchange controls and dual
exchange rate markets. From time to time, there have been significant
fluctuations in the exchange rates between the <I>real </I>and the U.S. Dollar and
other currencies. See &#147;Item&nbsp;3&#151;Selected Financial Data&#151;Exchange Rates&#148; for more
information on exchange rates.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The <I>real </I>fell in value relative to the U.S. dollar by 18.7% and 52.3% in
2001 and 2002, respectively. During 2001, the <I>real </I>experienced a period of
significant devaluation, due in part to the economic uncertainties in
Argentina, the global economic slowdown and the energy crisis in Brazil.
During 2002, the <I>real </I>experienced further devaluation, due in part to the
continued global economic slowdown and speculation related to the Presidential
election in October 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A depreciation of the <I>real </I>could significantly increase the cost in <I>reais</I>
of dollar-determined costs, such as those that we may need to incur in
connection with new investments to change technology (for example, from our
current TDMA technology to GSM technology). In the event of a significant
devaluation of the <I>real </I>in relation to the U.S. dollar or other currencies, our
ability to meet our foreign-currency denominated obligations could be adversely
affected, because our revenues are primarily <I>reais</I>-based. Further devaluations
of the <I>real </I>relative to the U.S. dollar would reduce the U.S. dollar value of
distributions and dividends on the ADSs and also may reduce the market prices
of our Preferred Shares and the ADSs.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>If Brazil experiences substantial inflation in the future, the market
prices of our Preferred Shares and ADSs may be reduced.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, Brazil has experienced extremely high rates of inflation.
According to Brazil&#146;s general price index (&#147;IGP-M&#148;)<B><I>, </I></B>the inflation rate was
20.1% in 1999, 9.9% in 2000, 10.4% in 2001, 25.3% in 2002 and 6.3% for the
three months ended March&nbsp;31, 2003. Inflation itself and some governmental
measures to combat inflation in the past have had significant negative effects
on the Brazilian economy. Inflation, actions taken to combat inflation and
public speculation about possible future governmental actions also have
contributed to economic uncertainty in Brazil and to heightened volatility in
the Brazilian securities markets. Since 1994, Brazil&#146;s inflation rate has been
substantially lower than in previous periods. However, during this period,
there have been inflationary pressures
</FONT>
<P align="center"><FONT size="2">12</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"> and actions taken to curb inflation which, together with public
speculation about possible future governmental actions, have contributed to
economic uncertainty in Brazil and to heightened volatility in the Brazilian
securities market. Brazil may experience high levels of inflation in the
future. There can be no assurance that the lower levels of inflation
experienced since 1994 will continue. Future governmental actions, including
actions to adjust the value of the <I>real</I>, could trigger increases in inflation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If Brazil experiences substantial inflation in the future, our costs may
increase, and our operating and net margins may decrease. In addition, a
substantial increase in inflation may weaken investor confidence in Brazil, and
if investor confidence lags, the prices of our Preferred Shares and ADSs may
fall. Inflationary pressures also could result in our inability to access
foreign financial markets and may lead to further government intervention in
the economy, including the introduction of government policies that may
adversely affect the overall performance of the Brazilian economy. Future
inflation could adversely affect our results of operations and financial
condition.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Adverse changes in Brazilian economic conditions could cause an increase
in customer defaults on their outstanding obligations to us, which could
materially reduce our earnings.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations are significantly dependent on our customers&#146; ability to
make payments on their accounts. If the Brazilian economy worsens because of,
among other factors, the level of economic activity, devaluation of the <I>real</I>,
inflation or an increase in domestic interest rates, a greater portion of our
customers may not be able to make timely payments for services, which would
increase our past due accounts and could materially reduce our net earnings.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Developments in other emerging market countries may adversely affect the
Brazilian economy, limit our access to international capital markets and
negatively impact the market prices of our Common Shares, Preferred
Shares and ADSs.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe international investors in general consider Brazil to be an
emerging market. The Brazilian economy and the securities of Brazilian
companies always have been, to varying degrees, influenced by economic and
market conditions in other emerging market countries, particularly in Latin
America, as well as investors&#146; responses to those conditions. Although
economic conditions are different in each country, investors&#146; reactions to
adverse developments in one country may affect the market prices of securities
of issuers in other countries, including Brazil. For example, the 1997 Asian
economic crisis and the 1998 Russian debt moratorium and the devaluation of the
Russian currency triggered market volatility in Latin America and securities
markets in other emerging market countries. Adverse developments in emerging
market countries could lead to a reduction in demand for, and the market price
of, our Preferred Shares and ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of economic and market conditions in other emerging markets,
Brazil in some periods has experienced a significant outflow of U.S. dollars,
and Brazilian companies have faced higher costs for raising funds, both in
Brazil and abroad, and have been impeded from accessing international capital
markets. There can be no assurance that international capital markets will
remain open to Brazilian companies or that prevailing interest rates in these
markets will be advantageous to Brazilian companies.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>State and municipal defaults may adversely affect the market price of the
Preferred Shares and ADSs.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may be adversely affected by defaults by state and municipal
governments. In January 1999, the Brazilian States of Minas Gerais and Rio
Grande do Sul suspended payments on their debt to the Federal Government, and
seven States requested the renegotiation of their financing agreements with the
Federal Government. Although these States subsequently reinitiated their debt
payments, any defaults that may occur in the future and the perceived risks of
defaults by state and municipal governments may undermine investor confidence,
have a negative effect on the Brazilian economy and/or negatively impact the
relevant region. If the Brazilian economy or any of the regional economies in
which we operate were to be adversely affected by a default, our operations and
the market price of the Preferred Shares and ADSs may be adversely affected.
</FONT>

<P align="center"><FONT size="2">13</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"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Enforcement of rights in Brazil may be difficult.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our officers and many of our advisors reside in Brazil, and a substantial
portion of the assets of these persons and our assets are located in Brazil. We
are not aware of any treaty between the United States and Brazil regarding the
reciprocal enforcement of judgments. It may not be possible to effect service
of process upon these persons within the United States or other jurisdictions
outside of Brazil. Similarly, it may not be possible to enforce judgments of
non-Brazilian courts in Brazil, including judgments predicated on civil
liability under the U.S. securities laws against us or our directors and
officers.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Risks Relating to Our ADSs</I></B></FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Holders of Preferred Shares have limited voting rights.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&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 valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><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;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 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 valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><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;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 valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Restrictions on the movement of capital out of Brazil may hinder ADS
investors&#146; ability to receive dividends and distributions on, and the
proceeds of any sale of, our Preferred Shares.</B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Federal Government may impose temporary restrictions on the conversion
of <I>reais </I>into foreign currencies, and on the remittance to foreign investors of
proceeds from investments in Brazil. Brazilian law permits the government to
impose these restrictions whenever there is a serious imbalance in Brazil&#146;s
balance of payments or reasons to foresee a serious imbalance.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any restrictions by the Federal Government on capital outflow may hinder
or prevent investors from converting the proceeds relating to our Preferred
Shares into U.S. dollars and remitting those proceeds abroad. Investors could
be adversely affected by delays in obtaining any required governmental approval
for conversion of <I>reais </I>payments and remittances abroad in respect of our
Preferred Shares underlying the ADSs.
</FONT>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 4. INFORMATION ON THE COMPANY" -->
<DIV align="left"><A NAME="006"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 4. INFORMATION ON THE COMPANY</B>
</FONT>


<P align="left"><FONT size="2"><B>History and Development of the Company</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Celular Sul Participa&#231;&#245;es S.A. is a corporation organized under the
laws of the Federative Republic of Brazil and one of the New Holding Companies
formed as a result of the Breakup of Telebr&#225;s by the Federal Government in May
1998.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our headquarters are located at Rua Comendador Ara&#250;jo, 299 &#150; 3rd floor,
80420-000, Curitiba, Paran&#225;, Brazil, and our telephone number is &#043;55 (41)
312-6702.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to the incorporation of Telebr&#225;s in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebr&#225;s and the Predecessor Companies, comprising the Telebr&#225;s System,
acquired almost all the other telephone companies operating in Brazil and
controlled the public telecommunications services in almost all the Brazilian
territory.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in 1995, the Federal Government undertook a comprehensive reform
of the Brazilian telecommunications regulatory system. In July 1997, the
Brazilian Congress passed the General Telecommunications Law, which provided
for the establishment of a new regulatory framework, the creation of Anatel,
the introduction of competition in the Brazilian telecommunications services
market, and the sale of control of the New Holding Companies to private
investors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 1998, in preparation for the Breakup of Telebr&#225;s, the cellular
telecommunications operations of the Predecessor Companies were transferred to
newly created companies. Telepar Celular, Telesc Celular and CTMR Celular were
created in connection with this corporate reorganization, along with other
cellular companies that also started operating under the Telebr&#225;s System.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 1998, through the Breakup of Telebr&#225;s, 12 New Holding Companies
were formed. The restructuring was conducted by means of a procedure called
<I>cis&#227;o </I>under Brazilian Corporate Law. Virtually all of the assets and
liabilities of Telebr&#225;s were allocated to the New Holding Companies. The New
Holding Companies, together with their respective subsidiaries, consisted 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 cellular telecommunications service providers,
each operating in one of eight regions, each a cellular region;</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">three fixed-line telecommunications service providers,
each providing local service and intraregional long-distance
service in one of three regions, each a fixed-line region; 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">Embratel Participa&#231;&#245;es S.A. (&#147;Embratel&#148;), which
provides domestic long-distance telecommunications service,
including intraregional and interregional, as well as
international telecommunications service throughout Brazil.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Celular Sul is one of the New Holding Companies. In the Breakup of
Telebr&#225;s, Tele Celular Sul was allocated all of the share capital of Telepar
Celular, Telesc Celular and CTMR Celular then held by Telebr&#225;s. The New
Holding Company providing fixed-line telecommunications service in our Region
is Brasil Telecom, S/A (&#147;Brasil Telecom&#148;). In the Breakup of Telebr&#225;s, Brasil
Telecom was allocated all the share capital of Telepar, Telesc and CTMR then
held by Telebr&#225;s.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July 1998, the Federal Government sold substantially all its shares of
the New Holding Companies, including its shares of Tele Celular Sul, to private
investors. Shares of Tele Celular Sul previously owned by the Federal
Government were sold to a consortium comprised of UGB Participa&#231;&#245;es Ltda.
(&#147;UGB&#148;), a company organized according to the laws of the Federative Republic
of Brazil, and Bitel), a company organized according to the laws of the
Federative Republic of Brazil. On December&nbsp;15, 1998, UGB sold its ownership
interest in our capital stock to Bitel. The sale was effective on March&nbsp;26,
1999, upon its approval by Anatel and the Brazilian antitrust agency (&#147;CADE&#148;).
</FONT>

<P align="center"><FONT size="2">15</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>Recent Developments</B>
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Conversion from SMC concessions to PCS authorizations</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;10, 2002, the Subsidiaries converted their SMC concessions
into PCS authorizations. In order to remain competitive in the Brazilian
telecommunications market, we also decided to offer, in addition to TDMA, GSM
technology by the second half of 2003, which is reserved for those providers
operating under PCS licenses auctioned by Anatel. As regulated by Anatel,
cellular telecommunications providers operating under GSM technology must do so
under a 1800 MHz frequency.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The migration to PCS authorizations will create a new set of regulatory
obligations for the Subsidiaries, including new quality of service standards
and the introduction of the CSP Program, which will allow customers to choose
long distance carriers on a per call basis. In addition, under our PCS
authorizations, we will be allowed to set prices for our service plans, subject
to approval by Anatel. After we set these prices, we expect that they will be
adjusted annually for inflation based on the IGP-DI. See &#147;&#151;PCS Regulation,&#148;
&#147;&#151;Interconnection,&#148; and &#147;&#151;Rate Regulation.&#148;
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Reorganization to Transfer Goodwill</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When Bitel and UGB purchased a majority of our Common Shares in connection
with the Privatization, they paid a premium over the book value of our Common
Shares (the &#147;Goodwill&#148;), which was accounted for at the Bitel level. The value
of the Goodwill, net of amortization through March 2000, was R$604&nbsp;million. In
the first quarter of the year 2000, we and Bitel initiated a corporate
reorganization to transfer the Goodwill to certain of the Subsidiaries so that
the amortization of the Goodwill could be available as a deduction against
income for purposes of calculating income taxes and social contribution tax on
profits owed by the Subsidiaries. As of December&nbsp;31, 2002, the remaining value
of the deferred tax benefit related to the unamortized portion of the Goodwill
was R$178.1&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the first step of the corporate reorganization, the premium was
transferred to us through a process involving the formation by Bitel of a new
subsidiary to which it transferred the Goodwill and the merger of such new
subsidiary into us. This process was completed on April&nbsp;28, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the second step of the corporate reorganization, completed on June&nbsp;30,
2000, we transferred to each of the Subsidiaries such subsidiary&#146;s respective
share of the Goodwill, as well as the related provision and reserve, the value
of each subsidiary&#146;s share thereof being determined by independent appraisal.
The purpose of this second step was to take maximum tax advantage of the
deductibility of the amortization of the Goodwill.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Brazilian law, the tax benefit generated by the amortization of the
Goodwill may revert to the benefit of our controlling shareholder. The Holding
Company may therefore capitalize the tax benefit and issue new shares to its
controlling shareholder, Bitel, provided that the remaining shareholders have
the right to maintain their proportional participation in the Holding Company
by acquiring such newly issued shares at their cost of issuance from Bitel.
Accordingly, in return for the transfer of the Goodwill, the terms of the
reorganization anticipated the annual issuance to Bitel of a number of shares
in the Holding Company equal in value to the tax benefit realized from the
amortization of the Goodwill, calculated on the basis of the prevailing market
price for such shares. In connection with each such issuance of shares,
minority shareholders in the Holding Company have a preemptive right to
subscribe for such shares in a proportion equal to their percentage interest in
the capital stock of the Holding Company. Such right is exercisable at a price
equal to that used to calculate the number of shares to be issued to Bitel. In
the event that any minority shareholder elects to exercise such right, it will
be required to pay to Bitel an amount equal to the value of the shares with
respect to which the right is exercised. For fiscal years 2000, 2001 and 2002,
the tax benefit realized by us as a result of amortization of the Goodwill
amounted to R$9.9&nbsp;million, R$17.6&nbsp;million and R$29.2&nbsp;million, respectively. As
a consequence, on April&nbsp;25, 2001, a total of 2.8&nbsp;billion Common Shares were
issued to Bitel in connection with the tax benefit realized by us for fiscal
year 2000. Approximately 67.7% of such Common Shares were purchased from Bitel
by minority shareholders. On April&nbsp;16, 2002, 2.2&nbsp;billion Common Shares and 3.6
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2001. Approximately 6.5% of such Common
Shares and 0.1% of such Preferred Shares have been purchased from Bitel by
minority shareholders. On March&nbsp;18, 2003, 5.1&nbsp;billion Common Shares and 8.4
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2002.
</FONT>

<P align="center"><FONT size="2">16</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">Approximately 36.1% of such Common Shares and 40.5% of such Preferred
Shares have been purchased from Bitel by minority shareholders. For more
detailed information about the corporate restructuring and the tax benefit
arising therefrom, see Note 1.b to our Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the capital increase that resulted from the capitalization
of the tax benefit, we also increased our capital by R$59.3&nbsp;million on June&nbsp;18,
2001, by R$62.0&nbsp;million on April&nbsp;16, 2002 and by R$15.3&nbsp;million on March&nbsp;18,
2003, without the issuance of new shares, by capitalizing a portion of our
income and capital reserves. As a consequence of these capital increases, our
total capital increased to R$369.2&nbsp;million, represented by 134.4&nbsp;billion Common
Shares and 222.0&nbsp;billion Preferred Shares, as of March&nbsp;18, 2003.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Restructuring of the Subsidiaries</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November 2002, we restructured the Subsidiaries. The restructuring was
conducted through the exchange of shares of Telesc Celular and CTMR Celular for
shares of Telepar Celular, resulting in a capital increase for Telepar Celular,
while both Telesc Celular and CTMR Celular became wholly-owned subsidiaries of
Telepar Celular, as opposed to direct subsidiaries of the Holding Company. As
a result of this restructuring, Telesc Celular&#146;s and CTMR Celular&#146;s
shareholders became shareholders of Telepar Celular, which became a larger
company with shares that had greater liquidity on the Bovespa. On November&nbsp;23,
2002, the shareholders of Telesc Celular and CTMR Celular approved swap ratios
for shares of Telesc Celular and CTMR Celular based on the economic values
assigned to them in reports generated by an independent appraisal company plus
a premium of 19%. The resulting exchange ratios were 4.0015946198 shares of
Telesc Celular per share of Telepar Celular and 1.1473256922 shares of CTMR
Celular per share of Telepar Celular. We also have initiated feasibility
studies to consider the merger of Telesc Celular and CTMR Celular into Telepar
Celular.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bitel is a subsidiary of TIM Brasil S.A. TIM Brasil S.A. is a
consolidated Brazilian subsidiary of the TIM group, which provides mobile
telecommunications services to more than 39.1&nbsp;million customers worldwide.
TIM&#146;s parent company is Telecom Italia S.p.A. (&#147;Telecom Italia&#148;), one of the
world&#146;s largest fixed-line telecommunications operators, with approximately
27.1&nbsp;million installed fixed lines (including ISDN equivalent lines). Telecom
Italia&#146;s business activities also include the leasing of its lines and the
provision of data communications services, information technology software and
information technology services. The Telecom Italia group&#146;s subsidiaries and
its portfolio of investments include fixed-line and mobile telecommunications
companies that operate mainly in Latin America and certain European countries.
In May 2003, the shareholders of Telecom Italia and Olivetti S.p.A.
(&#147;Olivetti&#148;) approved the merger of Telecom Italia into Olivetti. Upon the
completion of this merger, Olivetti will change its name to &#147;Telecom Italia
S.p.A.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TIM began operating in Brazil in 1998 and is today one of the leading
wireless operators in the country, reaching more than 5.3&nbsp;million customers
nationwide. TIM considers its operations in Brazil to be of primary
importance, both as a standalone business and as a fundamental part of its
Pan-South American GSM strategy. In the 2001 auctions held by Anatel for Bands
D and E, TIM was the only company to be awarded licenses in each of the three
Brazilian regions, resultantly becoming the sole operator to offer services on
a nationwide level under the same brand. In 2002, TIM formed TIM Brasil S.A.,
the holding company of TIM&#146;s operating companies in the country. These
operating companies include Tele Nordeste Celular, a Band A operating company
using TDMA technology to service the states of Pernambuco, Cear&#225;, Paraiba, Rio
Grande do Norte, Alagoas and Piau&#237;; TIM Maxitel, a Band B operating company
using TDMA technology to service the states of Bahia, Minas Gerais and Sergipe;
TIM Celular &#150; PCS, a Band D operating company using GSM technology to service
the states of S&#227;o Paulo, Goi&#225;s, Mato Grosso, Mato Grosso do Sul and Rio Grande
do Sul (except Pelotas) and in the Federal District and a Band E operating
company using GSM technology to service the states of Acre, Amap&#225;, Amazonas,
Par&#225;, Rond&#244;nia, Roraima. Tocantins and Rio de Janeiro; and us.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>timnet.com</I></B></FONT></TD>
    <TD width="3%"><FONT size="2"></FONT></TD>
    <TD width="96%"><FONT size="2"><B><I></I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;13, 2000, we incorporated timnet.com S.A. (&#147;timnet.com&#148;), an
Internet services company. timnet.com had an initial capitalization of
approximately R$18.0&nbsp;million in common shares, held 50% by Tele Nordeste
Celular Participa&#231;&#245;es S.A. and 50% by us. As of December&nbsp;31, 2001, with new
capital contributions by Maxitel S.A., we held a 33.3% interest in timnet.com.
</FONT>

<P align="center"><FONT size="2">17</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;On December&nbsp;31, 2002, timnet.com&#146;s shareholders, each holding a 20% interest, were comprised 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">Tele Nordeste Celular Participa&#231;&#245;es 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">Maxitel 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">TIM Celular S.A. (formerly known as Portale S&#227;o Paulo 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">TIM International N.V., (a company organized according
to the laws of the Netherlands, and controlled by TIM); 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">Tele Celular Sul.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">All of timnet.com&#146;s subscribed capital, in the amount of R$78&nbsp;million, was paid
entirely by the shareholders listed above.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, our proportionate share of the results of timnet.com were
included in our Consolidated Financial Statements. In 2001 and 2002,
timnet.com&#146;s results were not consolidated in our Consolidated Financial
Statements, but were accounted for through the equity method. See Note 2.b to
our Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The business purpose of timnet.com is to establish a common platform for
the technological and commercial development of value-added services and a
Wireless Application Protocol for cellular telephone service providers.
Timnet.com is a start-up company operating in a developing sector, and the
reliability of its technology has not yet been proved. Therefore, there can be
no assurance that timnet.com will become a profitable enterprise.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>TIM Brasil Recent Developments</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the rules set forth by Anatel for all PCS authorization
auctions, the controlling shareholders of Band A and Band B cellular service
providers were not allowed to hold more than one license, either in the form of
an authorization or a concession, in a single PCS Region. Accordingly, a
company controlling a Band A or Band B cellular service provider that acquires
control of a PCS authorization resulting in a geographical overlap of its
licenses has two alternatives:
</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">it can sell its controlling shares in the Band A or
Band B cellular service providers within six months of purchasing
the PCS authorization; or</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">it can waive the right to operate under the PCS
authorization in the areas where overlaps exist.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result, some companies controlled by TIM waived their rights to
provide PCS services in certain areas. In 2001, Portale Rio Norte and TIM
Centro Sul waived their rights to operate under PCS authorizations in areas
currently served by Maxitel, Tele Nordeste Celular and us, because of
geographical overlaps in the PCS authorizations awarded to Portale Rio Norte
and TIM Centro Sul and the concessions held at that time by Maxitel, Tele
Nordeste Celular and us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, TIM Centro Sul and Portale Rio Norte merged into
Portale S&#227;o Paulo S.A. On January&nbsp;22, 2003, Portale S&#227;o Paulo S.A. changed its
name to TIM Celular S.A. and presently is headquartered in the city of S&#227;o
Paulo.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our capital expenditure priorities in 2002 included expanding coverage and
enhancing information technology. Capital expenditures during 2000, 2001 and
2002 were R$204.3&nbsp;million, R$158.4&nbsp;million and R$68.7&nbsp;million, respectively.
At March&nbsp;31, 2003, capital expenditures in 2003 amounted to R$5.4&nbsp;million.
</FONT>

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


<P align="center"><FONT size="2">18</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="57%">&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="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="11"><FONT size="1"><B>Year ended December 31, 2002</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 nowrap align="left"><FONT size="1"><B>Capital Expenditures Categories</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 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">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(in millions of reais)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telecommunications equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$122.8</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">R$83.2</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">R$34.5</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">Network construction</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.7</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">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">1.4</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">Information technology</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.7</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">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">22.2</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">Others</FONT></DIV></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">29.1</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">10.6</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"><B>Total capital expenditures</B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$204.3</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">R$158.4</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">R$68.7</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="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;Our capital expenditure priorities in 2003 include the implementation of
the GSM system overlay. We have planned approximately R$270&nbsp;million in capital
expenditures for 2003. We set capital expenditure estimates yearly and base
them on commercial, technical and economic factors such as service rates,
service demand, price and availability of equipment. There is no assurance
that our estimates of such commercial, technical and economic factors will
prove to be correct, or that we will actually spend our planned capital
expenditures in 2003.
</FONT>


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


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Our Services</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are the leading provider of cellular telecommunications services in our
Region and supply both analog and digital cellular telecommunications service.
We ceased offering analog service to new customers in December 1998 and expect
that our customers still using analog service will migrate to digital service.
On December&nbsp;31, 2002, approximately 96% of our customers used digital service.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our digital cellular telecommunications service is currently based on the
TDMA technology, which was launched in December 1998. We also offer ancillary
services, including voicemail, caller identification, call forwarding,
conference call, and selective and international call blocking. In addition,
in February 1999, we started selling digital cellular handsets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer customers automatic roaming services throughout Brazil, allowing
customers to obtain cellular telecommunications services while outside the
Region. In addition, we offer customers international roaming services in
countries such as Argentina, Paraguay and Uruguay through agreements with
cellular telecommunications service providers operating in those countries.
Similarly, we provide roaming services to customers of certain cellular
telecommunications service providers while in the Region. See &#147;&#151;Roaming
Agreements.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also provide interconnection services to fixed-line and cellular
service providers. See &#147;&#151;Interconnection Agreements.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Region</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The portion of the Brazilian territory in which we operate is comprised 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">the state of Paran&#225;, except in the cities of Londrina and Tamarana;</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 state of Santa Catarina; 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 cities of Pelotas, Cap&#227;o do Le&#227;o, Morro Redondo,
and Turu&#231;u, in the state of Rio Grande do Sul.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">19</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;The map below shows the location of our Region within Brazil.
</FONT>


<P align="center"><FONT size="2"><IMG src="y87502y8750200.gif" alt="(MAP)">
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Region covers an area of approximately 296,000 square kilometers, or
3.5% of the Brazilian territory. According to statistics publicly available in
Brazil, we believe that our Region has 19 metropolitan areas, each with more
than 100,000 residents. For example, the city of Curitiba, located in our
Region, is the seventh most populated city in Brazil, with approximately 1.7
million residents.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth information on our customer base, coverage
and related matters, at the dates and for the years indicated. Unless
otherwise indicated, all amounts presented in the following table are simply
our estimates.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="73%">&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 nowrap align="center" colspan="11"><FONT size="1"><B>On 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">Population in our Region (millions)</FONT></DIV></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">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">15.0</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">Population covered (millions)<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">11.5</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">11.6</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">12.1</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">Percentage of total population we covered<SUP>(2)</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">78.0</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">78.0</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">81.0</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">Total penetration <SUP>(3)</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">12.9</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">16.3</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">18.0</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">Number of cellular lines served by
Tele Celular Sul (millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.42</FONT></TD>
    <TD><FONT size="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">1.72</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 growth in cellular lines served by
Tele Celular Sul during 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">37.0</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">13.2</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">7.5</FONT></TD>
    <TD nowrap><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 width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Population within our Region that was able to access our cellular phone
signal.</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Percentage of population within our Region that was able to access our
cellular phone signal.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Percentage of the total population in our Region using cellular services.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, according to our estimates, we served approximately
61% of the total cellular lines in operation within our Region, and our
competitors, approximately 39% of such total. On March&nbsp;31, 2003, also according
to our estimates, we served approximately 60% of the total cellular lines in
operation within our Region, and our competitors, approximately 40% of such
total.
</FONT>

<P align="center"><FONT size="2">20</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;<B><I>Network expansion</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December&nbsp;31, 2002, we expanded our cellular phone network
coverage to 79%
of the population of the state of Paran&#225;, from 41% on December&nbsp;31, 2001, and to 84% of the
population of the state of Santa Catarina, from 48% on
December&nbsp;31, 2001, and maintained network coverage of 100% of the
population of the city of Pelotas.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, our cellular telecommunications network included 795
radio base stations and 43,790 channels. We expanded our network during 2002,
increasing the number of radio base stations and channels by 5% and 3%,
respectively, compared to December&nbsp;31, 2001. We continue to expand our cellular
telecommunications network to cover as broad a geographical area as
economically feasible in response to projected consumer demand. The network is
connected primarily through a fiber-optic transmission system leased from the
fixed-line service providers operating within the Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ericsson Telecomunica&#231;&#245;es S.A. and Lucent Technologies are our principal
suppliers of cellular telecommunications equipment.
</FONT>


<P align="left"><FONT size="2"><B>Brazilian Taxes on Telecommunications Services</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The costs of telecommunications goods and services to clients are subject
to a variety of taxes, currently including ICMS, ISS, COFINS, PIS, FUST Tax,
FUNTTEL Tax and FISTEL Tax, which are described 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">&#149;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"><I>ICMS. </I>The principal tax applicable to telecommunications
goods and services is a state value-added tax, the Imposto sobre
Circula&#231;&#227;o de Mercadorias e Servi&#231;os (&#147;ICMS&#148;), which the Brazilian
States impose at varying rates on certain revenues from the sale of
goods and services, including certain telecommunications services.
The ICMS tax rate in each state in the Region is 25% for domestic
telecommunications services, except in the State of Paran&#225;, where a
27% rate went into effect as of January&nbsp;1, 2002. The ICMS tax rate
imposed on the sale of cellular handsets averages 17% throughout the
Region, with the exception of some handsets whose manufacturers are
afforded some local tax benefits, in which case the highest rate is
7%. In June 1998, the governments of individual Brazilian States
approved an agreement to interpret existing Brazilian tax law to
apply ICMS, effective July&nbsp;1, 1998, to certain services to which
ICMS had not previously been applied, including cellular activation
fees. See &#147;Item&nbsp;8. Financial Information&#151;Legal
Proceedings&#151;Litigation Related to the Application of ICMS.&#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"><I>ISS. </I>The <I>Imposto Sobre Servi&#231;os </I>(&#147;ISS&#148;) taxes certain
services listed in the List of Services prescribed by Decree-law No.
406/68. Municipalities impose this tax at varying rates, but in the
majority of large cities, the ISS rate is around 5%. The tax basis
of the ISS is the price of the service, minus certain exceptions
(construction services). As provided by Constitutional Amendment
No.&nbsp;20, dated June&nbsp;12, 2002, the municipalities must charge the
minimum rate of 2% and they must not directly or indirectly grant
tax benefits that may result in a reduction of the 2% rate. The
provision of services included in the list of services, even when
their rendering involves the supply of goods, is subject to ISS.</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"><I>COFINS. </I>The Contribui&#231;&#227;o Social para o Financiamento da
Seguridade Social (&#147;COFINS&#148;) is a social contribution tax on gross
revenues (both operating and financial). On November&nbsp;27, 1998, the
Brazilian government increased the COFINS rate from 2% to 3% but
permitted taxpayers to offset up to one-third of the amount of
COFINS paid against the amount owed as Contribui&#231;&#227;o Sobre Lucro
Liquido (&#147;CSL&#148;), a social contribution tax assessed on net income.
The ability to offset COFINS against CSL was subsequently revoked
for periods after January&nbsp;1, 2000. On January&nbsp;1, 2000, we began to
include the COFINS tax in our bills at a rate of 3%. As the
Subsidiaries had a negative CSL calculation base, they could not
benefit from such offsetting.</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"><I>PIS. </I>The Programa de Integra&#231;&#227;o Social (&#147;PIS&#148;) is another
social contribution tax, imposed prior to December 2002 at a rate of
0.65% on gross revenues from certain telecommunications service
activities (both operating and financial) and handset sales.
Beginning in December 2002, PIS has been levied at a rate of 1.65%
on gross revenues from sales of handsets, according to Law
10,637/02. Law No.&nbsp;9,718 also indirectly raised the PIS
contribution tax rate owed by Telepar Celular, Telesc Celular and CTMR Celular.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<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"><I>FUST. </I>On August&nbsp;17, 2000, the Brazilian government created
the Fundo de Universaliza&#231;&#227;o dos Servi&#231;os de Telecomunica&#231;&#245;es
(&#147;FUST&#148;), a fund that is supported by a social contribution tax
applicable to all telecommunications services (&#147;FUST Tax&#148;). The
purpose of the FUST is to reimburse a portion of the costs incurred
by telecommunications service providers to meet the universal
service targets required by Anatel throughout the Region (such as
targets for rural and impoverished areas, schools, libraries and
hospitals), in case these costs are not entirely recovered through
the collection of telecommunications service fees and charges. The
FUST Tax is imposed at a rate of 1% on gross operating revenues, and
its cost may not be passed on to clients. Telecommunications
companies can draw from the FUST upon meeting the universal service
targets required by Anatel.</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"><I>FUNTTEL. </I>On November&nbsp;28, 2000, the Brazilian government
created the Fundo para Desenvolvimento Tecnol&#243;gico das
Telecomunica&#231;&#245;es (the &#147;FUNTTEL&#148;), a fund that is supported by a
social contribution tax applicable to all telecommunications
services (the &#147;FUNTTEL Tax&#148;). The FUNTTEL is a fund managed by
BNDES and FINEP, a government research and development agency. The
purpose of the FUNTTEL is to promote the development of
telecommunications technology in Brazil and to improve competition
in the industry by financing research and development in the area of
telecommunications technology. The FUNTTEL Tax is imposed at a rate
of 0.5% on gross operating revenues, and its cost may not be passed
on to clients.</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"><I>FISTEL. </I>The Fundo de Fiscaliza&#231;&#227;o das Telecomunica&#231;&#245;es (the
&#147;FISTEL&#148;), a fund supported by a tax applicable to
telecommunications services (the &#147;FISTEL Tax&#148;), was established in
1966 to provide financial resources to the Brazilian government for
its regulation and inspection of the sector. The FISTEL Tax
consists of two types of fees: an installation inspection fee
assessed on telecommunications stations upon the issuance of their
authorization certificates, as well as every time we activate a new
cellular number, and an annual operations inspection fee that is
based on the number of authorized stations in operation at the end
of the previous calendar year. The amount of the installation
inspection fee is a fixed value, depending upon the kind of
equipment installed in the authorized telecommunications station.
Effective April 2001, the installation and inspection fee has been
assessed based on the net activations of cellular numbers (the
number of new cellular activations subtracted by the number of
cancelled subscriptions, as well as based on the net additions of
radio base stations. The operations inspection fee equals 50% of
the total amount of installation inspection fees that would have
been paid with respect to existing equipment.</FONT></TD>
</TR>
</TABLE>

<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;Our business is subject to comprehensive regulation under the General
Telecommunications Law, a comprehensive regulatory framework for the provision
of telecommunications services enacted by Anatel in November 1998, and various
administrative enactments thereunder. Each of the Subsidiaries operated under
a concession to provide services under the SMC regulations until December 2002,
when the Subsidiaries converted their concessions into authorizations to
provide services under the PCS regulations. The PCS regulations set forth
certain obligations further described below.
</FONT>

<P align="left"><FONT size="2">&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 maintains a close relationship with the
Ministry of Communications and is required to report its activities to the
Ministry of Communications. It has authority to propose and to issue
regulations that are legally binding on telecommunications service providers.
Any proposed regulation or action by Anatel is subject to a period of public
comment, which may include public hearings, and may be challenged in Brazilian
courts.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Authorizations and Concessions</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the 1996 <I>Lei M&#237;nima </I>(the &#147;Minimum Law&#148;), Band A and Band B
Service Providers were granted concessions under SMC regulations. Each
concession is a specific grant of authority to supply cellular
telecommunications services in a defined geographical area, subject to certain
requirements contained in the applicable list of obligations appended to each
concession. If such a Band A or Band B cellular service provider wishes to
offer any telecommunications service other than the cellular telecommunications
service authorized by its concession, it may apply to Anatel for a license to
offer such other services. Through resolutions enacted in September 2000 and
January 2001, Anatel also has granted cellular service providers operating
under concessions the right to convert their concessions into authorizations
under PCS regulations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1997, the Subsidiaries were granted concessions. In December 2002, the
Subsidiaries converted their respective SMC concessions into PCS
authorizations, with an option to renew the authorizations for an additional 15
years following the original expiration dates of the concessions. As a result
of the conversion from concessions to authorizations, our Subsidiaries were
subsequently allowed to operate under the PCS regulations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Authorizations and concessions to provide telecommunications services are
granted under either the public regime or the private regime. Only certain
fixed-line service providers are currently operating under the public regime.
Public regime companies are subject to certain requirements under the General
Telecommunications Law and the May 1998 Decree establishing the General
Fixed-Line Service Universalization Target Plan.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Services provided under the private regime are classified as either
collective interest or restricted interest. Collective interest private regime
services are only subject to requirements imposed by Anatel under the
applicable authorizations or concessions and the General Telecommunications
Law. Restricted interest private regime services are subject to fewer
requirements than public regime or collective interest private regime services.
Under the authorizations, the Subsidiaries operate under the collective
interest private regime.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the expiration date of the initial period
of each Subsidiary&#146;s authorizations:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Authorization</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Subsidiary</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>expiration date</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"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Telepar Celular</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
September&nbsp;3, 2007</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Telesc Celular</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
September&nbsp;30, 2008</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">CTMR Celular</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
April&nbsp;14, 2009</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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;The following table sets forth our SMC quality of service obligations
under the concessions, applicable to the Subsidiaries until December 2002:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="92%">&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>Maximum/</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Quality of Service Indicator</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Minimum</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">Average level of system availability <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">&#062;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">Network drop rate <SUP>(2)</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">&#060;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">&#147;All circuits busy&#148; rate <SUP>(3)</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">&#060;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">Interconnection drop rate <SUP>(4)</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">&#060;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">Average system availability on first call attempt</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">&#062;90</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">Number of customer complaints per month (per 100 clients)</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">&#060;5</FONT></TD>
    <TD nowrap><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 width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Percentage of time system is operational and available for call
origination, transport and completion.</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rate of failed call completion due to signal loss between radio base
station and switching centers.</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rate at which system rejects attempted calls during peak period because
no circuits are available.</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rate at which interconnected calls fail to complete during peak
periods.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the quality of service requirements under the SMC
regulations described above, Anatel and the Brazilian cellular service
providers jointly adopted a &#147;Protocol for Mobile Cellular Service Providers&#148; in
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> November 1999 (the &#147;Protocol&#148;). The Protocol established additional
quality of service targets and rates, which were required to be achieved by
June 2001. The Protocol does not constitute an addition or modification to the
list of obligations appended to each concession. Although the General
Telecommunications Law does not specify any penalties for failing to meet the
targets required by the Protocol, Anatel is required to examine the performance
of the Brazilian telecommunications companies under the Protocol&#146;s standards.
All the Subsidiaries were in compliance with their quality of service
obligations under the Protocol through 2002. The Protocol is not applicable to
the Subsidiaries after the migration to the PCS regulations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our quality of service obligations under our PCS authorizations will
differ from those under the previous SMC concessions. See &#147;&#151;PCS Regulation.&#148;
While there can be no assurances, management believes that all the Subsidiaries
will be able to continue to meet all their quality of service obligations under
the authorizations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our SMC coverage obligations under the
concessions, applicable to the Subsidiaries until December 2002:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&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><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="19"><FONT size="1"><B>Minimum Service Coverage</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>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" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Services offered in cities with populations of: <SUP>(1)</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Over 200,000 or state 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">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 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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">100,000 to 200,000</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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 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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">75,000 to 100,000</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90</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">&#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">50,000 to 75,000</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80</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">&#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">30,000 to 50,000</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">Maximum average installation waiting time (days) <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">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">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">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">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">5</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">For services to be deemed to be offered in any city, service must be
available to at least 30% of the population.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Between request for service and connection in areas with cellular
service.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">All the Subsidiaries have reached their network coverage obligations under the
concessions through 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PCS Regulation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September 2000, Anatel promulgated regulations regarding PCS wireless
telecommunications services that are significantly different from the ones
applicable to cellular companies operating under Band A and Band B. The new
rules allow companies to provide wireless telecommunications services under PCS
authorizations. The PCS authorizations allow new entrants in the Brazilian
telecommunications market to compete with existing telecommunications service
providers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to rules issued by Anatel, renewal of a concession to provide
cellular services, as well as permission from Anatel to transfer control of
cellular companies, are conditioned on agreement by such cellular service
provider to operate under the PCS rules. The Subsidiaries converted their
cellular concessions into PCS authorizations in December 2002, and are now
subject to certain obligations under the PCS regulations. See &#147;&#151;Authorizations
and Concessions.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the PCS authorization auctions in 2001 and 2002, Anatel
divided the Brazilian territory into three separate regions, each of which is
equal to the regions applicable to the public regime fixed-line telephone
service providers. PCS services 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 PCS authorizations, up to three new
PCS authorizations may be granted in each PCS Region. Anatel held auctions for
PCS authorizations during 2001 and 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Obligations under the PCS regulations and the Subsidiaries&#146; authorizations
differ from the obligations that were applicable to our Subsidiaries while
operating under their concessions. For example, the obligations under the PCS
regulations and the Subsidiaries&#146; authorizations include the requirement to
comply with additional and more stringent service quality standards and to
offer customers the choice of a fixed-line carrier in long-distance calls on a
per call basis. The Subsidiaries will be required to comply with the
obligations under the PCS regulations and their
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> authorizations by the end of the transitional periods applicable to the
particular obligations. Generally, the Subsidiaries will comply with the PCS
obligations by September 2003. We believe that we will be able to comply with
each of our obligations under the PCS regulations and the authorizations before
the end of the relevant transitional period.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the PCS regulations will impose a rate structure on the
Subsidiaries, which is significantly different from the one applicable to the
Subsidiaries while they were operating under their cellular concessions. Under
the PCS regulations, we will be generally free to determine the prices charged
for our services, subject to certain limitations imposed by Anatel rules and
the General Telecommunications Law. We expect to complete the implementation
of the changes in the rate structure by July 2003. We believe the new rate
structure will not materially impact the results of our operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the new PCS regulations, we will be required to adjust our
current operating processes and agreements to such new rules, including our
interconnection and roaming agreements, as well as the agreements with our
customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interconnection Regulation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain telecommunications service providers are required to provide
interconnection to public interest telecommunications service providers,
according to the so-called &#147;General Interconnection Rules,&#148; adopted by Anatel
through <I>Resolu&#231;&#227;o </I>40/98. The terms and conditions of interconnection are to be
negotiated by the parties, within certain limits, including a price-cap
established by Anatel. For example, if a telecommunication service provider
offers any party an interconnection fee below the Anatel price-cap, such
telecommunications service provider must offer to provide interconnection to
other parties at the same lower fee. We have informed Anatel that, even after
our conversion to PCS authorizations, we will maintain the interconnection
arrangements that we had in place while operating under our cellular
concessions until June&nbsp;30, 2004.
</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;Our cellular concessions provided for a price-cap mechanism by which the
rates we charged customers were adjusted on an annual basis. The price cap was
a maximum weighted average rate for our basket of services. The basket
consisted of the services we provided through our TIM Basic plan. See
&#147;&#151;Sources of Revenue&#151;Network Usage Charges and Monthly Subscription Charges&#148;
for a further description of our TIM Basic plan. The price-cap was adjusted
annually to reflect the rate of inflation as measured by the <I>&#205;ndice Geral de
Pre&#231;os&#151;Disponibilidade Interna </I>(&#147;IGP-DI&#148;), a price index created by the
<I>Funda&#231;&#227;o Get&#250;lio Vargas</I>, a Brazilian economic research organization. The
weighted average rate for our entire basket of services could not have exceeded
the price cap, but our rates for individual services within the basket could
have been raised annually above the annual change in the IGP-DI. Under our PCS
authorizations, we will be allowed to set prices for our service plans, subject
to approval by Anatel. After we set these prices, we expect that they will be
adjusted annually for inflation based on the IGP-DI.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Value-Added Services and Internet Regulation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Value-added services are not considered under Brazilian telecommunications
regulations to be telecommunications services, but rather an activity that adds
features to a telecommunications service that such value-added services
support. Regulations require all telecommunications service providers to grant
network access to any party interested in providing value-added services, on a
non-discriminatory basis, unless technically impossible. Telecommunications
service providers also are allowed to render value-added services through their
own networks. Internet access is considered by Brazilian legislation to be a
value-added service, and its providers are not considered to be
telecommunications companies. Current regulations allow us or any other
interested party to offer Internet connection services through our network. In
setting consumer pricing for its Internet connection services, we must consider
the costs that it charges for network usage to third parties offering similar
services for usage of our network.
</FONT>

<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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Recent Regulatory Developments</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May 2003, Brazil&#146;s Ministry of Telecommunications disclosed a proposed
presidential decree (the &#147;Draft Decree&#148;) setting forth a number of proposed
changes in the regulation of Brazil&#146;s fixed-line telecommunications sector.
The Draft Decree sets forth general declarations of policy (but no specific
recommendations) 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 takes into account Brazilian
socioeconomic considerations. Legal experts in Brazilian telecommunications
regulation have publicly expressed the view that the Draft Decree, if issued as
proposed, would be illegal, since it would constitute an assumption by the
executive branch of Brazil&#146;s government of authority that by law can be
exercised only by the legislative branch. A number of providers of fixed-line
telecommunications services have delivered to the Ministry of
Telecommunications specific comments on the Draft Decree. We cannot currently
predict whether the Draft Decree will be issued by the President of Brazil or,
if issued, what form it may take, and we therefore cannot determine what effect
it may have on us if issued. If it is issued, the validity of the Draft Decree
may be challenged, and if so, Brazilian courts may uphold it or disallow it
under any of a number of legal theories.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interconnection Agreements</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Subsidiaries have entered into interconnection agreements with
Embratel, Brasil Telecom and other telecommunications service providers
operating in Brazil. The terms of our interconnection agreements include
provisions specifying the number of connection points, the method by which
signals must be received and transmitted, and the costs and fees of
interconnection. See &#147;&#151;Regulation of the Brazilian Telecommunications
Industry.&#148; In the absence of a specific agreement, the interconnection rates
that we charge are those established by Anatel regulations. See &#147;&#151;Regulation
of the Brazilian Telecommunications Industry&#151;Interconnection.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Roaming Agreements</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Automatic roaming permits our customers to connect their cellular handsets
directly to the networks of other cellular service providers while traveling or
&#147;roaming&#148; in Brazil outside our Region. Similarly, we provide cellular
telecommunications service to customers of other cellular service providers
when those customers place or receive calls from a location within the Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a member of the Roaming Management Committee, a group comprised of
21 cellular telecommunications service providers operating in Brazil. The
Roaming Management Committee was created to independently control the
activities related to roaming services in Brazil and the international roaming
agreements entered into by Brazilian companies with telecommunications service
providers operating in the member countries of Mercosur.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Roaming Management Committee requires the cellular service providers
to service roaming customers generally on the same basis as the service
provided to their respective own customers, and to carry out a monthly
reconciliation of roaming usage charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into a roaming agreement with Sercomtel Celular S.A., the
Band A service provider operating in the cities of Londrina and Tamarana, in
the state of Paran&#225;. This agreement creates a &#147;mobility area&#148; which enables
our customers to use Sercomtel&#146;s network at the same rates we charge our
customers within the Region. In addition, since December 2001, we have been
entering into agreements with other service providers allowing our customers to
receive short messaging services throughout the Brazilian territory.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Roaming in MERCOSUR</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into roaming agreements with telecommunications service
providers operating in the following countries:
</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">Argentina, providing for automatic roaming in the city of Buenos Aires region;</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">Paraguay, providing for automatic roaming throughout that country; 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">Uruguay, providing for manual roaming throughout that country.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other International Roaming Agreements</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have roaming agreements with other telecommunications service providers
operating in more than 100 countries all over the world, including the United
States, and in Europe and Asia.
</FONT>


<P align="left"><FONT size="2"><B>Sources of Revenue</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues derive mainly from:
</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">network usage charges;</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">monthly subscription charges;</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">interconnection charges;</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">wireless application protocol service (&#147;WAP&#148;) charges;</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">other special service charges, including charges for
short messaging services, call forwarding, call waiting, voice
mail, invoice control, conference calling, TIM Office services
and timnet.com 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">sale of cellular handsets.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our rates during 2002 were generally subject to regulation by Anatel.
After the applicable transition period, we will be allowed to set prices for
our service plans, subject to approval by Anatel. After we set these prices,
we expect that they will be adjusted annually for inflation based on the
IGP-DI. See &#147;&#151;Rate Regulation.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Usage Charges and Monthly Subscription Charges</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cellular Service Usage Rates. </I>Unlike North America, cellular
telecommunications service in Brazil is offered on a &#147;calling party pays&#148;
basis, under which the customer generally pays only for outgoing calls. On the
other hand, certain charges apply when a customer receives or places calls
while outside of his home registration area, as defined below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We charged different rates for our services, generally according to the
time of the day, the customer&#146;s service plan, and the location of the parties
to the call.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While operating under the concessions, we divided our Region into certain
areas defined as home registration areas (&#147;Home Registration Areas&#148;). Each of
our customers is registered as a user of one of our 38 Home Registration Areas,
in which the Region is divided.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our usage rate categories are described 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"><B>VC1</B>. The &#147;VC1&#148; rate is our lowest rate per minute and
applies to calls made by a customer located in the customer&#146;s
Home Registration Area to a person also located in the same Home
Registration Area.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<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"><B>VC2</B>. The &#147;VC2&#148; rate applies to calls placed by a
customer from one Home Registration Area to another Home
Registration Area in the same Region.</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"><B>VC3</B>. The &#147;VC3&#148; rate applies to calls placed by a
customer from one Home Registration Area to another Home
Registration Area located outside the Region.</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"><B>AD</B>. &#147;AD&#148; is a per-call surcharge applicable to
outgoing calls or incoming calls made by a customer while outside
the customer&#146;s Home Registration Area.</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"><B>DSL1</B>. &#147;DSL1&#148; is a per-minute surcharge applicable to
incoming calls received by a customer located outside the
customer&#146;s Home Registration Area, but within the Region; 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"><B>DSL2</B>. &#147;DSL2&#148; is a per-minute surcharge applicable to
incoming calls received by a customer located outside the Region.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our usage rates are subject to certain discounts or surcharges, according
to special circumstances. For example, calls made between 9:00 p.m. and 7:00
a.m., and calls placed at any time on Saturdays, Sundays and national holidays,
are defined as calls completed during off-peak hours (&#147;Off-Peak Hours&#148;).
Off-Peak Hours calls are provided a 30% discount from their regular prices.
Discounts for calls made during Off Peak Hours were offered as an incentive to
use our services during periods when we typically experience significant
non-utilization of our network capacity.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning January&nbsp;31, 2002, we began to charge our clients under our Menu
30, Menu 50, Menu 100 and Menu 200 plans &#147;VC1&#148; rates for all calls placed
within our Region. We believe that this change simplified our rate structure,
with benefits to our customers and to us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, beginning May&nbsp;20, 2000, we began to offer discounts for local
calls made between our customers. This special discount program was named
&#147;<I>Liga&#231;&#227;o TIM &#150;TIM&#148; </I>and applied exclusively to customers adhering to our service
plans. Under <I>Liga&#231;&#227;o TIM &#150;TIM</I>, our customers enjoyed an average rate reduction
from 10% to 32%, compared to our normal rates. On the other hand, we applied a
30% surcharge over our normal rates for calls made from one cellular phone to
another.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rate structure currently applicable to Brazilian cellular
telecommunications companies will be changed with the introduction of the CSP
Program, expected to occur in the second half of 2003. The CSP Program will
allow customers to select long-distance carriers on a per call basis. In
addition, Home Registration Areas will be larger geographically and fewer in
number. Under this new rate allocation structure, a customer will be charged
directly by us only for calls completed within that customer&#146;s Home
Registration Area. Long-distance calls, however, will be charged to a customer
by the chosen long-distance carrier. This long-distance carrier, in turn, will
pay us a new VU-M fee for any use of our network for such a long-distance call.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Service Plans. </I>We offer various service plans to our customers. We
believe our plans provide features that address specific needs of groups of our
customers. Our plans vary with respect to the different services available and
applicable charges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, we offered our customers the following service
plans:
</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"><B>TIM Basic. </B>Anatel requires us to offer our customers the TIM
Basic plan, formerly known as the Basic plan. Under TIM Basic, we
offer free caller identification and voice message. We usually
recommend TIM Basic for customers using cellular phones without any
regular pattern, placing calls at various times of the day and with
a varying volume of minutes used;</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"><B>Plan T Voce. </B>This plan provides 10 free minutes per month in
addition to 10 free short messages per month. Under this plan,
customers are charged a flat rate per minute on all calls. This
plan is suitable for post-paid customers looking to migrate to a
plan similar to pre-paid plans.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<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"><B>TIM Noite e Lazer. </B>This plan provides customers free caller
identification and voice mail. We believe this plan better suits
those of our customers who use cellular telephone service mostly
during Off-Peak Hours for its lower rates during these times;</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"><B>MENU 30. </B>Under the MENU 30 plan, we charge a subscription
fee and provide customers 30 free minutes per month of outgoing
local calls within the Region. These calls otherwise would be
charged under the VC1 rate. Customers using the MENU 30 plan are
also afforded special rates for calls in excess of the 30 free
monthly minutes. We believe this plan is suited for customers who
use our services up to one minute per day on average;</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"><B>MENU 50. </B>Under the MENU 50 plan, we charge a subscription
fee and provide customers 50 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 50 plan are
also afforded special rates for calls in excess of the 50 free
monthly minutes. We believe this plan is suited for customers who
use our services two to three minutes per day on average;</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"><B>MENU 100. </B>Under the MENU 100 plan, we charge a subscription
fee and provide customers 100 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 100 plan
are also afforded special rates for calls in excess of the 100 free
monthly minutes. We believe this plan is suited for customers who
use our services three to four minutes per day on average and
frequently make long-distance calls to the states of Santa Catarina
and Paran&#225;;</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"><B>MENU 200. </B>Under the MENU 200 plan, we charge a subscription
fee and provide customers 200 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 200 plan
are also afforded special rates for calls in excess of the 200 free
monthly minutes. We believe this plan is suited for customers who
use our services five to six minutes per day on average and who
frequently make long-distance calls to the states of Santa Catarina
and Paran&#225;;</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"><B>MENU 400. </B>Under the MENU 400 plan, we charge a subscription
fee and provide our customers 400 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 400 plan
are also afforded special rates for calls in excess of the 400 free
monthly minutes. We believe this plan is suited for customers who
use our services seven to 13 minutes per day on average and
frequently make long-distance calls to the states of Santa Catarina
and Paran&#225;;</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"><B>MENU 1000. </B>Under the MENU 1000 plan, launched in February
2002, we charge a subscription fee and provide our customers 1000
free minutes per month of outgoing local calls within the Region.
Customers using the MENU 1000 plan are also afforded special rates
for calls in excess of the 1000 free monthly minutes. We believe
this plan is suited for customers who use our services more than 13
minutes per day on average and frequently make long-distance calls
to the states of Santa Catarina and Paran&#225;;</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"><B>MENU 200 Family. </B>Under the MENU 200 Family plan, we charge a
subscription fee and provide our customers 200 free minutes per
month of outgoing local calls within the Region. Customers using
the MENU 200 Family plan are also afforded special rates for calls
in excess of the 200 free monthly minutes. We believe this plan is
suited for groups of customers who use our services three to four
minutes per day and frequently make long-distance calls to the
states of Santa Catarina and Paran&#225;. This plan is targeted to
groups of up to four customers who frequently make calls among
themselves;</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"><B>Empresarial. </B>The Empresarial plan is designed for corporate
clients, offering lower tariffs and per minute rates that are
lowered according to total call traffic generated each month. The
discounts range from 3% to 8% of our normal rates;</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"><B>Empresarial &#043;&#043;. </B>This plan is designed for corporate clients
who are committed to paying only a predetermined and fixed amount of
cellular telephone services used by their employees. Clients
arrange for monthly payments through &#147;Credicorp.&#148; Any additional
expenses remain the responsibility of the employee. Clients
choosing this plan may simultaneously choose the Corporate Zero Rate
plan.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<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"><B>Corporate Zero Rate. </B>This plan is designed for large
corporate clients with a high level of local calls within the
Region. This plan offers business clients free calls between
corporate employees located within the Region;</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"><B>Business 200. </B>This plan is similar to the Menu 200 Family
plan, however, it is designed for small and medium-sized companies.
An account under Business 200 may include up to four customers,
provided that such a joint account is registered by a corporation.
Under the Business 200 plan, we charge a subscription fee and
provide our customers 200 minutes of outgoing local calls per
account each month or certain credits applicable to our pre-paid
plans;</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"><B>Pronto. </B>Pronto is a pre-paid service with no billing or
monthly subscription charges. It is ideal for customers who prefer
to control their expenses. The plan was launched in April 1999 and
offers three different service packages:</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="7%"><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="89%"><FONT size="2"><B>Tempo Livre</B>, a plan with special rates at nights,
weekends, holidays and within the states of Paran&#225; and Santa
Catarina;</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"><B>Tempo Todo</B>, a plan with special rates for calls at any time within the Region; 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"><B>Pronto T</B>, a plan allowing calls to be made outside the Region.</FONT></TD>
</TR>
</TABLE>


<P align="center"><FONT size="2">30</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;The following tables set forth the rates applicable to outgoing calls for
some of the service plans offered by each of the Subsidiaries on December&nbsp;31,
2002, in nominal <I>reais</I>, including value-added and other taxes. In February
2003, we increased our rates by an average of 8%.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Telepar Celular</I>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&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="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="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="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="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="33"><FONT size="1"><B>On December 31, 2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="33"><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>Free</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Peak Hours Rates <SUP>(2)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Off-Peak Hours Rates <SUP>(2)</SUP></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>Monthly</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Minutes</B></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="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Plans</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Charge</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of Use <SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC3</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC3</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>
    <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">TIM Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$31.79</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">&#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">R$0.50</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">R$0.91</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">R$1.01</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">R$0.35</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">R$0.64</FONT></TD>
    <TD><FONT size="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$0.71</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">TIM Noite e Lazer <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">21.50</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">&#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">1.01</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">1.32</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">1.43</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">0.21</FONT></TD>
    <TD nowrap><FONT size="2"><sup>(5)</sup></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>
    <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>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">T Voce</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.99</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">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">0.70</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">0.70</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">0.91</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">0.70</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">0.70</FONT></TD>
    <TD nowrap><FONT size="2"><sup>(6)</sup></FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.91</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">Menu 30</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">39.90</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">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">0.50</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">0.50</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">0.91</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">0.50</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">0.50</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">0.91</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">Menu 50</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47.90</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">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">0.48</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">0.48</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">0.91</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">0.48</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">0.48</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">0.91</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">Menu 100</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63.90</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">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">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.46</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">Menu 200</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">96.90</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">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</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">Menu 400</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">163.90</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">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">0.40</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">0.40</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">0.40</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">0.40</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">0.40</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">0.40</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">Menu 1000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">328.90</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">1000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.35</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">0.35</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">0.35</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">0.35</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">0.35</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">0.35</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">Menu
200 Family <sup>(6)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">113.06</FONT></TD>
    <TD><FONT size="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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</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">Empresarial <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">30.45</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">&#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">0.35</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">0.35</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">0.87</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">0.35</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">0.35</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">0.87</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">Empresarial &#043;&#043; <sup>(7)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18.41</FONT></TD>
    <TD><FONT size="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">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</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">Zero Rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87.34</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">&#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">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</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">Business 200 <sup>(6)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">113.06</FONT></TD>
    <TD><FONT size="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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.42</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">Pronto Tempo Livre <sup>(5)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.91</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">0.91</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">1.53</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">0.60</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">0.60</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">0.60</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">Pronto Tempo Todo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.91</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">0.91</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">0.91</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">0.91</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">0.91</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">0.91</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">Pronto T</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.00</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">R$0.91</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">R$0.91</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">R$0.91</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">R$0.91</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">R$0.91</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">R$0.91</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Number of free VC1 and VC2 minutes after payment of monthly subscription
fee.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A 30% surcharge applies to calls from one cellular phone to another.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The rate for calls made to non-customers is R$ 0.26.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier&#146;s network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$0.36. The rate
is R$0.54 for calls using another carrier&#146;s network. During off peak
hours the rate for VC1 and VC2 calls to a fixed line is R$0.36. The rate
is R$0.54 for calls using another carrier&#146;s network.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier&#146;s network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$1.53. The rate
is also R$1.53 for calls using another carrier&#146;s network. During off peak
hours all calls under this plan are R$0.60.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Minutes may be shared among groups of up to four lines.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(7)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Packages of VC1 minutes and combinations of VC1 and VC2 minutes are
available.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Telesc Celular and CTMR Celular</I>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="30%">&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="1%">&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>
    <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="33"><FONT size="1"><B>On December 31, 2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="33"><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>Free</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Peak Hours Rates <SUP>(2)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Off-Peak Hours Rates <SUP>(2)</SUP></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>Monthly</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Minutes</B></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="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Plans</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Charge</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>of Use <SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC3</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>VC3</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>
    <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">TIM Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$30.90</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">&#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">R$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">R$0.89</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">R$0.99</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">R$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$0.62</FONT></TD>
    <TD><FONT size="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$0.69</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">TIM Noite e Lazer<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">20.90</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">&#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">0.99</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">1.29</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">1.39</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">0.21</FONT></TD>
    <TD><FONT size="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">0.60</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">T Voce (Bundled for VC1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19.43</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">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">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">0.69</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">0.89</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">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">0.69</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">0.89</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">Menu 30</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">38.90</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">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">0.49</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">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">0.89</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">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">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">0.89</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">Menu 50</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46.90</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">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">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">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">0.89</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">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">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">0.89</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">Menu 100</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">61.90</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">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">0.45</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">0.45</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">0.45</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">0.45</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">0.45</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">0.45</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">Menu 200</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">93.90</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">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</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">Menu 400</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">159.90</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">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">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">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">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">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">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">0.39</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">Menu1000</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">319.90</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">1000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.34</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">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">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">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">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">0.34</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">Menu 200 Family<sup>(6)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">109.90</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">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</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">Empresarial<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">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">&#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">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">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">0.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.34</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">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">0.85</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">Empresarial&#043;&#043;<sup>(7)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17.90</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">&#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">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</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">Zero Rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">84.90</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">&#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">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</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">Business 200<sup>(6)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">109.90</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">200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.41</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">Pronto Tempo Livre<sup>(5)</sup></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.89</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">0.89</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">1.49</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">0.59</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">0.59</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">0.59</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">Pronto Tempo Todo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.89</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">0.89</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">0.89</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">0.89</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">0.89</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">0.89</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">Pronto T</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.00</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">R$0.89</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">R$0.89</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">R$0.89</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">R$0.89</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">R$0.89</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">R$0.89</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Number of free VC1 minutes of use after payment of monthly subscription
fee.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A 30% surcharge applies to calls from one cellular phone to another.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">For VC1 off peak calls using another carrier&#146;s network the rate is
R$0.26.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(4)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier&#146;s network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$0.35. The rate
is R$0.53 for calls using another carrier&#146;s network. During off peak
hours the rate for VC1 and VC2 calls to a fixed line is R$0.35. The rate
is R$0.53 for calls using another carrier&#146;s network.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(5)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier&#146;s network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$1.49. The rate
is also R$1.49 for calls using another carrier&#146;s network. During off peak
hours, all calls under this plan are R$0.59.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(6)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Minutes may be shared among groups of up to four lines.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(7)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Packages of VC1 minutes and combinations of VC1 and VC2 minutes are
available.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the surcharge rates applicable to Incoming
Calls for some of our service plans on December&nbsp;31, 2002, in nominal <I>reais</I>,
including value-added and other taxes.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Telepar Celular</I></B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="34%">&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>
    <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="11"><FONT size="1"><B>On December 31, 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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&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="11"><FONT size="1"><B>Peak Rates <SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Off-Peak Rates <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="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Plans</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>AD1 <sup>(1)</sup></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>AD1 <sup>(1)</sup></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>
    <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">TIM Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.46</FONT></TD>
    <TD><FONT size="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$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">R$0.92</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">R$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">R$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$0.92</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">TIM Noite e Lazer</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.58</FONT></TD>
    <TD><FONT size="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">1.01</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">0.40</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">0.46</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.01</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">T Voce (Bundled for VC1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.70</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">1.01</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">0.70</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">0.70</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">1.01</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">0.70</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">Menu 30</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Menu 50</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Menu 100</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Menu 200</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Menu 400</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Menu 200 Family <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">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Empresarial</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.50</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">0.64</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.40</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">0.50</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">0.64</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">Empresarial &#043;&#043;<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">0.40</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">0.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.74</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Zero Rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Business 200 <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">0.00</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">0.80</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">0.00</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">0.00</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">0.80</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">0.00</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">Pronto Tempo Livre</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.91</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">0.00</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">0.00</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">0.91</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">0.00</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">Pronto Tempo Todo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.91</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">0.00</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">0.00</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">0.91</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">0.00</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">Pronto T</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.00</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">R$0.91</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">R$0.00</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">R$0.00</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">R$0.91</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">R$0.00</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A 30% surcharge applies to calls from one cellular
phone to another for amounts within the Holding Company area.
If the client is not within the Holding Company area, the
amount will be the one charged by the operator of such area.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Minutes may be shared among groups of up to four
accesses.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Availability of packages with franchises of VC-1
minutes. </FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Telesc Celular and CTMR Celular</I></B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="34%">&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>
    <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 nowrap align="center" colspan="25"><FONT size="1"><B>On December 31, 2002</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="25"><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>Peak Rates <SUP>(1)</SUP></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Off-Peak Rates <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="11"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="11"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center"><FONT size="1"><B>Plans</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>AD1 <sup>(1)</sup></B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL1</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>DSL2</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>AD1 <sup>(1)</sup></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>
    <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">TIM Basic</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.45</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">R$0.55</FONT></TD>
    <TD><FONT size="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$0.89</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">R$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">R$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">R$0.89</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">TIM Noite e Lazer</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.57</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">0.65</FONT></TD>
    <TD><FONT size="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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">0.45</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">0.99</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">T Voce (Bundled for VC1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.69</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">0.99</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">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">0.69</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">0.99</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">0.69</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">Menu 30</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Menu 50</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Menu 100</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Menu 200</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Menu 400</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Menu 200 Family <B><sup>(2)</sup></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Empresarial</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">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">0.63</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">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">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">0.63</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">Empresarial &#043;&#043;<B><sup>(3)</sup></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.72</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">0.00</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">0.00</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">0.72</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">0.00</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">Zero Rate</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Business 200 <B><sup>(2)</sup></B></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.00</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">0.78</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">Pronto Tempo Livre</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.89</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">0.00</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">0.00</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">0.89</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">0.00</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">Pronto Tempo Todo</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.00</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">0.89</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">0.00</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">0.00</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">0.89</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">0.00</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">Pronto T</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$0.00</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">R$0.89</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">R$0.00</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">R$0.00</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">R$0.89</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">R$0.00</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">A 30% surcharge applies to calls from one cellular phone to
another for amounts within the Holding Company area. If the client
is not within the Holding Company area, the amount will be the one
charged by the operator of such area.</FONT></TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(2)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Minutes may be shared among groups of up to four accesses.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(3)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Availability of packages with franchises of VC1 minutes.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Roaming Fees. </I>We receive revenue pursuant to roaming agreements with
other cellular telecommunications service providers. When a call is made from
within the Region by a customer of a cellular service provider that operates
outside the Region, that service provider pays us for the call at the
applicable rate under the TIM Basic plan.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Similarly, when a customer makes a cellular call outside the Region, we
must pay the charges associated with that call to the cellular communication
service provider in whose region the call originates. See &#147;&#151;Roaming
Agreements.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Prepaid Service Fees. </I>Beginning April 1999, we started offering customers
pre-paid cellular telecommunications services. This pre-paid service is
offered through our Pronto plans, through which our customers acquire calling
cards that allow a certain number of call minutes. Our customers may purchase
the calling cards at various points of sale throughout our Region, such as
banks, grocery stores and gas stations. We estimate that these points of sale
numbered approximately 16,000 on December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Interconnection Charges</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We charge fixed-line and other cellular service providers for completion
on our network of calls originating on their network. We charge the
telecommunications service provider from whose network the call originates an
interconnection charge for every minute our network is used in connection with
such call. See &#147;&#151;Interconnection Agreements.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 1999, the interconnection rate in effect was R$0.18 per
minute. On October&nbsp;7, 1999, Anatel authorized a 15.47% increase in the
interconnection rate, to R$0.2078 per minute, net of taxes. On October&nbsp;19,
2000, Anatel authorized a 22.81% increase in the interconnection rate, to
R$0.2552 per minute, net of taxes. On February&nbsp;28, 2002, Anatel authorized a
10.6% increase in the interconnection rate, to R$0.2823 per minute, net of
taxes. On February&nbsp;6, 2003, Anatel authorized a 21.96% increase in the
interconnection rate, to R$ 0.3443 per minute, net of taxes.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>WAP Services Charges</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in 2001, we started providing Wireless Access Protocol services
to our customers. Using the Wireless Access Protocol, customers are able to
access the Internet. We are not currently charging a monthly fee for this
service.
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other special services we offer include short messaging services, voice
mail, call waiting, call forwarding and conference calling services, among
others. We have entered into agreements with our competitors related to our
short messaging services. As a result of these agreements, beginning December
2001, clients were able to receive and send short messages throughout Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sales of Cellular Handsets</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We started selling digital cellular handsets in February 1999, both
directly and through its dealer network. During a certain period in 1999, we
sold cellular handsets at significantly low prices, as a marketing strategy
aimed at:
</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">expanding our customer base using the same frequency band; 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">migrating customers using our analog system to our
digital system, which would enable us to offer new digital system
services and improved service quality.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From May 2000 to August 2001, the sale and distribution of cellular
handsets to our authorized dealers were conducted by a third party. During this
period, we limited our sales of handsets to our 14 proprietary stores.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August 2001, we resumed the sale of cellular handsets to our authorized
dealers and continued selling cellular handsets through our proprietary stores.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the Privatization and the introduction of competition in our
market, we have implemented a number of significant sales and marketing
initiatives, including the introduction of a number of new service plans. We
vary the manner by which we market and promote our services, adopting special
plans and services for particular groups of customers. We also provide
additional support services, such as designating special account managers for
certain customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We market our services through a network of stores, including general
retail stores and outlets that offer exclusively our cellular
telecommunications services and ancillary merchandise. Sales of our products
and services are offered by our sales personnel and also by authorized dealers,
who are not our employees. We select our authorized dealers based on a number
of factors, including, but not limited to, the suitability of the premises in
which our services and ancillary merchandise will be offered. By October 1998,
we restructured our point-of-sale network by appointing new authorized dealers
and introducing a uniform commission structure for sales. Under this new
structure, all authorized dealers receive commissions for activating new
cellular service lines and selling additional services. Our personnel and
authorized dealers receive ongoing training and marketing support. We
generally have the ability to terminate contracts with our personnel and
authorized dealers for any reason by giving a written notice of termination.
On December&nbsp;31, 2002, services were marketed through 917 points of sale, out of
which 12 were operated directly by our sales personnel and 905 through our
authorized dealers. This point of sale network enables us to market our
services and to provide after-sale service throughout the Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Anatel regulations require cellular telecommunications companies to
provide service to all individuals requesting their services. Nonetheless, we
can recommend service plans that are suitable to each potential customer&#146;s
needs, such as our pre-paid service plan. If a customer fails to make timely
payments, services can be interrupted.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 1999, we commenced marketing our cellular telecommunications
services under the brand &#147;TIM,&#148; which is also used by Tele Nordeste Celular.
We intend to pay royalties to Telecom Italia Mobile S.p.A. for
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> the use of the trademark &#147;TIM.&#148; The payment of royalties to Telecom
Italia Mobile S.p.A. has already been approved by the shareholders at the time
of each of the Subsidiaries. In addition to the approval by the shareholders
of the Subsidiaries, it is necessary that the shareholders of Tele Celular Sul
approve any payments to be made to TIM with respect to such royalties. This
matter has not been submitted to vote by shareholders of Tele Celular Sul as of
this date. As a consequence, no agreement has been executed with Telecom
Italia Mobile S.p.A. so far, nor have we made any payment or reserved any
amount in this regard.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Customer Service</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate a Mobile Phone Service Center that enables our customers to
obtain customer service 24 hours a day, seven days a week, by calling &#147;1404,&#148; a
toll-free number.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have one of the most modern customer service centers in Brazil. During
2002, it serviced an average of approximately 45,000 calls per day through two
service facilities: one located in the state of Paran&#225;, with 227 service
positions, and the other in the state of Santa Catarina, with 73 service
positions. Calls may be routed from one unit to another, according to the
level of call traffic or the type of service requested. We believe this system
reduced the average waiting time of, and improved the quality of the
information provided to, our customers and allowed us to provide better
after-sales services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, we created a customer relationship center (&#147;CRC&#148;), a pioneering
client service concept, which is the center of our communications with
customers and potential customers. In 2002, CRC telemarketing made over
400,000 proactive contacts. CRC answered over 7&nbsp;million calls, all of which
represented an opportunity for the sale of products and services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Internet is another important channel of communication between us and
our post-paid clients. In 2002, we had over 100,000 online requests for plan
changes, copies of invoices and activation of additional services, including
&#147;follow-me&#148;, a call forwarding service; call waiting; conference calling; as
well as timnet.com services.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Billing and Collection</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our billing and collection system, known as Business Support and Control
System, was provided by Communications System Inc. LHS, a German company. This
system has four main functions:
</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">customer registration;</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">customer information 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">accounts receivable management; 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">billing and collection.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our billing system gives us significant flexibility in developing service
plans and billing options and is integrated with our computer systems. Our
billing system is an important tool in the performance of services, assisting
in many areas of our business, including marketing, customer service and credit
management. Pursuant to Brazilian law, customers must receive a
telecommunications service bill at least five days before due. We believe that
we are generally in compliance with this requirement. Currently, if a
customer&#146;s payment is more than 15&nbsp;days overdue, we usually suspend the
customer&#146;s ability to make outgoing calls, and if the payment is 45&nbsp;days
overdue, we discontinue the service entirely.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Fraud Detection and Prevention</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have experienced incidents of &#147;cloning fraud.&#148; Cloning fraud consists
of duplicating the cellular signal of a customer&#146;s cellular phone, enabling
fraudulent calls to be made using the duplicated signal. These calls are
billed to the customer, but the receivable is written off when we determine
that it resulted from a fraudulent call. If part of a fraudulent call is
carried on the network of another telecommunication service provider, we must
pay that service provider the applicable interconnection fee, regardless of
whether we ever collect the receivable associated with the fraudulent call.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have implemented fraud-detection and fraud-prevention measures in an
effort to reduce fraud-related losses. Fraud-detection measures involve the
collection and review of call records to detect abnormal calling patterns.
When abnormal calling patterns are found, the customer is contacted by our
fraud-control staff and, if cloning has occurred, the customer&#146;s phone number
is changed. Fraud-prevention measures also include restrictions on
international calls from certain phone numbers and restrictions on three-way
calling by customers with international direct-dial access. Additionally, we
have established a credit limit for new customers.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, there are five different frequency ranges within which cellular
companies and PCS companies may operate in Brazil, as described below.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Band A Companies</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian territory was initially divided by Anatel into eight
separate cellular service regions (&#147;Band A Regions&#148;), each serviced by one of
the New Holding Companies operating in the cellular telecommunications
business. Such eight New Holding Companies received control of the assets and
liabilities held directly by the Predecessor Companies in connection with their
operations of cellular telecommunications services. The eight New Holding
Companies operating in the cellular telecommunications business were created at
the Breakup of the Telebr&#225;s System. Tele Celular Sul is one of such New
Holding Companies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Holding Companies providing cellular service operate within a 25
MHz sub-band within the band of 800 to 850 MHz, and comprise the companies
operating under the Band A (&#147;Band A&#148;), according to concessions granted and
regulations issued by Anatel.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Band B Competition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of Law 9,295, of July&nbsp;19, 1996 (the &#147;Minimum Law&#148;), the
Federal Government granted authorizations to new companies to provide cellular
telecommunications service within a 25 MHz sub-band within the band of 800 to
850 MHz, which is referred to as Band B (&#147;Band B&#148;). Companies operating under
the Band B are distributed throughout ten different regions, which generally
overlap with the Band A Regions. See &#147;&#151;Regulation of the Brazilian
Telecommunications Industry.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>States of Paran&#225; and Santa Catarina</I>. Global Telecom S.A. (&#147;Global
Telecom&#148;) provides cellular telecommunications service in the states of Paran&#225;
and Santa Catarina through a Band B authorization. In December 1998, Global
Telecom started providing cellular telecommunications services based on
code-division multiple access technology (&#147;CDMA&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Global Telecom is controlled by Telesp Celular, an operating company that
provides cellular telecommunications services in the state of S&#227;o Paulo. Telesp
Celular holds 100% of the capital stock of Global Telecom, 76.83% directly and
23.17% indirectly. On November&nbsp;27, 2002, there was a corporate restructuring
in Global Telecom&#146;s group, whereby the shareholders of Telesp Celular
transferred their direct and indirect interests held in Telesp Celular to a
Dutch joint venture named Brasilcel N.V. In early 2003, Portugal Telecom and
Global Telecom announced that they had entered into a joint venture that will
market itself under a single brand, &#147;Vivo.&#148; We expect that Vivo will pursue a
national strategy as opposed to one focused just on our Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>City of Pelotas, Rio Grande do Sul</I>. Telet S.A. (&#147;Telet&#148;) was granted a
Band B authorization to provide cellular telecommunications service in the
state of Rio Grande do Sul, including the city of Pelotas area. It has been
publicly announced that Telet is controlled by: America Movil S.A. Telet
started providing cellular telecommunications service in the city of Pelotas
area in the second half of 1999. Telet uses TDMA technology.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rights and obligations of Global Telecom and Telet, under their
respective authorizations granted by Anatel, are similar to our rights and
obligations under our authorizations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PCS Band C Competition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no participants in the auctions held in February and August
2001, by Anatel for the sale of the PCS Band C authorizations.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;2, 2002, Anatel commenced a new auction with respect to Band C
radio frequencies. This auction was open exclusively to cellular
telecommunications companies and to companies that had previously acquired PCS
authorizations. We have informed Anatel of our intention to acquire the right
to use the Band C radio frequencies, but Anatel had not made a decision as of
May 2003.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PCS Band D Competition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February 2001 and in October 2002, Anatel held auctions for PCS Band D
authorizations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>States of Paran&#225; and Santa Catarina</I>. In October 2002, Telecom Am&#233;ricas
(&#147;Telecom Am&#233;ricas&#148;), a company organized according to the laws of the
Federative Republic of Brazil, and controlled by Am&#233;rica M&#243;vil acquired a PCS
Band D authorization covering the states of Paran&#225; and Santa Catarina. Telecom
Am&#233;ricas is expected to begin offering services at the end of 2003 or the
beginning of 2004, and is expected to compete aggressively within our Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>State of Rio Grande do Sul. </I>As of March&nbsp;31, 2003 there were no bidders
for the PCS Band D authorization in the cities of Pelotas, Turu&#231;u, Cap&#227;o do
Le&#227;o and Morro Redondo in the state of Rio Grande do Sul within the Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>PCS Band E Competition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March 2001 and October 2002, Anatel held auctions for PCS Band E
authorizations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>States of Paran&#225;, Santa Catarina and Rio Grande do Sul</I>. Group Brasil
Telecom (&#147;Brasil Telecom&#148;), a company organized according to the laws of the
Federative Republic of Brazil, acquired a PCS Band E authorization covering the
states of Paran&#225; and Santa Catarina and a PCS Band E authorization covering the
state of Rio Grande do Sul.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Competition</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also compete with fixed-line phone service providers operating in the
Region. Certain customers might shift to fixed-line service providers for a
number of reasons, including lower prices. On September&nbsp;24, 1999, the
Brazilian government authorized Global Village Telecom Ltda., a corporation
organized according to the laws of Brazil, to provide fixed-line
telecommunications service in competition with Brasil Telecom, the public
service fixed-line telephone service provider operating in an area that
includes our Region. Global Village Telecom Ltda. provides fixed-line
telecommunications services using Wireless Local Loop (&#147;WLL&#148;) technology, which
permits access to fixed-line operators&#146; switching centers through radio base
stations, operating in a frequency similar to those of cellular service
providers. This technology enables WLL service providers to reach places where
there is no conventional cable network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;27, 2000, Anatel issued Resolution No.&nbsp;221/00, regulating
Specialized Mobile Service (&#147;Trunking&#148;), with rules similar to the ones
applicable to the cellular telecommunications services. Trunking service
providers are not permitted to offer their services to individuals, competing
with us exclusively in the corporate segment of our market. Nextel S.A., a
company organized according to the laws of the Federative Republic of Brazil,
provides Trunking services in the city of S&#227;o Paulo, and in 2001, started
providing Trunking services in the city of Curitiba, in the state of Paran&#225;.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete, to a limited extent, with certain other wireless
telecommunications services, such as mobile radio, paging and beeper services,
which are widely used in Brazil. These competing wireless telecommunications
services are generally less expensive than cellular telecommunications
services.
</FONT>


<P align="left"><FONT size="2"><B>The Holding Company and the Subsidiaries</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all assets held by Tele Celular Sul consist of shares of
Telepar Celular. We rely almost exclusively on dividends from Telepar Celular
to meet our needs for cash, including to pay dividends to Tele Celular Sul
shareholders.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We restructured the Subsidiaries in November 2002. The restructuring was
carried out by exchanging the shares of Telesc Celular and CTMR Celular for
shares of Telepar Celular, resulting in a capital increase for Telepar Celular,
while both Telesc Celular and CTMR Celular became wholly-owned subsidiaries of
Telepar Celular, instead of direct subsidiaries of the Holding Company. As a
result of this third step, Telesc Celular&#146;s and CTMR Celular&#146;s shareholders
became shareholders of a larger company with shares that are more liquid on the
Bovespa. On November&nbsp;23, 2002, the shareholders of each of Telesc Celular and
CTMR Celular approved swap ratios for shares of Telesc Celular and CTMR Celular
based on the economic values assigned to them in reports generated by
an independent appraisal company plus a premium of 19%. The
resulting exchange ratios were 4.0015946198 shares of Telesc Celular per share
of Telepar Celular and 1.1473256922 shares of CTMR Celular per share of Telepar
Celular. On April&nbsp;30, 2003, our Board of Directors approved the hiring of
consultants to explore the feasibility and desirability of merging Telesc
Celular and CTMR Celular into Telepar Celular. The following chart sets forth
our ownership structure as of April&nbsp;30, 2003, after we restructured the
Subsidiaries:
</FONT>


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


<P align="center"><FONT size="2"><IMG src="y87502y8750201.gif" alt="(FLOW CHART ORIGINAL)">
</FONT>


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


<P align="center"><FONT size="2"><IMG src="y87502y8750202.gif" alt="(FLOW CHART NEW)">
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the contribution made by the Subsidiaries
to our consolidated net operating revenues and consolidated net income for the
year ended December&nbsp;31, 2002.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="51%">&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="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&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>Contribution of each Subsidiary 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>Our 2002 Consolidated Results</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>Percentage of our</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>Net Operating</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" colspan="2"><FONT size="1"><B>Company</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Revenues</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>our Net Income <SUP>(1)</SUP></B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="2"><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" align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telepar Celular</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">52.7</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">(1.6</FONT></TD>
    <TD nowrap><FONT size="2">)%</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="2" align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telesc Celular</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">45.4</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">103.5</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2" align="center"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">CTMR Celular</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">1.9</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">(1.9</FONT></TD>
    <TD nowrap><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 width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Percentage of net income, excluding the effect of
net revenues among the companies, which are eliminated upon
consolidation, divided by the consolidated net income.</FONT></TD>
</TR>
</TABLE>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal properties consist of switching equipment, which connect
calls to and from customers, and radio base stations, which comprise certain
signal transmission and reception equipment covering a defined area. On the
sites of our radio base stations, we have also installed antennas and certain
equipment to connect these antennas with our switching equipment. On December
31, 2002, we had 14 large cellular switches and 795 radio base stations within
our Region.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally lease or buy the sites where our cellular telecommunications
network equipment is installed. On December&nbsp;31, 2002, our Subsidiaries owned
approximately 141,464 square meters and leased about 25,480 square meters, all
of which were available for installation of our equipment. Most of our leasing
contracts expire in 2002 and 2004, and may be renewed.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also lease 25,480 square meters and own about 2,683 square meters of
office space in the cities of Curitiba, Florian&#243;polis and Pelotas, where we
conduct the majority of our management activities. These leasing contracts also
generally expire in 2002 to 2004 and may be renewed.
</FONT>

<!-- link2 "ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS" -->
<DIV align="left"><A NAME="007"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS</B>
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Critical accounting policies are those that are both important to the
portrayal of our financial condition and results and require management&#146;s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. As
the number of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgments become more complex.
We base our estimates and assumptions on historical experience, industry
trends or other factors that we believe to be reasonable under the
circumstances. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported financial
results. In order to provide an understanding about how our management has
estimated the potential impact of certain uncertainties, including the
variables and assumptions underlying the estimates, we have identified the
critical accounting policies discussed below. We describe our significant
accounting policies, including the ones discussed below, in Note 3 to our
Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Depreciation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment is stated at cost of acquisition or
construction. Depreciation is calculated using the straight-line method based
on the estimated useful lives of the underlying assets. See Notes 3.f and 12
to our Consolidated Financial Statements. We currently depreciate automatic
switching, transmission and other equipment based on an estimated useful life
of seven years. We disclose changes in the in the estimated useful lives of
underlying assets with a significant impact on our financial statements. Our
estimates of the useful lives of assets
could change in response to various factors, including the introduction of
new technologies, such as GSM; however, no such changes have occurred during
the three years ending December&nbsp;31, 2002.
</FONT>



<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Allowance for Doubtful Accounts</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. The
provision for doubtful accounts for 2002 was based on the following estimates
of percentages of receivables, classified by the number of days such
receivables are overdue, that it projected to be uncollectible. These
estimates were based on historical experience of write-offs and future
expectations of conditions that might impact the collectibility of accounts.
See Note 3.c to our Consolidated Financial Statements. The amount of the loss,
if any, that we actually experience with respect to these accounts may differ
from the amount of the allowance maintained in connection with them.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="85%">&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 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>estimated to be</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>uncollectible</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">Receivables overdue 60 to 89&nbsp;days</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">50.0</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">Receivables overdue 90 to 119&nbsp;days</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">80.0</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">Receivables overdue 120 to 179&nbsp;days</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">90.0</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">Receivables overdue more than 180&nbsp;days</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">100.0</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Contingent Liabilities</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accrual for a contingency involves considerable judgment on the part
of management. As prescribed by SFAS 5, &#147;Accounting for Contingencies,&#148; a
contingency is &#147;an existing condition, situation, or set of circumstances
involving uncertainty as to possible gain or loss to an enterprise that will
ultimately be resolved when one or more future events occur or fail to occur.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to various claims, legal and labor proceedings covering a
wide range of matters that arise in the ordinary course of business activities.
We adopted a policy of analyzing each such proceeding and making a judgment as
to whether a loss in relation to such proceeding is probable, possible or
remote. We make accruals for legal proceedings that we are party to when we
determine the losses are probable and can be reasonably estimated. Our
judgment is ordinarily based on the opinion of our internal and external legal
advisors. Accrual balances are adjusted to account for changes in
circumstances for ongoing matters and the establishment of additional accruals
for new matters. While we believe that the current level of accruals is
adequate, changes in the future could impact these determinations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Impairment of Long-lived Assets</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We review our long-lived assets, such as the Goodwill, for impairment
whenever events or circumstances indicate the carrying value of an asset may
not be recoverable from estimated future cash flows expected to result from its
use and eventual disposition.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, asset impairment evaluations are, by nature, highly subjective.
If our projections are not met, we may have to record impairment charges not
previously recognized. In analyzing potential impairments, we use projections
based on our views of growth rates for our business, anticipated future
economic, regulatory and political conditions. See Notes 3.f and 12 to our
Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenue Recognition and Customer Incentive Programs</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues are recorded when services are rendered and customer incentives,
including promotions to increase our customer base, are provided. As a result
of our billing cycle cut-off times, we are required to make estimates for
services revenue earned but not yet billed. These estimates, which are based
primarily upon historical minutes of use processed, could differ from our
actual experience. See Note 3.m to our Consolidated Financial Statements.
</FONT>

<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 align="left"><FONT size="2"><B>Trend Information</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Increased Competition</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1998. As a result, we are facing greater competition. Our strongest
competition has been from Global Telecom. In early 2003, Portugal Telecom and
Global Telecom announced that they had entered into a joint venture that will
market itself under a single brand, &#147;Vivo.&#148; In particular, we expect to face
greater competition from Brasil Telecom and Telecom Am&#233;ricas when they begin
operations in our region. We anticipate that Brasil Telecom and Telecom
Am&#233;ricas will begin their operations either during the fourth quarter of 2003
or the first quarter of 2004. Technological changes in the telecommunications
field, such as the development of GSM and mobile satellite services, are
expected to introduce additional sources of competition. The introduction of
competition into the industry has pushed us to adjust our marketing strategies.
Our market share for the entire concession area decreased from 64% on March
31, 2002 to 60% on March&nbsp;31, 2003. In the future, we also may incur higher
advertising costs and experience greater competitive pressure on handset sales.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Increased Depreciation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a part of our plan to implement a GSM system overlay, we expect to make
increased capital expenditures for the necessary telecommunications equipment.
As a result of these planned capital expenditures for this equipment, we expect
to record greater depreciation expense.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cellular Telephone Sales</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We started selling digital cellular telephones in December 1998, both
directly and through our dealer network. Our management believes that, while
sales of cellular telephones may be, from time to time, a significant source of
revenue, they are unlikely to become a significant source of income. See
&#147;&#151;Results of Operations for the years ended December&nbsp;31, 2000, 2001 and
2002&#151;Statement of Income&#151;Operating Revenues&#151;Sales of Cellular Handsets.&#148;
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion should be read in conjunction with our
Consolidated Financial Statements and the notes thereto, which are included
elsewhere in this annual report. Certain important features of the
presentation of our Consolidated Financial Statements are described in &#147;Key
Information&nbsp;&#151;&nbsp;Selected Financial Data.&#148;
</FONT>

<P align="left"><FONT size="2"><B>Brazilian Corporate Law Accounting Method and U.S. GAAP</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Consolidated Financial Statements are prepared in accordance with the
Brazilian Corporate Law accounting method, which differs in certain material
respects from U.S. GAAP. See Note 31 to our Consolidated Financial Statements
for a summary of the differences between the Brazilian Corporate Law accounting
method and U.S. GAAP, as well as a reconciliation of our shareholders&#146; equity
as of December&nbsp;31, 2001 and 2002, and net income for the years ended December
31, 2000, 2001 and 2002 to U.S. GAAP. Net income for 2002 is R$88.0&nbsp;million
under U.S. GAAP, compared with net income of R$65.8&nbsp;million under the Corporate
Law Method. Shareholders&#146; equity at December&nbsp;31, 2002 was R$849.3&nbsp;million
under U.S. GAAP, compared to R$845.3&nbsp;million under the Corporate Law Method.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The differences between the Corporate Law Method and U.S. GAAP that have
the most significant effects on net income are differences in the valuation
allowance on social contribution, the rules regarding depreciation and
amortization of the effect of indexation of property, plant and equipment and
the adoption of a new accounting method for derivative instruments and hedging
activities. The differences between the Corporate Law Method and U.S. GAAP
that have the most significant effects on shareholders&#146; equity are the rules
regarding indexation of property, plants and equipment, the treatment of a
provision for losses on our pension plan, the adoption of a new accounting
method for derivative instruments and hedging activities and the treatment of
capitalized interest.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2"><B>Results of Operations for the Years Ended December&nbsp;31, 2000, 2001 and 2002</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Statement of Income</I></B>
</FONT>

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


<P align="left"><FONT size="2"><B>Statement of Income Data:</B><br>
<i>Brazilian Corporate Law</i>

</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="41%">&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="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="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left" colspan="3"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Year ended December 31, 2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Year over year</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3">&nbsp;</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><FONT size="1">&nbsp;</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">
    <TD><FONT size="1">&nbsp;</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>(thousands of <I>reais</i>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Percentage Changes</B></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">R$716,887</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">R$791,429</FONT></TD>
    <TD><FONT size="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$891,264</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">10.4</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">12.6</FONT></TD>
    <TD nowrap><FONT size="2">%</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">(364,468</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">(406,033</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(486,383</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">11.4</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">19.8</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">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">352,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">385,396</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">404,881</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">9.4</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">5.1</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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 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">(201,150</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,424</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">(185,446</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">(9.8</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">2.2</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">General and 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">(76,300</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">(71,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(83,346</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.8</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">15.9</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">Other 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">(14,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,584</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,902</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">7.3</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">(4.4</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">Equity Investment</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,888</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,288</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">&#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">127.1</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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 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">(291,972</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(270,805</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(287,982</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.3</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">60,447</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">114,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">116,899</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">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">2.0</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">Net financial 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">(57,904</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,405</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,959</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(23.3</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">(57.3</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD colspan="3"><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">3,507</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">10</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">(127</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(99.7</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">&#151;</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">Income 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">6,050</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">70,196</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">97,813</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">1,060.3</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">39.3</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 and social contribution tax
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">6,320</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">672</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">(19,473</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">(89.4</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">&#151;</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 interest 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">2,998</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">(10,979</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,566</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">&#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">14.5</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">R$15,368</FONT></TD>
    <TD><FONT size="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$59,889</FONT></TD>
    <TD><FONT size="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$65,774</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">289.7</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">9.8</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="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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Operating Revenues</I>
</FONT>

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


<P align="left"><FONT size="2"><B>Statement of Income
Data:</B><br><i>Brazilian Corporate Law</i>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="45%">&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="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 nowrap align="left"><FONT size="2">&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="7"><FONT size="1"><B>Year over year</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center">&nbsp;</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><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 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 nowrap align="center" colspan="11"><FONT size="1"><B>(thousands of <I>reais</i>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Percentage Changes</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Usage charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$408,722</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">R$447,071</FONT></TD>
    <TD><FONT size="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$409,766</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">9.4</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">(8.3</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">Monthly subscription charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">182,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,275</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">197,307</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">10.7</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">Interconnection charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">246,394</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">306,811</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">341,496</FONT></TD>
    <TD><FONT size="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">11.3</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">Other service revenues</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,163</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">22,500</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">151.4</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">175.6</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Gross service revenue</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">840,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">940,320</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">971,069</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">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">3.3</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">Value-added and other indirect
taxes on 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">(134,029</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(172,890</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">(194,131</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">29.0</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">12.3</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">Discounts on 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">(17,900</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(67,075</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(27,937</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">274.7</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">58.4</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Net operating revenues from services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">688,509</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">700,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">749,001</FONT></TD>
    <TD><FONT size="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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.9</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Sales of cellular 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">85,644</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">116,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">174,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35.5</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">50.7</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">Value-added and other indirect
taxes on 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">(54,400</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,288</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,592</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">(73.7</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">44.1</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">Discounts on 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">(2,866</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,664</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,024</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">272.1</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">12.8</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Net operating revenues from
sales of cellular 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">28,378</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">91,074</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">142,263</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">220.9</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">56.2</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Total 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">R$716,887</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">R$791,429</FONT></TD>
    <TD><FONT size="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$891,264</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">10.4</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">12.6</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="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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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;Our net operating revenues increased 12.6% to R$891.3&nbsp;million in 2002,
after increasing by 10.4% to R$791.4&nbsp;million in 2001. The growth in revenues
over the three-year period was driven principally by the expansion of our
client base and the growth of handset sales.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, our average number of customers, calculated as the simple mean of
monthly averages, increased 10.2% to 1,663,786 customers in 2002, compared to
1,510,198 customers in 2001, which represented an increase of 23.2% from
1,255,375 customers in 2000. Our average number of customers using pre-paid
services in 2002 was 1,106,682, representing a 33.6% increase from 828,663 in
2001, which in turn represented an increase of 76.7% from 469,049 in 2000. We
started offering pre-paid services in April 1999.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Average monthly revenue per customer decreased 2.6% to R$38 in 2002,
compared to R$39 in 2001, a decrease of 13.3% from 2000, when the average was
R$45. The decrease throughout the three-year period resulted principally from:
</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="88%"><FONT size="2">the increase in the number of customers using our
pre-paid plans, which provides us lower average revenue per
customer; 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">in 2002, a revision in our post-paid plans, which
provided us lower average usage charge revenues per post-paid
plan customer, partially offset by higher average monthly
subscription charge revenues per post-paid plan customer.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Usage charges</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from usage charges decreased to R$409.8&nbsp;million in 2002, an 8.3%
decrease compared to R$447.1&nbsp;million in 2001, which represented a 9.4% increase
from R$408.7&nbsp;million in 2000. The decrease in 2002
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> was due mainly to the migration of customers to our new service plans with
a higher number of free minutes per plan, thus lowering the amount of usage
minutes. The increases in 2001 and 2000 were due mainly to the expansion of
our average client base of 23.2% and 47.8% in 2001 and 2000, respectively, and
increases in our rates, by an average of 5.6% and 5.9% in 2001 and 2000,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The volume of outgoing minutes used by our customers in 2002 was 766.7
million minutes, representing a 15.4% decrease from 906.1&nbsp;million minutes in
2001, which represented a 13.0% increase from 801.8&nbsp;million minutes in 2000.
In 2002, we had 1,191.9&nbsp;million incoming minutes, representing a 1.2% increase
from 1,177.9&nbsp;million minutes in 2001, which in turn represented a 5.1% increase
from 1,120.5&nbsp;million minutes in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the three-year period ending December&nbsp;31, 2002, we had a decrease in
the total average monthly minutes of billed use per customer (&#147;MOU&#148;).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the MOU of our network, for the years
indicated:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="72%">&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="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">Average incoming MOU during the year (1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76.2</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">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">59.7</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">Average outgoing MOU during the year (1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54.5</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">50.0</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">38.4</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">Average total MOU during the year (1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">130.8</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">115.0</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">98.1</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Calculated based on monthly averages, including
free MOU in connection with the following service plans:
TIM 30, TIM 50, TIM 100, and TIM 200.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe the decrease in the average MOU during the three-year period
ending December&nbsp;31, 2002 was mainly due to the increase in the number of
customers served through our pre-paid plans. Customers using our pre-paid
plans have a lower average MOU than customers using our post-paid plans, who in
comparison with customers using pre-paid plans, show a higher average MOU over
the same period of time. We believe that the higher usage levels by customers
using post-paid plans results from customer loyalty programs, segmented
customer retention policies, the launching of new service plans and
improvements in TIM Business, a unit that specializes in the development of
communications solutions for corporate customers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Monthly subscription charges</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from monthly subscription charges increased 10.7% in 2002 to
R$197.3&nbsp;million, compared to R$178.3&nbsp;million in 2001, which amounted to a
decrease of 2.1% from R$182.1&nbsp;million in 2000. The increase in revenues
derived from monthly subscription charges in 2002 was principally due to the
launch of a new group of service plans, each of which included a monthly
subscription charge, as well as an average 7.8% rate increase which took effect
in February 2002. The decrease in 2001 was principally due to the number of
customers switching to pre-paid plans, for which we do not charge monthly
subscription fees.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<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="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">Average number of customers using post-paid plans(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">756,326</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">681,535</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,106,682</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">Average number of customers using pre-paid plans(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">469,049</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">828,663</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">557,104</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 number of customers(1)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,225,375</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,510,198</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,663,786</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">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Average numbers are based on the number of customers at the end of each
month during the relevant year.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interconnection Charges</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interconnection revenues increased 11.3% to R$341.5&nbsp;million in 2002 from
R$306.8&nbsp;million in 2001, which in turn represented a 24.5% increase from
R$246.4&nbsp;million in 2000. The increase during this three-year period was mainly
caused by:
<P align="center"><FONT size="2">45</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>
<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="88%"><FONT size="2">increases in our customer base; 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">increases in interconnection fees.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Service Revenues</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenues from other services principally include revenues from value added
services, including short-message services (&#147;SMS&#148;); timnet services such as
information services, ring tone services and SMS chat services; Internet
services; conference calling; account transfers; changing numbers; call
forwarding; call waiting; call blocking; and voicemail services that exceed the
customer&#146;s monthly limit for free service. Revenues from other services
increased 175.6% to R$22.5&nbsp;million in 2002 from R$8.2&nbsp;million in 2001, which in
turn represented a 151.4% increase from R$3.2&nbsp;million in 2000. The increase
over the three year period was mainly caused by the growth of value added
services. We registered 52&nbsp;million SMS messages in 2002, compared to 10
million messages in 2001. In addition, we pioneered the launch of SMS
interconnection services with competitors in the Brazilian market in 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales of Cellular Handsets and Accessories</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of cellular handsets in 2002 increased 50.7% to R$174.9&nbsp;million from
R$116.0&nbsp;million in 2001, which in turn represented an increase of 35.5% from
R$85.6&nbsp;million in 2000. From May 2000 until August 2001, we did not sell
cellular handsets to our authorized dealers. During this period, such sales
were made by a third-party, and we did not receive revenues in connection with
such sales. Beginning in August 2001, we resumed selling directly to our
authorized dealers in order to ensure quality in the supply of handsets and
because dealers preferred to deal directly with us. The increase in sales of
cellular handsets in 2002 was due principally to the full-year effect of the
restarted direct sales to our authorized dealers. The increase in 2001 was due
principally to handset sales resuming in 2001 during a period with higher
seasonal sales activity than the period during which handsets were sold in
2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Discounts</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We treat discounts in the form of free minutes and discounts on handset
sales as deductions from gross revenue. Discounts amounted to R$40.0&nbsp;million
in 2002, representing a 48.5% decrease from R$77.7&nbsp;million in 2001, which
represented an increase of 274.4% from R$20.8&nbsp;million in 2000. The decrease in
discounts provided to customers in 2002 resulted mainly from a reduction of
competitive pressure to offer discounts during the year. The increase in
discounts provided to customers in 2001 resulted mainly from marketing
strategies implemented in order to attract new customers as well as retain
existing customers.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2"><B><I>Our Costs</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the composition of costs of services and
sales of cellular handsets for each year in the three-year period ended
December&nbsp;31, 2002, as well as the percentage change from year to year:
</FONT>


<P align="left"><FONT size="2"><B>Statement of Income Data:</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="41%">&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="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="2%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="2">Brazilian Corporate Law</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="7"><FONT size="1"><B>Year over year</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center">&nbsp;</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><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</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 nowrap align="center" colspan="11"><FONT size="1"><B>(in thousands of <I>reais</i>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Percentage Changes</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <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">R$128,341</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">R$150,121</FONT></TD>
    <TD><FONT size="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$164,362</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">17.0</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">9.5</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">Personnel</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,724</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,965</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">(19.7</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">2.8</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">Interconnection</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">62,199</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">80,187</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90,066</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">28.9</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">12.3</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">Leased lines and radio sites</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">43,548</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">41,574</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">43,147</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">(4.5</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">3.8</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">Third party services and
materials</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,365</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">17,392</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">(22.8</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">40.7</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 costs 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">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">1,139</FONT></TD>
    <TD><FONT size="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>
    <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">10.1</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">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">261,538</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">294,110</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">325,186</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">12.5</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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Costs of handsets and
accessories sold</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">102,930</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">111,923</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">161,197</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">8.7</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">44.0</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">Total costs of services and
handset sales</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$364,468</FONT></TD>
    <TD><FONT size="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$406,033</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">R$486,383</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">11.4</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">19.8</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation and amortization</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization expenses increased 9.5% to R$164.4&nbsp;million
in 2002, compared to R$150.1&nbsp;million in 2001, which in turn represented an
increase of 17.0% from R$128.3&nbsp;million in 2000. The increases throughout the
three-year period resulted mainly from increases in the amount of our
depreciable assets, as a result of investments made relating to the expansion
and modernization of our network.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We completed the replacement of base stations operating under analog
technology with base stations operating under digital technology throughout the
network during 2000. By the end of 2000, our network had 711 radio base
stations, all of which were digital. During 2001 and 2002, we increased the
number of our base stations from 754 to 795, all operating under digital
technology. See Notes 3.f and 12 to our Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Personnel</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Personnel costs increased 2.8% to R$9.0&nbsp;million in 2002 from R$8.7&nbsp;million
in 2001, which represented a 19.7% decrease from R$10.9&nbsp;million in 2000. The
increase in 2002 compared to 2001 was mainly due to a salary adjustment in
accordance with a December 2001 collective-bargaining agreement with our labor
union. The decrease in 2001 compared to 2000 was mainly due to a decrease in
the number of employees.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interconnection</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our interconnection costs are paid to fixed-line and other cellular
service providers for completion on their networks of calls originating on our
network. Interconnection costs increased 12.3% to R$90.1&nbsp;million in 2002 from
R$80.2&nbsp;million in 2001, which in turn represented a 28.9% increase from R$62.2
million in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increase in the three-year period ending December&nbsp;31, 2002 resulted
principally from the increase in the size of our customer base, which led to a
higher volume of calls originating from our network and completed on the
networks of other telecommunications service providers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Leased lines and radio sites</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leased-line and radio site costs represent lease payments to Brasil
Telecom and Embratel for use of circuits interconnecting our base stations to
our switching centers and to their fixed network. Such leased line costs
increased 3.8% to R$43.1&nbsp;million in 2002 from R$41.6&nbsp;million in 2001, which
represented a 4.5% decrease from R$43.5&nbsp;million in 2000. The increase in
leased line and radio site costs in 2002 was primarily due to an expansion
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> of the network, which resulted in a 5.4% increase in the number of radio
base stations. The decrease in 2001 was primarily due to price reductions
negotiated with suppliers to reflect the high volume of circuits and capacity
we use.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Third-party services and materials</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Third-party services and materials costs amounted to R$17.4&nbsp;million in
2002, a 40.7% increase from R$12.4&nbsp;million in 2001, which in turn reflected a
22.8% decrease from R$16.0&nbsp;million in 2000. The increase in cost of
third-party services and materials in 2002 resulted principally from the
increase in costs in <I>reais </I>of dollar-denominated maintenance agreements as a
result of the devaluation of the <I>real </I>during the year and the incurrence for
the first time of maintenance fees for services previously provided under
product warranties. The decrease in 2001 resulted principally from the
reclassification of costs associated with network maintenance from third-party
servicer providers to general and administrative expenses.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other costs of services</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other costs of services increased 10.1% to R$1.3&nbsp;million in 2002 from
R$1.1&nbsp;million in 2001, which in turn represented a 98.4% increase from R$0.6
million in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Costs of handsets and accessories sold</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of cellular handsets and accessories sold in 2002 was R$161.2
million, representing a 44.0% increase from R$111.9&nbsp;million in 2001, which in
turn represented an increase of 8.7% from R$102.9&nbsp;million in 2000. From May
2000 to August 2001, we did not sell cellular handsets to authorized dealers
and we significantly decreased our purchase of cellular handsets during the
period. Beginning in August 2001, we resumed direct sales of handsets to our
authorized dealers. The increase in the cost of cellular handsets in 2002 was
due principally to the full-year effect of resumed sales to our authorized
dealers. The increase in 2001 was principally due to sales resuming in 2001
during a period with higher seasonal sales activity than the period during
which handsets were sold in 2000.
</FONT>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth our operating expenses, as well as the
percentage change from year to year of each component, for the three-year
period ended December&nbsp;31, 2002.
</FONT>

<P align="left"><FONT size="2"><B>Statement of Income Data:</B><br>
<i>Brazilian Corporate Law</i>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="44%">&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="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>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="2">&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="7"><FONT size="1"><B>Year over year</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center">&nbsp;</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><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>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 nowrap align="center" colspan="11"><FONT size="1"><B>(in thousands of <I>reais</i>)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>Percentage Changes</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">R$(201,150</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$(181,424</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">R$(185,446</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">(9.8</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">2.2</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">General and 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">(76,300</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">(71,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(83,346</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5.8</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">15.9</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">Other operating income (expenses),
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">(14,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,584</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,902</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">7.3</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">(4.4</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">Equity investment</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,888</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,288</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">&#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">127.1</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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 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">R$(291,972</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$(270,805</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$(287,982</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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">6.3</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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;Our total operating expenses increased 6.3% to R$288.0&nbsp;million in 2002
from R$270.8&nbsp;million in 2001, which in turn represented a 7.8% decrease from
R$292.0&nbsp;million in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling expenses</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling expenses increased 2.2% to R$185.4&nbsp;million in 2002 from R$181.4
million in 2001, which in turn represented a 9.8% decrease from R$201.2&nbsp;million
in 2000. The increase in selling expenses in 2002, compared to 2001, was
mainly due to higher amounts of allowances for doubtful accounts in 2002,
compared to amounts we recorded in 2001, and was partially offset by a decrease
in costs of third-party services resulting from lower advertising costs. The
decrease in 2001, compared to 2000, was mainly due to lower amounts of
allowances for
</FONT>
<P align="center"><FONT size="2">48</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"> doubtful accounts in 2001, compared to the amounts we recorded in 2000.
See Note 24 to our Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions for doubtful accounts increased 67.8% to R$30.7&nbsp;million in
2002, from R$18.3&nbsp;million in 2001, which in turn represented a 68.9% decrease
from R$59.1&nbsp;million in 2000. The changes over the three year period resulted
principally from our efforts during 2001 to recover past-due accounts,
including strengthening our collections practices and making efforts to reach
settlements on outstanding past-due amounts. As a result, the amount of our
provision (which is recorded in our financial statements net of recoveries)
declined dramatically in 2001 compared to 2000 and was lower than in 2002, when
the amount of the provision was not offset by large recoveries. Provisions for
doubtful accounts were higher in 2000 than in 2001 also because the 2000
provisions were made in respect of sales in 1999 which were more aggressively
pursued than sales in 2000. See Note 5 to our Consolidated Financial
Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and administrative expenses</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses increased 15.9% to R$83.3&nbsp;million in
2002 from R$71.9&nbsp;million in 2001, which in turn represented a 5.8% decrease
from R$76.3&nbsp;million in 2000. The increase in general and administrative
expenses in 2002 resulted mainly from an increase in information technology
expenses relating to depreciation and amortization of information systems. The
decrease in 2001 compared to 2000 was mainly due to a decrease in costs of
third-party services. In 2002, in accordance with a new CVM rule, we began
classifying employees&#146; profit sharing expense as general and administrative
expense instead of as a separate line item below operating income before
interest. All years prior to 2002 were restated for consistent presentation.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Net Operating Expense</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had other net operating expenses of R$14.9&nbsp;million in 2002 a 4.4%
decrease from R$15.6&nbsp;million in 2001, which in turn represented a 7.3% decrease
from R$14.5&nbsp;million in 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, other net operating expense principally included the amortization
of Goodwill in the amount of R$25.3&nbsp;million. This expense was partially offset
by income derived from fines in connection with the collection of past-due
accounts, in the amount of R$3.5&nbsp;million, income from rentals of circuits to
fixed-line providers, in the amount of R$5.6&nbsp;million, income from the
settlement of an international roaming dispute, in the amount of R$1.2&nbsp;million,
amounts recovered under an agreement with NEC, in the amount of R$1.2&nbsp;million,
income in the form of free handsets and accessories from suppliers for market
testing, in the amount of R$1.1&nbsp;million, a refund of taxes related to
intercompany loans, in the amount of R$0.7&nbsp;million, and other revenues, in the
amount of R$6.4&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001, other net operating expense principally included the amortization
of Goodwill in the amount of R$26.9&nbsp;million. This expense was partially offset
by income derived from fines in connection with the collection of past-due
accounts, in the amount of R$3.7&nbsp;million, by income from rentals of circuits to
fixed-line service providers, in the amount of R$5.4&nbsp;million and by a reversal
of a provision for the reduction to market value of inventories, in the amount
of R$9.0&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2000, other net operating expense principally included expenses in
connection with the creation of a reserve to adjust our cellular handsets
inventory to market value, in the amount of R$8.3&nbsp;million, and the amortization
of Goodwill, in the aggregate amount of R$14.3&nbsp;million. These expenses were
partially offset by income derived from fines in connection with past due
accounts, in the amount of R$4.5&nbsp;million, and by income from rentals of
circuits to fixed-line service providers, in the amount of R$6.4&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net Financial Income (Expense)</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had net financial expenses of R$19.0&nbsp;million in 2002, representing a
decrease of 57.3% from R$44.4&nbsp;million net financial expense in 2001, which in
turn represented a 23.3% decrease from R$57.9&nbsp;million net financial expense in
2000.
</FONT>

<P align="center"><FONT size="2">49</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;Net financial expenses over the period resulted principally from expenses
in connection with :
</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="88%"><FONT size="2">interest expense in connection with a direct financing
facility with the Export-Import Bank of the United States
(&#147;Eximbank&#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">interest expenses in connection with certain loans from
the <I>Banco Nacional de Desenvolvimento Econ&#244;mico e Social</I>
(&#147;BNDES&#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">interest expenses in connection with debentures we issued; 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">interest expenses on certain bridge loans we took
during the first three quarters of 2000, before finalizing the
negotiations of our long-term financing agreement with the BNDES
and the issuance of our debentures.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">These interest expenses in 2002, 2001 and 2000 were partially offset by
interest income of R$121.3&nbsp;million, R$45.3&nbsp;million and R$17.5&nbsp;million,
respectively. Although we recorded net foreign exchange losses of R$36.7
million, R$17.6&nbsp;million and R$12.7&nbsp;million in 2002, 2001 and 2000,
respectively, these losses were completely offset by equal net gains from our
hedging arrangements recorded as interest income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A substantial portion of our capital expenditures were financed through
loans and financings which had principal amounts outstanding of R$321.1
million, R$334.4&nbsp;million and R$352.8&nbsp;million on December&nbsp;31, 2002, 2001 and
2000, respectively. See &#147;Item&nbsp;4. Information on the
Company&#151;Capital
Expenditures.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Net non-operating income (expense)</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net non-operating income and expenses consist mainly of gains and losses
on the disposition of fixed assets and write-offs of fixed assets. We had net
non-operating expense of R$127 thousand in 2002, compared to net non-operating
income of R$10 thousand and R$3.5&nbsp;million in 2001 and 2000 respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Income and social contribution taxes</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2002, we recorded income and social contribution tax expense in the
amount of R$19.5&nbsp;million. The income and social contribution tax expense in
2002 was mainly due to the recording of taxable income. We recorded income and
social contribution tax benefit of R$0.7&nbsp;million and R$6.3&nbsp;million in 2001 and
2000, respectively. Such gain resulted primarily from timing differences
between book and tax income.
</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;Minority interests reflect the participation of minority shareholders in
the Subsidiaries in the net income or loss of such Subsidiaries, as the case
may be. In November 2002, we restructured the Subsidiaries. As a result of
this restructuring both Telesc Celular and CTMR Celular became wholly-owned
subsidiaries of Telepar Celular, as opposed to direct subsidiaries of the
Holding Company, and Telesc Celular&#146;s and CTMR Celular&#146;s shareholders became
shareholders of Telepar Celular. Minority interest participation in the net
income of Telepar Celular was R$12.6&nbsp;million in 2002. Minority interest
participation in the net income of the Subsidiaries was R$11.0&nbsp;million in 2001.
Minority interest participation in the net loss of the Subsidiaries was R$3.0
million in 2000. See Note 3.r to our Consolidated Financial Statements.
</FONT>

<P align="left"><FONT size="2"><B>Brazilian Economic Environment</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business, prospects, financial condition and results of operations are
dependent on general economic conditions in Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazil experienced extremely high rates of inflation and devaluation of
the Brazilian currency for years prior to the implementation of the <I>Real </I>Plan
in 1994. Inflation and certain governmental measures to combat inflation have
historically contributed to economic uncertainty in Brazil and to significant
volatility in the Brazilian securities markets. The following tables set forth
rates of inflation in Brazil, as measured by the IGP-M, and the devaluation of
the <I>real </I>against the dollar during the periods indicated.
</FONT>



<P align="center"><FONT size="2">50</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="75%">
<TR valign="bottom">
    <TD width="54%">&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="2%">&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="1%">&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="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 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="top">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(percentages)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inflation (IGP-M)</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">1.7</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">20.1 </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">9.9 </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">10.3 </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">25.3</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">Devaluation (<I>real </I>vs. US$)(1)</FONT></DIV></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">&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">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">18.6</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">52.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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="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>
    <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="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="15"><FONT size="1"><B>First Quarter of 2003</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>Jan</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Feb</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Mar</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Apr</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="top">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="15"><FONT size="1"><B>(percentages)</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Inflation (IGP-M)</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">2.3 </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">2.3 </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">1.5 </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">0.9 </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">Devaluation (real vs. US$)(1)</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">(0.2</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">1.1</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">(5.9</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">(13.8</FONT></TD>
    <TD nowrap><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 width="1%" align="left" nowrap><FONT size="2">(1)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Source: </I>Central Bank and Funda&#231;&#227;o Get&#250;lio Vargas.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>Liquidity and Capital Resources</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Celular Sul&#146;s principal assets are the shares of the Subsidiaries.
Tele Celular Sul relies almost exclusively on dividends from the Subsidiaries
to meet its needs for cash, including for the payment of dividends to its
shareholders. Tele Celular Sul controls the payment of dividends by the
Subsidiaries, subject to limitations set forth by Brazilian law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to fund our capital expenditures and distributions to our
shareholders in 2003 with cash from operating and investing activities. In the
event that cash from such sources were to fall short of our expectations, we
would seek to compensate for such shortfall through a combination of financing
and reduction of both capital expenditures and distributions to shareholders.
Distributions to our shareholders, however, cannot fall below minimum
thresholds required by Brazilian Corporate Law. See &#147;Item&nbsp;8. Financial
Information Dividend Policy.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our Sources and Uses of Funds</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generated cash flows from operating activities in the amounts of
R$431.3&nbsp;million, R$249.6&nbsp;million and R$195.7&nbsp;million in 2002, 2001 and 2000,
respectively.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Principal uses of funds during the three-year period ended December&nbsp;31,
2002, were the purchase of fixed assets, the payment of distributions to our
shareholders and loan repayments. Funds used for the purchase of fixed assets
for the years ended December 2002, 2001 and 2000 totaled R$68.7&nbsp;million,
R$158.4&nbsp;million and R$204.3&nbsp;million, respectively. Dividend payments to Tele
Celular Sul shareholders for the years ended December&nbsp;31, 2002, 2001 and 2000
totaled R$18.7&nbsp;million, R$10.2&nbsp;million and R$11.3&nbsp;million, respectively. Funds
used for loan payments for the years ended December&nbsp;31, 2002, 2001 and 2000
totaled, respectively, R$47.6&nbsp;million, R$36.3&nbsp;million and R$432.6&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Financial Contracts</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and our Subsidiaries are parties to the following material financial
contracts:
</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">Credit Agreement, dated as of December&nbsp;3, 1999, among
Telepar Celular, as borrower, Tele Celular Sul, as guarantor, and
Export-Import Bank of the United States, as lender, in the
principal amount of US$46.1&nbsp;million. Our payments of principal
and interest under this agreement are subject to currency
exchange rate fluctuations and bear interest at a rate of 7.03%
per annum;</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">Credit Agreement, dated as of December&nbsp;22, 2000, among
BNDES, Telepar Celular, as borrower, and Tele Celular Sul, as
guarantor, in the principal amount of R$61.1&nbsp;million. Under this
loan, R$46.4&nbsp;million of the total principal amount bears interest
at a variable rate of 4% plus the long term interest rate
(&#147;TJLP&#148;), which was 10.0% per annum on December&nbsp;31, 2002. The
remaining</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">51</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="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2"><FONT size="2">&nbsp;</FONT></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">R$14.7&nbsp;million of principal is adjusted according to a &#147;BNDES
currency basket,&#148; consisting mainly of the U.S. dollar. On
December&nbsp;31, 2002, the outstanding amount under this credit
agreement, including accrued interest, was R$69.4&nbsp;million; 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">Indenture for the First Public Issuance of Subordinated
Single-Series&nbsp;Simple Debentures of Telepar Celular, dated as of
November&nbsp;9, 2000, in the principal amount of R$200.0&nbsp;million.
The debentures are nonconvertible and bear interest at a variable
rate equal to 102.7% of the inter-bank certificate of deposit
rate (&#147;CDI&#148;), which equaled an average of 19.1% per annum for the
year ended December&nbsp;31, 2002. The debentures will mature in
October 2003. On December&nbsp;31, 2002, the amount outstanding under
our debentures was R$210.1&nbsp;million.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See notes 15 and 16 to our Consolidated Financial Statements for a further
description of such financing agreements. See &#147;&#151;Quantitative and Qualitative
Disclosures about Market Risk,&#148; for a discussion regarding our exposure to
foreign currency fluctuations and our hedging activities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, we had R$321.1&nbsp;million outstanding in loans,
financings and debentures compared to R$334.4&nbsp;million on December&nbsp;31, 2001, and
to R$352.8&nbsp;million on December&nbsp;31, 2000.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp; <B><I>Investments in Fixed Assets</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We made capital expenditures totaling R$68.7&nbsp;million, R$158.4&nbsp;million, and
R$204.3&nbsp;million in 2002, 2001 and 2000, respectively. In 2002, capital
expenditures related primarily 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">expanding coverage 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">enhancing information technology.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 2001 and 2000, capital expenditures related primarily 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">expanding network capacity, coverage and digitalization;</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">developing new operational systems to meet customers&#146; demands; 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">creating the timnet internet portal.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table contains a breakdown of our investments in fixed
assets for the fiscal years ended December&nbsp;31, 2002, 2001 and 2000.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="57%">&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="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="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 nowrap align="center"><FONT size="1"><B>Capital Expenditures Categories</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 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">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(in millions of
<I>reais</I>)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telecommunications equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$122.8</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">R$83.2</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">R$34.5</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">Network construction</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.7</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">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">1.4</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">Information technology</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36.7</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">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">22.2</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">Others</FONT></DIV></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">29.1</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">10.6</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 capital expenditures</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$204.3</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">R$158.4</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">R$68.7</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="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;Our management has approved planned capital expenditures in 2003 in the
total amount of R$270.0&nbsp;million. Most of the planned 2003 capital expenditures
relate to the implementation of the GSM overlay. See &#147;&#151;Information on the
Company&#151;History and Development of the Company&#151;Capital Expenditures.&#148;
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are required to distribute 25% of our adjusted net income to our
shareholders either as dividends or as tax-deductible interest on shareholders&#146;
equity. We are also required to pay a non-cumulative preferred dividend on our
preferred shares in an amount equal to the higher of: (i)&nbsp;6% of our capital
(&#147;<I>capital social</I>&#148;) divided by the total
</FONT>
<P align="center"><FONT size="2">52</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">number of ordinary and preferred shares, and (ii)&nbsp;3% of the net
shareholders&#146; equity (&#147;<I>patrim&#244;nio l&#237;quido</I>&#148;), according to the most recent
financial statements approved by the shareholders. See Note 21.e to our
Consolidated Financial Statements. Our Subsidiaries are also subject to
mandatory distribution requirements and are accordingly required to pay
dividends to their shareholders, in the case of Telesc Celular and CTMR
Celular, exclusively to Telepar Celular, and in the case of Telepar Celular, to
Tele Celular Sul and Telepar Celular&#146;s minority shareholders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table contains a breakdown of the dividends and interest on
shareholders&#146; equity paid (net of income taxes) by Tele Celular Sul to its
shareholders for the fiscal years ended December&nbsp;31, 2002, 2001 and 2000.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="61%">&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">
    <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 nowrap align="center"><FONT size="1"><B>Distribution</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 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">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="11"><FONT size="1"><B>(in millions of
<I>reais</I>)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$9.2</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">R$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">R$11.8</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">Interest on 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">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">17.7</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">14.5</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 Distributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$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">R$18.5</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">R$26.2</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;Tele Celular Sul common shareholders approved on March&nbsp;18, 2003 the
distribution of a total of R$28.8&nbsp;million to its shareholders in respect of
2002 income, as dividends and interest on shareholders&#146; equity.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp; <B><I>Contractual Obligations and Commercial Commitments</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents our contractual obligations and commercial
commitments as of December&nbsp;31, 2002:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="43%">&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="4%">&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="2%">&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><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><FONT size="1">&nbsp;</FONT></TD>
    <TD align="center" colspan="19"><FONT size="1"><B>(in thousands
of <I>reais</I>)</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><FONT size="1">&nbsp;</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 nowrap align="center" colspan="3"><FONT size="1"><B>1-3</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>4-5</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>After 5</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>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>years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>years</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">Contractual obligations</FONT></DIV></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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</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><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-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">R$110,971</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">R$38,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$72,536</FONT></TD>
    <TD><FONT size="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$383</FONT></TD>
    <TD><FONT size="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">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">&#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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operating leases</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unconditional 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">&#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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other long-term obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,114</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,114</FONT></TD>
    <TD><FONT size="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>
    <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">Total contractual cash obligations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$321,085</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">R$248,166</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">R$72,536</FONT></TD>
    <TD><FONT size="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$383</FONT></TD>
    <TD><FONT size="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>
    <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>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Notes 15 and 16 to our Consolidated Financial Statements.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the Breakup of Telebr&#225;s, each of the Subsidiaries was
required to enter into three-year contracts with the <I>Centro de Pesquisa e
Desenvolvimento da Telebr&#225;s</I>, a research and development center formerly
operated by Telebr&#225;s that has continued to develop communications technology
since the Breakup as a private, independently managed entity. Under such
contracts, the Subsidiaries were required to pay the <I>Centro de Pesquisa e
Desenvolvimento da Telebr&#225;s </I>an aggregate total amount of R$2.3&nbsp;million, during
the three-year period ended in May 2002.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We rely on research and development conducted by the manufacturers of
products we purchase. We do not carry out significant independent
technological research and development activities.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our aggregate expenditures on research and development, including our
contributions to the <I>Centro de Pesquisa e Desenvolvimento da Telebr&#225;s</I>, were
R$0.6&nbsp;million and R$1.1&nbsp;million for 2001 and 2000, respectively.
</FONT>

<P align="center"><FONT size="2">53</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link2 "ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES" -->
<DIV align="left"><A NAME="008"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</B>
</FONT>


<P align="left"><FONT size="2"><B>Directors and Senior Management</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;Tele Celular Sul&#146;s management consists of a <I>Conselho de Administra&#231;&#227;o</I>
(&#147;Board of Directors&#148;) and a <I>Diretoria </I>(&#147;Board of Executive Officers&#148;), which
are overseen by a <I>Conselho Fiscal </I>(&#147;Fiscal Committee&#148;). The Tele Celular Sul
Board of Directors is comprised of three members serving for a three-year term.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the current members of the Board of Directors and their
respective positions.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="26%">&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>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Date Appointed</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 nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Mario Cesar Pereira de Ara&#250;jo</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chairman
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">March&nbsp;18, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Paulo S&#233;rgio de Oliveira Diniz</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">December&nbsp;20, 2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Franco Bertone</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Director
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">December&nbsp;20, 2002</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below are brief biographical descriptions of the directors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>M&#225;rio C&#233;sar Pereira de Ara&#250;jo</I>, 55&nbsp;years old, has been a member of our
Board of Directors and the Chairman of our Board since March&nbsp;2003. He
holds a degree in electrical engineering from Universidade Federal do Rio de
Janeiro &#150; UFRJ. Mr.&nbsp;Ara&#250;jo has been Chief Executive
Officer of TIM Brasil S.A., Tim Celular S.A. and Bitel
Participa&#231;&otilde;es S.A. since February 2003. He has also been
Chief Executive Officer and Technology Officer of Tele Nordeste
Celular since April&nbsp;2003. Additionally, he has been Chairman of
the Board of Directors of Tele Nordeste Celular, Telpa Celular S.A.,
Telepisa Celular S.A., Telecear&#225; Celular S.A. and Telasa Celular
S.A. since May 2003. From 1999 to 2002, he served as Chief Executive
Officer of Norte Brasil Telecom. From 1998 to 1999, he served as
Chief Executive Officer of Tele Centro Oeste Celular. From 1997 to
1998, he served as a Manager of Services in the areas of paging,
trunking and Internet services at Splice do Brasil S.A. From 1977 to
1997, he worked at Embratel as a Manager of Data Communications, an
Assistant to the Director of Engineering and as a Manager of the
Department of Corporate Clients. From 1973 to 1977, he worked in the
data and text communications department of Telerj.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Paulo S&#233;rgio de Oliveira Diniz</I>, 46&nbsp;years old, has been a member of our
Board of Directors since December 2002. He holds a degree in Production
Engineering from Universidade Polit&#233;cnica de S&#227;o Paulo, a post-graduate degree
in Human Resources from Insead in France, and an M.B.A. from the International
Management Development Institute in Switzerland. Since 1998, he has worked for
the Telecom Italia Group, initially as Chief Financial Officer for TIM Maxitel
S.A, and later as Chief Financial Officer for Tim Brasil S.A. He currently
serves as Director and Corporate Treasurer for Latin American Operations. From
1996 to 1998, he served as Corporate Treasurer for Keramik Holding AG Laufen in
Switzerland. From 1992 to 1995, he served as Finance and Administrative
Director for Incepa S.A in Brazil. From 1991 to 1992, he served as Controller
for Latin American Operations for United Technologies in the United States.
From 1987 to 1991, he served as Controller for Hoffman La Roche in Brazil.
From 1986 to 1987, he served as Senior Account Manager &#150; Latin America
Corporate Banking for the Bank of Montreal in Canada. From 1983 to 1984, he
served as an Account Manager for the Banco Frances in Brazil.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Franco Bertone</I>, 51&nbsp;years old, has been a member of our Board of Directors
since December 2002. Mr.&nbsp;Bertone holds a degree in electrical engineering and
a graduate degree in business, digital communications and systems management
from Scuola Superiore G. Reiss Romoli. Mr.&nbsp;Bertone is Corporate Vice President
of Telecom Italia Latin America. From 2001 to 2002, Mr.&nbsp;Bertone was the
Director of International Operations for Telecom Italia Latin America. From
1997 to 2000, Mr.&nbsp;Bertone was the Chief Executive Officer and Board President
of Entel-Bolivia. From 1992 to 1997, Mr.&nbsp;Bertone was the Chief Executive
Officer and Board President of Sirti Limited Corp. &#150; USA. From 1986 to 1991,
Mr.&nbsp;Bertone was the Director of Systems at Sirt-Milano. From 1983 to 1985, Mr.
Bertone was the Programming Manager of the Sirt-Ericsson-Phillips joint
venture.
</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;The Board of Executive Officers consists of four members, elected by the
board of directors for a term of three years. An executive officer may be
removed from office at any time.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the current executive officers and their respective
positions:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="12%">&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>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Date Appointed</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 nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">Alvaro Pereira de Moraes Filho</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
President, Chief Executive Officer, Chief Information
Technology Officer and Chief Administrative Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">October&nbsp;31,&nbsp;2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Paulo Roberto Cruz Cozza</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Financial Officer and Director of Investor Relations
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">October&nbsp;31,&nbsp;2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Gil Odebrecht</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Technology Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">October&nbsp;31,&nbsp;2002</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Maur&#237;cio Roorda</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Chief Marketing Officer and Chief Commercial Officer
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">October&nbsp;31,&nbsp;2002</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below is a brief biographical description of the executive
officers.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Alvaro Pereira de Moraes Filho</I>, 54&nbsp;years old, has been our president and
chief executive officer since September 1998. He also holds the position of
our chief information technology officer and chief administrative officer. He
also serves as the president of Telepar Celular S.A., Telesc Celular S.A. and
CTMR Celular S.A. He joined Telecomunica&#231;&#245;es do Paran&#225; S.A.&#151;Telepar in 1974
where he has served as manager of data processing (1974-78), manager of the
division of planning of operations (1976-80), manager of the coordination of
operations department (1979-87), manager of the engineering planning department
(1987-91), manager of the human resources development department (1991-93),
executive officer of engineering (1993-94), manager of the technical
coordination office (1994-95) and manager of the systems department (1996-98).
He has also served as manager of the services department (1995-96) of Telepar
Celular. He holds a degree in electronic engineering from the Instituto de
Tecnologia e Aeron&#225;utica &#150; ITA.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Paulo Roberto Cruz Cozza</I>, 39&nbsp;years old, has been our chief financial
officer and investor relations director since January 2002. In 1988, he joined
Itautec Inform&#225;tica S.A., acting as an accounting manager. From 1992 to 1998,
he served as controlling manager at Holland Latina America Ltda. From 1998 to
1999, he served as controlling manager at Incepa Lou&#231;as Sanit&#225;rias S.A. He
joined Tele Celular Sul in 1999, as controlling manager, and has served as
chief financial officer since January 2002. His professional experience
includes the preparation of management systems for the financial, human
resources and controlling areas. He holds an accounting degree from Faculdades
Integradas Garulhos.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gil Odebrecht</I>, 36&nbsp;years old, has been our chief technology officer since
June 1999. He joined Telesc in 1988 where he served as an engineer for
projects, implementation, operations and maintenance of switching centers until
1992. From 1992 to 1995, he served as manager of the technical division of
cellular telephony. From 1995 to 1998, he served as manager of the department
of cellular telephony, and since 1998, he has served as manager of the
department of operations for the state of Santa Catarina. He holds an
electrical engineering degree from the Federal University of Santa Catarina and
a business administration degree from the University for the Development of the
State of Santa Catarina.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Maur&#237;cio
Roorda</I>, 39&nbsp;years old, has been our chief business and
marketing officer since
March 2000. He served as a development engineer for Siemens in Brazil from
1986 to 1988. In 1989, he joined Shell in Brazil where acted as manager of
information technology until 1994. He joined Banco Nacional in 1996, where
after working on the reorganization of the distribution department of the bank,
he was named Marketing Director. He has a degree in electrical engineering
from the Technological Institute of Aeronautics &#150; I.T.A., with a specialization
in telecommunications. He holds a master&#146;s degree in electrical engineering
from The Netherlands University Foundation for International Cooperation,
Holland (1985 &#150; 1986), and an MBA from the Massachusetts Institute of
Technology, USA (1995 &#150; 1996).
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fiscal Committee consists of five members: three members elected by
Bitel, one member elected by the minority common shareholders, and one member
elected by the holders of our Preferred Shares.
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following are the current members of our fiscal committee:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="29%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="1"><B>Name</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center"><FONT size="1"><B>Date Appointed</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">Antonio Sidnei dos Santos</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
March&nbsp;18, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Isaac Salim Sutton</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
March&nbsp;18, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Jos&#233; Antonio Machado</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
March&nbsp;18, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Lara Cristina Ribeiro Piau</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
March&nbsp;18, 2003</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Walmir Urbano Kesseli</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
March&nbsp;18, 2003</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;For the year ended December&nbsp;31, 2002, Tele Celular Sul paid the directors
and executive officers as compensation for their services, in the aggregate,
approximately R$1.2&nbsp;million. The officers and directors did not receive any
benefit not included in the compensation referred to in this annual report.
Accordingly, we did not set aside or accrue any amounts to provide pension,
retirement or similar benefits to our officers and directors during 2002. See
&#147;&#151;Employee Stock Option Plan,&#148; for a description of our plan to compensate our
employees based on the results of operations.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our directors&#146; duties and responsibilities are set forth by Brazilian law
and our <I>Estatutos </I>(&#147;by-laws&#148;). All decisions taken by our board of directors
are registered in the books of the Board of Directors&#146; meetings. The Board of
Directors holds regular meetings once every quarter of the fiscal year and also
holds special meetings when discretionarily called by the chair, or two
directors. The chairperson of the Board of Directors may also invite to the
Board of Directors&#146; meetings, at his discretion, any of our key employees, in
order to discuss any relevant corporate matter. Our Board of Directors does
not have an independent directors&#146; committee or a compensation committee.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, we had 1,015 full-time employees and 50 independent
contractors, compared to 1,178 full-time employees and 55 independent
contractors in 2001, and 1,175 full-time employees and 70 independent
contractors in 2000. On December&nbsp;31, 2002, approximately 22% of employees were
members of state labor unions associated with the <I>Federa&#231;&#227;o Nacional dos
Trabalhadores em Telecomunica&#231;&#245;es &#150; Fenattel and the Federa&#231;&#227;o Interestadual
dos Trabalhadores em Telecomunica&#231;&#245;es &#150; Fittel or the Sindicato dos Engenheiros
do Estado do Paran&#225;. </I>We negotiate a new collective labor agreement every year
with the local unions. The collective agreements in force on December&nbsp;31,
2002, expire on November&nbsp;30, 2003. Management considers our relations with our
work force to be very good. We have not experienced a strike that had a
material effect on operations.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;<B><I>Employee Benefit Plans</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Before the Breakup, <I>Funda&#231;&#227;o Telebr&#225;s de Seguridade Social &#150; Sistel</I>
administered a defined benefit plan for the benefit of the former employees of
the Predecessor Companies. All Predecessor Companies jointly sponsored the
single defined benefit plan managed by <I>Funda&#231;&#227;o Telebr&#225;s de Seguridade Social &#150;
Sistel.</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In preparation for the Breakup, separate defined benefit plans were
created, each exclusively covering employees of an individual Predecessor
Company. Telepar, Telesc, CTMR and the other sponsors of the defined benefit
plan managed by <I>Funda&#231;&#227;o Telebr&#225;s de Seguridade Social &#150; Sistel </I>negotiated the
creation of independent defined benefit plans on January&nbsp;13, 2000. According to
this segregation of the single defined benefit plan managed by <I>Funda&#231;&#227;o
Telebr&#225;s de Seguridade Social &#150; Sistel</I>, Telepar, Telesc and CTMR were
responsible for funding the individual defined benefit plans covering their own
respective employees. As a result of the Telepar, Telesc, CTMR cellular
business spin-off, and the creation of our Subsidiaries, the Telepar, Telesc
and CTMR defined benefit plans became jointly sponsored by us and Brasil
Telecom, the fixed-line service provider operating within our Region after the
Breakup.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Funda&#231;&#227;o Telebr&#225;s de Seguridade Social &#150; Sistel </I>still manages such defined
benefit plans independently from us, and its assets and liabilities are fully
segregated from ours. Those of our employees participating in the
</FONT>
<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"> Telepar, Telesc and CTMR defined benefit plan administered by <I>Funda&#231;&#227;o
Telebr&#225;s de Seguridade Social &#150; Sistel </I>at the time of our Privatization were
entitled to maintain their respective rights under such plans.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently make monthly contributions to <I>Funda&#231;&#227;o Telebr&#225;s de Seguridade
Social &#150; Sistel </I>equal to approximately 13.5% of the salary paid to each of the
employees covered by the defined benefit plans administered by <I>Funda&#231;&#227;o
Telebr&#225;s de Seguridade Social &#150; Sistel</I>. In addition, each of the employees
covered by such plans also makes a monthly contribution to <I>Funda&#231;&#227;o Telebr&#225;s de
Seguridade Social &#150; Sistel, </I>which is determined according to age and salary.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employees hired after our Privatization are not covered by <I>Funda&#231;&#227;o
Telebr&#225;s de Seguridade Social &#150; Sistel</I>, and we do not contribute to any pension
fund on behalf of such employees. See Note 31.III.a to our Consolidated
Financial Statements.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2002, we created a new defined contribution pension plan
(&#147;TIMPREV&#148;) that would bring us in line with current social security practices
in the private sector and also allow for the migration of employees
participating in our private plan created in 2000 (&#147;Tele Celular Sul PBS
Plan&#148;). TIMPREV was approved by the Secretary of Complementary Pension on
November&nbsp;13, 2002 in Notification 1,917 CGAJ/SPC. TIMPREV sets forth new
guidelines for the granting and maintenance of benefits and outlines new rights
and obligations for Sistel, the plan administrator; sponsors; participants and
their respective beneficiaries.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Migration from the Tele Celular Sul PBS Plan to TIMPREV is optional. In
order to encourage migration to TIMPREV, we offered bonuses to those employees
migrating before January&nbsp;29, 2003. As of January&nbsp;29, 2003, 94% of the
participants in our private plan had migrated to TIMPREV. Upon electing to
migrate to TIMPREV, a participant extinguishes all rights to benefits under the
Tele Celular Sul PBS Plan.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As more employees participate in TIMPREV, we anticipate that the sponsor&#146;s
risk to eventual actuarial deficit will decrease, consistent with the
characteristics of typical defined contribution plans. Under the rules of
defined contribution plans, the sponsor normally contributes 100% of the basic
contribution of the participant. In accordance with the terms and conditions of
the approved rules, the administrator of TIMPREV will ensure the benefits
listed below. However, the administrator will not assume responsibility for
granting any other benefit, even if social security officially grants it to its
beneficiaries:
</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">a regular retirement pension;</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">an anticipated retirement pension;</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 disability pension;</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 deferred proportional benefit; 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 death pension.</FONT></TD>
</TR>
</TABLE>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None of the directors or executive officers beneficially owned 0.01% or
more of our Common Shares or Preferred Shares on December&nbsp;31, 2002.
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;<B><I>Stock Option Plan</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At our extraordinary shareholders&#146; meeting held on May&nbsp;2, 2001, our
shareholders approved a stock option plan that was effective as of that date.
The purposes of the stock option plan are:
</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">to retain the services and advice of our key directors
and employees, upon whose judgment, initiative and efforts we
depend;</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">to make available to our key directors and employees
certain compensatory arrangements based on our market value
increase; and</FONT></TD>
</TR>
</TABLE>
<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>


<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">to align generally the interests of our key directors and employees
and the interests of our shareholders.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Executive Officers may authorize future capital increases,
within the limit of the authorized capital, with the issuance of Preferred
Shares for the benefit of our key employees. The amount of shares that may be
issued under the stock option plan is limited to 1.5% of our capital stock.
The option exercise price per 1,000 Preferred Shares was set at R$4.27, the
closing price of 1,000 Preferred Shares at the S&#227;o Paulo Stock Exchange
(&#147;Bovespa&#148;) on May&nbsp;2, 2001.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our employee stock option plan has a four-year term and will expire in
April 2005. No option may be exercised after four years from the date it was
granted. The exercise of the option shall occur at the end of the fourth year
after the granted date, but can be anticipated depending upon the achievement
of certain operational results, which are based on EBIT (earnings before
interest and taxes).
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our targeted EBIT was R$119.7&nbsp;million and R$94.7&nbsp;million for the years
ended December&nbsp;31, 2001 and December&nbsp;31, 2002, respectively. Our actual EBIT
for the years ended December&nbsp;31, 2001 and December&nbsp;31, 2002 exceeded their
respective targeted amounts. Accordingly, two-thirds of the granted options
may be exercised in March, August and December 2003. No option granted to our
key directors and employees was exercised as of March&nbsp;31, 2003.
</FONT>

<!-- link2 "ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS" -->
<DIV align="left"><A NAME="009"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</B>
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Of the Holding Company&#146;s two classes of capital stock outstanding, only
our Common Shares have full voting rights. In June 1998, a consortium
comprised of UGB and Bitel acquired 51.8% of our Common Shares. On December
15, 1998, UGB exercised a put option under the Shareholders Agreement between
UGB and Bitel, dated as of July&nbsp;24, 1998 (the &#147;Shareholders Agreement&#148;), under
which UGB had the right to sell all of its shares of the Holding Company to
Bitel, subject to the approval of Anatel and the Conselho Administrativo de
Defesa Econ&#244;mica &#150; CADE (&#147;CADE&#148;), Brazil&#146;s federal competition agency. The
sale was finalized on March&nbsp;26, 1999, following its approval by Anatel and
CADE. Accordingly, Bitel has the ability to control the election of the
Holding Company&#146;s Board of Directors and the direction of our future
operations. The Shareholders Agreement was terminated following the sale, and
Bitel is no longer subject to any material obligations under such agreement.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth ownership information with respect to all
shareholders that, to our knowledge, own 5% of our Common Shares or more as of
April&nbsp;30, 2003. Our Common Shares held by Bitel have the same voting rights as
the other Common Shares.
</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="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&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><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>Percentage of</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>Thousands of 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="left"><FONT size="1"><B>Name of owner</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">Bitel 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">67,344,277</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">52.06</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">Previ &#150; Caixa de Previd&#234;ncia dos Funcion&#225;rios do
Banco 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">6,830,177</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">5.08</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">All our directors and executive officers as a group</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bitel is a Brazilian subsidiary of TIM Brasil S.A., which is part of a
group headed by TIM. TIM is part of a group whose parent company is Telecom
Italia. See &#147;Item&nbsp;4. Information on the Company&#151;Organizational Structure.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of April&nbsp;30, 2003, there were 107,326,720,000 Preferred Shares
represented by ADSs. As of such date, the number of Preferred Shares
represented by ADSs constituted 48.3% of the total amount of Preferred Shares
outstanding and 30.1% of the total capital of the Holding Company.
</FONT>

<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>

<P align="left"><FONT size="2"><B>Related Party Transactions</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Celular Sul owed R$4.2&nbsp;million to its affiliates arising out of
inter-company loans outstanding on December&nbsp;31, 2002. The amounts Tele Celular
Sul owes to the Subsidiaries bear interest equal to the sum of (i)&nbsp;the CDI,
plus (ii)&nbsp;a 1.2% spread.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the other hand, Tele Celular Sul had inter-company credits in the
amount of R$25.4&nbsp;million on December&nbsp;31, 2002. The amounts owed to Tele Celular
Sul by the Subsidiaries bear interest equal to the sum of (i)&nbsp;the CDI, plus
(ii)&nbsp;a 1.2% spread.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All these inter-company transactions were eliminated in our Consolidated
Financial Statements. See Note 9 to our Consolidated Financial Statements.
</FONT>

<!-- link2 "ITEM 8. FINANCIAL INFORMATION" -->
<DIV align="left"><A NAME="010"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 8. FINANCIAL INFORMATION</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;See Item&nbsp;18 of this annual report for our Consolidated Financial
Statements.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Litigation Related to the Conversion of Our Concessions into
Authorizations</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January 2003, a type of class action (&#147;<I>a&#231;&#227;o popular</I>&#148;) was brought by an
individual against ANATEL and all the companies controlled by TIM in Brazil,
including us. The claim sought to suspend the effects of <I>Resolu&#231;&#227;o </I>318, of
September&nbsp;27, 2002, and other acts by ANATEL, including the Authorizations
PVCP/SPV nos. 001/2002 to 011/2002, published on December&nbsp;12, 2002, which
authorized us to migrate from the SMC regime to the PCS regime.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The action specifically challenged the omission of provisions regulating
the return of the assets (&#147;<I>bens revers&#237;veis</I>&#148;) used by us in connection with the
provision of telecommunication services by the time of the expiration of the
Authorizations. By reason of such omission, argues the claimant, the Federal
Government would suffer irreparable damage and, therefore, the Anatel acts
allowing the migration from the SMC to PCS should be declared null and void.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We vigorously have challenged this action, and after some preliminary
decisions by lower courts (&#147;<I>medidas liminares</I>&#148;), we have obtained a unanimous
decision from the Regional Federal Court of Appeals (&#147;<I>Tribunal Regional
Federal</I>&#148;) permitting the migration from SMC into PCS, reserving discussion
about the return of the assets to the Federal Government for a later date.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that migration from the SMC regime to the PCS regime, and the
related acts by Anatel, will not be suspended or modified. The discussion with
respect to the return (&#147;<I>revers&#227;o</I>&#148;) to the Federal Government of our assets used
in connection with the provision of telecommunication services should be
subject to further debate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Litigation Related to the Application of the ICMS</I></B>
</FONT>

<P align="left"><FONT size="2">&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 tax in
respect of certain revenues, including cellular activation fees and monthly
subscription charges, that had not previously been subject to such taxes.
Under Brazilian law, there is a risk that the state governments could seek to
apply this interpretation retroactively to activation and subscription fees
charged during the five years proceeding June&nbsp;30, 1998. Our management
believes that the attempt by the state governments to extend the scope of the
ICMS tax to services that are supplementary to basic telecommunications
services is unlawful because:
</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 state governments acted beyond the scope of their authority,</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">their interpretation would subject to taxation certain
services, particularly cellular activation, that are not
considered to be payments for telecommunications services and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">59</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="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">new taxes may not be applied retroactively.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of the Subsidiaries has filed a lawsuit with the treasury court of
the state in which it is located seeking injunctive relief from retroactive and
prospective application of the ICMS tax to activation fees. Each of the
Subsidiaries has obtained a temporary injunction relieving it from the payment
of the ICMS tax on activation fees during the pendency of the lawsuits. We
have collected the ICMS tax on activation fees and monthly subscriptions from
customers since June 1998 and deposited all activation fees and monthly
subscription fees collected since that date. Our management does not believe
that application of the ICMS tax on a prospective basis will have a material
impact on our results of operations.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Litigation Related to the Use of Premium Arising Out of the Breakup of
Telebr&#225;s</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;4, 2002, a Congressman filed a lawsuit in federal court in
Bras&#237;lia, Federal District, against a number of governmental telecommunication
entities and the New Holding Companies. The purpose of the lawsuit is to
prevent the New Holding Companies from using the amortization of the goodwill
paid by the New Holding Companies to the Brazilian government in the Breakup of
Telebr&#225;s to generate tax benefits.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even though we are unable to predict the final outcome of this lawsuit, we
believe that a ruling favorable to the plaintiff is unlikely. Accordingly, we
have not created a reserve in connection with this litigation. If an
unfavorable ruling is issued against us, it will lose the tax benefit derived
from the premiums paid, and our tax liability will increase. We believe that
an unfavorable decision would not have a material adverse effect on our
business, results of operations, financial condition or prospects.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Litigation Related to the Breakup of Telebr&#225;s</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The breakup of Telebr&#225;s is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the Breakup. All of these preliminary injunctions have
been quashed by decisions of the relevant federal court, although several such
decisions are currently on appeal. The lawsuits are based on a number of legal
theories, including that:
</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">Brazil&#146;s constitution requires that the creation of the
12 new holding companies be specifically authorized by the
Telecommunications Law;</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 shareholders&#146; meeting of Telebr&#225;s held on May&nbsp;22,
1998 which approved the breakup was not properly convened;</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">national sovereignty will be threatened if the
country&#146;s telecommunications companies are controlled by foreign
entities; 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 Telecommunications Law requires that certain
matters, such as the entry of new competitors and the
administration of development and technology funds, be regulated
prior to the breakup and privatization, either by an executive
order of the President or by an act of congress.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any of these lawsuits ultimately succeed, the breakup will have to be
reinitiated. This could require, depending upon the prevailing plaintiff&#146;s
theory, any combination 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">amendment of the Telecommunications Law; 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">reconvening the May&nbsp;22, 1998 Telebr&#225;s shareholders&#146; meeting.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is theoretically possible under Brazilian law for a court to require
that the breakup be unwound, although management believes that this would not
be likely to occur.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Litigation Arising Out of Events Prior to the Breakup of Telebr&#225;s</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Telebr&#225;s and the Predecessor Companies are defendants in a number of legal
proceedings and subject to certain other claims and contingencies. Liability
for any claims arising out of acts committed by the Predecessor Companies prior
to the effective date of the spin-off of the cellular assets and liabilities of
the Predecessor
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> Companies to the Subsidiaries remains with the Predecessor Companies,
except for those liabilities for which specific accounting provisions have been
assigned to our Subsidiaries. Any claims against the Predecessor Companies
which are not satisfied by the Predecessor Companies could result in claims
against our Subsidiaries to the extent that our Subsidiaries have received
assets which might have been used to settle those claims had they not been spun
off from the Predecessor Companies.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the Breakup of the Telebr&#225;s system, liability for any
claims arising out of acts committed by Telebr&#225;s prior to the effective date of
the breakup remains 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 one of the other new holding companies. Our
management believes that the chances of claims of this nature materializing and
having a material adverse financial effect on us are remote.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Other Litigation</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a party to certain legal proceedings arising in the normal course
of business. We have provided for or deposited in court amounts to cover our
estimated losses due to adverse legal judgments. In the opinion of our
management, such actions, if decided adversely to us, would not have a material
adverse effect on our business, financial condition or results of operations.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under our by-laws, we are required to distribute as dividends in respect
of each fiscal year ending on December&nbsp;31, to the extent amounts are available
for distribution, an aggregate amount equal to at least 25% of adjusted net
income on such date as mandatory dividend. The annual dividend distributed to
the holders of our preferred shares has priority in the allocation of adjusted
net income.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of the Brazilian Corporate Law, and in accordance with
our by-laws, the adjusted net income is an amount equal to net profit adjusted
to reflect allocations to and from:
</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 legal reserve; 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">contingency reserves.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are required to maintain a legal reserve, to which we must allocate 5%
of net profits for each fiscal year until the amount for such reserve equals
20% of our paid-in capital. However, we are not required to make any
allocations to our legal reserve in respect of any fiscal year in which it,
together with our other capital reserves, exceeds 30% of our capital. Net
losses, if any, may be charged against the legal reserve. On December&nbsp;31,
2002, the balance of our legal reserve was R$23.8&nbsp;million, which was equal to
7.3% of our total capital.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian Corporate Law also provides for two discretionary
allocations of net profits that are subject to approval by the shareholders at
the annual meeting. First, a percentage of net profits may be allocated to a
contingency reserve for anticipated losses that are deemed probable in future
years. Any amount so allocated in a prior year must be either reversed in the
fiscal year in which the loss was anticipated if such loss does not in fact
occur, or written off in the event that the anticipated loss occurs. Second,
if the mandatory distributable amount exceeds the sum of realized net profits
in a given year, such excess may be allocated to unrealized revenue reserve.
Under the Brazilian Corporate Law, realized net profits is defined as the
amount of net profits that exceeds the net positive result of equity
adjustments and profits or revenues from operations with financial results
after the end of the next succeeding fiscal year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Brazilian Corporate Law, any company may, as a term in its
by-laws, create a discretionary reserve. By-laws which authorize the
allocation of a percentage of a company&#146;s net income to the discretionary
reserve must also indicate the purpose, criteria for allocation and a maximum
amount of the reserve.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may also allocate a portion of our net profits for discretionary
appropriations for plan expansion and other capital investment projects, the
amount of which would be based on a capital budget previously presented by our
management and approved by shareholders. Under Law No.&nbsp;10,313 of October&nbsp;3,
2001, capital budgets for
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> more than one year must be revised at each annual shareholders&#146; meeting.
After completion of the relevant capital projects, we may retain the
appropriation until the shareholders vote to transfer all or a portion of the
reserve to capital or retained earnings. On December&nbsp;31, 2002, we had an
income reserve for expansion of R$310.2&nbsp;million.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amounts available for distribution may be further increased by a
reversion of the contingency reserve for anticipated losses constituted in
prior years but not realized. The amounts available for distribution are
determined on the basis of financial statements prepared in accordance with the
Corporate Law method.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The legal reserve is subject to approval by the shareholders voting at the
annual meeting and may be transferred to capital but is not available for the
payment of dividends in subsequent years. Our calculation of net profits and
allocations to reserves for any fiscal year are determined on the basis of
financial statements prepared in accordance with the Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Remaining amounts to be distributed are allocated first to the payment of
a dividend to holders of ordinary shares in an amount equal to the dividend
paid to the preferred shareholders. The remainder is distributed equally among
holders of preferred shares and ordinary shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Brazilian Corporate Law, a company is permitted to suspend the
mandatory dividend in respect of ordinary shares and preferred shares not
entitled to a fixed or minimum dividend if:
</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">its board of directors and fiscal committee report to
the shareholders&#146; meeting that the distribution would be
incompatible with the financial circumstances of that company;
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 shareholders ratify this conclusion at the
shareholder&#146;s meeting. In this case,</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 board of directors must forward to the Brazilian
securities commission within five days of the shareholders&#146;
meeting an explanation justifying the information transmitted at
the meeting; 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 profits which were not distributed are to be
recorded as a special reserve and, if not absorbed by losses in
subsequent fiscal years, are to be paid as dividends as soon as
our financial situation permits.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our preferred shares are each entitled to a minimum dividend and thus the
mandatory dividend may be suspended only with respect to our ordinary shares.
Dividends may be paid by us out of retained earnings or accumulated profits in
any given fiscal year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the purposes of the Brazilian Corporate Law, accumulated profits are
defined as net income after income tax and social contribution for such fiscal
year, net of any accumulated losses from prior fiscal years and any amounts
allocated to warrants, income bonds, employees&#146; and management&#146;s participation
in a company&#146;s profits.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Priority and Amount of Preferred Dividends</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our by-laws provide for a minimum yearly per share dividend for our
preferred shares equal to 6% of the amount obtained by dividing the total share
capital by the total number of preferred shares in an amount equal to the
higher of (i)&nbsp;6% of our capital (&#147;<I>capital social</I>&#148;) divided by the total number
of ordinary and preferred shares and (ii)&nbsp;3% of the net shareholders&#146; equity
(&#147;<I>patrim&#244;nio l&#237;quido</I>&#148;), according to the most recent financial statements
approved by the shareholders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of such provision, holders of the our preferred shares are
entitled to receive in any year distributions of cash dividends prior to the
holders of our ordinary shares receiving any distribution of cash dividends in
such year. In addition, distributions of cash dividends in any year are made:
</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">first, to the holders of preferred shares, up to the
amount of the dividend that must be paid to the holders of
preferred shares for such year;</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">then, to the holders of ordinary shares, until the
amount distributed in respect of each ordinary share is equal to
the amount distributed in respect of each preferred share; and</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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>
<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">thereafter, to the holders of ordinary shares and preferred shares
on a pro rata basis.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the mandatory dividend in any year is higher than or equal to the
dividend paid to the holders of preferred shares in that year, the holders of
ordinary shares will not be entitled to receive any cash dividends from us in
that year. If the dividend to be paid to the holders of preferred shares is
not paid for a period of three years, holders of preferred shares will be
entitled to full voting rights until such time as that dividend is paid in full
for any year.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Payment of Dividends</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are required by law and by our by-laws to hold an annual shareholders&#146;
meeting by April&nbsp;30 of each year, at which, among other things, an annual
dividend may be declared by decision of our shareholders on the recommendation
of our executive officers, as approved by our Board of Directors. The payment
of annual dividends is based on the financial statements prepared for the
fiscal year ending December&nbsp;31. Under the Brazilian Corporate Law, dividends
are required to be paid within 60&nbsp;days following the date the dividend is
declared to shareholders of record on such declaration date, unless a
shareholders&#146; resolution sets forth another date of payment, with must occur
prior to the end of the fiscal year in which such dividend was declared. A
shareholder has a three-year period from the dividend payment date to claim
dividends in respect of its shares, after which we have no liability for such
payment. Because our shares are issued in book-entry form, dividends with
respect to any share are credited to the account holding such
share. We are not
required to adjust the amount of paid-in capital for inflation. Annual
dividends may be paid to shareholders on a pro rata basis according to the date
when the subscription price is paid to us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our preferred shares underlying the ADSs are held in Brazil by a Brazilian
custodian, Banco Ita&#250; S.A., as the agent for the depositary, which is the
registered owner of our shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments of cash dividends and distributions, if any, will be made in
Brazilian currency to the custodian on behalf of JPMorgan Chase Bank, as
depositary, which will then convert those proceeds into dollars and will cause
such dollars to be delivered to the depositary for distribution to holders of
ADRs. In the event that the custodian is unable to immediately convert the
Brazilian currency received as dividends into dollars, the amount of dollars
payable to holders of ADRs may be adversely affected by devaluations of the
Brazilian currency that occur before such dividends are converted and remitted.
Dividends in respect of our preferred shares paid to resident and non-resident
shareholders, including holders of ADSs, are not currently subject to Brazilian
withholding tax.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No significant change has occurred since December&nbsp;31, 2002, the date of
our Consolidated Financial Statements.
</FONT>

<!-- link2 "ITEM 9. THE OFFER AND LISTING" -->
<DIV align="left"><A NAME="011"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 9. THE OFFER AND LISTING</B>
</FONT>


<P align="left"><FONT size="2"><B>Offer and Listing Details</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal market for our Preferred Shares is the Bovespa. On December
31, 2002, we had 213,612,105,811 Preferred Shares and 129,357,833,871 Common
Shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Preferred Shares commenced trading separately from any other security
on the Brazilian stock exchanges on September&nbsp;21, 1998. See &#147;&#151;Presentation of
Information&#151;Market Information.&#148;
</FONT>



<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the reported high and low sale prices for
our Preferred Shares on Bovespa, at closing of business day, for the periods
indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="69%">&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><FONT size="1">&nbsp;</FONT></TD>

<TD nowrap align="center" colspan="7"><FONT size="1"><B><I>Reais</I>
per</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>1,000 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>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</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></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Third quarter (beginning September&nbsp;21)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$1.68</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$1.80</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.87</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">3.20</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.04</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">3.50</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.05</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">Third quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.95</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">3.85</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.75</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">6.50</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.20</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">12.10</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.70</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">9.00</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">Third Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.21</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.70</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">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.93</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">5.85</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.68</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">5.50</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.23</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 quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.35</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">4.70</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">Fourth quarter</FONT></DIV></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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4.02</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.01</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">3.84</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">Second quarter</FONT></DIV></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">3.17</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">Third quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3.38</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.29</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">3.02</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>Last Six Months</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><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">2.66</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">2.80</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">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">2.42</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.97</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">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">2.09</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">2.44</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">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">2.19</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">2.41</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">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">2.28</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">2.52</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">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">3.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.87</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">June 2003 (through June&nbsp;11, 2003)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.98</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Preferred Shares traded in the United States on the NYSE are
represented by ADSs, each representing 10,000 Preferred Shares. Our ADSs are
issued by JPMorgan Chase Bank (&#147;JPMorgan Chase&#148;), as depositary (&#147;Depositary&#148;),
pursuant to a deposit agreement among Tele Celular Sul, JPMorgan Chase and the
registered holders and beneficial owners from time to time of our ADSs. The
ADSs commenced trading separately on the NYSE on November&nbsp;16, 1998 under the
symbol &#147;TSU.&#148;
</FONT>

<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the reported high and low sales prices for
our ADSs on the NYSE, at closing of business day, for the periods indicated.
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="67%">&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 nowrap align="center" colspan="7"><FONT size="1"><B>U.S. dollars per</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>our 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>Low</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>High</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></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Fourth quarter (beginning November&nbsp;16, 1998)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">US$12.35</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="left"><FONT size="2">US$30.25</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">First quarter</FONT></DIV></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">21.00</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.56</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">25.00</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">Third quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15.94</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21.69</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">33.25</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>2000</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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47.88</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">69.20</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25.62</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">50.88</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 Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">27.38</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">47.00</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">Fourth Quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20.13</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">30.56</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>2001</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">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.50</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">29.49</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.99</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">22.19</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">Third quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.69</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">19.49</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9.50</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">15.70</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>2002</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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">First quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16.97</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">Second quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.90</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">14.25</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 quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12.00</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">Fourth quarter</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.70</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">9.00</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"><B>Last Six Months</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">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">6.85</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.25</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 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6.70</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">9.05</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 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5.70</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">7.10</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 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.18</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">5.80</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 2003</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.06</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.53</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 2003</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">9.70</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 2003 (through June&nbsp;11, 2003)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8.81</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">9.41</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Since May&nbsp;18, 1998, the common and preferred shares of Telepar Celular have
traded on the Bovespa.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Markets</B>
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Trading on the Brazilian Stock Exchanges</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Bovespa is the only Brazilian Stock Exchange on which equity and debt
securities issued by Brazilian companies are traded. The exclusive trading of
such securities on the Bovespa is the result of several memoranda of
understanding entered into by the Bovespa and the other Brazilian stock
exchanges. The Rio de Janeiro stock exchange is now exclusively responsible
for the electronic trade of public debt securities and for privatization
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> auctions. In 2002, the Bovespa accounted for 100% of the trading value of
equity securities on all Brazilian stock exchanges.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Brazilian stock exchange is a nonprofit entity owned by its member
brokerage firms. Trading on each exchange is limited to member brokerage firms
and a limited number of authorized nonmembers. The Bovespa has two open outcry
trading sessions each day, from 11:00&nbsp;a.m. to 1:30 p.m. and from 2:30 p.m. to
5:45 p.m., except during daylight savings time in the United States. During
daylight savings time in the United States, the sessions are from 10:00&nbsp;a.m. to
1:00 p.m. and from 2:00 p.m. to 4:45 p.m., to closely mirror NYSE trading
hours. Trading is also conducted between 11:00&nbsp;a.m. and 6:00 p.m., or between
10:00&nbsp;a.m. and 5:00 p.m. during daylight savings time in the United States, on
an automated system known as the Computer Assisted Trading System (<I>Sistema de
Negocia&#231;&#227;o Assistida por Computador</I>) on the Bovespa and on the National
Electronic Trading System (<I>Sistema Eletr&#244;nico de Negocia&#231;&#227;o Nacional</I>). These
systems are computerized systems that link electronically with the seven
smaller regional exchanges. The Bovespa also permits trading from 6:45 p.m. to
7:30 p.m. on an online system connected to traditional and Internet brokers
called the &#147;After Market.&#148; Trading on the After Market is subject to
regulatory limits on price volatility and on the volume of shares transacted
through Internet brokers. There are no specialists or market makers for our
shares on the Bovespa. Beginning March&nbsp;31, 2003, the Bovespa modified its
trading practices with respect to its open outcry trading sessions and its
electronic trading system. Under these revised trading practices, orders
registered in an open outcry session will be matched through that open outcry
session only, while orders registered through the electronic trading system may
be matched both through the electronic system and through an open outcry
session, if a matching order better by five <I>centavos </I>(R$0.05) is available.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to better control volatility, Bovespa adopted a &#147;circuit breaker&#148;
system pursuant to which trading sessions may be suspended for a period of 30
minutes or one hour whenever the indexes of these stock exchanges fall below
10% or 15%, respectively, in relation to the index registered in the previous
trading session.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Settlement of transactions in effected three business days after the trade
date without adjustment of the purchase price for inflation. Delivery of and
payment for shares are made through the facilities of the clearinghouse, or
<I>Companhia Brasileira de Liquida&#231;&#227;o e Custodia &#151; CBLC</I>, 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Bovespa is less liquid than the NYSE or other major exchanges in the
world. On April&nbsp;30, 2003, the aggregate market capitalization of the 391
companies listed on Bovespa was approximately US $155.5&nbsp;billion, and the 10
largest companies listed on Bovespa represented approximately 45.7% of the
total market capitalization of all listed companies. Although all the
outstanding shares of a listed company may trade on a Brazilian stock exchange,
in most cases less than half of the listed shares are actually available for
trading by the public, the remainder being held by small groups of controlling
persons by governmental entities or by one principal shareholder. 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;Trading on Brazilian stock exchanges by a holder not deemed to be
domiciled in Brazil, for Brazilian tax and regulatory purposes (a
&#147;non-Brazilian holder&#148;), is subject to certain limitations under Brazilian
foreign investment legislation. With limited exceptions, non-Brazilian holders
may only trade on Brazilian stock exchanges in accordance with the requirements
of Resolution No.&nbsp;2,689, of January&nbsp;26, 2000, of the National Monetary Council
(&#147;<I>Conselho Monet&#225;rio Nacional</I>&#148;). Resolution No.&nbsp;2,689 requires that securities
held by non-Brazilian holders be maintained in the custody of, or in deposit
accounts with, financial institutions duly authorized by the Central Bank and
the Brazilian securities commission (&#147;<I>Comiss&#227;o de Valores Mobili&#225;rios </I>- &#147;CVM&#148;).
In addition, Resolution No.&nbsp;2,689 requires non-Brazilian holders to restrict
their securities trading to transactions on Brazilian stock exchanges or
qualified over-the-counter markets. With limited exceptions, non-Brazilian
holders may not transfer the ownership of investments made under Resolution No.
2,689 to other non-Brazilian holders through a private transaction. See
&#147;&#151;Taxation&#151;Brazilian Tax Considerations&#148; for a description of certain tax
benefits extended to non-Brazilian holders who qualify under Resolution No.
2,689.
</FONT>

<P align="center"><FONT size="2">66</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"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Differentiated Levels of Corporate Governance and the New Market</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to increase the transparency of the Brazilian capital markets and
protect minority shareholders&#146; rights, among others, the Bovespa has
implemented two new initiatives:
</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">a classification system referred to as &#147;Differentiated
Levels of Corporate Governance&#148; applicable to the companies
already listed on the Bovespa, 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 new separate listing segment for qualifying issuers referred to as
the &#147;New Market.&#148;</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Differentiated Levels of Corporate Governance, Level 1 and Level 2,
are applicable to listed companies that voluntarily comply with special
disclosure and corporate governance practices established by the Bovespa. The
companies may be classified into two different levels, depending on their
degree of adherence to the Bovespa practices of disclosure and corporate
governance.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To become a Level 1 company, an issuer must voluntarily satisfy the
following requirements: (i)&nbsp;ensure that shares amounting to at least 25% of its
capital are outstanding and available for trading in the market; (ii)&nbsp;adopt
procedures that favor the dispersion of shares into the market whenever making
a public offering; (iii)&nbsp;comply with minimum quarterly disclosure standards;
(iv)&nbsp;follow stricter disclosure policies with respect to transactions with
controlling shareholders, directors and officers involving the issuer&#146;s
securities; (v)&nbsp;disclose any existing shareholders agreements and stock option
plans; and (vi)&nbsp;make a schedule of corporate events available to the minority
shareholders. The Holding Company is currently considering complying with
these requirements for Level 1 of Corporate Governance<B>.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To become a Level 2 company, an issuer must, in addition to satisfying the
Level 1 criteria, satisfy the following requirements: (i)&nbsp;require all
directors to serve unstaggered one-year terms; (ii)&nbsp;prepare and publish annual
financial statements in U.S. GAAP or IAS GAAP; (iii)&nbsp;create tag-along rights
for minority shareholders, ensuring holders of ordinary shares of the right to
sell on the same terms as a controlling shareholder, and ensuring preferred
shareholders a price equal to at least 70% of that received by the selling
controlling shareholder; (iv)&nbsp;grant preferred shareholders the right to vote in
certain cases, including the transformation, spin-off or merger of the company,
approval of agreements with related parties or any other matters that may
constitute a conflict of interest between controlling shareholders and the
company; (v)&nbsp;make a tender offer for all outstanding shares, for a price equal
to fair market value, in the event of delisting or withdrawal of the issuer
from Level 2 qualification; and (vi)&nbsp;agree to submit any corporate disputes to
the Bovespa&#146;s Market Arbitration Chamber.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Market is a separate listing segment for the trading of shares
issued by companies that voluntarily adopt certain additional corporate
governance practices and disclosure requirements which are more demanding than
those required by the current law in Brazil. Companies may qualify to have
their shares traded in the New Market, if, in addition to complying with the
Level 2 corporate governance practices referred to above, their capital stock
consists only of voting common shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are considering whether to undertake some or all of the disciplines
necessary to become a Level 1 Company.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Bovespa Market Administration Panel</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Law No.&nbsp;9,307/66, a Market Arbitration Panel (the &#147;Panel&#148;) has
been established by the Bovespa. The Panel was established to settle certain
types of disputes, including disputes relating to corporate governance,
securities issues, financial regulatory issues and other capital market
matters, with respect to Bovespa listed companies that have undertaken to
voluntarily comply with Level 2 and New Market levels of corporate governance
and disclosure. The Panel will provide a forum for dispute resolution to,
among others, the Bovespa, the applicable listed company and the shareholders,
directors and management of the applicable listed company.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Regulation of Brazilian Securities Markets</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Brazilian securities markets are principally governed by Law No.
6,385, of December&nbsp;7, 1976, and the Brazilian Corporate Law, each as amended,
and by regulations issued by the CVM which has authority over stock
</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>


<P align="left"><FONT size="2"> exchanges and the securities markets generally, the National Monetary
Council, and by the Central Bank of Brazil, which has, licensing authority over
brokerage firms and regulates foreign investment and foreign exchange
transactions. Both regulatory bodies are subordinate to the National Monetary
Council, the highest regulatory entity within the National Financial System.
These laws and regulations, among others, provide for disclosure requirements
applicable to issuers of traded securities protection of minority shareholders
and criminal penalties for insider trading and price manipulation. They also
provide for licensing and oversight of brokerage firms and governance of the
Brazilian stock exchanges. Nevertheless, the Brazilian securities markets are
not highly regulated and supervised as the U.S. securities markets.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Brazilian Corporate Law, a company is either public, a <I>companhia
aberta, </I>like us, or private, a <I>companhia fechada. </I>All public companies,
including us, are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
on the Bovespa or in the Brazilian over-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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trading in securities on the Bovespa may be suspended at the request of a
company in anticipation of a material announcement. Trading may also be
suspended on the initiative of 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;The Brazilian over-the-counter market consists of direct trades between
individuals in which a financial institution registered with CVM serves as
intermediary. No special application, other than registration with the, is
necessary for securities of a public company to be traded in this market. The
CVM requires that it be given notice of all trades carried out in the Brazilian
over-the-counter market by the respective financial institution intermediary.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trading on Bovespa by non-residents of Brazil is subject to limitations
under Brazilian foreign investment and tax legislation. The Brazilian
custodian for our Preferred Shares on behalf of the depositary for the ADSs,
obtain registration from the Central Bank to remit U.S. dollars abroad for
payments of dividends, any other cash distributions, or upon the disposition of
the shares and sales proceeds thereto. In the event that a holder of ADSs
exchanges Preferred Shares for ADSs, the holder will be entitled to continue to
rely on the custodian&#146;s registration for five business days after the exchange.
Thereafter, the holder may not be able to obtain and remit U.S. dollars abroad
upon the disposition of our Preferred Shares, or distributions relating to our
Preferred Shares, unless the holder obtains a new registration. See &#147;Item&nbsp;10.
Additional Information&#151;Memorandum and Articles of Associations.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian regulations also require that any person or group of persons
representing the same interest that has directly or indirectly acquired an
interest corresponding to 10% of the common shares of a publicly traded
company, shall disclose its share ownership to the CVM and stock exchanges. In
addition, a statement containing the required information shall be published in
appropriate Brazilian newspapers. Any subsequent increase to, or decrease
from, five percent or more in ownership of common shares, including warrants
and debentures convertible into common shares, shall be similarly disclosed.
</FONT>

<!-- link2 "ITEM 10. ADDITIONAL INFORMATION" -->
<DIV align="left"><A NAME="012"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 10. ADDITIONAL INFORMATION</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;The following summarizes certain material provisions of Tele Celular Sul
bylaws and the Brazilian Corporate Law, the main bodies of regulation governing
us. Copies of Tele Celular Sul bylaws have been filed as exhibits to our
annual report on Form&nbsp;20-F filed with the Securities and Exchange Commission on
June&nbsp;28, 2002. Except as described in this section, the bylaws do not contain
provisions addressing the duties, authority or liabilities of the directors and
senior management, which are instead established by Brazilian Corporate Law.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tele Celular Sul bylaws were registered with the Public Registry of the
state of Paran&#225; on June&nbsp;4, 2001, under company number (NIRE)&nbsp;200.109.384.78.
</FONT>

<P align="center"><FONT size="2">68</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>Corporate Purpose</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;2 of Tele Celular Sul bylaws provides that our main corporate
purpose is to exercise control over the operating companies that provides
mobile telephone and other services in concession areas 5 and 6, as defined by
Anatel regulations. Other corporate purposes include:
</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">promote, through our controlled or affiliated
companies, the expansion of mobile telephone services in their
respective concession areas;</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">procure funding from internal or external sources;</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">promote and foster study and research for the development of mobile telephone 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">perform, through our controlled or affiliated
companies, specialized technical services related to the mobile
telephone industry;</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">promote and coordinate, through our controlled or
affiliated companies, the education and training of the staff
required by the telephone 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">effect or order the import of goods and services for our controlled and affiliated companies;</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">hold interests in other companies.</FONT></TD>
</TR>
</TABLE>

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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following
is a description of some of the provisions of our bylaws
concerning members of the Board of Directors:
</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">Pursuant to Art. 23, paragraph XV of, the Board of
Directors has the power to approve loans, financing and lease
agreements, as well as to issue promissory notes, for an amount
exceeding 2% of the shareholders&#146; equity;</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">Pursuant to Art. 23, paragraph XXIII, the Board of
Directors has the power to apportion the global remuneration set
forth by the shareholders&#146; meeting between the Directors and the
Executive Officers.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Brazilian Corporate Law, each member of the Board of
Directors must have at least one share of our capital stock in order to qualify
to be a director. There are no provisions in the by-laws with respect 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">a director&#146;s power to vote
compensation to him or
herself in the absence of an independent quorum;</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">borrowing powers exercisable by the directors;</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">age limits for retirement of directors;</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">required shareholding for director qualification;</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">anti-takeover mechanisms or other procedures designed
to delay, defer or prevent changes in our control; or</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">disclosure of share ownership.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">69</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>Rights Relating to our Shares</B>
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Dividend Rights</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See &#147;&#151;Financial Information &#151;Consolidated Financial Statements and Other
Financial Information &#151;Dividend Policy,&#148; and &#147;&#151;Payment of Dividends.&#148;
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Voting Rights</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Common Share entitles the holder to one vote at meetings of
shareholders. Our Preferred Shares do not entitle the holder to vote except as
set forth below. Holders of our Preferred Shares are each entitled to attend
or to address meetings of shareholders.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;One of the members of our permanent fiscal committee and his or her
alternative may be elected by majority vote of the holders of our preferred
shares, as the case may be, present at the annual meeting of shareholders at
which member of the fiscal committee are elected.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brazilian Corporate Law provides that certain non-voting shares, such as
our preferred shares, acquire voting rights in the event we, as the case may
be, fail for three consecutive fiscal years to pay the dividend to which such
shares are entitled until such payment is made.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Preferred Shares are entitled to full voting rights with respect 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">the approval of any long-term contract between us and
our affiliates, on the one hand, and any controlling shareholder
or, that shareholder&#146;s affiliates and related parties, on the
other hand;</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">resolutions modifying certain provisions of our
by-laws; 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">any resolution submitted to the shareholders&#146; meeting
for our delisting or during our liquidation of the shares.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any change in the preference, benefits, conditions of redemption and
amortization of our preferred shares, or the creation of a class of shares
having priority or preference over our preferred shares, would require the
approval of holders of a majority of our outstanding preferred shares at a
special meeting of holders of our preferred shares, as the case may be. Such a
meeting would be called by publication of a notice in two Brazilian official
gazettes at least thirty days prior to the meeting but would not generally
require any other form of notice.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In any circumstances in which holders of our preferred shares are entitled
to vote, each of our preferred share will entitle the holder to one vote.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Meeting of Shareholders</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to Brazilian law, shareholders must be previously convoked in
order for a general or extraordinary shareholders&#146; meeting to be installed.
The notification must occur at least 15&nbsp;days prior to the meeting scheduled
date. If the first meeting is not installed for some reason, the second
notification must happen at least five days before the second meeting date.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the first call, meetings may only be installed with a minimum quorum of
one fourth of the holders of voting shares. Extraordinary meetings for the
amendment of the bylaws may only be installed on the first call with a minimum
of two thirds of the voting capital present. On a second call, the meetings
are installed regardless of quorum.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Preemptive Rights</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each of our shareholders has a general preemptive right to subscribe for
shares in any capital increase, in proportion to its shareholding. A minimum
period of 30&nbsp;days following the publication of notice of the capital increase
is allowed for the exercise of the right, and the right is negotiable.
</FONT>

<P align="center"><FONT size="2">70</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;However, a shareholders&#146; meeting is authorized to eliminate preemptive
rights with respect to the issuance of new share, debentures and warrants
convertible into new shares up to the limit of the authorized share capital,
provided that the distribution of these securities is effected:
</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">on a stock exchange;</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">in a public offering;</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">through an exchange of shares in a public offering the
purpose of which is to acquire control of another company; or</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">through the use of certain tax incentives.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a capital increase, which would maintain or increase the
proportion of capital represented by our preferred shares, holders of the ADSs,
or of our preferred shares, would have preemptive rights to subscribe only to
the newly issued preferred shares. In the event of a capital increase, which
would reduce the proportion of capital represented by our preferred shares,
holders of the ADSs, or of our preferred shares, would have preemptive rights
to subscribe to our preferred shares, in proportion to their shareholdings and
to the ordinary shares only to the extent necessary to prevent dilution of
their interest in us.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preemptive rights to purchase shares may not be offered to U.S. holders of
the ADSs unless a registration statement under the Securities Act of 1933 is
effective with respect to the shares underlying those rights, or an exemption
form the registration requirements of the Securities Act of 1933 is available.
Consequently, if you are a holder of our ADSs, who is a U.S. person or is
located in the United States, you may be restricted in your ability to
participate in the exercise of preemptive rights.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Right of Redemption</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the right of a dissenting shareholder to seek redemption upon a
decision made at a shareholders&#146; meeting by shareholders representing over 50%
of the voting shares, ordinary shares or preferred shares are redeemable in
case we decide:
</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">to change the preference of our preferred shares or to
create a class of shares having priority or preference over our
preferred shares;</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">to reduce the mandatory distribution of dividends;</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">to change our corporate purposes;</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">to participate in group of companies;</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">to transfer all of our shares to another company in
order to make us a wholly-owned subsidiary of that company;</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">to split up, subject to the conditions set forth by Brazilian Corporate Law;</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">to adopt another corporate type;</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">to approve the acquisition of another company, the
price of which exceeds certain limits set forth in the Brazilian
Corporate Law; 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">to merge or consolidate ourselves with another company.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The right to redemption lapses 30&nbsp;days after publication of the minutes of
the relevant shareholders&#146; meeting or, whenever the resolution requires the
approval of the holders of our preferred shares by vote taken in a special
meeting of a majority of the holders of our preferred shares affected by the
resolution within 30&nbsp;days from the publication of the minutes of that special
meeting. We would be entitled to reconsider any action giving rise to
</FONT>
<P align="center"><FONT size="2">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="left"><FONT size="2"> redemption rights within 10&nbsp;days following the expiration of those rights
if the redemption of shares of dissenting shareholders would jeopardize the
financial stability, as the case may be.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the rights of withdrawal connected to bullet points 4 and 9
above may not be exercised by holders of shares if such shares are (1)&nbsp;liquid,
defined as being part of the Bovespa Index or other stock exchange index (as
defined by the CVM), and (2)&nbsp;such that the controlling shareholder or companies
it controls have less than 50% of our shares. Our Preferred Shares are included
on the Bovespa Index.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless otherwise provided in the by-laws, which is not the case with us,
shares are redeemable at their book value, determined on the basis of the last
annual balance sheet approved by the shareholders. If the shareholders&#146;
meeting giving rise to redemption rights occurs more than 60&nbsp;days after the
date of the last annual balance sheet, a shareholder may demand that its shares
be valued on the basis of a new balance sheet that is as of a date within 60
days of such shareholders&#146; meeting.
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B><I>&nbsp;</I></B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B><I>Form and Transfer</I></B></FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shares are maintained in book-entry form with a transfer agent, Banco
Real S.A., and the transfer of our shares is made in accordance with the
applicable provision of the Brazilian Corporate Law, which provides that a
transfer of shares is effected by an entry made by the transfer agent on its
books, debiting the share account of the seller and crediting the share account
of the purchaser, against presentation of a written order of the seller, or
judicial authorization or order, in an appropriate document which remains in
the possession of the transfer agent. Our preferred shares underlying our ADS
are registered on the transfer agent&#146;s records in the name of the Brazilian
depositary.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transfers of shares by a foreign investor are made in the same way and
executed by such investor&#146;s local agent on the investor&#146;s behalf except that,
if the original investment was registered with the Central Bank of Brazil under
the Brazilian foreign investment in capital markets regulations, the foreign
investor should also seek amendment, if necessary, though its local agent, of
the certificate of registration to reflect the new ownership.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The S&#227;o Paulo stock exchange reports transactions in its market to CBLC, a
central clearing system. A holder of our shares may choose, at its discretion,
to participate in this system. All shares elected to be put into the system
will be deposited in custody with the relevant stock exchange, though a
Brazilian institution duly authorized to operate by the Central Bank of Brazil
and having a clearing account with the relevant stock exchange. The fact that
such shares are subject to custody with the relevant stock exchange will be
reflected in our register of shareholders. Each participating shareholder
will, in turn, be registered in our register of beneficial shareholders, as the
case may be, maintained by the relevant stock exchange and will be treated in
the same way as registered shareholders.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and the Subsidiaries entered into the following material loan contracts
within the past three years:
</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">Credit Agreement dated as of December&nbsp;22, 2000, among
BNDES, Telepar Celular, as borrower, and Tele Celular Sul, as
guarantor, in the principal amount of R$61.1&nbsp;million. Under this
loan, R$46.4&nbsp;million of the total principal amount bears interest
at a variable rate of 4% plus the long term interest rate
(&#147;TJLP&#148;), which was 10.0% per annum on December&nbsp;31, 2002. The
remaining R$14.7&nbsp;million of principal is adjusted according to a
&#147;BNDES currency basket,&#148; consisting mainly of the U.S. dollar. On
December&nbsp;31, 2002, the outstanding amount under this credit
agreement was R$69.3&nbsp;million;</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">Indenture for the First Public Issuance of Subordinated
Single-Series&nbsp;Simple Debentures of Telepar Celular, dated as of
November&nbsp;9, 2000, in the principal amount of R$200.0&nbsp;million.
The debentures are nonconvertible and bear interest at a variable
rate equal to 102.7% of the CDI, which equaled an average of
19.1% per annum for the year ended December&nbsp;31, 2002. The
debentures will mature in October 2003. On December&nbsp;31, 2002,
the outstanding amount of our debentures was R$210.1&nbsp;million.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See Note 15 to our Consolidated Financial Statements for further
description of such financing agreements. See &#147;&#151;Quantitative and Qualitative
Disclosures about Market Risk,&#148; for a discussion regarding our exposure to
foreign currency fluctuations and our hedging activities.
</FONT>


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

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no restrictions on ownership of our preferred shares or common
shares by individuals or legal entities domiciled outside Brazil.
</FONT>

<P align="left"><FONT size="2">&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 of Brazil. Such restrictions on the
remittance of foreign capital abroad may hinder or prevent Banco Ita&#250; S.A., as
custodian for our preferred shares represented by ADSs, or holders who have
exchanged ADRs for preferred shares from converting dividends, distributions or
the proceeds from any sale of such preferred shares, as the case may be, into
U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs could be
adversely affected by delays in, or refusal to grant any, required government
approval for conversions of Brazilian currency payments and remittances abroad
of our preferred shares underlying the ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Annex IV to Resolution No.&nbsp;1,289 of the National Monetary Council,
as amended, qualified foreign investors (which principally include foreign
financial institutions, insurance companies, pension and investment funds,
charitable foreign institutions and other institutions that meet certain
minimum capital and other requirements) registered with the Brazilian
securities commission and acting through authorized custody accounts managed by
local agents may buy and sell shares on Brazilian stock exchanges without
obtaining separate certificates of registration for each transaction.
Investors under the Annex IV regulations are also entitled to favorable tax
treatment. See &#147;&#151;Taxation&#151;Brazilian Tax Considerations.&#148;
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Annex IV regulations were superseded as of March&nbsp;31, 2000 by the rules
of Resolution No.&nbsp;2,689, of January&nbsp;26, 2000, of the Brazilian monetary
council, which sets forth new regulations for investments in capital markets.
Foreign investments registered under the Annex IV regulations must conform to
the new rules by June&nbsp;30, 2000. These new rules allow foreign investors to
invest in almost all of the financial assets and to engage in almost all
transactions available in the Brazilian financial capital markets, provided
that some conditions are fulfilled. In accordance with Resolution No.
2,689/00, foreign investors are individuals, corporations, mutual funds and
collective investments domiciled or headquartered abroad.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to these new rules, foreign investors must:
</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">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="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">fill in the appropriate foreign investment registration form;</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">obtain registration as a foreign investor with the Brazilian securities commission; 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">register the foreign investment with the Central Bank of Brazil.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The securities and other financial assets held by the foreign investor
pursuant to Resolution 2,689/00 must be:
</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">registered or maintained in deposit accounts or under
the custody of an entity duly licensed by the Central Bank of
Brazil or by the Brazilian securities commission or</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">registered in register, clearing and custody systems
authorized by the Central Bank of Brazil or by the Brazilian
securities commission.</FONT></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, securities trading is restricted to transactions carried out
on the stock exchanges or organized over-the-counter markets licensed by the
Brazilian securities commission.
</FONT>

<P align="center"><FONT size="2">73</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;On January&nbsp;26, 2000, the Central Bank of Brazil enacted Circular No.
2,963, providing that beginning on March&nbsp;31, 2000, all investments by a foreign
investor under the Resolution No.&nbsp;2,689/00 are subject to the electronic
registration with the Central Bank of Brazil. Foreign investments registered
under the Annex IV regulations must conform to the new registration rules by
June&nbsp;30, 2000.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Resolution No.&nbsp;1,927 of the National Monetary Council, which is the
restated and amended Annex V to Resolution No.&nbsp;1,289 of the National Monetary
Council, provides for the issuance of depositary receipts in foreign markets in
respect of shares of Brazilian issuers. The ADS program was approved under the
Annex V regulations by the Central Bank of Brazil and the Brazilian securities
commission prior to the issuance of the ADSs. Accordingly, the proceeds from
the sale of ADSs by ADR holders outside Brazil are free of Brazilian foreign
investment controls and holders of the ADSs will be entitled to favorable tax
treatment. See &#147;&#151;Taxation&#151;Brazilian Tax Considerations.&#148; According to
Resolution No.&nbsp;2,689/00, foreign investments registered under Annex V
Regulations may be converted into the new investment system and vice-versa,
provided the conditions set forth by the Central Bank of Brazil and by the
Brazilian securities commission are complied with.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An electronic registration has been generated in the name of the
depositary with respect to the ADSs and is maintained by the custodian on
behalf of the depositary. This electronic registration is carried on through
the Central Bank of Brazil&#146;s information system. Pursuant to the registration,
the custodian and the depositary are able to convert dividends and other
distributions with respect to our preferred shares represented by ADSs into
foreign currency and remit the proceeds outside Brazil. In the event that a
holder of ADSs exchanges such ADSs for preferred shares, such holder will be
entitled to continue to rely on the depositary&#146;s certificate of registration
for five business days after such exchange, following which such holder must
seek to obtain its own certificate of registration with the Central Bank of
Brazil. 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 the Annex IV or the Resolution 2,689/00
regulations, 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;&#151;Taxation&#151;Brazilian Tax
Considerations.&#148; In addition, if the holder is a qualified investor under the
Annex IV regulations but resides in a jurisdiction which does not impose income
tax or where the income tax is imposed at a maximum rate of 20%, this holder
will be subject to a less favorable tax treatment than a holder of ADSs.
</FONT>

<P align="left"><FONT size="2">&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 federal
government froze all dividend and capital repatriations held by the Central
Bank of Brazil 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. The imbalance in Brazil&#146;s
balance of payments increased during 1999, and 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"><B>Taxation</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summary contains a description of the principal Brazilian
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of our 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 our preferred shares or ADSs. The summary is based upon
the tax laws of Brazil and regulations thereunder and on the tax laws of the
United States and regulations thereunder as in effect on the date hereof, which
are subject to change. <B>Prospective purchasers of our 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;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 U.S.
holders of our preferred shares or ADSs. Prospective holders of our preferred
shares or ADSs should consult their own tax advisors as to the tax consequences
of the acquisition, ownership and disposition of our preferred shares or ADSs
in their particular circumstances.
</FONT>

<P align="center"><FONT size="2">74</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;<B><I>Brazilian Tax Considerations</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion summarizes the principal Brazilian tax
consequences of the acquisition, ownership and disposition of our preferred
shares or ADSs by 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation of Dividends</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid by us 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 income tax
withholding. Dividends paid from profits generated before January&nbsp;1, 1996 may
be subject to Brazilian withholding income tax at varying rates, except that
stock dividends are not subject to Brazilian tax unless the stock is
subsequently redeemed by us, or the non-Brazilian holder sells the stock in
Brazil, within five years after distribution.
</FONT>

<P align="left"><FONT size="2">&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;<I>Taxation of Gains</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs or our preferred shares to another non-Brazilian holder are not subject
to Brazilian tax.
</FONT>

<P align="left"><FONT size="2">&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 exempt from
Brazilian income tax, taxed at a rate of 20% or taxed at a rate of 15%,
depending on the circumstances. Gains on the disposition of our preferred
shares obtained upon cancellation of ADSs are not subject to income tax 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 maximum
rate of less than 20%). Gains realized through transactions with Brazilian
residents or through transactions in Brazil off of the Brazilian stock
exchanges are subject to tax at a rate of 15%. Gains realized through
transactions on Brazilian stock exchanges are subject to tax at a rate of 20%,
unless the investor is entitled to tax exempt 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;Non-Brazilian holders of preferred shares registered under Resolution
2,689, which as of March&nbsp;31, 2000 superseded the Annex IV Regulations, may be
subject to favorable tax treatment since the investor 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 Brazilian stock exchanges
or qualified over-the-counter markets. The preferential treatment afforded
under Resolution 2,689 and afforded to investors in ADSs is not available to
investors resident or domiciled in tax havens.
</FONT>

<P align="left"><FONT size="2">&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;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;&#151;Exchange
Controls.&#148;
</FONT>

<P align="center"><FONT size="2">75</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;There is a possibility that gains realized by a non-Brazilian holder upon
the redemption of our 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;Any exercise of preemptive rights relating to our preferred shares or ADSs
will not be subject to Brazilian taxation. Gains on the sale or assignment of
preemptive rights relating to our preferred shares will be subject to the same
tax treatment applicable to a sale or disposition of our preferred shares. The
deposit of our preferred shares in exchange for the ADSs may be subject to
Brazilian income tax if the amount previously registered with the Central Bank
as a foreign investment in our 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 our 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 our preferred
shares, calculated as set forth above, shall be considered a capital gain
subject to income tax at a rate of 15% (unless our 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;The withdrawal of our preferred shares in exchange for ADSs is not subject
to Brazilian income 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 U.S. dollar value of such shares with the Central Bank
as described above in &#147;&#151;Exchange Controls.&#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 our preferred shares.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distributions of Interest on Capital</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A Brazilian corporation may make payments to its shareholders
characterized as interest on the corporation&#146;s capital as an alternative form
of making dividend distributions. See &#147;Item&nbsp;8. Financial Information&#151;Policy
on Dividend Distributions.&#148; 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 (9.50% per annum for the three-month period
beginning April 2002). The total amount distributed as interest on capital may
not exceed, for tax purposes, the greater of (i)&nbsp;50% of net income (after the
deduction of social contribution or net profits and before the deduction of the
corporate income tax deduction and before taking such distribution 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 our Board of Directors.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Up to the limit mentioned above, distributions of interest on capital paid
to Brazilian and non-Brazilian holders of our preferred shares, including
payments to the Depositary in respect of preferred shares underlying ADSs, are
deductible by us for Brazilian tax purposes. Such payments are subject to
Brazilian income tax withholding at the rate of 15%, except for payments to
beneficiaries who are exempt from tax in Brazil, which are free of Brazilian
tax, and except for payments to beneficiaries situated in tax havens, which
payments are subject to withholding at a 25% rate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No assurance can be given that our Board of Directors 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;Amounts paid as interest on capital (net of applicable income tax
withholding) may be treated as payments in respect of the dividends we are
obligated to distribute to our shareholders in accordance with our Charter and
Brazilian Corporate Law. Distributions of interest on capital in respect of
our preferred shares, including distributions to the Depositary in respect of
preferred shares underlying ADSs, may be converted into U.S. dollars and
remitted outside of Brazil, subject to applicable exchange controls.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Brazilian Taxes</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no Brazilian inheritance, gift or succession taxes applicable to
the ownership, transfer or disposition of our 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="center"><FONT size="2">76</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;A financial transaction tax (the &#147;IOF&#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) or the
conversion of foreign currency into Brazilian currency. The IOF tax rate for
most of these transactions 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.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The 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
our 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% per day.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to such taxes, the temporary contribution on financial
transactions, or the CPMF tax, is currently levied at a rate of 0.38% on all
fund transfers in connection with financial transactions in Brazil. The CPMF
will be in effect until December&nbsp;31, 2004. The current rate of 0.38% will be
maintained until December&nbsp;31, 2003, changing to 0.08% for the subsequent
period. 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>U.S. Federal Income Tax Considerations</I></B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The statements regarding U.S. tax law set forth below are based on U.S.
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 our 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 our preferred shares or
ADSs. This summary applies only to purchasers of our preferred shares or ADSs
who will hold our preferred shares or ADSs as capital assets and does not apply
to special classes of holders such as dealers in securities or currencies,
holders whose functional currency is not the U.S. dollar, holders of 10% or
more of our shares (taking into account shares held directly 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 our 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;<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 U.S. federal income tax laws, of an investment in our preferred shares or
ADSs.</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this discussion, references to ADSs also refer to our preferred shares,
and references to a &#147;U.S. 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)&nbsp;that is otherwise subject to U.S. federal income taxation on a net
basis with respect to the ADS.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the U.S. Internal Revenue Code of 1986, as amended, (the
&#147;Code&#148;) holders of ADSs will be treated as owners of our preferred shares
represented by such ADSs.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation of Distributions</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by the Holding Company as a dividend to the extent
that such distribution is paid out of the Holding Company&#146;s current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, when such distribution is received by the Custodian, or by the U.S.
holder in the case of a holder of preferred shares. 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 U.S. dollars in effect
on the date the distribution is received by the Custodian, or by a U.S. holder
in the case of a holder of preferred shares. If the Custodian, or U.S. holder
in the case of a holder of preferred shares, does not convert such <I>reais </I>into
U.S. dollars on the date it receives them, it
</FONT>
<P align="center"><FONT size="2">77</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">is possible that the U.S. holder will recognize foreign currency loss or
gain, which would be ordinary loss or gain, when the <I>reais </I>are converted into
U.S. dollars. Under new rules applicable to dividends received after 2002 and
before 2009, an individual U.S. holder generally will be subject to U.S.
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 circumstances. Dividends paid
by the Holding Company will not be eligible for the dividends received
deduction allowed to corporations under the Code.
</FONT>

<P align="left"><FONT size="2">&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 U.S. 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 U.S. federal income tax liability of a U.S. holder if such
U.S. 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 U.S.
holder&#146;s expected economic profit is insubstantial. U.S. 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;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 the
Holding Company generally will not be subject to U.S. federal income tax.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of ADSs that are foreign corporations or nonresident alien
individuals (&#147;non-U.S. holders&#148;) generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes 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;<I>Passive Foreign Investment Company Rules</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we are not considered a &#147;passive foreign investment
company&#148; (&#147;PFIC&#148;) for United States federal income tax purposes. However,
since PFIC status depends upon the composition of our income and assets and the
market value of our assets from time to time, there can be no assurance that we
will not be considered a PFIC for any taxable year. If we were treated as a
PFIC for any taxable year during which a U.S. Holder held a preferred share or
ADS, certain adverse consequences could apply to the U.S. Holder.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are treated as a PFIC for any taxable year, gain recognized by a
U.S. Holder on a sale or other disposition of a preferred share or ADS would be
allocated ratably over the U.S. Holder&#146;s holding period for our preferred share
or ADS. The amounts allocated to the taxable year of the sale or other
exchange and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to
tax at the highest rate in effect for individuals or corporations, as
appropriate, and an interest charge would be imposed on the amount allocated to
such taxable year. Further, any distribution in respect of preferred shares or
ADSs in excess of 125&nbsp;percent of the average of the annual distributions on
preferred shares or ADSs received by the U.S. Holder during the preceding three
years or the U.S. Holder&#146;s holding period, whichever is shorter, would be
subject to taxation as described above. Certain elections may be available
(including a mark to market election) to United States persons that may
mitigate the adverse consequences resulting from PFIC status.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Taxation of Capital Gains</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon the sale or other disposition of an ADS, a U.S. holder will generally
recognize gain or loss for U.S. 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 U.S. holder&#146;s tax basis in
the ADS. Such gain or loss generally will be subject to U.S. 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&nbsp;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%.
</FONT>
<P align="center"><FONT size="2">78</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">
Capital losses may be deducted from taxable income, subject to certain
limitations. Gain realized by a U.S. holder on a sale or disposition of ADSs
generally will be treated as U.S. source income. Consequently, if Brazilian
tax is imposed on such gain, the U.S. holder will not be able to use the
corresponding foreign tax credit, unless the holder has other foreign source
income of the appropriate type in respect of which the credit may be used.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (1)&nbsp;such gain is effectively connected with the conduct by the holder of
a trade or business in the United States, or (2)&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;<I>Backup Withholding and Information Reporting</I>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on, and proceeds from the sale or other disposition of, the
ADSs or preferred shares to a U.S. holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup
withholding unless the U.S. holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any backup
withholding collected from a payment to a U.S. holder will be allowed as a
credit against the U.S. holder&#146;s U.S. federal income tax liability and may
entitle the U.S. 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;A non-U.S. 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>


<P align="left"><FONT size="2"><B>Documents on Display</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Statements contained in this annual report as to the contents of any
contract or other document referred to are not necessarily complete, and each
of these statements is qualified in all respects by reference to the full text
of such contract or other document filed as an exhibit hereto. Anyone may read
and copy this report at the Securities and Exchange Commission&#146;s public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Information on the operation of the public reference rooms is available by
calling 1-800-SEC-0330.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to the information and periodic reporting requirements of
the Exchange Act and, in accordance therewith, will file periodic reports and
other information with the SEC. These periodic reports and other information
will be available for inspection and copying at the regional offices, public
reference facilities of the SEC referred to above. As a foreign private
issuer, we are exempt from certain provisions of the Exchange Act prescribing
the furnishing and content of proxy statements and periodic reports and from
Section&nbsp;16 of the Exchange Act relating to short-swing profits reporting and
liability.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We will furnish to JPMorgan Chase, as Depositary, copies of all reports we
are required to file with the SEC under the Exchange Act, including our annual
reports in English, containing a brief description of our operations and our
audited annual Consolidated Financial Statements which will be prepared in
accordance with the Brazilian Corporate Law accounting method and include a
reconciliation to U.S. GAAP. In addition, we will be required under the
Deposit Agreement to furnish the Depositary with copies of English translations
to the extent required under the rules of the SEC of all notices of Tele
Celular Sul preferred shareholders&#146; meetings and other reports and
communications that are generally made available to holders of Preferred
Shares. Under certain circumstances, the Depositary will arrange for the
mailing, at our expense, of these notices, other reports and communications to
all ADR holders.
</FONT>

<!-- link2 "ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" -->
<DIV align="left"><A NAME="013"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>
</FONT>


<P align="left"><FONT size="2"><B>Exchange rate risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to foreign exchange rate risk because certain of our costs
are denominated in currencies, primarily the U.S. dollar, other than those in
which we earn revenues, primarily the <I>real</I>. Prior to June 1999, we did not use
derivative instruments, such as foreign exchange forward contracts, foreign
currency options and interest rate swaps to manage these market risks.
</FONT>

<P align="center"><FONT size="2">79</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;On December&nbsp;31, 2002, approximately R$41.6&nbsp;million of our indebtedness was
denominated in U.S. dollars and fully hedged. In addition, on the same date,
we owed approximately R$69.4&nbsp;million, including accrued interest, under our
credit facility with BNDES, of which R$19.4&nbsp;million was linked to the &#147;BNDES&#146;s
basket of currencies,&#148; mostly based on the U.S. dollar/<I>real </I>exchange rate. On
May&nbsp;31, 2002, we swapped all our exposure to such &#147;BNDES basket of currencies&#148;
to CDI. We do not hold or issue derivatives or other financial instruments for
trading purposes.
</FONT>


<P align="left"><FONT size="2"><B>Interest rate risk</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;31, 2002, our outstanding debt accrued interest at the CDI or
the TJLP, and totaled R$321.1&nbsp;million. On the same date, we had cash and cash
equivalents, in the amount of R$432.8&nbsp;million, of which approximately R$421.7
million were invested in short-term instruments accruing interest at the CDI
rate.
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The potential loss that we would suffer in case of a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rates
applicable to our financial assets and liabilities, as of December&nbsp;31, 2002,
would be approximately R$5.0&nbsp;million. See Note 15 to our Consolidated
Financial Statements.
</FONT>

<!-- link2 "ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES" -->
<DIV align="left"><A NAME="014"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</FONT>

<P align="center"><FONT size="2">80</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "PART II" -->
<DIV align="left"><A NAME="015"></A></DIV>

<P align="center"><FONT size="2"><B>PART II</B>
</FONT>

<!-- link2 "ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES" -->
<DIV align="left"><A NAME="016"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>

<!-- link2 "ITEM 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 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.
</FONT>

<!-- link2 "ITEM 15. CONTROLS AND PROCEDURES" -->
<DIV align="left"><A NAME="018"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 15. CONTROLS AND PROCEDURES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Within the 90&nbsp;days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our 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 our evaluation, our Chief Executive Officer 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 we file and submit 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;Furthermore, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
</FONT>

<!-- link2 "ITEM 16. CODE OF ETHICS" -->
<DIV align="left"><A NAME="019"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 16. CODE OF ETHICS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a Code of Conduct and Transparency that applies to its
directors, officers, controlling shareholders and members of the Fiscal
Committee in accordance with CVM rules satisfying the requirements of Brazilian
Law. Our Code of Conduct and Transparency does not address all of the
principles set forth by the Securities and Exchange Commission in Section&nbsp;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">81</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "PART III" -->
<DIV align="left"><A NAME="020"></A></DIV>

<P align="center"><FONT size="2"><B>PART III</B>
</FONT>

<!-- link2 "ITEM 17. FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="021"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 17. FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have responded to Item&nbsp;18 in lieu of responding to this Item.
</FONT>

<!-- link2 "ITEM 18. FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="022"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 18. FINANCIAL STATEMENTS</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reference is made to pages F-1 through F-75. The following financial
statements are filed as part of this Form&nbsp;20-F:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Reports of Independent Accountants for the years ended December&nbsp;31, 1999, 2000, and 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-3</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Consolidated Balance Sheet as of December&nbsp;31, 2000 and 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-4</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Consolidated Statement of Income for the years ended on December&nbsp;31, 1999, 2000, and 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-6</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Consolidated Statement of Changes in Shareholders&#146; Equity for the years ended on December
31, 1999, 2000, and 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-7</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD valign="top"><FONT size="2">Consolidated Statements of Changes in Financial Position for the years ended on December
31, 1999, 2000, and 2001</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-8</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Notes to our Consolidated Financial Statements</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
F-9</FONT></TD>
</TR>
</TABLE>
</CENTER>


<P align="center"><FONT size="2">82</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="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2"><B><I>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND<BR>
SUBSIDIARIES</I></B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2"><B><I>CONSOLIDATED FINANCIAL STATEMENTS</I></B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="50%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="50%"><FONT size="2"><B><I>For the Years Ended December&nbsp;31, 2000, 2001 and 2002<BR>
with Report of Independent Auditors</I></B></FONT></TD>
</TR>
</TABLE>
<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 CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND SUBSIDIARIES</B>
</FONT>


<P align="center"><FONT size="2">CONSOLIDATED FINANCIAL STATEMENTS<BR>
For the Years Ended December&nbsp;31, 2000, 2001 and 2002
</FONT>


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

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="92%">&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" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><I>Report Of Independent Auditors</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"><I>1</I></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>Consolidated Balance Sheets</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"><I>2</I></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>Consolidated Statements of Income</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"><I>4</I></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>Consolidated Statements Of Changes In Shareholders&#146; Equity</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"><I>5</I></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>Consolidated Statements Of Changes In Financial Position</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"><I>6</I></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>Notes to the Consolidated Financial Statements</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"><I>7</I></FONT></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>REPORT OF INDEPENDENT AUDITORS</B>
</FONT>


<P align="left"><FONT size="2"><B>The Board of Directors and Shareholders of<BR>
Tele Celular Sul Participa&#231;&#245;es S.A.</B>
</FONT>

<P align="left"><FONT size="2">We have audited the accompanying consolidated balance sheets of <B>Tele Celular
Sul Participa&#231;&#245;es S.A. </B>(&#147;the Company&#148;) and its subsidiaries as of December&nbsp;31,
2002 and 2001, and the related consolidated statements of income, changes in
shareholders&#146; equity and changes in financial position for the years then
ended. These consolidated financial statements are the responsibility of the
Company&#146;s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
</FONT>

<P align="left"><FONT size="2">We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
</FONT>

<P align="left"><FONT size="2">In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tele
Celular Sul Participa&#231;&#245;es S.A. and its subsidiaries at December&nbsp;31, 2002 and
2001, and the consolidated results of their operations and changes in financial
position for the years then ended in conformity with accounting principles
established under the Brazilian Corporate Law.
</FONT>

<P align="left"><FONT size="2">Accounting principles originating from the Brazilian Corporate Law vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States of America would have affected consolidated net
income for the years ended December&nbsp;31, 2002 and 2001 and consolidated
shareholders&#146; equity at December&nbsp;31, 2002 and 2001 to the extent summarized in
Note 31 to the consolidated financial statements.
</FONT>

<P align="left"><FONT size="2">Curitiba, Brazil<BR>
January&nbsp;17, 2003, except for notes 20.d and 31.III.a, for which the date is February&nbsp;28, 2003
</FONT>
<P align="left"><FONT size="2"><IMG src="y87502y8750203.gif" alt="(ERNEST &#038; YOUNG LOGO)"><BR>
Auditores Independentes S.C.
</FONT>
<P align="left"><FONT size="2">/s/ Marcos Antonio Quintanilha<BR>
Partner
</FONT>
<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">TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND SUBSIDIARIES
</FONT>


<P align="center"><FONT size="2">CONSOLIDATED BALANCE SHEETS<BR>
December&nbsp;31, 2001 and 2002<BR>
(In thousands of Brazilian Reais)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="63%">&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><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><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><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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">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 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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">5,462</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">11,147</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">Marketable securities (note 4)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">134,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">421,687</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">Trade accounts receivable, net (note 5)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148,862</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">165,801</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">Inventories (note 6)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,856</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">15,573</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 (note 7)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,386</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">Deferred taxes (note 8)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,344</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">44,590</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">12,423</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,607</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">376,197</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">705,791</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">Non 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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">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">&#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">7,705</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 (note 7)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,268</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">4,667</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">Deferred taxes (note 8)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">235,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184,673</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">Judicial deposits (note 10)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,908</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,148</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">1,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">774</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">254,051</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">208,967</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">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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investments (note 11)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,707</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">24,320</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, net (note 12)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">775,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">655,949</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 (note 13)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,858</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">871,931</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">733,127</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 Assets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,502,179</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">1,647,885</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>
</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>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="65%">&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>
</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>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="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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Liabilities and 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">
    <TD colspan="2"><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" bgcolor="#eeeeee">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade accounts payable (note 14)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">63,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,677</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">Loans and financings (note 15)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,987</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">38,052</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">Debentures (note 16)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,860</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">210,114</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">Salaries and related charges (note 17)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,115</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">Taxes and social contribution payable (note 18)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,958</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 shareholders&#146; equity payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,636</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,697</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 payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,184</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,489</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 liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,548</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">24,968</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">171,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">484,070</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">Noncurrent 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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans and financings (note 15)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103,539</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">72,919</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 (note 16)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">200,000</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">&#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">Taxes and social contributions payable (note 18)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,193</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">Accrual for pension plan (note 20)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">2,833</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">Provision for contingencies (note 19)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,095</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">8,951</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">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">&#151;</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">372,675</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">158,896</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">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">149,694</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">159,589</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">Shareholders&#146; equity (note 21)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Capital</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">245,033</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">324,666</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">Capital reserve</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">195,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,062</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">Revenue reserves</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">367,601</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">342,602</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">808,329</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">845,330</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">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">1,502,179</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">1,647,885</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>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">See accompanying notes.
</FONT>

<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">TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND SUBSIDIARIES
</FONT>


<P align="center"><FONT size="2">CONSOLIDATED STATEMENTS OF INCOME<BR>
Years ended December&nbsp;31, 2000, 2001 and 2002<BR>
(In thousands of Brazilian Reais)
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="61%">&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><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Years 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" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gross revenues (note 22)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">926,082</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">1,056,346</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">1,145,948</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">Deductions from gross revenues (note 22)</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">(209,195</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(264,917</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(254,684</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">Net revenues (note 22)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">716,887</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">791,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">891,264</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 goods sold and services rendered (note 23)</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">(364,468</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">(406,033</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(486,383</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">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">352,419</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">385,396</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">404,881</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">Operating revenues (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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Selling (note 24)</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">(201,150</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,424</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">(185,446</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 (note 25)</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">(76,300</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">(71,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(83,346</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">Equity in loss of affiliated company</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,888</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,288</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">Other operating expense, net (note 26)</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">(14,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,584</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,902</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">&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">(291,972</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(270,805</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(287,982</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">Operating income before financial results</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,447</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">114,591</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">116,899</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">Financing revenues (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><FONT size="2">&nbsp;</FONT></TD>
    <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">17,463</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">45,278</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">121,310</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 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">(62,619</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(72,045</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(103,535</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">Foreign exchange losses, 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">(12,748</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">(17,638</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(36,734</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">&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">(57,904</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(44,405</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,959</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">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">2,543</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">70,186</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">97,940</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 (note 27)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,507</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">10</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">(127</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">Income before taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,050</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">70,196</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">97,813</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">Income tax and social contribution (note 28)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,320</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">672</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">(19,473</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">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">2,998</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">(10,979</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,566</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">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">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income per thousands shares outstanding at year
end (R$)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.05</FONT></TD>
    <TD><FONT size="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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.19</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">Number of outstanding shares on December&nbsp;31 (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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">337,219</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">342,970</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="center"><FONT size="2">See accompanying notes.
</FONT>

<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">TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND SUBSIDIARIES
</FONT>


<P align="center"><FONT size="2">CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS&#146; EQUITY<BR>
Years ended December&nbsp;31, 2000, 2001 and 2002<BR>
(In thousands of Brazilian Reais)
</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="33%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&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><FONT size="1">&nbsp;</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>Capital reserve</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="15"><FONT size="1"><B>Revenue Reserves</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><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="3"><HR size="1" noshade></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD colspan="15"><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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&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 nowrap align="center" colspan="3"><FONT size="1"><B>Special</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>Special</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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&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 nowrap align="center" colspan="3"><FONT size="1"><B>goodwill</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>profits</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve for</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>reserve for</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><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>dividends</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>expansion</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><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>
    <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">Balances at 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">175,872</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">&#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">16,744</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">126,655</FONT></TD>
    <TD><FONT size="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">241,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">560,966</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">. Partial reduction of 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">(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 align="right"><FONT size="2">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">&#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>
    <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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">. Incorporation of parent company goodwill</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">205,503</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">&#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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,503</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 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">&#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>
    <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">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,368</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">. Realization of unrealized profits reserve</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(32,427</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">&#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">32,427</FONT></TD>
    <TD><FONT size="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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Appropriation of 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">. Legal reserve</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">768</FONT></TD>
    <TD><FONT size="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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(768</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">&#151;</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">. Interest on 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">&#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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,515</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,515</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">. Dividends</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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,241</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,241</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">Balances at 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">175,772</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,603</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">17,512</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">94,228</FONT></TD>
    <TD><FONT size="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">276,966</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">770,081</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capital increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">69,261</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">(9,908</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">&#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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(59,353</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">&#151;</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 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">&#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>
    <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">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</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">. Realization of unrealized profits reserve</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,228</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">&#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">94,228</FONT></TD>
    <TD><FONT size="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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">. Special reserve for dividends</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">19,257</FONT></TD>
    <TD><FONT size="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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,257</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">&#151;</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">. Profit reserve for expansion</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">327,838</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">(327,838</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD 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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Appropriation of 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">. Legal reserve</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">2,994</FONT></TD>
    <TD><FONT size="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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,994</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">&#151;</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">. Interest on 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">&#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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,782</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">(20,782</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">. Dividends</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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(859</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(859</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">Balances 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">245,033</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">195,695</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,506</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">&#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">19,257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">327,838</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">&#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">808,329</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">. Capital increase</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">79,633</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">(17,633</FONT></TD>
    <TD><FONT size="2">)</FONT></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;</FONT></TD>
    <TD><FONT size="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">(62,000</FONT></TD>
    <TD><FONT size="2">)</FONT></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;</FONT></TD>
    <TD nowrap><FONT size="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 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 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>
    <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">65,774</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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">. Realization of special reserve for dividends</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,602</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">&#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><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">(10,602</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">. Profit reserve for expansion</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,314</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">(44,314</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">&#151;</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">Appropriation of 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">. Legal reserve</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">3,289</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">&#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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,289</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">&#151;</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">. Interest on 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">&#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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(17,000</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">(17,000</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">Dividends</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>
    <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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,171</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,171</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">Balances 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">324,666</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">178,062</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,795</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">&#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">8,655</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">310,152</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">&#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">845,330</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>
    <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">See accompanying notes.
</FONT>

<P align="center"><FONT size="2">F-7</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">TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. AND SUBSIDIARIES
</FONT>


<P align="center"><FONT size="2">CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION<BR>
Years ended December&nbsp;31, 2000, 2001 and 2002<BR>
(In thousands of Brazilian Reais)
</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="65%">&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="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><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="11"><FONT size="1"><B>Years 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><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><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><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">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 colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Operations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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">Items 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 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">156,089</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">181,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">201,763</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">Exchange and monetary variations and interest on 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">6,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,992</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">Provision (reversal of provision) for contingencies</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">(2,003</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">4,578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,858</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">Equity in loss of affiliated company</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">1,888</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">4,288</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">Net book value of property, plant and equipment sold</FONT></DIV></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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,171</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">Pension 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">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">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Minority 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">(2,998</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">10,979</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">12,566</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">Capital gain on acquisition of minority 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">(2,130</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD 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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">TIMNET non-consolidation effects</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,736</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD 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><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">&#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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(753</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">Third parties</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Increase of 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">341,886</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,436</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,343</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">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">18,597</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,093</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">49,524</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">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total resources provided</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">531,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">310,544</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">370,120</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 colspan="4"><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">
    <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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,814</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">19,614</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">16,534</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">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">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">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">240</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">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">&#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">7,705</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</FONT></DIV></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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,168</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">242</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">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" 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">Investments</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">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">926</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">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">180,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">101,684</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">64,512</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 charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,786</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">45,615</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,227</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">Dividends and interest on 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">11,756</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">21,641</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">28,773</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">Transfer from long-term liabilities to current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,588</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,818</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">248,566</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">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Total resources used</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">271,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">218,865</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">370,725</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 colspan="4"><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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260,424</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">91,679</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">(605</FONT></TD>
    <TD nowrap><FONT size="2">)</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="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="4"><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" bgcolor="#eeeeee">
    <TD colspan="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Working capital at the end of 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>
</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">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">312,175</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">376,197</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">701,268</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><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">199,138</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">171,481</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">497,157</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">
    <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 align="right"><FONT size="2">113,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">204,716</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">204,111</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">Less working capital at the beginning of 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">(147,387</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">113,037</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">204,716</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">
    <TD colspan="4"><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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">260,424</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">91,679</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">(605</FONT></TD>
    <TD nowrap><FONT size="2">)</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="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">See accompanying notes.
</FONT>



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



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR valign="top">
    <TD width="1%" align="left"></TD>
    <TD width="3%" align="left"></TD>
    <TD width="96%" align="left"></TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2"><B>&nbsp;&nbsp;1</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">Operations and background</FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2"><B>(a)</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>History</B></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%"><FONT size="2">Tele Celular Sul Participa&#231;&#245;es S.A. (&#147;the Company&#148;) was founded in accordance
with Article&nbsp;189 of Law No.&nbsp;9,472/97 &#150; General Telecommunications Law and based
on Decree No.&nbsp;2546/98 as of April&nbsp;14,1998, as a result of the spin-off of
Telecomunica&#231;&#245;es Brasileiras S.A. approved at the Shareholders Meeting held on
May&nbsp;22, 1998.</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%"><FONT size="2">The Company is a publicly traded company directly controlled by Bitel
Participa&#231;&#245;es S.A., which has, as of December&nbsp;31, 2002, 52.06% of the Company&#146;s
voting capital and 20.68% of the Company&#146;s total capital.</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%"><FONT size="2">Although the economic situation in Brazil has remained stable in recent years,
a return to higher levels of inflation and currency fluctuations could
adversely affect the Company&#146;s operations. The foreign exchange volatility of
the Brazilian Real (R$) in relation to the US Dollar affects the Company&#146;s
financial statements. The exchange rate of the Brazilian Real to the US Dollar
was R$1.9554:US$1.00, R$2.3204:US$1.00 and R$3.5333:US$1.00 at December&nbsp;31,
2000, 2001 and 2002, respectively. At December&nbsp;31, 2001 and 2002, the loans
based in US Dollar represented 17% and 13% of Company&#146;s total consolidated
debt, respectively.</FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2"><B>(b)</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>Corporate restructuring plan</B></FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">When the parent company of Tele Celular Sul Participa&#231;&#245;es S.A. (&#147;parent
company&#148;) acquired the participation in common shares of the Company as a
result of the privatization process, a higher price was paid in relation to the
book value of the Company, thus generating a goodwill. During the first quarter
of 2000, Tele Celular Sul Participa&#231;&#245;es S.A. and the parent company began a
restructuring process in order to transfer the goodwill to the operating
subsidiaries in order to obtain the tax deductibility of the goodwill
amortization. The estimated tax benefit is approximately R$205,000. During
2002, the tax benefit was R$25,250 (R$25,270 in 2001).</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%"><FONT size="2">As a first step of the restructuring process, the goodwill was transferred from
the parent company to Tele Celular Sul Participa&#231;&#245;es S.A. in two phases,
including the creation of a new subsidiary by the parent company to where the
goodwill was transferred, and subsequently the merger of this new subsidiary
into Tele Celular Sul Participa&#231;&#245;es S.A. This first step was concluded at April
28, 2000 with the approval by the shareholders through an Extraordinary
Shareholders Meeting.</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%"><FONT size="2">In the second step of the process, the Company spun off to the operating
subsidiaries their respective shares of the goodwill. This second step was
approved by the Extraordinary Shareholders General Meeting of each subsidiary
on June&nbsp;30, 2000.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-9</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></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%"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT>
</TD>
</TR>
</TABLE>


<P>
<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">A valuation allowance, denominated in the books as &#147;Provision for maintenance
of shareholders&#146; equity&#148;, was recorded by the subsidiaries in relation to the
goodwill. Accordingly, the remaining balances correspond to the tax benefit
arisen from the future amortization of goodwill.</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%"><FONT size="2">As of December&nbsp;31, 2002 the remaining value of the resulting tax credit in
relation to both income taxes and social contribution tax on profits of the
subsidiaries was R$141,106 (R$166,358 in 2001). This is shown in the balance
sheet as part of deferred taxes (R$24,857 as current and R$116,249 as
noncurrent assets on December&nbsp;31, 2002 and R$18,053 and R$148,305 on December
31, 2001, respectively).</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%"><FONT size="2">Under the terms of the reorganization, the resulting tax benefit reverts to the
benefit of the controlling shareholder that originated the goodwill without,
however, causing any negative effects on the Company&#146;s profitability or the
flow of dividends to its minority shareholders. The effect of the
reorganization on the balance sheet and income statement accounts as at
December&nbsp;31, 2001 and 2002 and for the years then ended is shown below:</FONT></TD>
</TR>
</TABLE>
<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="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>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="2"><B>Balance sheet effects:</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>December</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December</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>31, 2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>31, 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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Unamortized balance of goodwill</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">489,287</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">414,964</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">Provision for maintenance of shareholders equity</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">(322,929</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(273,858</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">Tax benefit balance presented under &#147;Deferred and
recoverable taxes&#148;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">166,358</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"><FONT size="2">141,106</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>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="56%">&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 nowrap align="left" colspan="5"><FONT size="2"><B>Income statement effects:</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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Goodwill 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">(74,322</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(74,322</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">Provision reversal</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,072</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 credit balance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">25,270</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">25,250</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">Net income effect</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>
</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-10</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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The goodwill is being amortized over 10&nbsp;years, starting in August 1998, at a
rate of 4% p.a. in the first two years with the balance being amortized
straight line over the remaining eight years. The provision for maintenance of
shareholders equity was established at an amount sufficient to reduce the
unamortized balance of the goodwill to the estimated value of the future tax
benefits that will be generated by its amortization in the subsidiaries. This
is also the amount necessary to ensure that there will be no reduction in the
amount of retained earnings available for the distribution of dividends on
account of the future amortization of the goodwill in excess of the related tax
benefit. The counter-entry to the initial recognition of the tax credit balance
is recognized directly in shareholders equity as a capital reserve. Also under
the terms of the restructuring, the effective tax benefit realized in each
fiscal year will subsequently be capitalized in the name of the controlling
shareholder, and minority shareholders are ensured the right to preference in
the acquisition of a proportional amount of new capital from the controlling
shareholder.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Company subsidiaries</B>
</FONT>


<P>
<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">In the corporate restructuring process described in item (d)&nbsp;below, the Company
maintained the ownership control of Telepar Celular S.A., acting in an
integrated way with its subsidiary.</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%"><FONT size="2">The Company also has an ownership interest in the affiliated company TIMnet.com
S.A.</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%"><FONT size="2">Except for TIMnet.com S.A., the direct and indirect subsidiaries are providers
of mobile telephone services in the Brazilian states of Paran&#225; (except for the
cities of Londrina and Tamarana) and Santa Catarina, and in the cities of
Pelotas, Cap&#227;o do Le&#227;o, Morro Redondo and Turu&#231;u in the State of Rio Grande do
Sul. The Company provides such mobile telephone services under concession terms
granted by the Federal Government. These concessions will expire on September
3, 2007, September&nbsp;30, 2008 and April&nbsp;14, 2009 for Telepar Celular S.A., Telesc
Celular S.A. and CTMR Celular S.A., respectively. Those concessions may be
subsequently renewed for an additional period of 15&nbsp;years by the granting
authority.</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%"><FONT size="2">Through November&nbsp;30, 2002, the Company had ownership interests in Telesc
Celular S.A. and CTMR Celular S.A. As discussed in (d)&nbsp;below, the ownership
interests were transferred to Telepar Celular S.A.</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%"><FONT size="2">TIMnet.com S.A. was founded on July&nbsp;13, 2000, in order to provide Internet
access and related services to end users, including internet hosting, web
design, information technology and data processing services, information
technology and telecommunications consulting and technical support. At December
31, 2002 the Company&#146;s interest in TIMnet.com S.A. was 20% and is recorded as a
non-consolidated investment in an affiliated company.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate Reorganization</B>
</FONT>


<P>
<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">On December&nbsp;26, 2002, the Board of Directors approved the corporate
reorganization, which was previously approved by the Extraordinary General
Meeting held on November&nbsp;19, 2002, in which all shares issued by Telesc Celular
S.A. and CTMR Celular S.A., which were previously owned by Tele Celular Sul
Participa&#231;&#245;es S.A., were transferred to Telepar Celular S.A.</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%"><FONT size="2">The corporate restructuring was performed in order to achieve the following,
among other reasons: i) operational integration between the subsidiaries, which
will allow the sharing of the knowledge of the businesses and consequent cost
reductions; ii) concentration of the shares of the subsidiaries in one public
company generating a benefit to all shareholders.</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%"><FONT size="2">The restructuring process was performed through the exchange of Telesc Celular
S.A. and CTMR Celular S.A. shares for shares issued by Telepar Celular S.A.,
resulting in a capital increase on Telepar of R$578,959 as well as Telepar&#146;s
ownership of Telesc and CTMR. Telesc and CTMR became subsidiaries of Telepar.
The new shares issued by Telepar, as a result of the capital increase, were
given to the shareholders of Telesc and CTMR.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase of interest in Telesc Celular S.A.</B>
</FONT>


<P>
<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">On April&nbsp;4, 2002, the Annual Shareholders&#146; Meeting of the subsidiary Telesc
Celular S.A. approved a capital increase in the benefit of the Company, related
to the tax benefit originated from the amortization of the deferred tax related
to the goodwill formed during the partial spin off the Company, in accordance
to the article 7, paragraph 1, of the Brazilian Securities and Exchange
Commission &#151; CVM Instruction 319/99. The capital increase of R$17,633, was
represented by the issuance of 73,697,887 common shares without nominal value,
with 72,082,532 shares issued in favor of the Company and 1,615,355 shares
issued in favor of the minority shareholders based on their right of
preferential exercise.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Technological platform</B>
</FONT>


<P>
<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">The Company and its subsidiaries are developing studies to offer mobile phones
that operate in the GSM technology, in addition to the services currently
offered in the TDMA technology, increasing its services portfolio to clients.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-12</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>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>2. Presentation of the financial statements</B>
</FONT>


<P align="left"><FONT size="2"><B>a) Basis of preparation and disclosures</B>
</FONT>


<P>
<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">The consolidated financial statements were prepared in accordance with
accounting principles originating from Brazilian Corporate Law and in
conformity with accounting requirements and procedures established by the
Brazilian Securities Commission (CVM), and the related rules applicable to the
public telecommunication service concessionaires.</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%"><FONT size="2">Tele Celular Sul Participa&#231;&#245;es S.A. is a publicly traded company and has
American Depositary Receipts traded on the New York Stock Exchange.
Consequently, the Company is subject to the rules of the United States Security
and Exchange Commission (SEC)&nbsp;and is also required to include in its financial
statements specific disclosures relating to the reconciliation between
shareholders equity and net income prepared in accordance with Brazilian
Corporate Law and shareholders equity and net income based on accounting
principles generally accepted in the United States of America (US GAAP). See
Note 31.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>b) Consolidated financial statements</B>
</FONT>


<P>
<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">The consolidated financial statements include the consolidated assets and
liabilities of the Company and its subsidiary, and the results of operations of
Telesc Celular S.A. and CTMR Celular S.A. for the years ended December&nbsp;31, 2000
and 2001 and for the period from January&nbsp;1, 2002, through November&nbsp;30, 2002, as
well as, the results of operations of Telepar Celular S.A for the years ended
December&nbsp;31 2000, 2001 and 2002.</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%"><FONT size="2">Description of main consolidation procedures:</FONT></TD>
</TR>
</TABLE>

<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.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Elimination of assets and liabilities balances between the consolidated
subsidiaries;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">II.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Elimination of investments, reserves and retained earnings of the subsidiaries;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">III.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Elimination of revenues and expenses generated by transactions between the companies;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">IV.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">Disclosure of the minority interest participation in the consolidated financial statements.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-13</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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The Company&#146;s ownership percentage in the subsidiaries as of December&nbsp;31, 2000,
2001, and 2002 was the following (% of total capital and voting capital):</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="44%">&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>
    <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><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><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" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Telepar Celular S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Total 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">73.57</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">73.57</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">80.79</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">Voting 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">87.43</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87.43</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">90.19</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">Telesc Celular S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Total 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">82.92</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">83.13</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">&#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">Voting 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">91.40</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">91.62</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">&#151;</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">CTMR Celular S.A.</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Total 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">78.55</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">78.55</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">&#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">Voting 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">81.32</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">81.32</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">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<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">On April 2001 the Company&#146;s ownership percentage of TIMnet.com S.A. was reduced
from 50% to 33% and as of December 2002, the ownership percentage was further
reduced to 20%. Consequently, commencing January&nbsp;1, 2001 the Company has been
accounting for its investments in TIMnet.com S.A. under the equity method of
accounting. Since the acquisition of the investment in July&nbsp;13, 2000 and
through December&nbsp;31, 2000, the Company had proportionally consolidated the
financial position and results of TIMnet.com S.A.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-14</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR valign="top">
    <TD width="5%" align="left"></TD>
    <TD width="2%" align="left"></TD>
    <TD width="93%" align="left"></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2"><B>c)</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>Reclassification to the financial statements for the years ended December&nbsp;31, 2000 and 2001</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">Some reclassifications have been made to prior years amounts in order to
provide a better presentation and comparison with current year financial
statements as follows:</FONT></TD>
</TR>
</TABLE>

<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="54%">&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="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><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>2000</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><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 nowrap align="center" colspan="3"><FONT size="1"><B>Amount originally</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>Amount originally</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 nowrap align="center" colspan="3"><FONT size="1"><B>Current amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>disclosed</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Current amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>disclosed</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Current assets</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>
</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"><B>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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Reclassified to 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">&#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">5,462</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">139,859</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"><B>Marketable 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Reclassified from 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">&#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">134,397</FONT></TD>
    <TD><FONT size="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 colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Operating revenues (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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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"><B>General and administrative 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Reclassified employees bonus performance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76,300</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">74,038</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">71,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,780</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-15</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>3</b></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Summary of significant accounting practices</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">These financial statements were prepared according to the accounting principles
originating from the Brazilian Corporate Law, and were translated from
Portuguese into English. Additionally, certain terminology was changed and
certain footnotes were complemented to better represent the reporting standards
prevailing in the United States of America.</FONT></TD>
</TR>
</TABLE>

<P>
<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">The significant accounting practices adopted in the preparation of the
consolidated financial statements are consistent with those adopted in prior
periods.</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(a)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Cash and cash equivalents</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(b)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Marketable securities</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">Marketable securities represent temporary investments to be held up to the
maturity dates which are over one year, and are recorded at cost, as current
and long term assets, plus interest earned up to the balance sheet date.</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(c)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Trade accounts receivable</B></FONT></TD>
</TR>
</TABLE>
<P>
<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">Trade accounts receivable represent services and products billed to customers,
unbilled services rendered to customers, as well as amounts arising from the
use of the Company&#146;s telecommunications network by subscribers of other
telecommunications companies.</FONT></TD>
</TR>
</TABLE>

<P>
<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">The allowance for doubtful accounts is recorded based on an analysis prepared
by management which considers the customer base profile, the aging of overdue
accounts and the overall economic environment. Management believes the
provision amount is sufficient to cover estimated losses of the receivables.</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(d)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Inventories</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">Inventories primarily include cellular handset equipment which is stated at
average acquisition cost net of the provisions for realization value
adjustment, whenever applicable.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-16</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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments</B>
</FONT>


<P>
<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">Represent the permanent investments in the affiliated company, which is
recorded based on equity method, and the goodwill originated on the acquisition
of additional shares in Telepar Celular S.A. The accounting practices adopted
by the affiliated company are consistent with those adopted by the Company.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment</B>
</FONT>


<P>
<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">Property, plant and equipment is stated at acquisition and/or construction
cost, less accumulated depreciation calculated based on the straight-line
method at the rates shown in Note 12, which take into consideration the useful
lives of the assets. Expenditures for repairs and maintenance of existing
property, plant and equipment, which extend the useful lives of the related
assets, as well as the interest computed on debts that finance the construction
of property, plant and equipment, are capitalized and amortized over the
remaining useful life.</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%"><FONT size="2">Interest on loans to finance constructions in progress is added to their cost,
in accordance with CVM Resolution 193/96.</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%"><FONT size="2">The Company&#146;s management reviews property, plant and equipment for possible
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset or group of assets may not be recoverable on the
basis of undiscounted future cash flows. The reviews are carried out at the
lowest level of asset groups to which management is able to attribute
identifiable future cash flows. The Company analyzes the net book value of the
underlying assets and adjusts it if the sum of the expected future cash flows
is less than the net book value. These reviews have not indicated the need to
recognize any impairment losses during the years ended December&nbsp;31, 2000, 2001
and 2002.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred charges</B>
</FONT>


<P>
<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">Deferred charges represent expenses incurred in connection with the
implementation of data processing systems, net of accumulated amortization
calculated according to the straight-line method over five years. Such costs
represent direct developments costs associated with internal-use software,
including external direct costs of materials and services, and payroll costs
for employees devoting time to the software projects. Significant costs
incurred during the preliminary stage, as well as maintenance and training
costs, are expensed as incurred.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-17</FONT>

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

<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3"><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%"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3"><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"><B>(h)</B></FONT></TD>
    <TD width="96%"><FONT size="2"><B>Interest attributed to shareholders&#146; equity</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3"><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%"><FONT size="2">Brazilian corporations are permitted to pay interest on shareholders&#146; equity,
which is similar to the payment of dividends. The amount of interest is at the
Company&#146;s discretion and is deductible for income tax purposes. The Company has
elected to pay such interest to its shareholders with respect to the years
ended December&nbsp;31, 2000, 2001 and 2002, and has accrued the amount due, net of
withholding tax, with a direct charge to shareholders&#146; equity. The distribution
of such interest to shareholders is subject to withholding for income tax at
the rate of 15%.</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"><B>(i)</B></FONT></TD>
    <TD width="96%"><FONT size="2"><B>Income and social contribution taxes</B>
</FONT>
</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%"><FONT size="2">These taxes are calculated and recorded based on the tax rates prevailing on
the date of the consolidated financial statements. Deferred taxes are recorded
on timing differences and on income and social contribution tax loss
carryforwards, whenever applicable. Management expects that deferred tax assets
will be realized over the next four years. Under Brazilian tax legislation, tax
losses related to income tax and negative social contribution tax basis have no
expiration date and may be used to off-set taxable income in any given year up
to a maximum of 30% of such taxable income.</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%"><FONT size="2">Based on the business plan for future years and on the corporate reorganization
implemented during 2002, as described in Note 1(d), management expects the
deferred tax assets recorded by the subsidiary Telepar Celular S.A. be realized
in 4&nbsp;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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2"><B>(j)</B></FONT></TD>
    <TD width="96%"><FONT size="2"><B>Foreign currency transactions</B>
</FONT>
</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%"><FONT size="2">Transactions in foreign currency are recorded at the exchange rate at the date
of the transaction. Foreign currency denominated assets and liabilities are
translated into Brazilian Reais at the commercial selling exchange rate
reported by the Central Bank of Brazil at each balance sheet date. Exchange
gains and losses are recognized in the consolidated statement of income on a
current basis.</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"><B>(k)</B></FONT></TD>
    <TD width="96%"><FONT size="2"><B>Provision for contingencies</B>
</FONT>
</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%"><FONT size="2">The provision for contingencies is recorded based on estimates made by
management taking into consideration the opinion of its in-house and external
legal counsel, and is considered sufficient to cover losses and risks
classified as probable.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-18</FONT>

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


<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(l)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Provision for compensated absences</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2">Vacations and other employee benefits are recorded as they are earned by the
employees.</FONT></TD>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(m)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Revenue recognition</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2">Wireless services revenue primarily includes monthly recurring charges
(subscriptions), airtime (usage of telephone), and roaming charges. Wireless
services revenue is recognized based upon minutes of use processed and
contracted fees, net of credits and adjustments for services discounts.
Billings are recorded monthly and the revenues not billed between the billings
date and the end of the month are estimated and recognized in the month the
service was rendered Revenues from prepaid services are recognized when the
services are rendered to customers. Revenue and related expenses associated
with the sale of wireless handsets and accessories are recognized when the
products are delivered and accepted by the customer or distributor.</FONT></TD>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(n)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Financial income (expenses)</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2">Financial income consists of interest earned, exchange gains and gains from
financial investments. Financial expenses include interest expense, exchange
losses, and gain/losses on swaps contracts, which are recognized on an accrual
basis.</FONT></TD>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(o)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Research and development, and advertising costs</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2">Research and development, and advertising costs are expensed as incurred.</FONT></TD>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(p)</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Employees&#146; bonus performance premium</B>
</FONT>
</TR>

<TR valign="top">
    <TD colspan="3" valign="top">&nbsp;</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%"><FONT size="2">As the operating targets are met, the Company records a provision for
employees&#146; bonus performance premium, subjected to approval by the Annual
General Meeting of Shareholders. Such expenses are recorded as &#147;general and
administrative expenses&#148;.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-19</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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pension plan &#150; actuarial gains and losses recognition</B>
</FONT>


<P>
<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">The Company and its subsidiaries maintain pension and post-retirement benefits
plan for certain employees (see Notes 20 and 31.III.a).</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%"><FONT size="2">Accounting standards established by Brazilian Corporate Law through December
31, 2000 required recognition as pension plan cost of the amounts of
contributions due in each period on an accrual basis.</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%"><FONT size="2">During the year ended December&nbsp;31, 2001, the Brazilian Securities and Exchange
Commission &#150; CVM approved a new standard (CVM No.371) which modified the
accounting for pension and other post-retirement benefits. As allowed by the
CVM, the Company and its subsidiaries have elected to record the adjustments
related to its actuarial liabilities over a period of five years commencing in
2002. The effect of such accounting change was R$587 for the year ended
December&nbsp;31, 2002.</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%"><FONT size="2">The actuarial gains and losses related to the pension plans financed by the
Company have been recognized beginning 2002 based on the highest value between
10% of the present value of the actuarial liability and 10% of the fair value
of the plan assets.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest</B>
</FONT>


<P>
<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">The minority interest corresponds to the interest of the minority shareholders
in the subsidiaries.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Use of estimates</B>
</FONT>


<P>
<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">The preparation of financial statements in accordance with accounting
principles under Brazilian Corporate Law requires management to use estimates
and assumptions concerning the amounts of recorded assets and liabilities and
the disclosures of contingent assets and liabilities at the balance sheet date,
as well as the estimation of revenues and expenses for the period. The actual
results may differ from those estimates.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income per thousand shares</B>
</FONT>


<P>
<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">These amounts are calculated based on the number of outstanding shares at the
balance sheet date. Thousands of shares are presented since the shares are
traded in thousand share lots.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-20</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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities</B>
</FONT>


<P>
<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">The balance of marketable securities is comprised as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="56%">&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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Banco 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">125,303</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">288,226</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">Bank Boston 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">2,997</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">24,119</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">Unibanco 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">&#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">26,842</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">Santander 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">&#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">10,332</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">Citibank 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">3,622</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">30,489</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">HSBC Bank</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">30,902</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 Real 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">2,463</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">18,480</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 Bradesco 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</FONT></TD>
    <TD><FONT size="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>
</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">134,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">429,392</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">134,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">421,687</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">Noncurrent</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">7,705</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<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">The investments consist of Federal Government securities and banking deposits
certificates (CDB), with due date between 2003 and 2005, with average interest
between 99.5% to 100% of the Interbank Deposit Certificate (CDI)&nbsp;rate.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable, net</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>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>
</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">32,289</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">35,040</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 unbilled</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,094</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">35,649</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">Use 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">31,950</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,872</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">Sales of merchandise</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">55,381</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">65,773</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">155,714</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">172,334</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 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">(6,852</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(6,533</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">148,862</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">165,801</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>
<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 nowrap align="center"><FONT size="1"><B>Accounts receivable aging list</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 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">Falling due</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">131,036</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">147,773</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">Due up 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">15,710</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">16,029</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">Due over 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">8,968</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">8,532</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<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">Changes in the allowance for doubtful accounts were as follows:</FONT></TD>
</TR>
</TABLE>
<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>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">Balance 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">21,065</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,852</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">Amounts charged to selling expenses</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,051</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">18,335</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">30,761</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">Write-offs against the provision</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">(67,383</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,216</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">(31,080</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">Balance 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">12,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,852</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,533</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-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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>6&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories</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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">New handsets, accessories, cards and kits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,094</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">15,726</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">Used handsets</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,619</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">1,140</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 realization value 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">(1,857</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,293</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">21,856</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">15,573</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"><B>7&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recoverable taxes &#150; current and noncurrent</B>
</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="68%">&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><FONT size="1">&nbsp;</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Recoverable taxes</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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,600</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">16,392</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">Prepayments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,600</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">16,392</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">Withholding tax on financial investments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,817</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">6,694</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">Withholding tax on interest on 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">4,621</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">856</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">Social contribution tax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,828</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">7,553</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">Prepayments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,600</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">16,392</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">State VAT (ICMS)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,255</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,558</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">36,121</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">47,053</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">
    <TD colspan="3"><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">30,853</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,386</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">Noncurrent</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,268</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">4,667</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred taxes &#151; current and noncurrent</B>
</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="68%">&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><FONT size="1">&nbsp;</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Deferred taxes</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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Tax loss carryforwards</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76,151</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">64,771</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">Timing differences</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Exchange variations</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,456</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,413</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">Allowance for bad debt</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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,055</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 amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">7,031</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">Provision 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">2,070</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">3,043</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">Employees bonus performance premium</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,442</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">Provision for pension plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">761</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">963</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 reduction to market value of inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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"><FONT size="2">439</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">Tax benefit related to goodwill paid on privatization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">166,358</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"><FONT size="2">141,106</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">258,330</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">229,263</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</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">22,344</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">44,590</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">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">235,986</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<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">Tax benefit related to goodwill paid on privatization refers to the future tax
benefit arising from the restructuring plan (see Note 1.b).</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%"><FONT size="2">At December&nbsp;31, 2002, the Company and its subsidiary Telepar Celular S.A. had
consolidated operating loss carryforwards totaling R$190,618 and R$190,721 for
income tax and social contribution purposes, respectively. The loss
carryforwards have no expiration date and are available to offset up to 30% of
the Companies&#146; future taxable income in any given year.</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%"><FONT size="2">Based on projections made by the Company, the deferred tax assets (long term)
will be realized as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="36%">&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">
    <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>
</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">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">57,403</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">39,897</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">41,866</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">45,507</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">184,673</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-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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Related party transactions</B>
</FONT>


<P>
<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">The main transactions between the Company and subsidiaries, which have been
eliminated in these consolidated financial statements, are represented by
network use services and loans, and were carried out under agreed upon terms. A
summary with transactions with related parties is as follows:</FONT></TD>
</TR>
</TABLE>
<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="3%">&nbsp;</TD>
    <TD width="39%">&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="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="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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Tele</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>TIM</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><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>Nordeste</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Maxitel</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Celular</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><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>Partic.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Celular</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Centro Sul</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>TIM Brasil</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 nowrap align="center" colspan="3"><FONT size="1"><B>S.A.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>S.A.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>S.A.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>S.A.</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>TIMnet</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><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="4"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Assets</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><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">Loans &#150; Current</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">2002</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">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">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">&#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">172</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">2001</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76</FONT></TD>
    <TD><FONT size="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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">76</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">Other receivables</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">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">&#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">291</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"><B>Liabilities</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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Loans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">2002</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">527</FONT></TD>
    <TD><FONT size="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</FONT></TD>
    <TD><FONT size="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</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">2001</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">1,356</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">&#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">1,356</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">Other 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">2002</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">51</FONT></TD>
    <TD><FONT size="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">162</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">267</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">2001</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">2,020</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">2,020</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>Other information</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><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">Financing 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><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">2002</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">137</FONT></TD>
    <TD><FONT size="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</FONT></TD>
    <TD><FONT size="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">147</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">2001</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">1,324</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">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">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">&#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">1,533</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 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" 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">2002</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">355</FONT></TD>
    <TD><FONT size="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">961</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>Cost of services &#150; selling 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">(530</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(435</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">&#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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,025</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,990</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">2001</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,542</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,542</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<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">The related party transactions were made using usual market conditions, and
mainly summarize loans to affiliates and subsidiaries, with annual interest
rates of 101.2% of the Brazilian Interbank rate.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Judicial deposits</B>
</FONT>


<P>
<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">At December&nbsp;31, 2002, the judicial deposits of R$11,148 (R$10,908 as of
December&nbsp;31, 2001), represent mainly the lawsuit questioning the ICMS (VAT
State) Agreement 69/98. The Company, based on its legal advisors&#146; opinion,
believes that it will win this cause; therefore, it did not record a
contingency reserve for this amount.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>11&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="73%">&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><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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Affiliated company</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,712</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,179</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">Goodwill on acquisition of additional shares in
Telepar Celular 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">14,585</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">12,806</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">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">1,335</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,707</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">24,320</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>
</TR>
</TABLE>
</CENTER>

<P>
<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">Investment in affiliated company represents the participation of 20% in the
TIMNET.com S/A. capital and is summarized as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<TR valign="bottom">
    <TD width="82%">&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" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Ownership(%)</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">20.0</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">Shareholders&#146; equity as of 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">50,894</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">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">(21,441</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">Equity in 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">(4,288</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">Investment 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">10,179</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><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">&nbsp;</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>2002</B></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">TIMNET com
Opening balance</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">13,712</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 in 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">(4,288</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">Others</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">755</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,179</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-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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S A E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>12&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <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="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="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>
</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>2001</B></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>Estimated</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="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><FONT size="1">&nbsp;</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>Accum.</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>Depreciable</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>Net</B></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>Lives (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">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">146,560</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">231,391</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">(102,335</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">129,056</FONT></TD>
    <TD><FONT size="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</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">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">462,403</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">825,456</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">(459,956</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">365,500</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">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">Terminals, energy equipment,
furniture, tools and
instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">45,996</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">80,956</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">(42,978</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">37,978</FONT></TD>
    <TD><FONT size="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</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">Leasehold improvements</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,668</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,717</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">(8,147</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">4,570</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">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">Towers, posts, support and
protection devices</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">41,557</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">53,331</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">(10,385</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">42,946</FONT></TD>
    <TD><FONT size="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</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">Rights to use software and
computer equipment</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,106</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">71,059</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">(30,781</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">40,278</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">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">Buildings</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,879</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,882</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">(10,352</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">16,530</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">25</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">Vehicles</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">2,447</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">(1,863</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">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">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">Land</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,120</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">3,135</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">&#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">3,135</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">&#151;</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><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">Assets and installations in use</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">757,096</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">1,307,374</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">(666,797</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">640,577</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">18,479</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">15,372</FONT></TD>
    <TD><FONT size="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">15,372</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><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">775,575</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,322,746</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">(666,797</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">655,949</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="left"><FONT size="2"><B>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest capitalization</B>
</FONT>


<P>
<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">During the years ended December&nbsp;31, 2000, 2001 and 2002, interest of R$14,680,
R$4,148, and R$646 respectively, was capitalized as part of the cost of
property, plant and equipment.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Leases</B>
</FONT>


<P>
<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">The Company leases equipment and facilities under many operating agreements
with different terms, which can be terminated without cost. The annual lease
expenses under those agreements were R$47,892, R$16,106, and R$16,675 for the
years ended December&nbsp;31, 2000, 2001, and 2002, respectively.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recoverability of property, plant and equipment</B>
</FONT>


<P>
<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">As described in Note 1 (f), the Company and its subsidiaries plan the
implementation of the GSM technology in their networking, in addition to the
actual TDMA technology. The implementation studies of this new technology,
including investments plans, have not been completed. During 2002 and 2001, no
adjustment to the Company&#146;s assets was considered necessary, as a result of the
introduction of the new GSM technology.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>13&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred charges</B>
</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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Software development costs</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">88,478</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">91,704</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 of software development 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">(20,829</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(38,846</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">67,649</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">52,858</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"><B>14&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="59%">&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 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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><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">52,244</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">110,186</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 service</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,145</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">13,491</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="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">63,389</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">123,677</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-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="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>15&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans and financing</B>
</FONT>


<P align="left"><FONT size="2"><B>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Composition</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<TR valign="bottom">
    <TD width="22%">&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="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&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="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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</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="15"><FONT size="1"><B>Swap entered into to swap financial charges 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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</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="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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</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>December 31, 2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="7"><FONT size="1"><B>December 31, 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><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</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 nowrap align="center" colspan="3"><FONT size="1"><B>Balance</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Balance</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">
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD><FONT size="1">&nbsp;</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>as of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>as 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>Interest rate</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>Interest rate</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>Currency of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Interest</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>December</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Notional</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>swapped</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Notional</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>swapped</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>denomination</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>rate (p.a%)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>31, 2001</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>31, 2002</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(% p.a.)</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>amount</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>(% p.a.)</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>
    <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>US dollars</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Suppliers</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">6.61% to 7.3%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,482</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">5,519</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">100% of CDI</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,482</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">100% of CDI</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Eximbank</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">US$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7.03</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">54,312</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">39,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">54,312</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">20</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">39,134</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">100% of CDI</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2"><B>Brazilian reais</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">BNDES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">TJLP plus 4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,928</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">49,993</FONT></TD>
    <TD><FONT size="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">BNDES</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">R$</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" align="center"><FONT size="2">Umbndes plus 4%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,767</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,362</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">&#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>
    <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><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><HR size="1" 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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">125,526</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">110,971</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Less current maturities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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">(21,987</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(38,052</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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 align="right"><FONT size="2">103,539</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">72,919</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="90%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>References:</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">TJLP</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
- <I>Taxa de Juros de Longo Prazo</I>&#148;, a long-term interest rate reset quarterly by the Brazilian Central Bank. At the fourth
quarter ended December&nbsp;31, 2002, the TJLP rate was 10.00% per annum (10.00% at the fourth quarter ended December&nbsp;31,
2001).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">CDI</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
- Interest rate on interbank certificates of deposit. During the year ended December&nbsp;31, 2002 the annual average CDI
interest rate was 19.10% (17.29% in 2001).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Umbndes</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
- Monetary unit of BNDES, a unit indexed to a basket of currencies in which the BNDES
is funded. During the year ended December&nbsp;31, 2002 the annual average Umbndes
interest rate was 25.43% (15.36% in 2001).</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">Eximbank</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
- Export and Import Bank of the United States of America</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><FONT size="2">BNDES</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
- Banco Nacional de Desenvolvimento Econ&#244;mico and Social</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="left"><FONT size="2"><B>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maturities over one year</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="27%">&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>
</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">2004</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,704</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">17,724</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">17,108</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">383</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">72,919</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-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="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Covenants</B>
</FONT>


<P>
<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">The BNDES loans are subject to certain covenants covering EBITDA margin, debt
coverage, coverage of net financial expenses and indebtedness. The Company was
in compliance with all such restrictive clauses in 2001 and 2002.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>16&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debentures</B>
</FONT>


<P>
<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">In October 2000, the subsidiary Telepar Celular S.A. issued 20,000
non-convertible debentures, due in 2003. The interest rate is equal to 102.7%
of the Brazilian Interbank Rate (CDI), payable semiannually. Telepar Celular
S.A. has complied with all covenants as of December&nbsp;31, 2002. The debentures
are guaranteed by the Company.</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%"><FONT size="2">The debenture issuance expenses of R$1,670 were registered as Other Assets &#150;
Current Assets, and are being amortized over a period of 36&nbsp;months, since the
debentures issuance date. At December&nbsp;31, 2002 the balance registered in this
account was R$451 (R$993 at December&nbsp;31, 2001).</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>17&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Salaries and related charges</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Salaries</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,844</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"><FONT size="2">2,337</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 charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,771</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,977</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 labor benefits</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">555</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 bonus performance premium</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,902</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">4,246</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><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">13,083</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14,115</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-30</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>18</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Taxes and social contribution payable &#150; current and noncurrent</B></FONT></TD>
</TR>
</TABLE>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<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="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="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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income tax</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">747</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 tax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">74</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 (State value added tax)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">75,183</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">106,035</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 (Federal sales tax)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">1,928</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">COFINS (Federal sales taxes)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,804</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,659</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</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,003</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">1,085</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">FUST fee</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">397</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">FUNTTEL fee</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">188</FONT></TD>
    <TD><FONT size="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</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">84</FONT></TD>
    <TD><FONT size="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</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">81,521</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">117,151</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">20,794</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,958</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">Noncurrent</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">60,727</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,193</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="left"><FONT size="2"><B>Maturity dates</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>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>
</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">23,968</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">29,773</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">18,363</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">2,089</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">74,193</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>
<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">The subsidiary Telepar Celular S.A. entered into an agreement with the Paran&#225;
State to defer ICMS tax to be paid in 48&nbsp;months after the respective generating
event, subject to interest based on UPF/PR index which in 2002 was 9.989% per
year (5.1204% in 2001). This benefit was granted by the State of Paran&#225; through
the &#147;Programa Paran&#225; Mais Emprego&#148; (Paran&#225; Program for More Employment).</FONT></TD>
</TR>
</TABLE>
<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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>19</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Provision for contingencies</B></FONT></TD>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The composition of the provisions recorded under Liabilities is as follows:</FONT></TD>
</TR>
</TABLE>
<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="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="14%">&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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <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">2,396</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">2,268</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</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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">30</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">Civil</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,599</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">6,653</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">6,095</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">8,951</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>
<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">No provisions are recorded for the lawsuits whose outcome is considered
favorable to the Company by the lawyers, including the lawsuit challenging the
ICMS tax (State VAT) as mentioned in Note 10 and below.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Labor claims</B></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%"><FONT size="2">The provision for labor claims represents management&#146;s estimate of probable
losses in relation to the various suits filed by former employees.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Civil claims</B></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%"><FONT size="2">The provision for civil claims represents claims filed by former customers in
connection with billing disputes.</FONT></TD>
</TR>
</TABLE>


<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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>Potential litigation</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">Telecomunica&#231;&#245;es Brasileiras S.A.-Telebr&#225;s, Telecomunica&#231;&#245;es de Santa Catarina
S.A.-Telesc, Telecomunica&#231;&#245;es do Paran&#225; S.A.-Telepar and Companhia Telef&#244;nica
Melhoramento e Resist&#234;ncia-CTMR, legal predecessors of the Company and of
Telesc Celular S.A., Telepar Celular S.A. and CTMR Celular S.A., respectively,
are defendants in a number of legal proceedings and subject to certain other
claims and contingencies. Liability for any claims arising out of acts
committed by Telesc, Telepar and CTMR prior to the effective date of the
spin-off of their assets and liabilities to Telesc Celular S.A., Telepar
Celular S.A. and CTMR Celular S.A. remains with their respective predecessors,
except for those liabilities for which specific accounting provisions have been
assigned to the cellular telecommunications companies at the spin-off. Any
claims against Telesc, Telepar and CTMR which are not met by them could result
in claims against Telesc Celular S.A., Telepar Celular S.A. and CTMR Celular
S.A., since they received assets that could have been used to settle those
claims had they not been spun off from their respective predecessors. Under the
terms of the breakup of Telebr&#225;s, liabilities for any claims arising out of the
acts committed by Telebr&#225;s prior to the effective date of the breakup remains
with Telebr&#225;s, except for labor and tax claims (in which case Telebr&#225;s and the
Company are jointly and severally liable) and any liabilities for which
specific accounting provisions have been assigned to the Company. Creditors of
Telebr&#225;s may challenge this allocation of liability. Management believes that
the chances of any claims materializing and having a material adverse financial
effect on the subsidiaries and/or the Company are remote and, therefore, no
provision was recorded as of December&nbsp;31, 2001 and 2002.</FONT></TD>
</TR>
</TABLE>

<P>
<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"><B>Tax Claims &#150; VAT State (ICMS)&nbsp;on Activation Fees and Other Services</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">On June&nbsp;19, 1998 the Secretaries of the Treasury of each Brazilian state
approved an agreement (Agreement 69/98) to interpret the existing Brazilian tax
law to broaden the application of the ICMS tax, to cover not only
telecommunication services but also other services, including cellular
activation, which had not been previously subject to such tax. Pursuant to this
new interpretation of the tax law, the ICMS tax may be applied retroactively
for such services rendered over the last five years.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The Company and its subsidiaries believe that the attempt of the State
Treasuries to extend the scope of the ICMS tax to services which are
supplementary to basic telecommunications services is unlawful because: (i)&nbsp;the
state Secretaries acted beyond the scope of their authority; (ii)&nbsp;their
interpretation would subject certain services to taxation which are not
considered telecommunications services; and (iii)&nbsp;new taxes may not be applied
retroactively. Furthermore, the Company is of the opinion that Telesc, Telepar
and CTMR, legal predecessors of the Companies, would be liable for any payments
made in connection with any claim arising from the retroactive application of
the ICMS tax on activation fees for periods prior to 1998. No provision for
such taxes has been made in the accompanying consolidated financial statements
as the Company and the subsidiaries do not believe that it is probable that
such taxes will be payable for services during the last five 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">There can be no assurance that the Company will prevail in its position that
the new interpretation by the state Treasury Secretaries is unlawful. If ICMS
were applied retroactively to activation fees earned during the past five
years, it would give rise to a maximum liability estimated at R$24,409 as of
December&nbsp;31, 2001. At December&nbsp;31, 2002 the amount does not present a risk to
the Company since according to Brazilian legislation, after a period of five
years, the fiscal and accounting books of the companies cannot be assessed by
the tax authorities. If the ICMS were applied retroactively to activation fees
earned by the operating subsidiaries since its inception on January&nbsp;5, 1998, it
could have a material negative impact on the financial condition of the Company
subsequent to January&nbsp;5, 1998.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>20&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pension plans</B>
</FONT>


<P>
<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">As detailed below, the Company and its subsidiaries sponsor several defined
benefit pension and health-care plans. The Company and its subsidiaries
contributed to all the pension and health-care benefit plans, and recorded as
expenses the amounts of R$1,388, R$1,267 and R$1,459 in 2000, 2001, and 2002,
respectively. These plans were sponsored by all companies of the old Telebras
system (PBS-A-Sistel and PAMA-Sistel Plans).</FONT></TD>
</TR>
</TABLE>
<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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR valign="top">
    <TD width="5%" align="left"></TD>
    <TD width="2%" align="left"></TD>
    <TD width="93%" align="left"></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">(a)</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>PBS Tele Celular Sul and PAMA &#150; Tele Celular Sul</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">Since January, 2000 the Company and its subsidiary sponsor a defined benefit
retirement pension plan &#150; Plano PBS Tele Celular Sul, covering approximately
25% of the Company employees. In addition to supplementary pension payments,
the plan offers medical assistance (PAMA &#150; Tele Celular Sul) to retirees and
their dependents, under a shared cost system. Contributions to the plans (PBS
Tele Celular Sul e PAMA) are determined based on actuarial studies prepared by
independent actuaries, in accordance with current Brazilian rules. The costing
method used is the capitalization method, and the sponsor contribution is equal
to 13.5% of the payroll of the employees covered by the plan, from which 12%
are marked for funding the PBS Tele Celular Sul plan. During 2002, the Company
recognized as expenses the amount of R$1,459.</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2"><B>(b)</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>PBS-A-SISTEL plan and PAMA-SISTEL plan</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">The Company, together with other companies of the former Telebr&#225;s System,
sponsors private pension and medical plans to retirees, managed by Funda&#231;&#227;o
Sistel de Seguridade Social &#150; SISTEL. Up to December 1999, all companies
sponsoring Sistel-managed plans were jointly responsible for all plans then in
place. On December&nbsp;28, 1999, the sponsors of Sistel-managed plans reached an
agreement to create individual company pension plans, maintaining joint
responsibility for only those employees who were participants as of January&nbsp;31,
2000. This led to a proposal for a restatement of the Sistel By-Laws and
Regulations, which was approved by the Supplementary Pension Department on
January&nbsp;13, 2000.</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">The post-retirement health care benefits (PAMA-Sistel) and the social security
plan (PBS-A-Sistel) are multi-employer defined benefit plans. The contributions
of the Company and its subsidiaries are not segregated or restricted in the
plan accounts to identify the assets and obligations relating to the Companies.
The Company and its subsidiaries are also jointly liable for the total
liabilities of the plans.</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2"><B>(c)</B></FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2"><B>PBT-Telepar plan and PAMEC-Telepar plan</B></FONT>
</TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><FONT size="2">Telepar Celular S.A. also sponsors a defined benefit plan and a health care
plan to the retirees of its predecessor company (Telecomunica&#231;&#245;es do Paran&#225;
S.A.), formerly sponsored by such predecessor company and that are managed by
SISTEL. As a consequence of the breakup of Telebras System, in May 1998,
Telepar Celular S.A. and Brasil Telecom Participa&#231;&#245;es S.A. (the company that
received the fixed-line operations previously held by Telecomunica&#231;&#245;es do
Paran&#225; S.A.) became a jointly sponsorship of a Defined Benefit Plan &#150; PBT
(Plano de Benef&#237;cio Telepar), the Supplementary Medical Plan (PAMEC)&nbsp;and the
Agreement for Management of Pension Payments to Retirees and Pensioners &#150;
Telepar, because of the split-off from the Telebras System.</FONT></TD>
</TR>
</TABLE>


<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The costing method of the PBT plan is the capitalization method and the
contribution payable by the Company is equal to 10% of the payroll of the
participants.</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%"><FONT size="2">The contributions to the PAMEC plan and Agreement for Management were fully
paid in July 1998, through a single funding payment.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TIMPREV</B>
</FONT>


<P>
<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">The Company sponsors a defined benefit pension plan to a group of employees
from the former Telebr&#225;s system that is managed by SISTEL, which resulted from
the legal provisions established at the time of privatization of that company
in July 1998, as described in items a, b and c above.</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%"><FONT size="2">During 1999 and 2000, each sponsor of the plans managed by SISTEL began
creating their own individual retirement plans. The sponsors maintained the
joint plan only for those participants who had retired prior to January&nbsp;31,
2000. During 2002, the Company began structuring a defined contribution plan.</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%"><FONT size="2">On November&nbsp;13, 2002, through Notification 1,917 CGAJ/SPC, the Secretary of
Complementary Pension approved the new defined contribution pension plan,
TIMPREV, which provides new conditions for the granting and maintenance of
benefits, as well as the rights and obligations of the Plan Administration
Entity, the Sponsors, the Participants and their respective beneficiaries.</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%"><FONT size="2">Migration to the new plan was optional for participants of the defined benefit
plan. The option to migrate could be exercised up to January&nbsp;29, 2003.</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%"><FONT size="2">During 2002, the human resources department began taking steps to provide
employees information about the new plan, including information about the
differences between the defined benefit plan and TIMPREV.</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%"><FONT size="2">Under TIMPREV, the risk of the sponsor in relation to eventual actuarial
deficits decreases, due to the characteristics of a defined contribution plan.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">Under TIMPREV, the normal contribution of the sponsor corresponds to 100% of
the basic contribution of the participant, while the administrator of TIMPREV
will assure, as per the terms and conditions of the approved regulations, the
benefits listed below, not assuming the responsibility for granting any other
benefit even if the official social security grants it to its beneficiaries:</FONT></TD>
</TR>
</TABLE>

<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="93%"><FONT size="2">Regular retirement pension</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">Anticipated retirement pension</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">Disability pension</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">Deferred proportional benefit</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">Death pension</FONT></TD>
</TR>
</TABLE>

<P>
<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">The effects of TIMPREV, which became effective as of February&nbsp;2, 2003 are
described in note 31.III.a.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Supplementary pension</B>
</FONT>


<P>
<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">As successor in the partial spin-off of Telecomunica&#231;&#245;es do Paran&#225; S.A. &#150;
TELEPAR, the Company sponsors the supplementary pension plan established in
1970 under a Collective Agreement ratified by the Atypical Contractual
Relationship Agreement entered into by the Company and labor unions
representing the then existing professional categories.</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%"><FONT size="2">The agreement encompasses 86 employees hired before December&nbsp;31, 1982, who are
entitled to additional retirement benefits, only if they retire after having
worked for the minimum time required for retirement (30&nbsp;years for men and 25
years for women).</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%"><FONT size="2">In June 1998, after the breakup of Telebr&#225;s, the Company and its subsidiary
Telepar Celular S.A. opted for the extinction of this additional pension plan.
As a consequence of the extinction of the plan, the Company and Telepar Celular
S.A. allowed its participants to receive a payment in cash for the accumulated
benefits or to transfer them to the PBS-A-Sistel plan. Most participating
employees opted for the cash payment, which resulted in a disbursement of
nearly R$7,000 in 1998. The remaining provisioned amount of R$2,310, on
December&nbsp;31, 2002 (R$2,239 in 2001) will be used to cover the benefits of those
employees who have not opted yet (4 employees on December&nbsp;31, 2001 and 2002).</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>21&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholder&#146;s equity</B>
</FONT>


<P align="left"><FONT size="2"><B>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital</B>
</FONT>


<P>
<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">The Company is authorized to increase its capital, through approval by a
shareholders&#146; meeting, so as not to exceed 700&nbsp;billion common or preferred
shares, without the need to maintain the proportion between the shares, but
keeping the legal limit of 2/3 (two thirds) for issuing preferred shares
without voting rights.</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%"><FONT size="2">The limit to increase the Company&#146;s capital may be modified with the approval
of an Extraordinary General Meeting if and when the capital has been fully
utilized or when the difference between such limit and the subscribed capital
is not sufficient to guarantee the capitalization plan for the year.</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%"><FONT size="2">On April&nbsp;16, 2002, the shareholders meeting approved a capital increase of
R$17,633, through the issuance of 2,169,230,189 common shares and 3,582,108,751
preferred shares with no par value to Bitel Participa&#231;&#245;es S.A. This capital
increase was made using the tax benefit from the goodwill amortization due to
the partial spin-off of Tele Celular Sul Participa&#231;&#245;es S.A., as permitted by
CVM Instruction No.319/99, Article&nbsp;7, Paragraph&nbsp;1.</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%"><FONT size="2">The subscription price per 1,000 shares was R$2.82 for the common shares and
R$3.21 for the 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">During 2002, the shareholders approved a capital increase. As permitted by
Brazilian Corporate law, the capital increase was accomplished by transferring
amounts from retained earnings and legal reserve accounts, totaling R$62,000.
No capital shares were issued.</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%"><FONT size="2">The subscribed and paid-in capital at December&nbsp;31, 2002 is represented by
shares with no par value, as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="80%">
<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>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>
    <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">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Quantity (in millions of shares)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129,358</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"><FONT size="2">213,612</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">342,970</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">Amount (R$)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">122,454</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">202,212</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">324,666</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The preferred shares are non-voting except under limited circumstances and are
entitled to a preferential, noncumulative, 6% dividend based upon their nominal
capital value and to priority over the common shares in the case of
liquidation. Under the Brazilian Corporation Law, the number of non-voting
shares or shares with limited voting rights, such as the preferred shares, may
not exceed two-thirds of the total number of 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">In the Extraordinary Shareholders Meeting of December&nbsp;20, 2002, the Company
bylaws were amended to adapt them to the New Corporation Law, including the
first paragraph of article 10, which assures holders of preferred shares,
annually, the right to receive dividend per share corresponding to 3% of net
equity per share as per the latest approved balance sheet, whenever the
established dividend in accordance with this criterion is higher than the
dividend calculated in accordance with the prior criterion, described in the
preceding paragraph.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital reserve</B>
</FONT>


<P>
<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">This reserve was generated by the corporate restructuring process implemented
during 2000, mentioned in Note 1-b. At the end of each fiscal year, a portion
of this reserve which corresponds to the tax benefit for the year can be
capitalized in favor of the majority shareholder with the issuing of new
shares. The respective capital increase should respect the preference of the
minority shareholders in the proportion of its participation, by type and class
of shares at the time of issuance. The amounts paid for exercising this right
will be paid to the majority shareholder, in accordance with the Instruction
CVM 319/99.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Legal reserve</B>
</FONT>


<P>
<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">Brazilian companies are required to appropriate 5% of their annual net income
to a legal reserve until that reserve equals 20% of paid-up share capital, or
30% of nominal paid-up share capital plus capital reserves; thereafter,
appropriations to this reserve are not compulsory. This reserve can only be
used to increase capital or offset accumulated losses.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unrealized profits reserve</B>
</FONT>


<P>
<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">This reserve was constituted due to the spin-off of TELEBR&#193;S and represents
profits recorded and not realized in cash. It was transferred to Tele Celular
Sul Participa&#231;&#245;es S.A. offsetting its investment in subsidiary companies. The
Company is fully realizing this reserve in 2001.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends</B>
</FONT>


<P>
<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">The dividends are being calculated in accordance with the Company&#146;s by Laws and
with Brazilian Corporate Law. According to the Company&#146;s by Laws, the Company
should distribute as minimum dividends at each fiscal year ending December
31,considering there are available funds for distribution, a total amount
equivalent to 25% of the adjusted net income (as described below)</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%"><FONT size="2">For the purposes of the Brazilian Corporation Law, and in accordance with Tele
Celular Sul Participa&#231;&#245;es S.A.&#146;s By-Laws, &#147;adjusted net income&#148; is an amount
equal to the net profit adjusted to reflect allocations to or from: (i)&nbsp;the
statutory and legal reserves, (ii)&nbsp;a contingency reserve for probable losses,
if applicable, (iii)&nbsp;profit reserve for expansion, and iv) unrealized profit
for reserve.</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%"><FONT size="2">Statutory minimum dividends at December&nbsp;31, 2001 and 2002 were calculated as
follows:</FONT></TD>
</TR>
</TABLE>
<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="75%">&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><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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="3"><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">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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">(-) 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">(2,994</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,289</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">(&#043;) Realization of the unearned 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">94,228</FONT></TD>
    <TD><FONT size="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>
    <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">Basis for computation of mandatory dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">151,123</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">62,485</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">Mandatory dividends (25%)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37,781</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">15,621</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">
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on 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">17,665</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">14,450</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">Complementary dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">20,116</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">1,171</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">Realization (transfer to special reserve for dividends) of special
reserve for 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">(19,257</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">10,602</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">Final proposed dividends</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">18,524</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,223</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">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><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">6,987</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">9,891</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">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">11,537</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,332</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 and Interest on shareholders&#146; equity per thousand shares (reais)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">0.0549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.0765</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">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">0.0549</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.0765</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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The payable balances of dividends and interest on shareholders&#146; equity (Law No.
9,249/95) will be updated based on the &#147;Reference Rate (TR)&#148; starting as of
year-end to the date fixed for its payment.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest on shareholders&#146; equity</B>
</FONT>


<P>
<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">As suggested by management, at December&nbsp;31, 2001 and 2002, interest on
shareholders&#146; equity, fully added to the dividends, was recorded in accordance
with Law No.&nbsp;9,249/95, Article&nbsp;9. This amount was recorded net of income tax
after the shareholders meeting 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The amount is shown as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Interest on 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">
    <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">12,944</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,412</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 shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,838</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">10,588</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 tax</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">(3,117</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,550</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 amount</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,665</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">14,450</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="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>(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Special reserve for dividends</B>
</FONT>


<P>
<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">During 2001, the Shareholders Meeting approved the proposal made by management
for the formation of a reserve for dividends payable in the amount of R$19,527,
referring to the portion of dividends declared based on the balance sheet at
December&nbsp;31, 2001, with the objective of preserving the economic and financial
equilibrium of the Company and concurrently satisfying the needs of relevant
investments to meet demand.</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%"><FONT size="2">During 2002, management is proposing &#147;Ad referendum&#148; of the Shareholders
Meeting the realization of the special reserve for dividends, in the amount of
R$10,602 leaving a remaining portion of R$8,655 to be realized in the future.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(h)&nbsp;Income reserve for expansion</B>
</FONT>


<P>
<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">The remaining balance of the year&#146;s net income for 2002, allocated as
prescribed by Law No.&nbsp;6,404/76, Article&nbsp;202, in the amount of R$44,314
comprises the balance of income reserve for expansion and will be used to
continue expansion of network. The retention will be sustained by a capital
budget to be approved at a shareholders meeting based on management proposal.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(i)&nbsp;Excess of reserves</B>
</FONT>


<P>
<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">As required by Law No.&nbsp;6,404/76, Article&nbsp;199, the Company will propose at the
shareholders meeting the approval of a capital increase of R$15,000 due to the
income reserves excess in relation to capital.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(j)&nbsp;Stock option plan</B>
</FONT>


<P>
<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">Under Brazilian Corporate Law, the Company can grant the option to acquire
shares to its executives, employees and service-providers based on a plan
approved by the Shareholders&#146; Meeting.</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%"><FONT size="2">On May&nbsp;2, 2001, the Company&#146;s shareholders approved an employee stock option
plan, with the following objectives:</FONT></TD>
</TR>
</TABLE>

<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">i)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">to retain the services and advice of key employees, upon whose judgment,
initiative and efforts the Company depends;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">ii)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">to make available to key employees certain compensatory arrangements based
on market value increase; and</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">iii)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">to align generally the interests of key employees and the interests of
shareholders.</FONT></TD>
</TR>
</TABLE>

<P>
<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">The Board of Executive Officers may authorize future capital increases, within
the limit of the authorized capital, with the issuance of preferred shares for
the benefit of the directors and key officers. The amount of shares that may be
issued under the stock option plan is limited to 1.5% of the Company&#146;s capital
stock on May&nbsp;2, 2001.</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%"><FONT size="2">The option exercise price per 1,000 Preferred Shares was set at R$4.27, the
closing price of 1,000 Preferred Shares at the S&#227;o Paulo Stock Exchange
(&#147;Bovespa&#148;), on May&nbsp;2, 2001. The stock option plan has a four-year term and
will expire in 2005. No option may be exercised after four years from the date
it was granted.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The options may not be exercised before one year from the date they are
granted. The exercise of the option may occur in the end of the fourth year
after the granted date, but can be accelerated depending upon the achievement
of certain results, which are based on certain EBIT (earnings before interest
and taxes).</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%"><FONT size="2">During 2002 and 2001, no option granted to the Company&#146;s key employees was
exercised. At December&nbsp;31, 2002, the closing price per 1,000 preferred shares
was set as R$2.74 (R$3.61 &#150; 2001) at the S&#227;o Paulo Stock Exchange, a price
lower than the option exercise price per 1,000 preferred shares at the grant
date.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>22&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net revenues</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="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="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 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">Revenues from telecommunication 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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Subscriptions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">182,075</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">178,275</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">197,307</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">Usage of telephone</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">408,722</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">447,071</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">409,766</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">Use 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">246,394</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">306,811</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">341,496</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 services</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,163</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">22,500</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">840,438</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">940,320</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">971,069</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">Sale of cellular 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">85,644</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">116,026</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">174,879</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">Gross 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">926,082</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">1,056,346</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">1,145,948</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">Deductions from gross 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">
    <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">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">(188,429</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(187,178</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(214,723</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">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">(17,886</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(75,825</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(38,307</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">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">(2,880</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,914</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,654</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">&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">(209,195</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(264,917</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(254,684</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">716,887</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">791,429</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">891,264</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-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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>23&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs of merchandise sold and services rendered</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<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>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">Salaries and social contribution 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">(10,865</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,724</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(8,965</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">Third-party 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">(16,011</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(12,365</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">(17,392</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">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">(105,747</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(121,761</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(133,213</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">Depreciation and 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">(128,341</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(150,121</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(164,362</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">Cost of merchandise sold</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">(102,930</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(111,923</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">(161,197</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</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">(574</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,139</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">(1,254</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" 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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(364,468</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">(406,033</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(486,383</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"><B>24&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling expenses</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<TR valign="bottom">
    <TD width="58%">&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>
</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">Salaries and social security 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">(19,032</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(22,445</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,388</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">Third-party 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">(88,993</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(106,746</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(94,888</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">Allowance for doubtful accounts and losses</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">(59,051</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(18,335</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,761</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">FISTEL fee</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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">(24,601</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,642</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">Depreciation and 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">(3,451</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">(8,028</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,802</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</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">(30,623</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,269</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(965</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" 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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(201,150</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(181,424</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">(185,446</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"><B>25&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative expenses</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<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>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">Salaries and social security 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">(12,152</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(20,132</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,823</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">Third-party 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">(48,644</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(31,065</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,808</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">Depreciation and 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">(9,934</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,893</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">(21,814</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</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">(5,570</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,819</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,901</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" 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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(76,300</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">(71,909</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(83,346</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>
<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">During the years ended December&nbsp;31, 2000, 2001, and 2002, the Company and its
subsidiaries paid R$939, R$2,108, and R$2,389 to the Board of Directors,
respective</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>26&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other operating income (expenses), net</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<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>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"><B>Revenues</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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Penalty charged to customers on
overdue payments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,483</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,702</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,478</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">Equipment and infra-structure rental</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,357</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">5,450</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">5,560</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">Reversal of provision for reduction
to market value of inventories</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">8,983</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">646</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">5,282</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,618</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">10,519</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">16,122</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">21,753</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">20,203</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"><B>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">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Taxes and 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">(1,937</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,068</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">(1,226</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">Goodwill amortization (tax benefit
from shareholders)</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">(13,876</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(25,270</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">(25,250</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">Goodwill 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">(416</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,691</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,779</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</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">(647</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,578</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,533</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</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">(13,768</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,730</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,317</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" 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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,644</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(37,337</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,105</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">&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">(14,522</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(15,584</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,902</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"><B>27&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonoperating income (expenses), net</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="92%">
<TR valign="bottom">
    <TD width="61%">&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">
    <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">Gain (loss)&nbsp;on assets sale</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1.340</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">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">207</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">Gain (loss)&nbsp;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">2.130</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">(256</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Others, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">37</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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">
    <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">3.507</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">10</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">(127</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-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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT></TD>
</TR>
</TABLE>

<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">

<TD width="1%" align="left" nowrap><FONT size="2"><B>28&nbsp;&nbsp;</B></FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Income and social contribution taxes</B></FONT></TD>
</TR>
</TABLE>


<P>
<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">Current and deferred income and social contribution taxes are composed as
follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="57%">&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="5%">&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>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">Current income tax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,452</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">(2,269</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,453</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">Current 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">1,060</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">(939</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,203</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">Deferred income tax</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">559</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,847</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">(2,785</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">Deferred 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">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">1,033</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">(1,032</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" 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">6,620</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">(672</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,473</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>
<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">Income taxes in Brazil include income and social contribution taxes. The
composite statutory rate was 34% for 2000, 2001 and 2002. Income tax expense at
the statutory rate is reconciled to income tax expense in the statements of
income as follows:</FONT></TD>
</TR>



</TABLE>
<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="65%">&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="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><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"><B>Income taxes</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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income before taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,050</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">70,196</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">97,813</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">Reconciliation of statutory to effective rate:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Benefit from deductibility of interest on shareholders&#146; equity</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">(4,424</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">(25,000</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">(17,000</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">Participation in subsidiaries/affiliates</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">1,888</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">4,288</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">Gain/loss on non operating investment</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">(2,130</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">&#151;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basis of calculation</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">(504</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">47,340</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">85,101</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">Standard rate &#150; 25%</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">127</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">(11,835</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(21,275</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">Permanent differences</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Goodwill amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,722</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">12,268</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">12,268</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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Gain exchange variation and swap</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,368</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">Depreciation of handsets</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(539</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,485</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">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">(1,838</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">684</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">(2,378</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,884</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">12,413</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,037</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">5,011</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">578</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">(14,238</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>
</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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
</TR>
</TABLE>


<P>
<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"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT></TD>
</TR>
</TABLE>

<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="65%">&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="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><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"><B>Social contribution tax</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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income before taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,050</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">59,217</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">97,813</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">Reconciliation of statutory to effective rate:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Benefit from deductibility of interest on shareholders&#146; equity</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">(4,424</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">(25,000</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">(17,000</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">Participation in subsidiaries/affiliates</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">1,888</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">4,288</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">Gain/loss on non operating investment</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">(2,130</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">&#151;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basis of calculation</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">(504</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">47,340</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">85,101</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">Standard rate &#151; 9%</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">46</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">(4,261</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(7,659</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">Permanent differences</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Goodwill amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,430</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,416</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,416</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">Gain exchange variation and swap</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(492</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">Depreciation of handsets</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(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">(535</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">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">(1,167</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">133</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">(965</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,263</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">4,355</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,424</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">&nbsp;</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,309</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">94</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">(5,235</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">Total income and social contribution taxes</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,320</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">672</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">(19,473</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="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-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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>29&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments</B>
</FONT>


<P>
<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">The Company carries out operations involving financial instruments with the aim
of reducing risks relating to market, foreign exchange and interest rates. Such
risks are controlled through specific policies, the establishment of operating
strategies and limits, and other techniques for monitoring the positions.</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%"><FONT size="2">The estimated market value of the financial instruments, primarily cash and
cash equivalents, trade accounts receivable, and short-term financing
instruments, approximates its book value because of the short maturity of those
instruments.</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%"><FONT size="2">At December&nbsp;31, 2002 and 2001, the Company and its subsidiaries invested their
financial resources mainly in investments backed by Certificados de Dep&#243;sito
Interbanc&#225;rio (CDIs &#151; Interbank Deposit Certificates), recorded as Marketable
Securities. There are no financial assets indexed to a foreign currency.</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%"><FONT size="2">The estimated fair value of long-term loans and financings are based on
interest rates as of December&nbsp;31, 2002 for transactions with similar
characteristics, as below.</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="82%">&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 nowrap align="center" colspan="7"><FONT size="1"><B>December 31, 2002</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>Book Value</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Market 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Long-term loans and financing and debentures, including current portion</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">321,085</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">310,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P align="left"><FONT size="2"><B>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans and financing</B>
</FONT>


<P>
<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">Fair values of loans and financing are determined based on future cash flow and
interest rates applicable to similar transactions, in same conditions and
risks. The total liabilities denominated in United States dollars totaled
R$41,616.</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%"><FONT size="2">In addition to those financial instruments, the subsidiary Telepar Celular S.A.
has Swap Contracts between US Dollars and mix of currencies (UMBNDES)&nbsp;to CDI,
in the amount of R$28,224 (R$5,513 in 2001), with due dates between 2003 and
2007. At December&nbsp;31, 2002 the Company recognized gains related to these swap
transactions of R$28,271 (R$9,172 in 2001), which were recorded as Financing
Revenues and as a reduction on Loans and Financing.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitations</B>
</FONT>


<P>
<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">The market values were estimated at a certain period, based on market
information. Changes in assumptions may affect the estimates presented.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-48 </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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Risk factors</B>
</FONT>


<P>
<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">The risk factors affecting the Company&#146;s instruments are the following:</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%"><FONT size="2">(i) Exchange and interest rates risk</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%"><FONT size="2">The exchange and interest rates risk relate to the possibility of the Company
computing losses resulting from fluctuations in exchange and interest rates,
thus increasing debt balances of loans obtained in the market and the
corresponding financial charges. In order to mitigate this kind of risk, the
Company carries out hedge contracts with financial institutions.</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%"><FONT size="2">At December&nbsp;31, 2002, a portion of Company loans was denominated in U.S.
dollars and 100% of the loans were covered by hedge contracts. The income or
loss resulting from these hedge contracts is charged to operating results. The
Company is also a party in agreements that allow it to effectively pay interest
at fixed rates on some of its debts contracted in variable interest rates.</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%"><FONT size="2">(ii) Credit operating risk</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%"><FONT size="2">The risk is related to the possibility of the Company computing losses
originating from the difficulty of collecting the amounts billed to customers,
which are represented by traders of prepaid telephone cards and distributors of
cellular equipment. In order to have this risk reduced, the Company performs
credit analyses to assist the risk management in respect to collection problems
and monitors the accounts receivable from subscribers, blocking the telephony
ability in case customers do not pay their bills. With respect to
distributors, the Company maintains individual credit limits, based on
potential sales analysis, risk history and risk with collection problems. The
Company generally does not require collateral from its customers.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-49 </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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">(iii) Credit risk related to the sale of telephone sets</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%"><FONT size="2">The Company&#146;s policy for the sale of telephone sets and distribution of prepaid
telephone cards is directly related to the risk of credit levels accepted
during the normal course of business. The selection of partners, the
diversification of the accounts payable portfolio, the monitoring of loan
conditions, the positions and limits of requests established for traders, the
constitution of real guarantees are procedures adopted by the Company to
minimize possible collection problems with its commercial partners.</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%"><FONT size="2">(iv) Financial credit risk</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%"><FONT size="2">The risks related to the possibility of the Company computing losses
originating from the difficulty in realizing its short-term investments and
hedge contracts. The Company and its subsidiaries minimize the risk associated
to these financial instruments by investing in well-reputed financial
institutions. Approximately, 40.4% of the financial investments are
concentrated with one sole financial institution.</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%"><FONT size="2">There is no concentration of available resources of work, service, concessions
or rights that have not been mentioned above that could, if eliminated
suddenly, severely impact the operations of the Company.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>30&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Insurance</B>
</FONT>


<P>
<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">At December&nbsp;31, 2002, the Company carries insurance to cover losses against
fire and various risks affecting inventories and fixed assets in amounts
considered sufficient to cover possible losses.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-50 </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>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>31&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reconciliation between Brazilian Corporate Law and US GAAP</B>
</FONT>


<P align="left"><FONT size="2"><B>I&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Description of differences between Brazilian Corporate Law and US GAAP</B>
</FONT>


<P>
<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">The Company&#146;s consolidated financial statements are prepared in accordance with
Brazilian Corporate Law, whose accounting practices and policies are described
in Note 3. Such practices and policies differ significantly from US GAAP. The
tables below represent the reconciliation between the Company&#146;s consolidated
income and net equity under Brazilian Corporate Law and 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"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Reconciliation of the differences between Brazilian Corporate Law and US GAAP
in net income</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="53%">&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="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 nowrap align="center" colspan="3"><FONT size="1"><B>Reference to Note</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated net income under Brazilian
Corporate Law</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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">Depreciation and amortization of the
effect of indexation for the years
ended December&nbsp;31, 1996 and 1997</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.a</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">(6,794</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(14,010</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,327</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">Amortization of capitalized interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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 align="right"><FONT size="2">1,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,394</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">1,872</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">Pre-operating expenses of TIMnet.com
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">31.I.c</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">(1,738</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">(5,268</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">3,688</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">Provision for pension plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.d</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">(276</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">1,397</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">751</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">Financial instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.f</FONT></TD>
    <TD><FONT size="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">2,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,711</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">Goodwill amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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 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">1,779</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">Deferred tax on the above 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">2,448</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">4,611</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">(2,201</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">Valuation allowance on 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">31.I.e</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">(7,259</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(5,020</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">24,180</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">Minority interest on the above
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">3,534</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,603</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">(6,235</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><FONT size="2">&nbsp;</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" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated net income 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">6,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,992</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><FONT size="2">&nbsp;</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-51 </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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</B></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Reconciliation of the differences between Brazilian Corporate Law and US GAAP
in shareholders&#146; equity</B></FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="67%">&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="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="3"><FONT size="1"><B>Reference to Note</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" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Consolidated shareholders&#146; equity under Brazilian corporate
Law</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">808,329</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">845,330</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">Effect of the indexation for the years ended
December&nbsp;31, 1996 and 1997</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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 align="right"><FONT size="2">66,441</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">66,441</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 and amortization of the effect of the
indexation for the years
Ended December&nbsp;31, 1996 and 1997</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.a</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">(40,099</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(49,426</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Sub-total</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">26,342</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,015</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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Capitalized interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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">(9,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,658</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">Amortization of capitalized interest</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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 align="right"><FONT size="2">6,189</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">8,061</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">Pre-operating expenses of Timnet.com 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">31.I.c</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">(7,006</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,318</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 pension plan</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.d</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">(17,247</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,496</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">Financial instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.f</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,226</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">Goodwill amortization</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31.I.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 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">1,779</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">Effect of deferred taxes on the above 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">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">(1,827</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">Valuation allowance on 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">31.I.e</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">(24,180</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">&#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">Minority interest on the above 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">4,394</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">(1,841</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><FONT size="2">&nbsp;</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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Estimated shareholders&#146; equity 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">790,052</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">849,271</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><FONT size="2">&nbsp;</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"><B>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inflation accounting for the years ended December&nbsp;31, 1996 and 1997</B>
</FONT>


<P>
<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">Until December&nbsp;31, 1995, publicly traded companies in Brazil were required to
prepare their financial statements according to two sets of accounting
principles: (a)&nbsp;the Brazilian Corporate Law, which was and remains in full
force and is valid for all legal purposes, including the basis for calculating
the income tax and mandatory minimum dividends; and (b)&nbsp;generally accepted
accounting principles in Brazil (Brazilian GAAP), which require the application
of the constant currency method of accounting to reflect the effect of
inflation in the preparation of supplementary financial statements, in
accordance to the standards recommended by the <I>Comiss&#227;o de Valores Mobili&#225;rios</I>
(CVM), the Brazilian securities commission. The accounting principles under the
Brazilian Corporate Law and the Brazilian GAAP differ solely in the method of
recognizing the effect of inflation in the financial statements.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><I>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Brazilian Corporate Law</I></FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-52 </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>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">Under the Brazilian Corporate Law, until December&nbsp;31, 1995 a simplified method
was used to recognize the effects of inflation, which consisted in indexing
permanent assets (investments, property, plant and equipment and deferred
charges) and shareholders&#146; equity accounts using indices set forth by the
Federal Government, based on the variation of the <I>Unidade Fiscal de Refer&#234;ncia</I>
(UFIR). The net effect of the indexation was stated in the statement of income
under a single account. The Brazilian corporate law, however, does not
recognize the effect of inflation in certain balance sheet accounts, such as
inventories and customer advances; this method also does not require the
indexation of information from the preceding years when presenting comparative
financial information. In the highly inflationary environment prevailing in
Brazil until July&nbsp;1, 1994, the financial statements prepared according to
accounting principles set forth in the Brazilian Corporate Law did not allow a
consistent comparison of financial information concerning two different
periods.</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%"><FONT size="2">Under the Brazilian Corporate Law and the CVM rules, the application of the
method to account for the effects of inflation described above was prohibited,
beginning January&nbsp;1, 1996 and, therefore, the financial statements prepared
according to the Brazilian Corporate Law do not include the recognition of the
effects of inflation since then.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><I>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><I>Constant currency method (Brazilian GAAP)</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under the constant currency method required by the Brazilian GAAP, all amounts
stated in Reais are stated in constant purchasing power currency on the date of
the latest balance sheet presented, pursuant to the CVM rules for publicly
traded companies.</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%"><FONT size="2">Brazilian GAAP requires application of the constant currency method also after
January&nbsp;1, 1996.</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%"><FONT size="2">The constant currency method requires the recognition of the following effects
of inflation in the financial statements:</FONT></TD>
</TR>
</TABLE>

<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">&#151;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="91%"><FONT size="2"> Adjustment of the opening balances, non-monetary assets additions and
depreciation by applying a general inflation index, recognizing the
gain by means of a credit to the income.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"> Adjustment of the shareholders&#146; equity opening balances and movements
for the period by applying a general inflation index, recognizing the
loss by means of a debit to income.</FONT></TD>
</TR>
<TR valign="top">
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%" align="left" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2"> Allocation of inflationary gains and losses of other non-monetary
items to the corresponding income and expenses. Gains and losses for
which the corresponding income and expenses were not identified are
allocated to a specific account under &#147;Other net operating income
(expenses), net&#148;.</FONT></TD>
</TR>
</TABLE>


<P align="center"><FONT size="2">F-53 </FONT>



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

<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
</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%"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
</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%"><FONT size="2"><I>Changes in the presentation of the consolidated financial statements</I>
</FONT>
</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%"><FONT size="2">Until the year ended December&nbsp;31, 1999 the consolidated financial statements of
the Company presented in documents filed with the Securities and Exchange
Commission of the United States (SEC)&nbsp;were submitted pursuant to Brazilian GAAP
requiring the application of full indexation after January&nbsp;1, 1996.</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%"><FONT size="2">In common with other Brazilian SEC registrants, the Company, as from the year
ended December&nbsp;31, 2000, has been granted the option to present its primary
financial statements on the basis of accounting principles established under
Brazilian Corporate Law. This accommodation arose from a position paper
prepared by the &#147;International Task Force&#148; of the American Institute of
Certified Public Accountants (AICPA). The SEC staff informally indicated that
it would not object such presentation.</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%"><FONT size="2">To harmonize the presentation format of financial statements to be used by
shareholders in the United States with those used in the Brazilian market,
management has prepared the Company&#146;s consolidated financial statements
pursuant to the principles 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">All periods are presented according to the Brazilian Corporate Law, since the
change in the reporting currency from constant <I>Reais </I>of purchasing power of the
latest balance sheet date to nominal <I>Reais </I>requires a restatement of all period
submitted, so as to maintain consistency in the presentation of the
consolidated financial statements.</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%"><FONT size="2"><I>Inflation accounting under US GAAP for the years ended December&nbsp;31, 1996 and 1997</I>
</FONT>
</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%"><FONT size="2">Under US GAAP, Brazil would be considered to have ceased to be
hyper-inflationary economy in a period between July&nbsp;1, 1997 and December&nbsp;31,
1997 requiring the recognition of the effect of inflation until such date. In
determining amounts under US GAAP, the effects of inflation for the years ended
December&nbsp;31, 1996 and 1997 were determined using the <I>&#205;ndice Geral de Pre&#231;os do
Mercado</I>- IGP-M index. For periods prior to 1996, the Company and its
subsidiaries used the same index as in the Corporate Law financial statements
(UFIR).</FONT></TD>
</TR>
</TABLE>

<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Differences in criteria for the capitalization of interest and the respective amortization</B>
</FONT>


<P>
<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">Until December&nbsp;31, 1993, the capitalized interest was not permitted for
individual property, plant and equipment. Under US GAAP, capitalized interest
is added to the value of the individual assets and amortized over their useful
lives. Also, according to the accounting principles under the Brazilian
Corporate Law, and until December&nbsp;31, 1998, applicable to the
telecommunications companies, the interest attributable to construction in
progress was calculated at 12% per year on the balance of the account of
construction in progress, and the part related to interest on third-party loans
was credited to financial expenses, on the basis of actual financial costs, and
the balance concerning own capital was credited to shareholders&#146; equity. During
1999, the Company and its subsidiaries started to capitalize interest on
specific loans based on the respective interest rates, related to financing for
construction in progress.</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%"><FONT size="2">According to US GAAP, <I>&#147;Statement of Financial Accounting Standards&#148; </I>(SFAS)&nbsp;N&#186;
34 &#151; &#147;Capitalization of Interest Costs&#148;, interest on loans is capitalized up to
the total of construction in progress. The credit is a reduction of financial
expenses. Under US GAAP, the amount of capitalized interest excludes foreign
exchange gains and losses on foreign currency borrowing.</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%"><FONT size="2">As a result of the change in the policy concerning interest capitalization in
financial statements prepared under Brazilian Corporate Law mentioned above,
starting in the year ended on December&nbsp;31, 2000 the amount of capitalized
interest is substantially similar to that capitalized under US GAAP.</FONT></TD>
</TR>
</TABLE>
<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="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P>
<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">The effects of these different criteria for capitalizing and amortizing
capitalized interest are presented below:</FONT></TD>
</TR>
</TABLE>
<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="64%">&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><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">Capitalized interest difference</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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"><I>Capitalized interest under USGAAP:</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Interest that would have been capitalized and credited to
income (interest incurred on loans, computed up to the
amount of 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">14,680</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">4,148</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">646</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"><I>Less &#151; capitalized interest under Brazilian Corporate Law</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Interest capitalized and credited to income (up to the
limit of interest incurred on loans to fund investments in
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">(14,680</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">(4,148</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(646</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"><I>Net effect of difference in capitalized interest:</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">&#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><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">Accumulated at the beginning of 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">(9,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,658</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">Accumulated at the end of 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">(9,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,658</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(9,658</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="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"><B>Amortization of capitalized interest difference</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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Amortization under the Brazilian Corporate Law</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">(7,749</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,551</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,148</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">Less &#151; amortization under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,359</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,157</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">11,276</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">Difference in amortization of capitalized interest on disposals</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>
</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"><I>Amount of reconciling item in US GAAP reconciliation</I></FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,390</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,394</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">1,872</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="left"><FONT size="2"><B>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pre-operating expenses</B>
</FONT>


<P>
<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">Under Brazilian Corporate Law, pre-operating expenses incurred may be deferred
until the commercial operations begin. Subsequently all costs related to the
organization and start-up of a new business may be capitalized to the extent
that they are considered recoverable. The amounts are amortized over a period
of five to ten 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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Under U.S. GAAP, the rules are generally more restrictive as to the costs that
can be capitalized and the periods over which such costs are amortized and
these expenses are normally charged to operations.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-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">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pensions and other post-retirement benefits</B>
</FONT>


<P>
<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">As discussed in Note 20, the Company and its subsidiaries sponsor several
pension plans and other post-retirement benefit plans. Until December&nbsp;31, 1999
all plans were considered to be multi-employer defined benefits plans, in which
the Company and its subsidiaries contribute towards the pension and other
post-retirement benefits on the basis of a fixed percentage of salary, as
annually recommended by independent actuaries. For the purposes of the
financial statements under the accounting practices established by Brazilian
Corporate Law and for US GAAP purposes, the Companies recognized the expenses
for the contributions to the multi-employer defined plans on the accrual basis
and disclose their annual contributions.</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%"><FONT size="2">In December 1999, the Companies announced their intention to withdraw from the
plans sponsored by all the companies belonging to the Telebr&#225;s system covering
active employees while remaining jointly and severally liable solely for the
obligations under the pension and health care plans covering retirees and their
dependants. In the consolidated financial statements under Brazilian Corporate
Law this change had no accounting impact and the contributions to the plans
sponsored exclusively by the Companies, PBS-Tele Celular Sul and PAMA-Tele
Celular Sul, are still recognized as expenses on the accrual basis.</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%"><FONT size="2">For US GAAP purposes, since the sponsors decided to split-off the total assets
and related actuarial obligations for the multi-employer plan prior to December
31, 1999 the Companies recognized a contingent liability, which was probable
and estimable, for the accrued pension cost as of such date. The funded status
of those plans was recognized as of December&nbsp;31, 1999, in shareholders&#146; equity
and in net income for the year, as required by SFAS 87 &#147;Employer&#146;s Accounting
for Pensions&#148; and SFAS 106 &#147;Employer&#146;s Accounting for Postretirement Benefits
and Than Pensions&#148;. The provisions of SFAS N&#186;. 87 concerning the calculation of
the funded status were applied with effect from January&nbsp;1, 1992, since it was
impossible to apply them from the effective date specified in the standard. See
note 31.III.a for detail of the pension plans.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-57</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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Valuation allowance on social contribution tax</B>
</FONT>


<P>
<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">Both the accounting principles under Brazilian Corporate Law and US GAAP adopt
the liability method to record the effects of income tax.</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%"><FONT size="2">Under the Brazilian constitution, the President of the Federative Republic of
Brazil may issue provisional measures having the force of law for 30&nbsp;days or
less, which is only enacted after approval by Congress. Provisional measures
are frequently re-issued by the President after the 30-day period. On December
31, 1999 and 2000, the enacted social contribution rate was 8%; however,
provisional measures set forth rates of 12% for the period from May&nbsp;1, 1999 to
January&nbsp;31, 2000 and 9% for the period from February&nbsp;1, 2000 to December&nbsp;31,
2002.</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%"><FONT size="2">To calculate deferred taxes, the accounting principles under the Brazilian
Corporate Law determine the use of the tax rate applicable for the estimated
period of realization of the temporary differences or tax losses to be
compensated. When applying such rules, the provisional measures that made
changes to the tax rates are considered substantially approved and used to
calculate deferred taxes.</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%"><FONT size="2">Under US GAAP, only enacted tax rates may be used to calculate deferred taxes.
The tax rates for future periods set forth by provisional measures are not
enacted and, therefore, are not taken into account.</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%"><FONT size="2">Effective 1999, the COFINS tax rate was increased from 2% to 3% of taxable
gross revenues. As the additional 1% can be, in accordance with enacted tax
law, offset against the social contribution tax for the year, and the
additional 1% is currently expected to exceed the social contribution for the
year, until such time as the law is repealed, the social contribution net
operating losses and other temporary differences are not expected to be
realized. Although a provisional measure has been issued which proposes to
eliminate the availability of offset, such measure has not yet been enacted and
the Company and its subsidiaries have not yet realized the accumulated amount
of net operating losses and other temporary differences. Accordingly, for US
GAAP purposes, a valuation allowance has been recorded as of December&nbsp;31, 2001
and 2002 to offset the amount of deferred social contribution tax that is
considered, taking into account the effect of the law mentioned about, more
likely than not that will not be realized.</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%"><FONT size="2">The social contribution rate was set at 9% effective from January&nbsp;1, 2003.
Therefore, the recorded allowance for deferred social contribution tax was
reversed in 2002, as the realization of such deferred tax is assured.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-58</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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Adoption of FAS 133</B>
</FONT>


<P>
<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">As of January&nbsp;1, 2001, the Company adopted Financial Accounting Standards Board
(FASB)&nbsp;issued SFAS 133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148;, which was issued in June, 1998 and its amendments Statements 137,
<I>Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No.&nbsp;133 and 138, Accounting for Derivative
Instruments and Certain Hedging Activities </I>issued in June 1999 and June 2000,
respectively (collectively referred to as Statement 133). Under Brazilian
Corporate Law, the Company has been recording its hedging activities in the
balance sheet as either an asset or liability measured at the spot rates at
December&nbsp;31, 2002 plus the coupon rate as stated in the agreements and
adjustments to contract value were recorded through income.</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%"><FONT size="2">As a result of adoption of Statement 133, the Company recognizes its foreign
currency and interest rate swap agreements on the balance sheet at fair value
and adjustments to fair value are recorded through income. The Company
accounted for the accounting change as a cumulative effect of a change in an
accounting principle. The adoption of Statement 133, resulted in an effect of
R$2,515, which resulted in a gain in the consolidated statement of income for
the twelve months ended December&nbsp;31, 2001. The cumulative effect of R$351 was
considered immaterial by the Company for adjustment.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Swaps</I>
</FONT>


<P>
<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">At December&nbsp;31, 2001 and 2002 the subsidiary Telepar Celular S.A. had entered
into swaps contracts between US Dollars and mix of currencies (UMBNDES)&nbsp;to CDI,
in the amount of R$28,224 (R$5,513 in 2001), with due dates between 2003 and
2007. For Brazilian GAAP purposes the Company recorded gains related to these
swap transactions of R$28,271 (R$9,172 in 2001) which was recorded as a
reduction of the loans. For US GAAP purposes such gains were reclassified to
assets. The fair values adjustments of the Company&#146;s foreign currency and
interest rate swap contracts were estimated based on quoted market prices of
comparable contracts, and at December&nbsp;31, 2001 and 2002 were approximately
R$2,515 and R$7,711.</FONT></TD>
</TR>
</TABLE>
<P align="center"><FONT size="2">F-59</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;<B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>


<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2000, 2001 and 2002<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>


<P align="left"><FONT size="2"><B>(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Incorporation of tax benefit of goodwill by Subsidiaries</B>
</FONT>


<P>
<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">According to the Brazilian Corporate Law accounting principles, companies may
assign the tax benefit of the goodwill to their subsidiaries in order to
receive the tax benefit generated by the amortization of such goodwill. The tax
benefit is shown as deferred and recoverable taxes with a contra account in a
special reserve within Shareholders&#146; equity. The deferred tax is amortized and
recognized as an expense in the statement of income for the amount of the tax
benefit. The tax benefit of the deduction of the amortization from the tax
basis for income tax and social contribution generates a reduction of income
tax and social contribution payable. Therefore, the amount recognized as an
expense resulting from tax deductible amortization of goodwill is equal to the
reduction in tax on taxable income. Such accounting generates a reduction in
taxes payable, but has no effect on the determination of net income for the
period.</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%"><FONT size="2">Once the benefit is realized, shares will be issued to the controlling
shareholder for the amount of the realized benefit; minority shareholders will
be entitled to buy shares in proportion to their interests by paying them
directly to the controlling shareholder.</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%"><FONT size="2">Under US GAAP, goodwill generated internally is not recognized; however, the
future tax benefit generated by the amortization of goodwill is recognized as a
contribution from the controlling shareholder within additional paid-in
capital, similarly to the accounting principles under the Brazilian Corporate
Law. The realization of the tax benefit by the amortization of the goodwill is
recognized as a decrease in the value of the deferred tax with a consequent
decrease in the tax payable, and does not affect the determination of income
for the period, similar to the accounting principles under the Brazilian
Corporate Law. The additional capital paid is transferred to Capital upon the
issuance of the shares.</FONT></TD>
</TR>
</TABLE>

<P align="left"><FONT size="2"><B>(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial revenues (expenses)</B>
</FONT>


<P>
<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">Accounting principles under the Brazilian Corporate Law require such amounts to
be stated as part of operating profit. Under US GAAP, financial revenue and
expenses is presented after operating profit in the statement of income</FONT></TD>
</TR>
</TABLE>
<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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL
PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B><BR><BR>

<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</B>
</FONT>
</TR>
</TABLE>





<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(i)</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">&nbsp;Goodwill amortization</B>
</FONT>
</TR>
</TABLE>


<P>
<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">Accounting principles under the Brazilian Corporate Law require that the
amortization of the deferred tax benefit related the goodwill amortization be
stated as an appropriation of income for the year as other operating expenses.
Under US GAAP, such amortization is shown as a reduction of the provision for
income tax.</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%"><FONT size="2">Additionally, the Company has recognized goodwill of R$16,669 in 2000 related
to acquisition of minority interest on Telepar Celular S.A. For Brazilian GAAP
purposes such goodwill has been amortized for a period of 10&nbsp;years. For US GAAP
purposes, the goodwill is not subject to amortization beginning January&nbsp;1,
2002. The amount of such amortization on December&nbsp;31, 2002 is R$1,779. Based on
management&#146;s assessment of the fair value of the Company&#146;s recorded goodwill,
there was no impairment recorded for US GAAP purposes as of December&nbsp;31, 2002.
Management will make annual assessments of such goodwill as required by SFAS
142.</FONT></TD>
</TR>
</TABLE>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(j)</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Dividends and Interest on shareholders&#146; equity</B>
</FONT>
</TR>
</TABLE>



<P>
<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">Under Brazilian Corporate Law, proposed dividends are accrued for in the
financial statements in advance of their approval at the Annual General
Shareholders&#146; Meeting, which is usually a merely formality.</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%"><FONT size="2">In December&nbsp;31, 2001 and 2002, the related dividends were fully accrued, since
the approval by the Annual General Shareholders&#146; Meeting is considered more
likely than not to occur. Interest on shareholders&#146; equity paid or credited to
shareholders as capital remuneration under Brazilian legislation would be
considered as declared for US GAAP purposes.</FONT></TD>
</TR>
</TABLE>
<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>

<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
</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%"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
</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%"><FONT size="2"><B>(k)&nbsp;Corporate Reorganization &#151; acquisition of minority interest</B>
</FONT>
</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%"><FONT size="2">As mentioned in the footnote 1.d, the Company concluded a corporate
reorganization on December&nbsp;26, 2002 in which Telepar Celular S.A. acquired the
Company and minority interest in the other two subsidiaries, Telesc Celular
S.A. and CTMR Celular S.A., being the owner of 100% of those subsidiaries.
Under Brazilian GAAP the accounting was a capital increase by the book value of
the two subsidiaries at Telepar Celular S.A. and a contra account in
investments. For the consolidated financial statements purposes this investment
was eliminated.</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%"><FONT size="2">For US GAAP purposes, such corporate reorganization was recorded using the
purchase method in accordance with SFAS 141 and was recorded based on the fair
value.</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%"><FONT size="2">On a consolidated level for US GAAP purposes, the Company recorded an asset of
R$14,520 and increase in minority interest. The effect on operating and net
income is not significant.</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%"><FONT size="2"><B>II Changes in shareholders&#146; equity under US GAAP</B>
</FONT>
</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%">
</TR>
</TABLE>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="87%">&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">Balance on 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">563,163</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>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Additional capital provided by the controlling shareholder (tax benefit in the
amortization of the goodwill paid at privatization)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">205,502</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">6,673</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 shareholders&#146; equity</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">(2,515</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance on 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">772,823</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">
    <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">48,111</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 paid in 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">(9,241</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">Dividends and Interest on shareholders&#146; equity</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">(21,641</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance on 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">790,052</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>
<TR valign="bottom">
    <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">87,992</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 shareholders&#146; equity</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">(28,773</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>
</TR>
<TR valign="bottom">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance on 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">849,271</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="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>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL
PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B><BR><BR>

<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</B>
</FONT>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>III</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Additional disclosures required by US GAAP</B>
</FONT>
</TR>
</TABLE>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>(a)</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">
Pension and other post-retirement benefits</B>
</FONT>
</TR>
</TABLE>





<P>
<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">As discussed in Note 20 the Company, and practically all other companies
belonging to the Telebr&#225;s System, participates in multi-employer defined post
retirement pension and other benefits plans operated and managed by Sistel.</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%"><FONT size="2">In December 1999, the Company and the other companies participating in the
plans identified in these consolidated financial statements as PBS-A-Sistel and
PAMA-Sistel reached an agreement to remove the active employees from the
pension plan and create a new plan for each one of the new holding companies,
including the Company (PBS-Tele Celular Sul and PAMA-Tele Celular Sul plans as
identified in Note 20). The parties agreed to allocate the plan assets based on
the reserves under the Brazilian Corporate Law. The allocation of the initial
transition liabilities and non-amortized gains and losses was based on the
projected benefit liability (PBO)&nbsp;of each individual employer divided by the
total Sistel PBO in December&nbsp;31, 1999, under SFAS 87. Retirees of the new
holding companies participating in the Sistel-defined pension plan would remain
as part of the Sistel multi-employer defined plan. The post-retirement health
benefit plans would also remain as multi-employer defined plans; Sistel,
however, no longer subsidizes life insurance premiums for retirees.</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%"><FONT size="2">Since the withdrawal of the participating active employees was probable and the
effect reasonable estimable at December&nbsp;31, 1999, the Company recorded a charge
in income for the year ended December&nbsp;31, 1999 to recognize the liability of
active employees, amounting to R$18,368. The Company remains liable for
contributing to the multi-employer defined plan, but no additional provision,
other than the contributions due on the accrual basis, was recorded for the
multi-employer plans.</FONT></TD>
</TR>
</TABLE>
<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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B></FONT></TD>
<TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">The funding status on December&nbsp;31, 2001 and 2002 for the pension plan for the
active employees (PBS-Tele Celular Sul) is summarized below:</FONT></TD>
</TR>
</TABLE>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="67%">&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 nowrap align="center" colspan="7"><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><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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Pension plan funded status:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Accumulated benefit obligation (ABO):</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Vested</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">(6,281</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">(8,745</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">Not vested</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">(20,688</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(24,262</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>
</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">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">(26,969</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(33,007</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">Projected benefit obligation (PBO)</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">(35,545</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,660</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">Fair value of the 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">31,561</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">41,592</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">Projected liabilities in excess of 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">(3,984</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,068</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">Unrecognized 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">(18,557</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(19,054</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">Unrecognized net transition obligation, net</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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,626</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">Liabilities recognized in equity under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,247</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,496</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>
</TR>
</TABLE>
</CENTER>

<P>
<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">The components of net periodic benefit cost for the PBS-Tele Celular Sul plan
for the years ended December&nbsp;31, 2000, 2001 and 2002 are as follows:</FONT></TD>
</TR>
</TABLE>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="64%">&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="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>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">Service 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">(1,043</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">(975</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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</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">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">(3,213</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">(3,533</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,996</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">Expected 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">2,658</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,999</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,674</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 unrecognized gains</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">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">935</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 transitional obligation</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">(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">(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">(667</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">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">(1,615</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(184</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(361</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-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="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
<P align="left"><FONT size="2">The change in benefit obligation and plan assets related to the PBS- Tele
Celular Sul plan for the years ended December&nbsp;31, 2001 and 2002 are 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="7"><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="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>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>
</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(31,737</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,545</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">Service 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">(975</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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</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 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">(3,533</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,996</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</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">(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">(472</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 gain (loss)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,299</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">(2,340</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">Projected benefit obligation at end of 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">(35,545</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(43,660</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>

<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 align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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><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">27,475</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">31,561</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">2,152</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">8,406</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">Contributions</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,533</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,097</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">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">(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">(472</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">31,561</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">41,592</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">A summary of the funding status of the Sistel (PBS-A- Sistel) pension plan on
December&nbsp;31, 2001 and 2002 for the multi-employer plan is presented below:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="95%">
<TR valign="bottom">
    <TD width="72%">&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 nowrap align="center" colspan="7"><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="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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Projected benefit obligation (PBO)</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">(2,809,643</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(2,922,542</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 of the 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">3,214,439</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,684,884</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="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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 liabilities in excess of assets) Excess of assets over
projected liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">404,796</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">762,342</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 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">(1,534,831</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">(1,690,371</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 liabilities, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">487,420</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">426,032</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">Liabilities recognized in equity under 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">(642,615</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(501,997</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">The actuarial assumptions for 2001 and 2002 used in the computation of the
funding status of the PBS-A-Sistel and PBS-Tele Celular Sul were the following:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="82%">&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 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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Discount rates to determine the projected benefit 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">11.30</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11.30</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">Rate of growth in compensation levels</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">8.15</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">8.15</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">Expected long-term rate of return for the 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">14.45</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">14.45</FONT></TD>
    <TD nowrap><FONT size="2">%</FONT></TD>
</TR>
</TABLE>
</CENTER>
<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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian  Reais unless otherwise indicated</B></FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">As mentioned in the note 20.d, the Company changed its pension plan to a
defined contribution pension plan, TIMPREV. Migration to this new plan was
exercised up to January&nbsp;29, 2003 and approximately 94% of the participants
migrated to the new plan. TIMPREV became effective as of February&nbsp;2, 2003 and
the Company asked for its actuaries to calculate the effects of the curtailment
and the settlement as of February&nbsp;28, 2003, which is used only for disclosure
purposes, since the effectiveness of the migration to the new plan occurred in
2003.</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">The effects of such curtailment and settlement for the active employees
(PBS&#150;Tele Celular Sul) are as follows:</FONT>
 </TD>
</TR>
</TABLE>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="85%">
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="51%">&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>Before</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>After</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>Curtailment</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Effect of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Effect of</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Curtailment</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="2"><FONT size="1"><B>PBS - Tele Celular Sul</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and Settlement</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Curtailment</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>Settlement</B></FONT></TD>
    <TD><FONT size="1">&nbsp;</FONT></TD>
    <TD nowrap align="center" colspan="3"><FONT size="1"><B>and Settlement</B></FONT></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="center" colspan="2"><FONT size="1"><B>&nbsp;</B></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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">1. Projected benefit obligation (PBO)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">44,786</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">(6,030</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(27,712</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">11,044</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">2. Plan assets at fair value</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">(42,428</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">&#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">27,712</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">(14,716</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">3. Funded status</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,358</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">(6,030</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">&#151;</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">(3,672</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">4. Unrecognized items</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">(a)&nbsp;Initial transition obligation (asset)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,516</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">(4,232</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">&#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">284</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">(b) (Gain) &#038; 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">(18,506</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">&#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">13,232</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">(5,274</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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">5. Accrued / (prepaid)&nbsp;post-retirement
benefit liability<BR>(3-(4a&#043;4b))</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">16,348</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">(1,798</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(13,232</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">1,318</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>
</TR>
</TABLE>
</CENTER>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Statement of cash flows</B>
</FONT></TD>
</TR>

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

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Accounting principles under the Brazilian Corporate Law require presentation of
a statement of changes in financial position reflecting the sources and uses of
funds. A statement of cash flows was prepared based on <I>SFAS 95 &#150; Statements of
Cash Flows, </I>to complement the information disclosed under Brazilian Corporate
Law
is presented below:</FONT>
 </TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-66</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>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</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="55%">&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><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><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><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><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">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 colspan="3"><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">15,368</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">59,889</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">65,774</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 income to the cash
generated by operations:</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">156,089</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">174,733</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">201,763</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">Effects of non-consolidation of TIMnet.com</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(4,736</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD 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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Losses on non-operational 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">&#151;</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">(753</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">Equity losses of affiliate</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">1,888</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">4,288</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">Loss on disposal</FONT></DIV></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>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">883</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,171</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">Minority 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">(2,998</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">10,979</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">9,895</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">Foreign exchange variation of loans</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">11,925</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">17,341</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">34,262</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">Changes in operating assets and 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><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Trade 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">72,260</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">(15,343</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(16,620</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">Allowance 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">(8,332</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">(5,881</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(319</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">Inventories</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">32,628</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">(9,491</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">6,283</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">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">(2,955</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">15,391</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">(10,932</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">Deferred 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">(25,161</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">(15,749</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">29,067</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">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">(7,740</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">15,556</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">7,816</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">Other long-term 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">(2,514</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(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">(6,830</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">Salaries and social charges</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,107</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">3,893</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,032</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">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">(65,857</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(35,335</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">60,288</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">Taxes and contributions payable</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">23,335</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">20,909</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">35,630</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">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">1,442</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">592</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">566</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">Provision for contingencies</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">(3,523</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">4,578</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,856</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">Pension plan liabilities</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">65</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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><FONT size="2">&nbsp;</FONT></TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Other 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">&#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">9,813</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">4,537</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">Other non-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">&#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">&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">(75</FONT></TD>
    <TD nowrap><FONT size="2">)</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">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">195,740</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">249,623</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">431,293</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">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Investing 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 colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">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">&#151;</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">(134,397</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(287,290</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">Investments purchases</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 nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(11,100</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(926</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">Acquisition of property, plant and equipment and
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">(204,310</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(147,299</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">(67,739</FONT></TD>
    <TD nowrap><FONT size="2">)</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">
    <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 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">(204,310</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(292,796</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">(355,955</FONT></TD>
    <TD nowrap><FONT size="2">)</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">Financing 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">Loan and financing payments</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">(432,606</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">(36,332</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">(47,563</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">Funds borrowed</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">549,827</FONT></TD>
    <TD><FONT size="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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Dividends and interest on shareholders&#146; equity 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">(11,305</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(10,172</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">(18,709</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">Dividends paid by subsidiaries to minority shareholders</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">(2,421</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(1,870</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(3,381</FONT></TD>
    <TD nowrap><FONT size="2">)</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">
    <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><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">103,495</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">(48,374</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(69,653</FONT></TD>
    <TD nowrap><FONT size="2">)</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><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net increase (decrease)&nbsp;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">94,925</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">(91,547</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">5,685</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">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">2,084</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,009</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">5,462</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">Cash and cash equivalents at year end</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">97,009</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">5,462</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">11,147</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="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-67</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B></FONT></TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Additional cash flow information</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="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="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" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Income taxes paid</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">19,148</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">10,896</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">14,007</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">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">42,262</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,086</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">42,606</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">Holding Company credits capitalized in Telepar Celular 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">114,312</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">&#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>
</TABLE>
</CENTER>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>New accounting standards</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">In June of 2001, the FASB issued SFAS No.&nbsp;142, &#147;Goodwill and Other Intangible
Assets&#148;, which requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized; however, these assets must be reviewed at
least annually for impairment. Intangible assets with finite useful lives will
continue to be amortized over their respective useful lives. The standard also
establishes specific guidance for testing for impairment of goodwill and
intangible assets with indefinite useful lives. Application of SFAS 142 in
earlier years would have resulted in a reduction in goodwill of R$416 and
R$1,691 in 2000 and 2001, respectively which would have resulted in net income,
net of tax effect, under US GAPAP of R$6,948 and R$49,227, respectively.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">In June of 2001, the FASB 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 143 requires a liability to be recognized in the
financial statements for retirement obligations meeting specific criteria. SFAS
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 or results of operations.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">In August 2001, the FASB issued SFAS No.&nbsp;144, &#147;Accounting for the Impairment or
Disposal of Long-Lived Assets.&#148; SFAS 144 amends existing accounting guidance on
asset impairment and provides a single accounting model for long-lived assets
to be disposed of. Among other provisions, the new rules change the criteria
for classifying an asset as held-for-sale. The standard also broadens the scope
of businesses to be disposed of that qualify for reporting as discontinued
operations, and changes the timing of recognizing losses on such operations.
The provisions of SFAS 144 will be effective for the Company&#146;s fiscal year 2002
and will be applied prospectively. The Company is currently in the process of
evaluating the potential impact that the adoption of SFAS 144 will have on its
consolidated financial position and results of operations, but believes that
adoption of this statement will not have a significant impact on its
consolidated financial position or results of operations.
</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-68</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>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
<P align="left"><FONT size="2">In June 2002, the FASB issued SFAS No.&nbsp;146, &#147;Accounting for Costs Associated
with Exit or Disposal Activities.&#148; SFAS 146 provides guidance related to
accounting for costs associated with disposal activities covered by SFAS 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 146 supersedes 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">In December 2002, the FASB issued SFAS No.&nbsp;148, &#147;Accounting for Stock-Based
Compensation, Transition and Disclosure.&#148; SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 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 148 are effective for the Company&#146;s fiscal ending after December&nbsp;15, 2002.
The Company does not expect SFAS 148 to have a material effect on its results
of operations or financial condition.
</FONT>

<P align="left"><FONT size="2">In November 2002, the FASB issued Interpretation No.&nbsp;45, <I>Guarantor&#146;s Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others</I>, <I>an interpretation of FASB Statements No.&nbsp;5, 57 and 107
and a rescission of FASB Interpretation No.&nbsp;34</I>. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company&#146;s
financial statements. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December&nbsp;15, 2002.
</FONT>

<P align="center"><FONT size="2">F-69</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">In January 2003, the FASB issued Interpretation No.&nbsp;46, <I>Consolidation of
Variable Entities, an interpretation of Account Research Bulletin &#150; ARB No.&nbsp;51</I>.
This Interpretation addresses consolidation by business enterprises of variable
interests entities which have one of the following characteristics:
</FONT></TD>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">i)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the 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 the expected losses of the entity.</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">ii)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">the equity investors lack on or more of the following essential
characteristics of a controlling financial interest:</FONT></TD>
</TR>
</TABLE>

<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">a)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="91%"><FONT size="2">the direct or indirect ability to make decisions about the entity&#146;s
activities through voting rights or similar rights.</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">b)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the obligation to absorb the expected losses of the entity if they
occur, which makes it possible for the entity to finance its activities</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">c)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">the right to receive the expected residual returns of the entity if
they occur, which is the compensation for the risk of absorbing the
expected losses.</FONT></TD>
</TR>
</TABLE>

<P>
<P>
<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">The disclosure requirements is immediately effective for all variable interest
entities created after January&nbsp;31, 2003 and for the fiscal year or interim
period beginning after June&nbsp;15, 2003 for variable entities in which an
enterprise holds a variable interest that is acquired before February&nbsp;1, 2003.
The initial recognition of the Interpretation is applicable after December&nbsp;31,
2002 and is not expected to have effect on the Company&#146;s financial statements.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">(d)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Segment information</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Accounting principles under the Brazilian Corporate Law do not require
disclosure of information on business segments.
</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Under US GAAP, SFAS N&#186; 131, &#147;Disclosures about Segments of an Enterprise and
Related Information&#148; sets forth the rules under which publicly traded companies
are obliged to disclose financial and descriptive information on their business
segments. Management is of the opinion that the Company and its subsidiaries
operate in a single business segment as telecommunication services providers
and, therefore, the disclosure of information requirements under US GAAP do not
apply.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-70</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">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT></TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">(e)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Additional information under US GAAP</B>
</FONT></TD>
</TR>
</TABLE>

<P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="75%">
<TR valign="bottom">
    <TD width="62%">&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="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>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">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">1,505,553</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">1,713,002</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>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Valuation allowance on social contribution</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</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">(24,180</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">&#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">Financial instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">9,172</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">28,271</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 on financial instruments</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">2,515</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">10,226</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">Asset on minority interest acquisition</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="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">14,520</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">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">1,335,426</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">1,379,529</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">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">(543,984</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(711,480</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><FONT size="2">&nbsp;</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">Property, plant and equipment, net</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">791,442</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">668,049</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><FONT size="2">&nbsp;</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" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Advertising expenses 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">32,346</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">35,440</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">33,927</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">Research and development costs 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">1,051</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">627</FONT></TD>
    <TD><FONT size="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>
    <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>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(f)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Termination benefits</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">The Companies are required to deposit 8% of the gross salary of each employee
to an account under the employee&#146;s name for <I>Fundo de Garantia do Tempo de
Servi&#231;o </I>(FGTS &#151; Workers&#146; Compensation Fund). No other contribution to the FGTS
is required. Contributions are recorded as they occur.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Brazilian labor law requires the Company to pay additional compensation to
employees terminated without cause, equivalent to 50% of the total amount of
deposits already made by the Company to the individual employee&#146;s FGTS account,
for the period such employee worked for the Company. The total termination
compensation actually paid in the years ended on December&nbsp;31, 2001 and 2002 was
R$143 and R$244, respectively.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="left" nowrap><FONT size="2">(g)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>Comprehensive income</B>
</FONT>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">Under US GAAP, the Company adopted SFAS N&#186; 130, &#147;Reporting Comprehensive
Income&#148;. Comprehensive income is not different from net income under US GAAP.
</FONT></TD>
</TR>
</TABLE>

<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="left"><FONT size="2"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
<P align="left"><FONT size="2"><B>(h)&nbsp; Earnings per share</B>
</FONT>

<P align="left"><FONT size="2">Under Brazilian Corporate Law, earnings per share are determined based upon the
total number of shares, common and preferred, outstanding as of the end of the
period.
</FONT>

<P align="left"><FONT size="2">Under US GAAP, earnings per share are determined based upon the weighted
average number of shares outstanding during the period. Entities whose capital
structures include securities that may participate in dividends with common
stocks according to a predetermined formula should use the two-class method of
computing earnings per share as described in SFAS N.&#186; 128, &#147;Earnings per
Share&#148;.
</FONT>

<P align="left"><FONT size="2">Since the preferred and common shareholders have different dividend, voting and
liquidation rights, basic earnings per share has been calculated using the
&#147;two-class&#148; method. The &#147;two-class&#148; method is an earnings allocation formula
that determines earnings per share for preferred and common shares according to
the dividends to be paid as required by the Company&#146;s by-laws and participation
rights in undistributed earnings.
</FONT>

<P align="left"><FONT size="2">Basic earnings per common share is computed by reducing net income by
distributable and undistributable net income available to preferred
shareholders and dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Net
income available to preferred shareholders is the sum of the preferred
dividends distributable net income and the preferred shareholders&#146; portion of
undistributed net income.
</FONT>

<P align="left"><FONT size="2">Undistributed net income is computed by deducting preferred dividends and
common dividends from net income. Undistributed net income is shared equally on
a per share basis by the preferred and common shareholders. Options issued
under the Company&#146;s stock options plan are antidilutive for each of the years
presented. Therefore, diluted earnings per share equals basic earnings per
share.
</FONT>

<P align="left"><FONT size="2">Under the Company&#146;s bylaws, if the Company is able to pay dividends in excess
of the minimum requirement for preferred shareholders and the remainder of the
net income is sufficient to provide equal dividends to both common and
preferred shareholders, then the earnings per share will be the same for both
common and preferred shareholders.
</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>
<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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT></TD>
</TR>
<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">The following table sets forth the computation of basic and diluted earnings
per thousand of common shares:
</FONT></TD>
</TR>
</TABLE>

<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="60%">&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><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"><B>Numerator:</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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income for the year under US GAAP</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">6,673</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,992</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">Net income available to preferred
shareholders &#150; numerator for basic and
diluted earnings per thousand 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">(6,624</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(30,044</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD nowrap align="right"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">(54,804</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><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 income available to common shareholders &#150;
numerator for basic and diluted earnings per
thousand shares</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">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">18,067</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">33,188</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>Denominator:</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="2"><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Weighted-average outstanding shares (in millions)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Common</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</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">126,301</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">129,358</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">Preferred</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">210,030</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">213,612</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">Earnings per 1,000 shares (basic and diluted)</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">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">0.000</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">0.143</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">0.257</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">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">0.032</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.143</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">0.257</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">(i)</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Stock Option</B>
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">As mentioned in the footnote 21-j, for Brazilian GAAP purposes there is no
effect in stock option plan since any stock option was exercised up to December
31, 2002.
</FONT></TD>
</TR>

<TR>
<TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD align="left" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">For US GAAP purposes the Company applies APB Opinion No.&nbsp;25 in accounting for
its Stock Option Plan. No compensation cost has been recognized for its stock
options in the financial statements in 2001 and 2002. In 2002, the year end
market price was below the exercise price. In 2001, the year end market price
was slightly above the exercise price, resulting in an amount of compensation
cost that was not material.</FONT></TD>
</TR>
</TABLE>

<P align="center"><FONT size="2">F-73</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>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B>
</FONT>
<P align="left"><FONT size="2"><B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</FONT>
<P align="left"><FONT size="2">Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No.&nbsp;123, the per share
weighted-average fair value of stock options granted would have been R$2.97 on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividends of R$28,773 thousand
in 2002, R$31,670 thousand in 2003, R$27,817 thousand in 2004 and R$32,098
thousand in 2005, a risk-free interest rate of 19%, expected life of 5&nbsp;years,
and expected volatility of 68%. The Company&#146;s net income also would have been
reduced to the pro forma amounts indicated below for the respective years:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="65%">
<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>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>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Net income as reported</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">48,111</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">87,992</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">Deduct: Total stock-based employee
compensation expense determined under
fair value based net of related tax
effects</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">(1,066</FONT></TD>
    <TD nowrap><FONT size="2">)</FONT></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</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">Pro forma 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">47,045</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">86,393</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">Earnings per share</FONT></DIV></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><FONT size="2">&nbsp;</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><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Basic and diluted earnings (losses), in
Reais per thousand preferred and common
shares as reported</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.143</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">0.257</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">Proforma basic and diluted earnings
(losses), in Reais per thousand preferred
and common shares as reported</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.140</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">0.252</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Stock option activity during the periods indicated is as follows:
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="55%">
<TR valign="bottom">
    <TD width="73%">&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="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>Weighted-</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>Number of</B></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><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>exercise 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>
</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 align="center" colspan="3"><FONT size="1"><B>(Thousands)</B></FONT></TD>
</TR>
<TR valign="bottom" bgcolor="#eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance at 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">&#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">Granted</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right"><FONT size="2">4,073</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">4.27</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">Exercised</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><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">Forfeited</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><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">Expired</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><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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance 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">4,073</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">4.27</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">Exercised</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Forfeited</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><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">Expired</FONT></DIV></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><FONT size="2">Balance 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">4,073</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">4.27</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">F-74</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>TELE CELULAR SUL
PARTICIPA&#199;&#213;ES S.A. E CONTROLADA</B><BR><BR>

<B>NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS<BR>
At December&nbsp;31, 2000, 2001 and 2002<BR>
All amount in thousand of Brazilian Reais unless otherwise indicated</B>
</B>
</FONT>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>32</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2"><B>Subsequent events (Unaudited)</B>
</FONT>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">At March&nbsp;18 2003, the Shareholders&#146; Annual Meeting approved the capital
increase of the Company, in name of Bitel Participa&#231;&#245;es, in the amount of
R$29,229, equivalent to the tax benefit generated in the period, in accordance
to the article 7, paragraph 1, of CVM Instruction 319/99. The capital increase
considered the issuance of 5,095,007,583 common shares and 8,413,524,457
preferred shares, both without nominal value.
</FONT>
</TR>
</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">
The subscription price was R$1.772 for the common shares and R$2.4010 for the
preferred shares, per 1000 shares. The period for the right of preference
exercise is from March&nbsp;19, 2003 to April&nbsp;17, 2003.
</FONT>
</TR>
</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2"><B>&nbsp;</I></FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">It was also approved the capital increase of R$15,000, in accordance with
article 199 of Law 6,404/76, without issuance of new shares, based on the
exceeding resources remaining from the retained income account and income
reserves, in relation to the Company social capital. Additionally, it was
approved the distribution of dividends as described on Note 21 e.
</FONT>
</TR>
</TABLE>



<P align="center"><FONT size="2">F-75</FONT>



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

<!-- link2 "ITEM 19. EXHIBITS" -->
<DIV align="left"><A NAME="023"></A></DIV>

<P align="left"><FONT size="2"><B>ITEM 19. EXHIBITS</B>
</FONT>

<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="92%">&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">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><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 Tele Celular Sul Participa&#231;&#245;es S.A., as amended (English Translation).</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"><FONT size="2">4.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Credit Agreement dated as of December&nbsp;3, 1999, among Telepar Celular S.A., as Borrower, Tele
Celular Sul Participa&#231;&#245;es S.A., as Guarantor, and Export-Import Bank of the United States,
which is incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.</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"><FONT size="2">4.2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Credit Agreement dated as of December&nbsp;22, 2000, among <I>Banco Nacional de Desenvolvimento
Econ&#244;mico e Social </I>&#150; BNDES, Telepar Celular S.A., as Borrower, and Tele Celular Sul
Participa&#231;&#245;es S.A., as Guarantor (Portuguese Version), which is incorporated by reference
from our 2000 annual report filed under form 20-F with the Securities and Exchange
Commission.</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"><FONT size="2">4.3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Credit Agreement dated as of December&nbsp;22, 2000, among <I>Banco Nacional de Desenvolvimento
Econ&#244;mico e Social </I>&#150; BNDES, Telepar Celular S.A., as Borrower, and Tele Celular Sul
Participa&#231;&#245;es S.A., as Guarantor (English Translation), which is incorporated by reference
from our 2000 annual report filed under form 20-F with the Securities and Exchange
Commission.</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"><FONT size="2">4.4</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Indenture for the First Public Issuance of Subordinated Single-Series&nbsp;Simple Debentures of
Telepar Celular S.A., dated as of November&nbsp;9, 2000 (Portuguese Version), which is
incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.</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"><FONT size="2">4.5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Indenture for the First Public Issuance of Subordinated Single-Series&nbsp;Simple Debentures of
Telepar Celular S.A., dated as of November&nbsp;9, 2000 (English Translation), which is
incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.</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"><FONT size="2">4.6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Standard Concession Agreement for Mobile Cellular Service (Portuguese Version), which is
incorporated by reference from our 1998 registration statement filed under form 20-F with the
Securities and Exchange Commission.</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"><FONT size="2">4.7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Standard Concession Agreement for Mobile Cellular Service (English Translation), which is
incorporated by reference from our 1998 registration statement filed under form 20-F with the
Securities and Exchange Commission.</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"><FONT size="2">4.8</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Authorization Agreement for Mobile Cellular Service for Telepar Celular (English Translation).</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"><FONT size="2">4.9</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Authorization Agreement for Mobile Cellular Service for CTMR Celular (English Translation).</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"><FONT size="2">4.10</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Authorization Agreement for Mobile Cellular Service for Telesc Celular (English Translation).</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"><FONT size="2">8.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
List of 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"><FONT size="2">10.1</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Certification of Chief Executive Officer and Financial Executive Officer of Tele Celular Sul,
pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">83</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="024"></A></DIV>

<P align="center"><FONT size="2"><B>SIGNATURES</B>
</FONT>

<P align="left"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The registrant 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="45%">
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="79%">&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"><B>TELE CELULAR SUL PARTICIPA&#199;&#213;ES S.A.</B></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">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Alvaro Pereira de Moraes Filho</FONT></TD>
</TR>

<TR>
    <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"><HR size="1" noshade></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:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Alvaro Pereira de Moraes Filho</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:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Executive Officer</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">
By:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;/s/ Paulo Roberto Cruz Cozza</FONT></TD>
</TR>
<TR>
    <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"><HR size="1" noshade></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:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Paulo Roberto Cruz Cozza</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:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="left"><FONT size="2">Dated: June&nbsp;18, 2003
</FONT>
<P align="center"><FONT size="2">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>CERTIFICATIONS</B>
</FONT>

<P align="left"><FONT size="2">I, Alvaro Pereira de Moraes Filho, certify that:
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">1.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">I have reviewed this annual report on Form&nbsp;20-F of Tele Celular Sul
Participa&#231;&#245;es S.A.;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">2.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, this annual 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></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">3.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">4.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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
have:</FONT></TD>
</TR>
</TABLE>

<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">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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 annual
report is being prepared;</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">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures as of a date within 90&nbsp;days prior to the
filing date of this annual report (the &#147;Evaluation Date&#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">c.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">5.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officers 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></TD>
</TR>
</TABLE>

<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">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">all significant deficiencies in the design or operation of
internal controls which could 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>
<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">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">6.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">Date: June&nbsp;18, 2003
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">By:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
/s/ Alvaro Pereira de Moraes Filho</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<HR size="1" noshade></FONT></TD>
</TR>
<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD valign="top"><FONT size="2">Name:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">
Alvaro Pereira de Moraes Filho</FONT></TD>
</TR>

<TR valign="bottom">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD valign="top"><FONT size="2">Title:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

<TD align="left" valign="top"><FONT size="2">
Chief Executive Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>
<P align="center"><FONT size="2">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>CERTIFICATIONS</B>
</FONT>

<P align="left"><FONT size="2">I, Paulo Roberto Cruz Cozza, certify that:
</FONT>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">1.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">I have reviewed this annual report on Form&nbsp;20-F of Tele Celular Sul
Participa&#231;&#245;es S.A.;</FONT></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">2.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">Based on my knowledge, this annual 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></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">3.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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></TD>
</TR>
<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">4.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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
have:</FONT></TD>
</TR>
</TABLE>

<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">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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 annual
report is being prepared;</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">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures as of a date within 90&nbsp;days prior to the
filing date of this annual report (the &#147;Evaluation Date&#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">c.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">5.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">The registrant&#146;s other certifying officers 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></TD>
</TR>
</TABLE>

<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">a.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">all significant deficiencies in the design or operation of
internal controls which could 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>
<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">b.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="93%"><FONT size="2">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>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR valign="top">
    <TD width="1%" align="left" nowrap><FONT size="2">6.</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="96%"><FONT size="2">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></TD>
</TR>
</TABLE>
<P align="left"><FONT size="2">Date: June&nbsp;18, 2003
</FONT>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR>
    <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:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD colspan="3" valign="top" align="left"><FONT size="2">/s/ Paulo Roberto Cruz Cozza
<HR size="1" noshade></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">Name:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Paulo Roberto Cruz Cozza</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">Title:
</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">Chief Financial Officer</FONT></TD>
</TR>
</TABLE>
</CENTER>


<P align="center"><FONT size="2">86</FONT>
</BODY>
</HTML>
[{"type": "20-F", "sequence": "1", "filename": "y87502e20vf.htm", "description": "TELE CELULAR SUL PARTICIPACOES S.A.", "secsgml_size_bytes": 1702274}]
{"company-data": {"conformed-name": "TELE CELULAR SUL PARTICIPACOES SA", "cik": "0001066116", "assigned-sic": "4813", "irs-number": "000000000"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "001-14491", "film-number": "03749112"}, "business-address": {"street1": "SCN QUADRA CN2", "street2": "LOTE F, 2 ANDAR SALA 203", "city": "BRASILIA-DF BRAZIL"}, "mail-address": {"street1": "SCN QUADRA CN2", "street2": "LOTE F, 2 AMDAR SALA 203", "city": "BRASILIA-DF BRAZIL"}}
TELE CELULAR SUL PARTICIPACOES S.A.
Table of Contents
As filed with the Securities and
Exchange Commission on June 18, 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: 001-14491
TELE CELULAR SUL PARTICIPAÇÕES S.A.
(Exact Name of Registrant as Specified in Its Charter)
Tele Cellular Sul Holding Company
The Federative Republic of Brazil
(Translation of Registrant's Name into English)
(Jurisdiction of Incorporation or Organization)
Rua Comendador Araújo, 299 — 3º andar
80420-000 Curitiba, PR, 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 10,000 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 the annual report:
129,357,833,871
Common Shares, without par value
213,612,105,811
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
o
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17
o
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 16. CODE OF ETHICS
PART III
ITEM 17. FINANCIAL STATEMENTS
ITEM 18. FINANCIAL STATEMENTS
ITEM 19. EXHIBITS
SIGNATURES
BY-LAWS
AUTHORIZATION AGREEMENT
AUTHORIZATION AGREEMENT
AUTHORIZATION AGREEMENT
SUBSIDIARIES
CERTIFICATION OF CEO AND CFO
Table of Contents
TABLE OF CONTENTS
Page
Presentation of Information
2
Forward Looking Information
3
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
4
Item 2.
Offer Statistics and Expected Timetable
4
Item 3.
Key Information
4
Item 4.
Information on the Company
15
Item 5.
Operating and Financial Review and Prospects
40
Item 6.
Directors, Senior Management and Employees
54
Item 7.
Major Shareholders and Related Party Transactions
58
Item 8.
Financial Information
59
Item 9.
The Offer and Listing
63
Item 10.
Additional Information
68
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
79
Item 12.
Description of Securities Other than Equity Securities
80
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
81
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
81
Item 15.
Controls and Procedures
81
Item 16.
Code of Ethics
81
PART III
Item 17.
Financial Statements
82
Item 18.
Financial Statements
82
Item 19.
Exhibits
83
i
Table of Contents
PRESENTATION OF INFORMATION
In this annual report, Tele Celular Sul Participações S.A. is referred to
as "Tele Celular Sul" or the "Holding Company," a corporation organized under
the laws of the Federative Republic of Brazil. References to "we," "us" and
"our" are to Tele Celular Sul together with Telepar Celular S.A. ("Telepar
Celular"), Telesc Celular S.A. ("Telesc Celular") and CTMR Celular S.A. ("CTMR
Celular"), each a subsidiary of Tele Celular Sul and a corporation organized
under the laws of the Federative Republic of Brazil. References to
"Subsidiaries" are to Telepar Celular, Telesc Celular and CTMR Celular,
collectively.
The Holding Company was formed as a result of the breakup (the "Breakup")
of Telecomunicações Brasileiras S.A. ("Telebrás") by Brazil's federal
government (the "Federal Government") in May 1998. Before the Breakup,
Telebrás and the Predecessor Companies were jointly known as the "Telebrás
System," and were the primary providers of telecommunications services in
Brazil. Each of the Subsidiaries was formed in January 1998 by transferring
the assets and liabilities of the cellular telecommunications operations of
Telecomunicações do Paraná S.A. ("Telepar"), Telecomunicações de Santa Catarina
S.A. ("Telesc") and Companhia Telefônica Melhoramentos e Resistência S.A.
("CTMR"), at their indexed historical cost, to Telepar Celular, Telesc Celular
and CTMR Celular, respectively. Telepar, Telesc and CTMR were operating
companies controlled by Telebrás. References to "Predecessor Companies" are to
Telepar, Telesc and CTMR, collectively.
References in this annual report to the "Preferred Shares" and the "Common
Shares" are to the preferred shares and common shares, respectively, of Tele
Celular Sul. References to the "American Depositary Shares" or "ADSs" are to
Tele Celular Sul's American Depositary Shares, each representing 10,000
Preferred Shares. The ADSs are evidenced by American Depositary Receipts
("ADRs"), which are listed on the New York Stock Exchange ("NYSE").
We provide cellular telecommunications services in the Brazilian states of
Paraná (other than the municipalities of Londrina and Tamarana) and Santa
Catarina and in the cities of Pelotas, Capão do Leão, Morro Redondo and Turuçu
in the state of Rio Grande do Sul (collectively, the "Region") under
authorizations obtained from the Brazilian Federal Government ("Federal
Government").
Presentation of Financial Information
Brazilian Corporate Law accounting method and U.S. GAAP
Our audited consolidated financial statements for each of the years ended
December 31, 1998, 1999, 2000, 2001 and 2002, are our consolidated financial
statements ("Consolidated Financial Statements"), which were prepared in
accordance with the Brazilian Corporate Law accounting method and in conformity
with accounting requirements and procedures established by the Brazilian
securities commission, the Comissão de Valores Mobiliários ("CVM"), and the
related rules applicable to telecommunications service operators. The rules
according to which our Consolidated Financial Statements were prepared differ
in certain material respects from generally accepted accounting principles in
the United States ("U.S. GAAP"). See Note 31 to our Consolidated Financial
Statements for a summary of the differences between the Brazilian Corporate Law
accounting method and U.S. GAAP, as well as a reconciliation to U.S. GAAP of
our shareholders' equity as of December 31, 2001 and 2002 and net income for
the years ended December 31, 2000, 2001 and 2002.
Currency References
All references herein to:
•
"
real,
" "
reais
" or "R$" are to the Brazilian
reais
(plural) and to the Brazilian
real
(singular), the official
currency of the Federative Republic of Brazil; and
•
"U.S. dollars," "dollars" or "US$" are to United States dollars.
2
Table of Contents
FORWARD LOOKING INFORMATION
This annual report contains certain forward-looking statements. We, and
our representatives, may also make forward-looking statements in press releases
and oral statements. Statements that are not statements of historical fact,
including statements about the beliefs and expectations of our management, are
also forward-looking statements. The words "anticipates," "believes,"
"estimates," "expects," "forecasts," "intends," "plans," "predicts," "projects"
and "targets" and similar words are intended to identify these statements,
which necessarily involve known and unknown risks and uncertainties. Known
risks and uncertainties, some of which are discussed on pages 9 to 14 herein,
include, but are not limited to, those resulting from the short history of our
operations as an independent, private-sector entity and the introduction of
competition to, and the size of, the Brazilian telecommunications sector, as
well as those relating to the cost and availability of financing, the
performance of the Brazilian economy generally, the levels of exchange rates
between Brazilian and foreign currencies and the Federal Government's
telecommunications policy. Accordingly, the actual results of our operations
may be different from our current expectations, and the reader should not place
undue reliance on these forward-looking statements. Forward-looking statements
speak only as of the date they are made, and we do not undertake any obligation
to update them in light of new information or future developments.
3
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 data presented below for the five years ended
December 31, 2002 are derived from our Consolidated Financial Statements. In
2002 and 2001, our Consolidated Financial Statements were audited by Ernst &
Young Auditores Independentes S/C. In 2000, our Consolidated Financial
Statements were audited by PricewaterhouseCoopers Auditores Independentes. In
1999, our Consolidated Financial Statements were audited by Arthur Andersen
S/C. In 1998, our Consolidated Financial Statements were audited by Deloitte
Touche Tohmatsu S/C. The data should be read in conjunction with our
Consolidated Financial Statements, related notes, and other financial
information included herein.
The following paragraphs discuss some important features of the
presentation of the selected financial data and our Consolidated Financial
Statements. These features should be kept in mind in evaluating the financial
data and in reading "Item 5. "Operating and Financial Review and Prospects."
Brazilian Corporate Law Accounting Method, Brazilian GAAP and U.S. GAAP
Our Consolidated Financial Statements have been prepared in accordance
with the Brazilian Corporate Law accounting method, which differs in certain
material respects from U.S. GAAP. For many years prior to 2000, we prepared
our financial statements for purposes of filing reports with the Securities and
Exchange Commission (the "Commission") in accordance with a specific rule
published by the Brazilian Institute of Accountants ("Brazilian GAAP"). The
accounting principles embodied in Brazilian GAAP and the Brazilian Corporate
Law accounting method are generally identical, except that Brazilian GAAP
requires historical financial information to be restated in constant
reais
as
of the end of the period presented, using the integral restatement method
(
correção monetária integral
), except when, by determination of the Brazilian
Institute of Accountants, the rate of inflation for the period is so low as to
render insignificant the effect of any such restatement. Early in 2001, the
Commission announced that Brazilian companies could present their financial
information in accordance with the Brazilian Corporate Law accouting method,
which has excluded monetary restatement of historical financial information
since 1995, following the end of hyperinflation in Brazil in the early 1990's.
In connection with the change in accounting methods in fiscal year 2000, we
restated our financial statements for all prior periods for consistent
presentation. The Brazilian Corporate Law accounting method differs in certain
material respects from U.S. GAAP. See Note 31 to our Consolidated Financial
Statements for a summary of the differences between the Brazilian Corporate Law
accounting method and U.S. GAAP, as well as a reconciliation to U.S. GAAP of
our shareholders' equity as of December 31, 2001 and 2002, and net income for
the years ended December 31, 2000, 2001 and 2002.
Accounting Consequences of the Breakup of Telebrás
The formations of the Holding Company and the Subsidiaries have been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. In January 1998, the assets and liabilities
of the cellular telecommunications businesses of Telepar, Telesc, and CTMR were
transferred to our Subsidiaries at their indexed historical cost. In addition,
the assets that were transferred from Telebrás to us resulted in an increase of
R$90.0 million to the book value of our total assets, compared to the assets
carried by our Subsidiaries before the break-up. The amount of our current
distributable retained earnings includes retained earnings allocated to us in
the Breakup of Telebrás.
4
Table of Contents
Corporate Reorganization to Transfer Goodwill
On June 30, 2000, our management implemented a corporate restructuring to
transfer to our Subsidiaries the premium ("Goodwill") paid by Bitel
Participações S.A. ("Bitel") for the acquisition of control of Tele Celular
Sul. The Goodwill was recorded as an asset. The transfer of Goodwill resulted
in a potential tax benefit, increasing our ability to generate free cash flow.
Commencing in 1998, the Goodwill was amortized by Bitel using an amortization
rate of 4% per annum. After the transfer to our Subsidiaries, the balance of
the Goodwill has been amortized under the straight-line method over the
remaining eight years. See Note 1.b to our Consolidated Financial Statements.
The amortization of Goodwill is expected to reduce our consolidated operating
income in future years, and to reduce our Subsidiaries' income and social
contribution taxes payable in those years, not affecting the consolidated net
operating income.
Minority Interests
For 1998, 1999, 2000 and 2001, "minority interests" reflect the interest
of shareholders other than Tele Celular Sul in each of Telepar Celular, Telesc
Celular and CTMR Celular. In December 2002, we completed a corporate
restructuring in which Telesc Celular and CTMR Celular became wholly-owned
subsidiaries of Telepar Celular. As of December 31, 2002, we retained a 90.2%
interest in the voting capital of Telepar Celular, and minority
shareholders owned interests amounting to 9.8% of the voting capital of Telepar Celular. See Note 3.r to our Consolidated Financial
Statements.
5
Table of Contents
Selected Financial Data
The following selected financial data for the five years ended December
31, 2002 are derived from our Consolidated Financial Statements. In 2002 and
2001, our Consolidated Financial Statements were audited by Ernst & Young
Auditores Independentes S/C. In 2000, our Consolidated Financial Statements
were audited by PricewaterhouseCoopers Auditores Independentes. In 1999, our
Consolidated Financial Statements were audited by Arthur Andersen S/C. In
1998, our Consolidated Financial Statements were audited by Deloitte Touche
Tohmatsu S/C. The data should be read in conjunction with our Consolidated
Financial Statements, related notes, and other financial information included
herein.
Year Ended December 31,
1998
1999
2000
2001
2002
(thousands of
reais
, unless otherwise indicated)
Statement of Income Data:
Brazilian Corporate Law
Net operating revenue
R$504,201
R$680,447
R$716,887
R$791,429
R$891,264
Cost of goods and services
(183,618
)
(417,020
)
(364,468
)
(406,033
)
(486,383
)
Gross profit
320,583
263,427
352,419
385,396
404,881
Operating expenses:
Selling expenses
(68,176
)
(139,834
)
(201,150
)
(181,424
)
(185,446
)
General and administrative
expenses
(40,514
)
(64,211
)
(76,300
)
(71,909
)
(83,346
)
Other net operating income
(expense)
6,255
6,133
(14,522
)
(15,584
)
(14,902
)
Equity investment
—
—
—
(1,888
)
(4,288
)
Operating income before financial
income (expenses)
218,148
65,515
60,447
114,591
116,899
Net financial income (expense)
24,654
(32,188
)
(57,904
)
(44,405
)
18,959
Operating income
242,802
33,327
2,543
70,186
97,940
Net non-operating (income) expense
(38,241
)
(5,823
)
3,507
10
(127
)
Income before taxes and minority
interests
204,561
27,504
6,050
70,196
97,813
Income and social contribution
taxes
(48,507
)
(529
)
6,320
672
(19,473
)
Minority interests
(32,059
)
7,357
2,998
(10,979
)
(12,566
)
Net income
123,995
34,332
15,368
59,889
65,774
Net income (loss) per 1,000
shares outstanding (
reais
)
0.37
0.10
0.05
0.18
0.19
U.S. GAAP
Net operating revenues
495,052
689,596
716,887
791,429
891,264
Operating income (loss)
217,815
20,832
(4,875
)
56,214
104,414
Net income
R$110,322
R$20,317
R$6,673
R$48,111
R$87,992
Earnings per 1,000 common
shares (
reais
)
(1)
R$0.330
R$0.061
—
R$0.143
R$0.257
Earnings per 1,000 preferred
shares (
reais
)
(1)
R$0.330
R$0.061
R$0.032
R$0.143
R$0.257
6
Table of Contents
As of December 31,
1998
1999
2000
2001
2002
(thousands of
reais
, unless otherwise indicated)
Balance Sheet Data:
Brazilian Corporate Law
Property, plant and equipment, net
623,499
791,022
837,165
775,575
655,949
Total assets
905,178
1,152,524
1,461,553
1,502,179
1,647,885
Loans, financing and debentures
60,194
222,198
352,785
334,386
321,085
Shareholders equity
540,861
560,966
770,081
808,329
845,330
Capital stock
175,872
175,872
175,772
245,033
324,666
Number
of shares outstanding:
(2)
Common shares
124,369
124,369
124,369
127,189
129,358
Preferred shares
210,030
210,030
210,030
210,030
213,612
Dividends per 1,000 shares – in
Reais
(3)
R$0.11
R$0.04
R$0.04
R$0.06
R$0.08
Dividends per 1,000 shares – in
U.S. dollars
(3)(4)
US$0.09
US$0.02
US$0.02
US$0.03
US$0.02
U.S. GAAP
Property, plant and equipment, net
667,668
850,234
907,502
791,442
668,049
Total assets
937,790
1,181,699
1,476,327
1,505,553
1,713,002
Loans and financing
60,194
222,198
352,785
343,558
349,356
Shareholders' equity
562,468
563,163
772,823
790,052
849,271
(1)
Earnings per share are determined based upon the weighted average
number of shares outstanding during the period. See Note 31.III.h to
our Consolidated Financial Statements.
(2)
Refers to millions of shares.
(3)
Dividends per share have been computed as the sum of dividends and
interest on shareholders' equity ("juros sobre capital próprio,"
according to Brazilian law), an alternative under Brazilian Corporate
Law to the distribution of dividends to shareholders. The
distribution of dividends and interest on shareholders' equity, in
each year, proceeded according to the terms set forth by our common
shareholders, at the relevant annual ordinary meeting. Dividends per
share have been determined as the sum of declared dividends and
interest on shareholders' equity, divided by the total number of
Common Shares and Preferred Shares outstanding as of the common
shareholders' meeting date. See "—Additional
Information — Taxation — Brazilian Tax
Considerations — Distribution of
Interest on Capital."
(4)
Amounts expressed in U.S. dollars, according to the exchange rate
applicable at the date of the relevant common shareholders' ordinary
meeting that approved the distribution of dividends and interest on
shareholders' equity.
In 2002, in accordance with a new CVM rule, we began classifying employees'
profit sharing expense as general and administrative expense instead of as a
separate line item below operating income before interest. All years prior to
2002 were restated for consistent presentation. Employees' profit sharing
expenses amounted to R$965 thousand, R$2,103 thousand, R$2,262 thousand,
R$4,129 thousand and R$4,222 thousand in 1998, 1999, 2000, 2001 and 2002,
respectively.
Exchange Rates
We pay any cash dividends, interest on shareholders' equity and any other
cash distributions with respect to our Preferred Shares in
reais
. Accordingly,
exchange rate fluctuations will affect the U.S. dollar amounts received by the
holders of ADSs on conversion by the Depositary of dividends and other
distributions in Brazilian currency on our Preferred Shares represented by
ADSs. Fluctuations in the exchange rate between Brazilian currency and the
U.S. dollar will affect the U.S. dollar equivalent of the price of our
Preferred Shares on the Brazilian stock exchanges. In addition, exchange rate
fluctuations may also affect our results of operations. See "Item 5. Operating
and Financial Review and Prospects Foreign Exchange and Interest Rate
Exposure."
There are two legal currency exchange markets in Brazil: the commercial
rate currency exchange market ("Commercial Market") and the floating rate
currency exchange market ("Floating Market"). The Commercial Market is
reserved primarily for currency exchange transactions in connection with
foreign trade transactions, and transactions that generally require prior
approval from Brazilian monetary authorities, such as the purchase and sale
7
Table of Contents
of foreign investments registered with the Brazilian Central Bank
("Central Bank"). Commercial Market transactions may be carried out
exclusively through a Brazilian financial institution authorized to operate in
this market. As used herein, the Floating Market applies to currency exchange
transactions in connection with transactions other than the ones conducted
through the Commercial Market.
Between March 1995 and January 1999, the Central Bank maintained a band
within which the exchange rate between the
real
and the U.S. dollar fluctuated,
and the Central Bank intervened in the foreign exchange markets from time to
time in order to keep the currency exchange rate within these limits. In early
January 1999, the Central Bank attempted a controlled devaluation of the
real
by widening the band within which the
real
/U.S. dollar rate was permitted to
fluctuate, but subsequent Central Bank intervention failed to keep the exchange
rate within the new band. On January 15, 1999, the Central Bank announced that
the
real
would be permitted to float freely, with Central Bank intervention to
take place only in times of extreme volatility. Since January 20, 1999, there
has been no exchange rate band between the
real
and the U.S. dollar, and the
real
value of the dollar has been allowed to float. During this time, the
Central Bank has intervened only occasionally to control unstable movements in
foreign exchange rates, and the
real
-U.S dollar exchange rate has experienced
considerable fluctuations. From January 20, 1999 to June 6, 2003, the
real
depreciated by approximately 45.23% relative to the U.S dollar. We cannot
predict whether the Central Bank will continue to allow the
real
to float or
whether
real
foreign-exchange rates will remain stable. See "—Risk Factors."
The following table sets forth the Noon Buying Rate, published by the
Federal Reserve Bank of New York, expressed in
reais
per U.S. dollar, for the
periods indicated.
Average for
Period
Period
(1)
High
Low
1998
1.1604
1.2090
1.1162
1999
1.8135
2.2000
1.2074
2000
1.8330
1.9840
1.7230
2001
2.3220
2.7850
1.9720
2002
2.9969
3.9450
2.2650
December 2002
3.6268
3.7950
3.4390
January 2003
3.4375
3.6590
3.2650
February 2003
3.5955
3.6640
3.5350
March 2003
3.4567
3.5700
3.3320
April 2003
3.1090
3.3290
2.8870
May 2003
2.9517
3.0200
2.8750
2003 (through June 6, 2003)
3.1935
3.6640
2.8750
(1)
Average of the rates on the last day of each month in the
period.
On June 6, 2003, the Noon Buying Rate was R$ R$2.8850 to US$1.00.
Brazilian law provides that, whenever there is a serious imbalance in
Brazil's balance of payments or serious reasons to foresee such imbalance,
temporary restrictions may be imposed on remittances of foreign capital abroad.
For approximately six months in 1989, and early 1990, for example, the Federal
Government froze all dividend and capital repatriations that were owed to
foreign equity investors. These amounts were subsequently released in
accordance with Federal Government directives. There can be no assurance that
similar measures will not be taken by the Federal Government in the future.
8
Table of Contents
Risk Factors
Risks Relating to Us
The conversion of our SMC concessions into PCS authorizations will have a
significant impact on our business.
In December 2002, our Subsidiaries converted their respective concessions
to operate under Cellular Mobile Service ("SMC") regulations into
authorizations to operate under Personal Communications Services ("PCS")
regulations. The SMC regulations differ significantly from the PCS
regulations. We expect to meet our obligations under the PCS regulations, but
there is no assurance that we will be able to do so. A failure to comply with
the PCS regulations may have a material adverse effect on our business,
financial condition and results of operations.
We may not receive as much interconnection revenue as we receive today.
In order for a customer of another telecommunications service provider to
connect to one of our customers, it will be necessary to use a portion of our
network. In situations like these, when our network is used for a call
initiated by a customer of another telecommunications service provider
("Incoming Call"), we are paid a fee by that service provider for every minute
our network is used. Similarly, we pay a fee to other telecommunications
service providers for every minute that their network is used in connection
with calls originating from our customers ("Outgoing Call"). Our customers may
spend more time placing Outgoing Calls than receiving Incoming Calls. As a
result, we may receive less interconnection revenue or pay more interconnection
fees than we presently do, with adverse effects to our financial condition and
results of operation. Furthermore, as a result of our conversion to PCS
authorizations, we will be subject to the CSP (
Código de Sele
ç
ão de Prestadora
)
Program promulgated by Anatel under the PCS regulations, which will allow
customers to choose long distance carriers on a per call basis. While under
the concessions, we had the right to charge VC2 and VC3 rates for long distance
calls placed by our customers. Upon the effectiveness of the CSP Program, we
will no longer have the right to charge VC2 and VC3 rates for long distance
calls. As a result, we may receive less interconnection revenue, with adverse
effects to our business, financial condition and results of operations.
The technology we use has limitations that could restrict our ability to
switch to more advanced technologies.
The Brazilian wireless telecommunications market is experiencing
significant technological changes, as evidenced by:
•
the introduction by Anatel of the PCS regime, under
which telecommunications service providers are allowed to use the
advanced global system for mobile communication technology
("GSM");
•
shorter time periods between the introduction of new
telecommunication products and their required enhancements or
replacements; and
•
ongoing improvements in the capacity and quality of
digital technology available in Brazil.
We currently use time-division multiple access technology ("TDMA") in our
cellular telecommunications services we provide and plan to offer GSM, as well,
during the second half of 2003.
We rely on a small number of suppliers and vendors, and if they fail to
provide us with services or equipment on a timely and cost-effective
basis, our business could be adversely affected.
We rely on a small group of vendors for our switch and cellular site
equipment. If we had to replace our primary suppliers of switch and cellular
equipment, we would suffer additional costs and delays on our current
replacement schedules. We may have to change our suppliers and vendors in the
future, resulting in material adverse effects to our business, financial
condition and results of operations.
9
Table of Contents
Our business is dependent on our ability to expand our services and to
maintain the quality of the services provided.
Our business, as a cellular telecommunications services provider, depends
on our ability to manage successfully our expansion and on continuous
investments in connection with our cellular telecommunications services
network. We believe our expected growth will require, among other things:
•
continuous development of our operational and administrative systems;
•
increasing marketing activities; and
•
attracting, training and retaining qualified management, technical and sales personnel.
These activities are expected to place significant demand on our
managerial, operational and financial resources. Failure to successfully
manage our expected growth could impair our ability to maintain the quality of
our services, with adverse effects to our business, financial condition and
results of operations.
Significant competition in our market may adversely affect our results of operations.
Our results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1998. Several licenses have been granted for cellular telecommunications
services in the our areas of authorization, and the Federal Government
auctioned additional licenses for PCS on frequency ranges referred to as Bands
C, D and E during 2001 and 2002.
Increasing competition may continue to adversely affect our market share
and margins. Increased competition may cause increasing rates of customer
turnover, adversely affecting our business, financial condition and results of
operations. Our ability to compete successfully will depend on marketing and
our ability to anticipate and respond to competitive factors affecting the
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. We may face competitors with greater access to
financial resouces and capital markets than us. We cannot predict which of
many possible factors will be important to maintaining our competitive position
or what expenditures will be required to develop and provide such technologies,
products or services.
We may be unable to respond to the recent trend toward consolidation in
the Brazilian wireless telecommunications market.
We believe there has been a trend of consolidation in the Brazilian
telecommunications market, with possible joint ventures, mergers and
acquisitions among telecommunications service providers in the future. If such
consolidation occurs, it may result in increased competition within our market.
We may be unable to adequately respond to pricing pressures resulting from
consolidation in our market, adversely affecting our business, financial
condition and results of operations.
Our controlling shareholder may exercise its control in a manner that
differs from the best interests of other shareholders.
Telecom Italia Mobile S.p.A. ("TIM"), a corporation organized under the
laws of Italy, indirectly owned approximately 52.06% of our Common Shares and
20.68% of our total capital on December 31, 2002. TIM has had the ability to
determine those actions of ours that require shareholder approval, including
the election of a majority of our directors and, subject to Brazilian law, the
payment of dividends and other distributions. In addition, TIM may exercise
this control in a manner that differs from the best interests of other
shareholders.
10
Table of Contents
Risks Relating to the Brazilian Telecommunications Industry
We are subject to various obligations in the performance of our
activities, with which we may be unable to comply.
We are subject to compliance with various obligations arising from
different laws and regulations in the performance of our telecommunications
services, including, but not limited to, the obligations arising from the
following:
•
the rules set forth by Anatel;
•
the authorizations granted to our Subsidiaries; and
•
the General Telecommunications Law (
Lei no. 9, 472/97
, as amended).
We believe we are materially in compliance with our obligations arising out of
such laws, regulations and authorizations, but we cannot give you any assurance
that we will be able to continue to do so in the future. In addition, changes
in the laws and regulations to which we are subject, including those changes in
response to technological advances that we may not be able to implement, may
render us unable to comply with our obligations in the future, with material
adverse effects to our business, financial condition and results of operations.
Furthermore, the Lula administration has indicated that it will take a more
active role in regulating the telecommunications sector. We cannot predict the
impact of any of these regulatory developments on our business, financial
condition and results of operations.
Risks Relating to Brazil
Brazilian political and economic conditions may have a material adverse
effect on our business and a direct impact on the market price of the
Preferred Shares and ADSs.
The Brazilian economy has been characterized by significant involvement on
the part of the Brazilian government, which often changes monetary, credit and
other policies to influence Brazil's economy. The Brazilian government's
actions to control inflation and effect other policies have often involved,
among other things, high interest rate environments, currency devaluations and
exchange controls, tariff and import quotas, electricity consumption controls,
and other measures, such as the freezing of bank accounts, which occurred in
1990.
Actions taken by the Brazilian government concerning the economy may have
important effects on Brazilian corporations and other entities, including us,
and on market conditions and prices of Brazilian securities, including our
Preferred Shares and ADSs. Our financial condition and results of operations
may be adversely affected by the following factors and the Brazilian
government's response to these factors:
•
devaluations and other exchange rate movements;
•
inflation;
•
exchange control policies;
•
social instability;
•
price instability;
•
energy shortages;
•
interest rates;
•
liquidity of domestic capital and lending markets;
11
Table of Contents
•
tax policy; and
•
other political, diplomatic, social and economic developments in or affecting Brazil.
In addition, we cannot predict the effect that the policies of the Lula
administration, which took office in January 2003, may have on Brazilian
economic conditions or on our financial condition or results of operations.
The Lula administration has announced that it expects to implement reforms in
the Brazilian social security and welfare systems to address underfunding and
in Brazil's tax and bankruptcy laws. To date, no significant legislative or
regulatory changes have been made by the Brazilian government. Future
developments or non-developments in the Brazilian economy and government
policies may reduce demand for our services or products, adversely affect its
financial condition and results of operations, and impact the market price of
the Preferred Shares and ADSs.
Devaluation of the real may adversely affect Brazilian economic
conditions and our financial condition.
Devaluation of the real relative to the U.S. Dollar could create
additional inflationary pressures in Brazil by generally increasing the price
of imported products and requiring recessionary governmental policies to curb
inflation. On the other hand, appreciation of the real against the U.S. Dollar
may lead to a deterioration of the country's current account and the balance of
payments, as well as dampen export-driven growth. The potential impact of the
floating exchange rate and of measures by the Brazilian government aimed at
stabilizing the real is uncertain.
A devaluation of the real may affect our ability to meet our foreign
currency-denominated obligations and result in a decline in the market
prices of our Preferred Shares and ADSs.
Brazilian currency historically has suffered frequent devaluations. As a
result of inflationary pressures, the
real
and its predecessor currencies have
been devalued periodically over the last four decades. During this period, the
Brazilian government has implemented various economic plans and utilized a
number of exchange rate policies, including sudden devaluations, periodic
mini-devaluations, during which the frequency of adjustments has ranged from
daily to monthly, floating exchange rate systems, exchange controls and dual
exchange rate markets. From time to time, there have been significant
fluctuations in the exchange rates between the
real
and the U.S. Dollar and
other currencies. See "Item 3—Selected Financial Data—Exchange Rates" for more
information on exchange rates.
The
real
fell in value relative to the U.S. dollar by 18.7% and 52.3% in
2001 and 2002, respectively. During 2001, the
real
experienced a period of
significant devaluation, due in part to the economic uncertainties in
Argentina, the global economic slowdown and the energy crisis in Brazil.
During 2002, the
real
experienced further devaluation, due in part to the
continued global economic slowdown and speculation related to the Presidential
election in October 2002.
A depreciation of the
real
could significantly increase the cost in
reais
of dollar-determined costs, such as those that we may need to incur in
connection with new investments to change technology (for example, from our
current TDMA technology to GSM technology). In the event of a significant
devaluation of the
real
in relation to the U.S. dollar or other currencies, our
ability to meet our foreign-currency denominated obligations could be adversely
affected, because our revenues are primarily
reais
-based. Further devaluations
of the
real
relative to the U.S. dollar would reduce the U.S. dollar value of
distributions and dividends on the ADSs and also may reduce the market prices
of our Preferred Shares and the ADSs.
If Brazil experiences substantial inflation in the future, the market
prices of our Preferred Shares and ADSs may be reduced.
In the past, Brazil has experienced extremely high rates of inflation.
According to Brazil's general price index ("IGP-M")
,
the inflation rate was
20.1% in 1999, 9.9% in 2000, 10.4% in 2001, 25.3% in 2002 and 6.3% for the
three months ended March 31, 2003. Inflation itself and some governmental
measures to combat inflation in the past have had significant negative effects
on the Brazilian economy. Inflation, actions taken to combat inflation and
public speculation about possible future governmental actions also have
contributed to economic uncertainty in Brazil and to heightened volatility in
the Brazilian securities markets. Since 1994, Brazil's inflation rate has been
substantially lower than in previous periods. However, during this period,
there have been inflationary pressures
12
Table of Contents
and actions taken to curb inflation which, together with public
speculation about possible future governmental actions, have contributed to
economic uncertainty in Brazil and to heightened volatility in the Brazilian
securities market. Brazil may experience high levels of inflation in the
future. There can be no assurance that the lower levels of inflation
experienced since 1994 will continue. Future governmental actions, including
actions to adjust the value of the
real
, could trigger increases in inflation.
If Brazil experiences substantial inflation in the future, our costs may
increase, and our operating and net margins may decrease. In addition, a
substantial increase in inflation may weaken investor confidence in Brazil, and
if investor confidence lags, the prices of our Preferred Shares and ADSs may
fall. Inflationary pressures also could result in our inability to access
foreign financial markets and may lead to further government intervention in
the economy, including the introduction of government policies that may
adversely affect the overall performance of the Brazilian economy. Future
inflation could adversely affect our results of operations and financial
condition.
Adverse changes in Brazilian economic conditions could cause an increase
in customer defaults on their outstanding obligations to us, which could
materially reduce our earnings.
Our operations are significantly dependent on our customers' ability to
make payments on their accounts. If the Brazilian economy worsens because of,
among other factors, the level of economic activity, devaluation of the
real
,
inflation or an increase in domestic interest rates, a greater portion of our
customers may not be able to make timely payments for services, which would
increase our past due accounts and could materially reduce our net earnings.
Developments in other emerging market countries may adversely affect the
Brazilian economy, limit our access to international capital markets and
negatively impact the market prices of our Common Shares, Preferred
Shares and ADSs.
We believe international investors in general consider Brazil to be an
emerging market. The Brazilian economy and the securities of Brazilian
companies always have been, to varying degrees, influenced by economic and
market conditions in other emerging market countries, particularly in Latin
America, as well as investors' responses to those conditions. Although
economic conditions are different in each country, investors' reactions to
adverse developments in one country may affect the market prices of securities
of issuers in other countries, including Brazil. For example, the 1997 Asian
economic crisis and the 1998 Russian debt moratorium and the devaluation of the
Russian currency triggered market volatility in Latin America and securities
markets in other emerging market countries. Adverse developments in emerging
market countries could lead to a reduction in demand for, and the market price
of, our Preferred Shares and ADSs.
As a result of economic and market conditions in other emerging markets,
Brazil in some periods has experienced a significant outflow of U.S. dollars,
and Brazilian companies have faced higher costs for raising funds, both in
Brazil and abroad, and have been impeded from accessing international capital
markets. There can be no assurance that international capital markets will
remain open to Brazilian companies or that prevailing interest rates in these
markets will be advantageous to Brazilian companies.
State and municipal defaults may adversely affect the market price of the
Preferred Shares and ADSs.
We may be adversely affected by defaults by state and municipal
governments. In January 1999, the Brazilian States of Minas Gerais and Rio
Grande do Sul suspended payments on their debt to the Federal Government, and
seven States requested the renegotiation of their financing agreements with the
Federal Government. Although these States subsequently reinitiated their debt
payments, any defaults that may occur in the future and the perceived risks of
defaults by state and municipal governments may undermine investor confidence,
have a negative effect on the Brazilian economy and/or negatively impact the
relevant region. If the Brazilian economy or any of the regional economies in
which we operate were to be adversely affected by a default, our operations and
the market price of the Preferred Shares and ADSs may be adversely affected.
13
Table of Contents
Enforcement of rights in Brazil may be difficult.
Our officers and many of our advisors reside in Brazil, and a substantial
portion of the assets of these persons and our assets are located in Brazil. We
are not aware of any treaty between the United States and Brazil regarding the
reciprocal enforcement of judgments. It may not be possible to effect service
of process upon these persons within the United States or other jurisdictions
outside of Brazil. Similarly, it may not be possible to enforce judgments of
non-Brazilian courts in Brazil, including judgments predicated on civil
liability under the U.S. securities laws against us or our directors and
officers.
Risks Relating to Our 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 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.
Restrictions on the movement of capital out of Brazil may hinder ADS
investors' ability to receive dividends and distributions on, and the
proceeds of any sale of, our Preferred Shares.
The Federal Government may impose temporary restrictions on the conversion
of
reais
into foreign currencies, and on the remittance to foreign investors of
proceeds from investments in Brazil. Brazilian law permits the government to
impose these restrictions whenever there is a serious imbalance in Brazil's
balance of payments or reasons to foresee a serious imbalance.
Any restrictions by the Federal Government on capital outflow may hinder
or prevent investors from converting the proceeds relating to our Preferred
Shares into U.S. dollars and remitting those proceeds abroad. Investors could
be adversely affected by delays in obtaining any required governmental approval
for conversion of
reais
payments and remittances abroad in respect of our
Preferred Shares underlying the ADSs.
14
Table of Contents
ITEM 4. INFORMATION ON THE COMPANY
History and Development of the Company
Tele Celular Sul Participações S.A. is a corporation organized under the
laws of the Federative Republic of Brazil and one of the New Holding Companies
formed as a result of the Breakup of Telebrás by the Federal Government in May
1998.
Our headquarters are located at Rua Comendador Araújo, 299 – 3rd floor,
80420-000, Curitiba, Paraná, Brazil, and our telephone number is +55 (41)
312-6702.
Historical Background
Prior to the incorporation of Telebrás in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebrás and the Predecessor Companies, comprising the Telebrás System,
acquired almost all the other telephone companies operating in Brazil and
controlled the public telecommunications services in almost all the Brazilian
territory.
Beginning in 1995, the Federal Government undertook a comprehensive reform
of the Brazilian telecommunications regulatory system. In July 1997, the
Brazilian Congress passed the General Telecommunications Law, which provided
for the establishment of a new regulatory framework, the creation of Anatel,
the introduction of competition in the Brazilian telecommunications services
market, and the sale of control of the New Holding Companies to private
investors.
In January 1998, in preparation for the Breakup of Telebrás, the cellular
telecommunications operations of the Predecessor Companies were transferred to
newly created companies. Telepar Celular, Telesc Celular and CTMR Celular were
created in connection with this corporate reorganization, along with other
cellular companies that also started operating under the Telebrás System.
In May 1998, through the Breakup of Telebrás, 12 New Holding Companies
were formed. The restructuring was conducted by means of a procedure called
cisão
under Brazilian Corporate Law. Virtually all of the assets and
liabilities of Telebrás were allocated to the New Holding Companies. The New
Holding Companies, together with their respective subsidiaries, consisted of:
•
eight cellular telecommunications service providers,
each operating in one of eight regions, each a cellular region;
•
three fixed-line telecommunications service providers,
each providing local service and intraregional long-distance
service in one of three regions, each a fixed-line region; and
•
Embratel Participações S.A. ("Embratel"), which
provides domestic long-distance telecommunications service,
including intraregional and interregional, as well as
international telecommunications service throughout Brazil.
Tele Celular Sul is one of the New Holding Companies. In the Breakup of
Telebrás, Tele Celular Sul was allocated all of the share capital of Telepar
Celular, Telesc Celular and CTMR Celular then held by Telebrás. The New
Holding Company providing fixed-line telecommunications service in our Region
is Brasil Telecom, S/A ("Brasil Telecom"). In the Breakup of Telebrás, Brasil
Telecom was allocated all the share capital of Telepar, Telesc and CTMR then
held by Telebrás.
In July 1998, the Federal Government sold substantially all its shares of
the New Holding Companies, including its shares of Tele Celular Sul, to private
investors. Shares of Tele Celular Sul previously owned by the Federal
Government were sold to a consortium comprised of UGB Participações Ltda.
("UGB"), a company organized according to the laws of the Federative Republic
of Brazil, and Bitel), a company organized according to the laws of the
Federative Republic of Brazil. On December 15, 1998, UGB sold its ownership
interest in our capital stock to Bitel. The sale was effective on March 26,
1999, upon its approval by Anatel and the Brazilian antitrust agency ("CADE").
15
Table of Contents
Recent Developments
Conversion from SMC concessions to PCS authorizations
On December 10, 2002, the Subsidiaries converted their SMC concessions
into PCS authorizations. In order to remain competitive in the Brazilian
telecommunications market, we also decided to offer, in addition to TDMA, GSM
technology by the second half of 2003, which is reserved for those providers
operating under PCS licenses auctioned by Anatel. As regulated by Anatel,
cellular telecommunications providers operating under GSM technology must do so
under a 1800 MHz frequency.
The migration to PCS authorizations will create a new set of regulatory
obligations for the Subsidiaries, including new quality of service standards
and the introduction of the CSP Program, which will allow customers to choose
long distance carriers on a per call basis. In addition, under our PCS
authorizations, we will be allowed to set prices for our service plans, subject
to approval by Anatel. After we set these prices, we expect that they will be
adjusted annually for inflation based on the IGP-DI. See "—PCS Regulation,"
"—Interconnection," and "—Rate Regulation."
Reorganization to Transfer Goodwill
When Bitel and UGB purchased a majority of our Common Shares in connection
with the Privatization, they paid a premium over the book value of our Common
Shares (the "Goodwill"), which was accounted for at the Bitel level. The value
of the Goodwill, net of amortization through March 2000, was R$604 million. In
the first quarter of the year 2000, we and Bitel initiated a corporate
reorganization to transfer the Goodwill to certain of the Subsidiaries so that
the amortization of the Goodwill could be available as a deduction against
income for purposes of calculating income taxes and social contribution tax on
profits owed by the Subsidiaries. As of December 31, 2002, the remaining value
of the deferred tax benefit related to the unamortized portion of the Goodwill
was R$178.1 million.
In the first step of the corporate reorganization, the premium was
transferred to us through a process involving the formation by Bitel of a new
subsidiary to which it transferred the Goodwill and the merger of such new
subsidiary into us. This process was completed on April 28, 2000.
In the second step of the corporate reorganization, completed on June 30,
2000, we transferred to each of the Subsidiaries such subsidiary's respective
share of the Goodwill, as well as the related provision and reserve, the value
of each subsidiary's share thereof being determined by independent appraisal.
The purpose of this second step was to take maximum tax advantage of the
deductibility of the amortization of the Goodwill.
Under Brazilian law, the tax benefit generated by the amortization of the
Goodwill may revert to the benefit of our controlling shareholder. The Holding
Company may therefore capitalize the tax benefit and issue new shares to its
controlling shareholder, Bitel, provided that the remaining shareholders have
the right to maintain their proportional participation in the Holding Company
by acquiring such newly issued shares at their cost of issuance from Bitel.
Accordingly, in return for the transfer of the Goodwill, the terms of the
reorganization anticipated the annual issuance to Bitel of a number of shares
in the Holding Company equal in value to the tax benefit realized from the
amortization of the Goodwill, calculated on the basis of the prevailing market
price for such shares. In connection with each such issuance of shares,
minority shareholders in the Holding Company have a preemptive right to
subscribe for such shares in a proportion equal to their percentage interest in
the capital stock of the Holding Company. Such right is exercisable at a price
equal to that used to calculate the number of shares to be issued to Bitel. In
the event that any minority shareholder elects to exercise such right, it will
be required to pay to Bitel an amount equal to the value of the shares with
respect to which the right is exercised. For fiscal years 2000, 2001 and 2002,
the tax benefit realized by us as a result of amortization of the Goodwill
amounted to R$9.9 million, R$17.6 million and R$29.2 million, respectively. As
a consequence, on April 25, 2001, a total of 2.8 billion Common Shares were
issued to Bitel in connection with the tax benefit realized by us for fiscal
year 2000. Approximately 67.7% of such Common Shares were purchased from Bitel
by minority shareholders. On April 16, 2002, 2.2 billion Common Shares and 3.6
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2001. Approximately 6.5% of such Common
Shares and 0.1% of such Preferred Shares have been purchased from Bitel by
minority shareholders. On March 18, 2003, 5.1 billion Common Shares and 8.4
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2002.
16
Table of Contents
Approximately 36.1% of such Common Shares and 40.5% of such Preferred
Shares have been purchased from Bitel by minority shareholders. For more
detailed information about the corporate restructuring and the tax benefit
arising therefrom, see Note 1.b to our Consolidated Financial Statements.
In addition to the capital increase that resulted from the capitalization
of the tax benefit, we also increased our capital by R$59.3 million on June 18,
2001, by R$62.0 million on April 16, 2002 and by R$15.3 million on March 18,
2003, without the issuance of new shares, by capitalizing a portion of our
income and capital reserves. As a consequence of these capital increases, our
total capital increased to R$369.2 million, represented by 134.4 billion Common
Shares and 222.0 billion Preferred Shares, as of March 18, 2003.
Restructuring of the Subsidiaries
In November 2002, we restructured the Subsidiaries. The restructuring was
conducted through the exchange of shares of Telesc Celular and CTMR Celular for
shares of Telepar Celular, resulting in a capital increase for Telepar Celular,
while both Telesc Celular and CTMR Celular became wholly-owned subsidiaries of
Telepar Celular, as opposed to direct subsidiaries of the Holding Company. As
a result of this restructuring, Telesc Celular's and CTMR Celular's
shareholders became shareholders of Telepar Celular, which became a larger
company with shares that had greater liquidity on the Bovespa. On November 23,
2002, the shareholders of Telesc Celular and CTMR Celular approved swap ratios
for shares of Telesc Celular and CTMR Celular based on the economic values
assigned to them in reports generated by an independent appraisal company plus
a premium of 19%. The resulting exchange ratios were 4.0015946198 shares of
Telesc Celular per share of Telepar Celular and 1.1473256922 shares of CTMR
Celular per share of Telepar Celular. We also have initiated feasibility
studies to consider the merger of Telesc Celular and CTMR Celular into Telepar
Celular.
Organizational Structure
Bitel is a subsidiary of TIM Brasil S.A. TIM Brasil S.A. is a
consolidated Brazilian subsidiary of the TIM group, which provides mobile
telecommunications services to more than 39.1 million customers worldwide.
TIM's parent company is Telecom Italia S.p.A. ("Telecom Italia"), one of the
world's largest fixed-line telecommunications operators, with approximately
27.1 million installed fixed lines (including ISDN equivalent lines). Telecom
Italia's business activities also include the leasing of its lines and the
provision of data communications services, information technology software and
information technology services. The Telecom Italia group's subsidiaries and
its portfolio of investments include fixed-line and mobile telecommunications
companies that operate mainly in Latin America and certain European countries.
In May 2003, the shareholders of Telecom Italia and Olivetti S.p.A.
("Olivetti") approved the merger of Telecom Italia into Olivetti. Upon the
completion of this merger, Olivetti will change its name to "Telecom Italia
S.p.A."
TIM began operating in Brazil in 1998 and is today one of the leading
wireless operators in the country, reaching more than 5.3 million customers
nationwide. TIM considers its operations in Brazil to be of primary
importance, both as a standalone business and as a fundamental part of its
Pan-South American GSM strategy. In the 2001 auctions held by Anatel for Bands
D and E, TIM was the only company to be awarded licenses in each of the three
Brazilian regions, resultantly becoming the sole operator to offer services on
a nationwide level under the same brand. In 2002, TIM formed TIM Brasil S.A.,
the holding company of TIM's operating companies in the country. These
operating companies include Tele Nordeste Celular, a Band A operating company
using TDMA technology to service the states of Pernambuco, Ceará, Paraiba, Rio
Grande do Norte, Alagoas and Piauí; TIM Maxitel, a Band B operating company
using TDMA technology to service the states of Bahia, Minas Gerais and Sergipe;
TIM Celular – PCS, a Band D operating company using GSM technology to service
the states of São Paulo, Goiás, Mato Grosso, Mato Grosso do Sul and Rio Grande
do Sul (except Pelotas) and in the Federal District and a Band E operating
company using GSM technology to service the states of Acre, Amapá, Amazonas,
Pará, Rondônia, Roraima. Tocantins and Rio de Janeiro; and us.
timnet.com
On June 13, 2000, we incorporated timnet.com S.A. ("timnet.com"), an
Internet services company. timnet.com had an initial capitalization of
approximately R$18.0 million in common shares, held 50% by Tele Nordeste
Celular Participações S.A. and 50% by us. As of December 31, 2001, with new
capital contributions by Maxitel S.A., we held a 33.3% interest in timnet.com.
17
Table of Contents
On December 31, 2002, timnet.com's shareholders, each holding a 20% interest, were comprised of:
•
Tele Nordeste Celular Participações S.A;
•
Maxitel S.A.;
•
TIM Celular S.A. (formerly known as Portale São Paulo S.A.);
•
TIM International N.V., (a company organized according
to the laws of the Netherlands, and controlled by TIM); and
•
Tele Celular Sul.
All of timnet.com's subscribed capital, in the amount of R$78 million, was paid
entirely by the shareholders listed above.
In 2000, our proportionate share of the results of timnet.com were
included in our Consolidated Financial Statements. In 2001 and 2002,
timnet.com's results were not consolidated in our Consolidated Financial
Statements, but were accounted for through the equity method. See Note 2.b to
our Consolidated Financial Statements.
The business purpose of timnet.com is to establish a common platform for
the technological and commercial development of value-added services and a
Wireless Application Protocol for cellular telephone service providers.
Timnet.com is a start-up company operating in a developing sector, and the
reliability of its technology has not yet been proved. Therefore, there can be
no assurance that timnet.com will become a profitable enterprise.
TIM Brasil Recent Developments
According to the rules set forth by Anatel for all PCS authorization
auctions, the controlling shareholders of Band A and Band B cellular service
providers were not allowed to hold more than one license, either in the form of
an authorization or a concession, in a single PCS Region. Accordingly, a
company controlling a Band A or Band B cellular service provider that acquires
control of a PCS authorization resulting in a geographical overlap of its
licenses has two alternatives:
•
it can sell its controlling shares in the Band A or
Band B cellular service providers within six months of purchasing
the PCS authorization; or
•
it can waive the right to operate under the PCS
authorization in the areas where overlaps exist.
As a result, some companies controlled by TIM waived their rights to
provide PCS services in certain areas. In 2001, Portale Rio Norte and TIM
Centro Sul waived their rights to operate under PCS authorizations in areas
currently served by Maxitel, Tele Nordeste Celular and us, because of
geographical overlaps in the PCS authorizations awarded to Portale Rio Norte
and TIM Centro Sul and the concessions held at that time by Maxitel, Tele
Nordeste Celular and us.
On December 31, 2002, TIM Centro Sul and Portale Rio Norte merged into
Portale São Paulo S.A. On January 22, 2003, Portale São Paulo S.A. changed its
name to TIM Celular S.A. and presently is headquartered in the city of São
Paulo.
Capital Expenditures
Our capital expenditure priorities in 2002 included expanding coverage and
enhancing information technology. Capital expenditures during 2000, 2001 and
2002 were R$204.3 million, R$158.4 million and R$68.7 million, respectively.
At March 31, 2003, capital expenditures in 2003 amounted to R$5.4 million.
The following table sets forth our capital expenditures in each individual
category for the three-year period ended December 31, 2002.
18
Table of Contents
Year ended December 31, 2002
Capital Expenditures Categories
2000
2001
2002
(in millions of reais)
Telecommunications equipment
R$122.8
R$83.2
R$34.5
Network construction
20.7
20.2
1.4
Information technology
36.7
25.9
22.2
Others
24.1
29.1
10.6
Total capital expenditures
R$204.3
R$158.4
R$68.7
Our capital expenditure priorities in 2003 include the implementation of
the GSM system overlay. We have planned approximately R$270 million in capital
expenditures for 2003. We set capital expenditure estimates yearly and base
them on commercial, technical and economic factors such as service rates,
service demand, price and availability of equipment. There is no assurance
that our estimates of such commercial, technical and economic factors will
prove to be correct, or that we will actually spend our planned capital
expenditures in 2003.
Business Overview
Our Services
We are the leading provider of cellular telecommunications services in our
Region and supply both analog and digital cellular telecommunications service.
We ceased offering analog service to new customers in December 1998 and expect
that our customers still using analog service will migrate to digital service.
On December 31, 2002, approximately 96% of our customers used digital service.
Our digital cellular telecommunications service is currently based on the
TDMA technology, which was launched in December 1998. We also offer ancillary
services, including voicemail, caller identification, call forwarding,
conference call, and selective and international call blocking. In addition,
in February 1999, we started selling digital cellular handsets.
We offer customers automatic roaming services throughout Brazil, allowing
customers to obtain cellular telecommunications services while outside the
Region. In addition, we offer customers international roaming services in
countries such as Argentina, Paraguay and Uruguay through agreements with
cellular telecommunications service providers operating in those countries.
Similarly, we provide roaming services to customers of certain cellular
telecommunications service providers while in the Region. See "—Roaming
Agreements."
We also provide interconnection services to fixed-line and cellular
service providers. See "—Interconnection Agreements."
Our Region
The portion of the Brazilian territory in which we operate is comprised of:
•
the state of Paraná, except in the cities of Londrina and Tamarana;
•
the state of Santa Catarina; and
•
the cities of Pelotas, Capão do Leão, Morro Redondo,
and Turuçu, in the state of Rio Grande do Sul.
19
Table of Contents
The map below shows the location of our Region within Brazil.
Our Region covers an area of approximately 296,000 square kilometers, or
3.5% of the Brazilian territory. According to statistics publicly available in
Brazil, we believe that our Region has 19 metropolitan areas, each with more
than 100,000 residents. For example, the city of Curitiba, located in our
Region, is the seventh most populated city in Brazil, with approximately 1.7
million residents.
The following table sets forth information on our customer base, coverage
and related matters, at the dates and for the years indicated. Unless
otherwise indicated, all amounts presented in the following table are simply
our estimates.
On December 31,
2000
2001
2002
Population in our Region (millions)
14.8
14.8
15.0
Population covered (millions)
(1)
11.5
11.6
12.1
Percentage of total population we covered
(2)
78.0
%
78.0
%
81.0
%
Total penetration
(3)
12.9
%
16.3
%
18.0
%
Number of cellular lines served by
Tele Celular Sul (millions)
1.42
1.60
1.72
Percentage growth in cellular lines served by
Tele Celular Sul during the year
37.0
%
13.2
%
7.5
%
(1)
Population within our Region that was able to access our cellular phone
signal.
(2)
Percentage of population within our Region that was able to access our
cellular phone signal.
(3)
Percentage of the total population in our Region using cellular services.
On December 31, 2002, according to our estimates, we served approximately
61% of the total cellular lines in operation within our Region, and our
competitors, approximately 39% of such total. On March 31, 2003, also according
to our estimates, we served approximately 60% of the total cellular lines in
operation within our Region, and our competitors, approximately 40% of such
total.
20
Table of Contents
Network expansion
On
December 31, 2002, we expanded our cellular phone network
coverage to 79%
of the population of the state of Paraná, from 41% on December 31, 2001, and to 84% of the
population of the state of Santa Catarina, from 48% on
December 31, 2001, and maintained network coverage of 100% of the
population of the city of Pelotas.
On December 31, 2002, our cellular telecommunications network included 795
radio base stations and 43,790 channels. We expanded our network during 2002,
increasing the number of radio base stations and channels by 5% and 3%,
respectively, compared to December 31, 2001. We continue to expand our cellular
telecommunications network to cover as broad a geographical area as
economically feasible in response to projected consumer demand. The network is
connected primarily through a fiber-optic transmission system leased from the
fixed-line service providers operating within the Region.
Ericsson Telecomunicações S.A. and Lucent Technologies are our principal
suppliers of cellular telecommunications equipment.
Brazilian Taxes on Telecommunications Services
The costs of telecommunications goods and services to clients are subject
to a variety of taxes, currently including ICMS, ISS, COFINS, PIS, FUST Tax,
FUNTTEL Tax and FISTEL Tax, which are described below.
•
ICMS.
The principal tax applicable to telecommunications
goods and services is a state value-added tax, the Imposto sobre
Circulação de Mercadorias e Serviços ("ICMS"), which the Brazilian
States impose at varying rates on certain revenues from the sale of
goods and services, including certain telecommunications services.
The ICMS tax rate in each state in the Region is 25% for domestic
telecommunications services, except in the State of Paraná, where a
27% rate went into effect as of January 1, 2002. The ICMS tax rate
imposed on the sale of cellular handsets averages 17% throughout the
Region, with the exception of some handsets whose manufacturers are
afforded some local tax benefits, in which case the highest rate is
7%. In June 1998, the governments of individual Brazilian States
approved an agreement to interpret existing Brazilian tax law to
apply ICMS, effective July 1, 1998, to certain services to which
ICMS had not previously been applied, including cellular activation
fees. See "Item 8. Financial Information—Legal
Proceedings—Litigation Related to the Application of ICMS."
•
ISS.
The
Imposto Sobre Serviços
("ISS") taxes certain
services listed in the List of Services prescribed by Decree-law No.
406/68. Municipalities impose this tax at varying rates, but in the
majority of large cities, the ISS rate is around 5%. The tax basis
of the ISS is the price of the service, minus certain exceptions
(construction services). As provided by Constitutional Amendment
No. 20, dated June 12, 2002, the municipalities must charge the
minimum rate of 2% and they must not directly or indirectly grant
tax benefits that may result in a reduction of the 2% rate. The
provision of services included in the list of services, even when
their rendering involves the supply of goods, is subject to ISS.
•
COFINS.
The Contribuição Social para o Financiamento da
Seguridade Social ("COFINS") is a social contribution tax on gross
revenues (both operating and financial). On November 27, 1998, the
Brazilian government increased the COFINS rate from 2% to 3% but
permitted taxpayers to offset up to one-third of the amount of
COFINS paid against the amount owed as Contribuição Sobre Lucro
Liquido ("CSL"), a social contribution tax assessed on net income.
The ability to offset COFINS against CSL was subsequently revoked
for periods after January 1, 2000. On January 1, 2000, we began to
include the COFINS tax in our bills at a rate of 3%. As the
Subsidiaries had a negative CSL calculation base, they could not
benefit from such offsetting.
•
PIS.
The Programa de Integração Social ("PIS") is another
social contribution tax, imposed prior to December 2002 at a rate of
0.65% on gross revenues from certain telecommunications service
activities (both operating and financial) and handset sales.
Beginning in December 2002, PIS has been levied at a rate of 1.65%
on gross revenues from sales of handsets, according to Law
10,637/02. Law No. 9,718 also indirectly raised the PIS
contribution tax rate owed by Telepar Celular, Telesc Celular and CTMR Celular.
21
Table of Contents
•
FUST.
On August 17, 2000, the Brazilian government created
the Fundo de Universalização dos Serviços de Telecomunicações
("FUST"), a fund that is supported by a social contribution tax
applicable to all telecommunications services ("FUST Tax"). The
purpose of the FUST is to reimburse a portion of the costs incurred
by telecommunications service providers to meet the universal
service targets required by Anatel throughout the Region (such as
targets for rural and impoverished areas, schools, libraries and
hospitals), in case these costs are not entirely recovered through
the collection of telecommunications service fees and charges. The
FUST Tax is imposed at a rate of 1% on gross operating revenues, and
its cost may not be passed on to clients. Telecommunications
companies can draw from the FUST upon meeting the universal service
targets required by Anatel.
•
FUNTTEL.
On November 28, 2000, the Brazilian government
created the Fundo para Desenvolvimento Tecnológico das
Telecomunicações (the "FUNTTEL"), a fund that is supported by a
social contribution tax applicable to all telecommunications
services (the "FUNTTEL Tax"). The FUNTTEL is a fund managed by
BNDES and FINEP, a government research and development agency. The
purpose of the FUNTTEL is to promote the development of
telecommunications technology in Brazil and to improve competition
in the industry by financing research and development in the area of
telecommunications technology. The FUNTTEL Tax is imposed at a rate
of 0.5% on gross operating revenues, and its cost may not be passed
on to clients.
•
FISTEL.
The Fundo de Fiscalização das Telecomunicações (the
"FISTEL"), a fund supported by a tax applicable to
telecommunications services (the "FISTEL Tax"), was established in
1966 to provide financial resources to the Brazilian government for
its regulation and inspection of the sector. The FISTEL Tax
consists of two types of fees: an installation inspection fee
assessed on telecommunications stations upon the issuance of their
authorization certificates, as well as every time we activate a new
cellular number, and an annual operations inspection fee that is
based on the number of authorized stations in operation at the end
of the previous calendar year. The amount of the installation
inspection fee is a fixed value, depending upon the kind of
equipment installed in the authorized telecommunications station.
Effective April 2001, the installation and inspection fee has been
assessed based on the net activations of cellular numbers (the
number of new cellular activations subtracted by the number of
cancelled subscriptions, as well as based on the net additions of
radio base stations. The operations inspection fee equals 50% of
the total amount of installation inspection fees that would have
been paid with respect to existing equipment.
Regulation of the Brazilian Telecommunications Industry
General
Our business is subject to comprehensive regulation under the General
Telecommunications Law, a comprehensive regulatory framework for the provision
of telecommunications services enacted by Anatel in November 1998, and various
administrative enactments thereunder. Each of the Subsidiaries operated under
a concession to provide services under the SMC regulations until December 2002,
when the Subsidiaries converted their concessions into authorizations to
provide services under the PCS regulations. The PCS regulations set forth
certain obligations further described below.
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 maintains a close relationship with the
Ministry of Communications and is required to report its activities to the
Ministry of Communications. It has authority to propose and to issue
regulations that are legally binding on telecommunications service providers.
Any proposed regulation or action by Anatel is subject to a period of public
comment, which may include public hearings, and may be challenged in Brazilian
courts.
22
Table of Contents
Authorizations and Concessions
Pursuant to the 1996
Lei Mínima
(the "Minimum Law"), Band A and Band B
Service Providers were granted concessions under SMC regulations. Each
concession is a specific grant of authority to supply cellular
telecommunications services in a defined geographical area, subject to certain
requirements contained in the applicable list of obligations appended to each
concession. If such a Band A or Band B cellular service provider wishes to
offer any telecommunications service other than the cellular telecommunications
service authorized by its concession, it may apply to Anatel for a license to
offer such other services. Through resolutions enacted in September 2000 and
January 2001, Anatel also has granted cellular service providers operating
under concessions the right to convert their concessions into authorizations
under PCS regulations.
In 1997, the Subsidiaries were granted concessions. In December 2002, the
Subsidiaries converted their respective SMC concessions into PCS
authorizations, with an option to renew the authorizations for an additional 15
years following the original expiration dates of the concessions. As a result
of the conversion from concessions to authorizations, our Subsidiaries were
subsequently allowed to operate under the PCS regulations.
Authorizations and concessions to provide telecommunications services are
granted under either the public regime or the private regime. Only certain
fixed-line service providers are currently operating under the public regime.
Public regime companies are subject to certain requirements under the General
Telecommunications Law and the May 1998 Decree establishing the General
Fixed-Line Service Universalization Target Plan.
Services provided under the private regime are classified as either
collective interest or restricted interest. Collective interest private regime
services are only subject to requirements imposed by Anatel under the
applicable authorizations or concessions and the General Telecommunications
Law. Restricted interest private regime services are subject to fewer
requirements than public regime or collective interest private regime services.
Under the authorizations, the Subsidiaries operate under the collective
interest private regime.
The following table sets forth the expiration date of the initial period
of each Subsidiary's authorizations:
Authorization
Subsidiary
expiration date
Telepar Celular
September 3, 2007
Telesc Celular
September 30, 2008
CTMR Celular
April 14, 2009
Obligations of Telecommunications Companies
The following table sets forth our SMC quality of service obligations
under the concessions, applicable to the Subsidiaries until December 2002:
Maximum/
Quality of Service Indicator
Minimum
Average level of system availability
(1)
>98
%
Network drop rate
(2)
<3
%
"All circuits busy" rate
(3)
<5
%
Interconnection drop rate
(4)
<3
%
Average system availability on first call attempt
>90
%
Number of customer complaints per month (per 100 clients)
<5
%
(1)
Percentage of time system is operational and available for call
origination, transport and completion.
(2)
Rate of failed call completion due to signal loss between radio base
station and switching centers.
(3)
Rate at which system rejects attempted calls during peak period because
no circuits are available.
(4)
Rate at which interconnected calls fail to complete during peak
periods.
In addition to the quality of service requirements under the SMC
regulations described above, Anatel and the Brazilian cellular service
providers jointly adopted a "Protocol for Mobile Cellular Service Providers" in
23
Table of Contents
November 1999 (the "Protocol"). The Protocol established additional
quality of service targets and rates, which were required to be achieved by
June 2001. The Protocol does not constitute an addition or modification to the
list of obligations appended to each concession. Although the General
Telecommunications Law does not specify any penalties for failing to meet the
targets required by the Protocol, Anatel is required to examine the performance
of the Brazilian telecommunications companies under the Protocol's standards.
All the Subsidiaries were in compliance with their quality of service
obligations under the Protocol through 2002. The Protocol is not applicable to
the Subsidiaries after the migration to the PCS regulations.
Our quality of service obligations under our PCS authorizations will
differ from those under the previous SMC concessions. See "—PCS Regulation."
While there can be no assurances, management believes that all the Subsidiaries
will be able to continue to meet all their quality of service obligations under
the authorizations.
The following table sets forth our SMC coverage obligations under the
concessions, applicable to the Subsidiaries until December 2002:
Minimum Service Coverage
1998
1999
2000
2001
2002
Services offered in cities with populations of:
(1)
Over 200,000 or state capital
100
%
—
—
—
—
100,000 to 200,000
—
100
%
—
—
—
75,000 to 100,000
—
—
90
%
—
—
50,000 to 75,000
—
—
—
80
%
—
30,000 to 50,000
—
—
—
—
70
%
Maximum average installation waiting time (days)
(2)
180
120
30
15
5
(1)
For services to be deemed to be offered in any city, service must be
available to at least 30% of the population.
(2)
Between request for service and connection in areas with cellular
service.
All the Subsidiaries have reached their network coverage obligations under the
concessions through 2002.
PCS Regulation
In September 2000, Anatel promulgated regulations regarding PCS wireless
telecommunications services that are significantly different from the ones
applicable to cellular companies operating under Band A and Band B. The new
rules allow companies to provide wireless telecommunications services under PCS
authorizations. The PCS authorizations allow new entrants in the Brazilian
telecommunications market to compete with existing telecommunications service
providers.
According to rules issued by Anatel, renewal of a concession to provide
cellular services, as well as permission from Anatel to transfer control of
cellular companies, are conditioned on agreement by such cellular service
provider to operate under the PCS rules. The Subsidiaries converted their
cellular concessions into PCS authorizations in December 2002, and are now
subject to certain obligations under the PCS regulations. See "—Authorizations
and Concessions."
In connection with the PCS authorization auctions in 2001 and 2002, Anatel
divided the Brazilian territory into three separate regions, each of which is
equal to the regions applicable to the public regime fixed-line telephone
service providers. PCS services 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 PCS authorizations, up to three new
PCS authorizations may be granted in each PCS Region. Anatel held auctions for
PCS authorizations during 2001 and 2002.
Obligations under the PCS regulations and the Subsidiaries' authorizations
differ from the obligations that were applicable to our Subsidiaries while
operating under their concessions. For example, the obligations under the PCS
regulations and the Subsidiaries' authorizations include the requirement to
comply with additional and more stringent service quality standards and to
offer customers the choice of a fixed-line carrier in long-distance calls on a
per call basis. The Subsidiaries will be required to comply with the
obligations under the PCS regulations and their
24
Table of Contents
authorizations by the end of the transitional periods applicable to the
particular obligations. Generally, the Subsidiaries will comply with the PCS
obligations by September 2003. We believe that we will be able to comply with
each of our obligations under the PCS regulations and the authorizations before
the end of the relevant transitional period.
In addition, the PCS regulations will impose a rate structure on the
Subsidiaries, which is significantly different from the one applicable to the
Subsidiaries while they were operating under their cellular concessions. Under
the PCS regulations, we will be generally free to determine the prices charged
for our services, subject to certain limitations imposed by Anatel rules and
the General Telecommunications Law. We expect to complete the implementation
of the changes in the rate structure by July 2003. We believe the new rate
structure will not materially impact the results of our operations.
According to the new PCS regulations, we will be required to adjust our
current operating processes and agreements to such new rules, including our
interconnection and roaming agreements, as well as the agreements with our
customers.
Interconnection Regulation
Certain telecommunications service providers are required to provide
interconnection to public interest telecommunications service providers,
according to the so-called "General Interconnection Rules," adopted by Anatel
through
Resolução
40/98. The terms and conditions of interconnection are to be
negotiated by the parties, within certain limits, including a price-cap
established by Anatel. For example, if a telecommunication service provider
offers any party an interconnection fee below the Anatel price-cap, such
telecommunications service provider must offer to provide interconnection to
other parties at the same lower fee. We have informed Anatel that, even after
our conversion to PCS authorizations, we will maintain the interconnection
arrangements that we had in place while operating under our cellular
concessions until June 30, 2004.
Rate Regulation
Our cellular concessions provided for a price-cap mechanism by which the
rates we charged customers were adjusted on an annual basis. The price cap was
a maximum weighted average rate for our basket of services. The basket
consisted of the services we provided through our TIM Basic plan. See
"—Sources of Revenue—Network Usage Charges and Monthly Subscription Charges"
for a further description of our TIM Basic plan. The price-cap was adjusted
annually to reflect the rate of inflation as measured by the
Índice Geral de
Preços—Disponibilidade Interna
("IGP-DI"), a price index created by the
Fundação Getúlio Vargas
, a Brazilian economic research organization. The
weighted average rate for our entire basket of services could not have exceeded
the price cap, but our rates for individual services within the basket could
have been raised annually above the annual change in the IGP-DI. Under our PCS
authorizations, we will be allowed to set prices for our service plans, subject
to approval by Anatel. After we set these prices, we expect that they will be
adjusted annually for inflation based on the IGP-DI.
Value-Added Services and Internet Regulation
Value-added services are not considered under Brazilian telecommunications
regulations to be telecommunications services, but rather an activity that adds
features to a telecommunications service that such value-added services
support. Regulations require all telecommunications service providers to grant
network access to any party interested in providing value-added services, on a
non-discriminatory basis, unless technically impossible. Telecommunications
service providers also are allowed to render value-added services through their
own networks. Internet access is considered by Brazilian legislation to be a
value-added service, and its providers are not considered to be
telecommunications companies. Current regulations allow us or any other
interested party to offer Internet connection services through our network. In
setting consumer pricing for its Internet connection services, we must consider
the costs that it charges for network usage to third parties offering similar
services for usage of our network.
25
Table of Contents
Recent Regulatory Developments
In May 2003, Brazil's Ministry of Telecommunications disclosed a proposed
presidential decree (the "Draft Decree") setting forth a number of proposed
changes in the regulation of Brazil's fixed-line telecommunications sector.
The Draft Decree sets forth general declarations of policy (but no specific
recommendations) 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 takes into account Brazilian
socioeconomic considerations. Legal experts in Brazilian telecommunications
regulation have publicly expressed the view that the Draft Decree, if issued as
proposed, would be illegal, since it would constitute an assumption by the
executive branch of Brazil's government of authority that by law can be
exercised only by the legislative branch. A number of providers of fixed-line
telecommunications services have delivered to the Ministry of
Telecommunications specific comments on the Draft Decree. We cannot currently
predict whether the Draft Decree will be issued by the President of Brazil or,
if issued, what form it may take, and we therefore cannot determine what effect
it may have on us if issued. If it is issued, the validity of the Draft Decree
may be challenged, and if so, Brazilian courts may uphold it or disallow it
under any of a number of legal theories.
Our Contractual Obligations
Interconnection Agreements
The Subsidiaries have entered into interconnection agreements with
Embratel, Brasil Telecom and other telecommunications service providers
operating in Brazil. The terms of our interconnection agreements include
provisions specifying the number of connection points, the method by which
signals must be received and transmitted, and the costs and fees of
interconnection. See "—Regulation of the Brazilian Telecommunications
Industry." In the absence of a specific agreement, the interconnection rates
that we charge are those established by Anatel regulations. See "—Regulation
of the Brazilian Telecommunications Industry—Interconnection."
Roaming Agreements
Automatic roaming permits our customers to connect their cellular handsets
directly to the networks of other cellular service providers while traveling or
"roaming" in Brazil outside our Region. Similarly, we provide cellular
telecommunications service to customers of other cellular service providers
when those customers place or receive calls from a location within the Region.
We are a member of the Roaming Management Committee, a group comprised of
21 cellular telecommunications service providers operating in Brazil. The
Roaming Management Committee was created to independently control the
activities related to roaming services in Brazil and the international roaming
agreements entered into by Brazilian companies with telecommunications service
providers operating in the member countries of Mercosur.
The Roaming Management Committee requires the cellular service providers
to service roaming customers generally on the same basis as the service
provided to their respective own customers, and to carry out a monthly
reconciliation of roaming usage charges.
We have entered into a roaming agreement with Sercomtel Celular S.A., the
Band A service provider operating in the cities of Londrina and Tamarana, in
the state of Paraná. This agreement creates a "mobility area" which enables
our customers to use Sercomtel's network at the same rates we charge our
customers within the Region. In addition, since December 2001, we have been
entering into agreements with other service providers allowing our customers to
receive short messaging services throughout the Brazilian territory.
26
Table of Contents
Roaming in MERCOSUR
We have entered into roaming agreements with telecommunications service
providers operating in the following countries:
•
Argentina, providing for automatic roaming in the city of Buenos Aires region;
•
Paraguay, providing for automatic roaming throughout that country; and
•
Uruguay, providing for manual roaming throughout that country.
Other International Roaming Agreements
We have roaming agreements with other telecommunications service providers
operating in more than 100 countries all over the world, including the United
States, and in Europe and Asia.
Sources of Revenue
Our revenues derive mainly from:
•
network usage charges;
•
monthly subscription charges;
•
interconnection charges;
•
wireless application protocol service ("WAP") charges;
•
other special service charges, including charges for
short messaging services, call forwarding, call waiting, voice
mail, invoice control, conference calling, TIM Office services
and timnet.com services; and
•
sale of cellular handsets.
Our rates during 2002 were generally subject to regulation by Anatel.
After the applicable transition period, we will be allowed to set prices for
our service plans, subject to approval by Anatel. After we set these prices,
we expect that they will be adjusted annually for inflation based on the
IGP-DI. See "—Rate Regulation."
Network Usage Charges and Monthly Subscription Charges
Cellular Service Usage Rates.
Unlike North America, cellular
telecommunications service in Brazil is offered on a "calling party pays"
basis, under which the customer generally pays only for outgoing calls. On the
other hand, certain charges apply when a customer receives or places calls
while outside of his home registration area, as defined below.
We charged different rates for our services, generally according to the
time of the day, the customer's service plan, and the location of the parties
to the call.
While operating under the concessions, we divided our Region into certain
areas defined as home registration areas ("Home Registration Areas"). Each of
our customers is registered as a user of one of our 38 Home Registration Areas,
in which the Region is divided.
Our usage rate categories are described as follows:
•
VC1
. The "VC1" rate is our lowest rate per minute and
applies to calls made by a customer located in the customer's
Home Registration Area to a person also located in the same Home
Registration Area.
27
Table of Contents
•
VC2
. The "VC2" rate applies to calls placed by a
customer from one Home Registration Area to another Home
Registration Area in the same Region.
•
VC3
. The "VC3" rate applies to calls placed by a
customer from one Home Registration Area to another Home
Registration Area located outside the Region.
•
AD
. "AD" is a per-call surcharge applicable to
outgoing calls or incoming calls made by a customer while outside
the customer's Home Registration Area.
•
DSL1
. "DSL1" is a per-minute surcharge applicable to
incoming calls received by a customer located outside the
customer's Home Registration Area, but within the Region; and
•
DSL2
. "DSL2" is a per-minute surcharge applicable to
incoming calls received by a customer located outside the Region.
Our usage rates are subject to certain discounts or surcharges, according
to special circumstances. For example, calls made between 9:00 p.m. and 7:00
a.m., and calls placed at any time on Saturdays, Sundays and national holidays,
are defined as calls completed during off-peak hours ("Off-Peak Hours").
Off-Peak Hours calls are provided a 30% discount from their regular prices.
Discounts for calls made during Off Peak Hours were offered as an incentive to
use our services during periods when we typically experience significant
non-utilization of our network capacity.
Beginning January 31, 2002, we began to charge our clients under our Menu
30, Menu 50, Menu 100 and Menu 200 plans "VC1" rates for all calls placed
within our Region. We believe that this change simplified our rate structure,
with benefits to our customers and to us.
In addition, beginning May 20, 2000, we began to offer discounts for local
calls made between our customers. This special discount program was named
"
Ligação TIM –TIM"
and applied exclusively to customers adhering to our service
plans. Under
Ligação TIM –TIM
, our customers enjoyed an average rate reduction
from 10% to 32%, compared to our normal rates. On the other hand, we applied a
30% surcharge over our normal rates for calls made from one cellular phone to
another.
The rate structure currently applicable to Brazilian cellular
telecommunications companies will be changed with the introduction of the CSP
Program, expected to occur in the second half of 2003. The CSP Program will
allow customers to select long-distance carriers on a per call basis. In
addition, Home Registration Areas will be larger geographically and fewer in
number. Under this new rate allocation structure, a customer will be charged
directly by us only for calls completed within that customer's Home
Registration Area. Long-distance calls, however, will be charged to a customer
by the chosen long-distance carrier. This long-distance carrier, in turn, will
pay us a new VU-M fee for any use of our network for such a long-distance call.
Service Plans.
We offer various service plans to our customers. We
believe our plans provide features that address specific needs of groups of our
customers. Our plans vary with respect to the different services available and
applicable charges.
As of December 31, 2002, we offered our customers the following service
plans:
•
TIM Basic.
Anatel requires us to offer our customers the TIM
Basic plan, formerly known as the Basic plan. Under TIM Basic, we
offer free caller identification and voice message. We usually
recommend TIM Basic for customers using cellular phones without any
regular pattern, placing calls at various times of the day and with
a varying volume of minutes used;
•
Plan T Voce.
This plan provides 10 free minutes per month in
addition to 10 free short messages per month. Under this plan,
customers are charged a flat rate per minute on all calls. This
plan is suitable for post-paid customers looking to migrate to a
plan similar to pre-paid plans.
28
Table of Contents
•
TIM Noite e Lazer.
This plan provides customers free caller
identification and voice mail. We believe this plan better suits
those of our customers who use cellular telephone service mostly
during Off-Peak Hours for its lower rates during these times;
•
MENU 30.
Under the MENU 30 plan, we charge a subscription
fee and provide customers 30 free minutes per month of outgoing
local calls within the Region. These calls otherwise would be
charged under the VC1 rate. Customers using the MENU 30 plan are
also afforded special rates for calls in excess of the 30 free
monthly minutes. We believe this plan is suited for customers who
use our services up to one minute per day on average;
•
MENU 50.
Under the MENU 50 plan, we charge a subscription
fee and provide customers 50 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 50 plan are
also afforded special rates for calls in excess of the 50 free
monthly minutes. We believe this plan is suited for customers who
use our services two to three minutes per day on average;
•
MENU 100.
Under the MENU 100 plan, we charge a subscription
fee and provide customers 100 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 100 plan
are also afforded special rates for calls in excess of the 100 free
monthly minutes. We believe this plan is suited for customers who
use our services three to four minutes per day on average and
frequently make long-distance calls to the states of Santa Catarina
and Paraná;
•
MENU 200.
Under the MENU 200 plan, we charge a subscription
fee and provide customers 200 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 200 plan
are also afforded special rates for calls in excess of the 200 free
monthly minutes. We believe this plan is suited for customers who
use our services five to six minutes per day on average and who
frequently make long-distance calls to the states of Santa Catarina
and Paraná;
•
MENU 400.
Under the MENU 400 plan, we charge a subscription
fee and provide our customers 400 free minutes per month of outgoing
local calls within the Region. Customers using the MENU 400 plan
are also afforded special rates for calls in excess of the 400 free
monthly minutes. We believe this plan is suited for customers who
use our services seven to 13 minutes per day on average and
frequently make long-distance calls to the states of Santa Catarina
and Paraná;
•
MENU 1000.
Under the MENU 1000 plan, launched in February
2002, we charge a subscription fee and provide our customers 1000
free minutes per month of outgoing local calls within the Region.
Customers using the MENU 1000 plan are also afforded special rates
for calls in excess of the 1000 free monthly minutes. We believe
this plan is suited for customers who use our services more than 13
minutes per day on average and frequently make long-distance calls
to the states of Santa Catarina and Paraná;
•
MENU 200 Family.
Under the MENU 200 Family plan, we charge a
subscription fee and provide our customers 200 free minutes per
month of outgoing local calls within the Region. Customers using
the MENU 200 Family plan are also afforded special rates for calls
in excess of the 200 free monthly minutes. We believe this plan is
suited for groups of customers who use our services three to four
minutes per day and frequently make long-distance calls to the
states of Santa Catarina and Paraná. This plan is targeted to
groups of up to four customers who frequently make calls among
themselves;
•
Empresarial.
The Empresarial plan is designed for corporate
clients, offering lower tariffs and per minute rates that are
lowered according to total call traffic generated each month. The
discounts range from 3% to 8% of our normal rates;
•
Empresarial ++.
This plan is designed for corporate clients
who are committed to paying only a predetermined and fixed amount of
cellular telephone services used by their employees. Clients
arrange for monthly payments through "Credicorp." Any additional
expenses remain the responsibility of the employee. Clients
choosing this plan may simultaneously choose the Corporate Zero Rate
plan.
29
Table of Contents
•
Corporate Zero Rate.
This plan is designed for large
corporate clients with a high level of local calls within the
Region. This plan offers business clients free calls between
corporate employees located within the Region;
•
Business 200.
This plan is similar to the Menu 200 Family
plan, however, it is designed for small and medium-sized companies.
An account under Business 200 may include up to four customers,
provided that such a joint account is registered by a corporation.
Under the Business 200 plan, we charge a subscription fee and
provide our customers 200 minutes of outgoing local calls per
account each month or certain credits applicable to our pre-paid
plans;
•
Pronto.
Pronto is a pre-paid service with no billing or
monthly subscription charges. It is ideal for customers who prefer
to control their expenses. The plan was launched in April 1999 and
offers three different service packages:
•
Tempo Livre
, a plan with special rates at nights,
weekends, holidays and within the states of Paraná and Santa
Catarina;
•
Tempo Todo
, a plan with special rates for calls at any time within the Region; and
•
Pronto T
, a plan allowing calls to be made outside the Region.
30
Table of Contents
The following tables set forth the rates applicable to outgoing calls for
some of the service plans offered by each of the Subsidiaries on December 31,
2002, in nominal
reais
, including value-added and other taxes. In February
2003, we increased our rates by an average of 8%.
Telepar Celular
On December 31, 2002
Free
Peak Hours Rates
(2)
Off-Peak Hours Rates
(2)
Monthly
Minutes
Plans
Charge
of Use
(1)
VC1
VC2
VC3
VC1
VC2
VC3
TIM Basic
R$31.79
—
R$0.50
R$0.91
R$1.01
R$0.35
R$0.64
R$0.71
TIM Noite e Lazer
(3)
21.50
—
1.01
1.32
1.43
0.21
(5)
0.50
0.61
T Voce
19.99
10
0.70
0.70
0.91
0.70
0.70
(6)
0.91
Menu 30
39.90
30
0.50
0.50
0.91
0.50
0.50
0.91
Menu 50
47.90
50
0.48
0.48
0.91
0.48
0.48
0.91
Menu 100
63.90
100
0.46
0.46
0.46
0.46
0.46
0.46
Menu 200
96.90
200
0.42
0.42
0.42
0.42
0.42
0.42
Menu 400
163.90
400
0.40
0.40
0.40
0.40
0.40
0.40
Menu 1000
328.90
1000
0.35
0.35
0.35
0.35
0.35
0.35
Menu
200 Family
(6)
113.06
200
0.42
0.42
0.42
0.42
0.42
0.42
Empresarial
(4)
30.45
—
0.35
0.35
0.87
0.35
0.35
0.87
Empresarial ++
(7)
18.41
—
0.42
0.42
0.42
0.42
0.42
0.42
Zero Rate
87.34
—
0.42
0.42
0.42
0.42
0.42
0.42
Business 200
(6)
113.06
200
0.42
0.42
0.42
0.42
0.42
0.42
Pronto Tempo Livre
(5)
0.00
—
0.91
0.91
1.53
0.60
0.60
0.60
Pronto Tempo Todo
0.00
—
0.91
0.91
0.91
0.91
0.91
0.91
Pronto T
R$0.00
—
R$0.91
R$0.91
R$0.91
R$0.91
R$0.91
R$0.91
(1)
Number of free VC1 and VC2 minutes after payment of monthly subscription
fee.
(2)
A 30% surcharge applies to calls from one cellular phone to another.
(3)
The rate for calls made to non-customers is R$ 0.26.
(4)
Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier's network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$0.36. The rate
is R$0.54 for calls using another carrier's network. During off peak
hours the rate for VC1 and VC2 calls to a fixed line is R$0.36. The rate
is R$0.54 for calls using another carrier's network.
(5)
Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier's network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$1.53. The rate
is also R$1.53 for calls using another carrier's network. During off peak
hours all calls under this plan are R$0.60.
(6)
Minutes may be shared among groups of up to four lines.
(7)
Packages of VC1 minutes and combinations of VC1 and VC2 minutes are
available.
31
Table of Contents
Telesc Celular and CTMR Celular
On December 31, 2002
Free
Peak Hours Rates
(2)
Off-Peak Hours Rates
(2)
Monthly
Minutes
Plans
Charge
of Use
(1)
VC1
VC2
VC3
VC1
VC2
VC3
TIM Basic
R$30.90
—
R$0.49
R$0.89
R$0.99
R$0.34
R$0.62
R$0.69
TIM Noite e Lazer
(3)
20.90
—
0.99
1.29
1.39
0.21
0.49
0.60
T Voce (Bundled for VC1)
19.43
10
0.69
0.69
0.89
0.69
0.69
0.89
Menu 30
38.90
30
0.49
0.49
0.89
0.49
0.49
0.89
Menu 50
46.90
50
0.47
0.47
0.89
0.47
0.47
0.89
Menu 100
61.90
100
0.45
0.45
0.45
0.45
0.45
0.45
Menu 200
93.90
200
0.41
0.41
0.41
0.41
0.41
0.41
Menu 400
159.90
400
0.39
0.39
0.39
0.39
0.39
0.39
Menu1000
319.90
1000
0.34
0.34
0.34
0.34
0.34
0.34
Menu 200 Family
(6)
109.90
200
0.41
0.41
0.41
0.41
0.41
0.41
Empresarial
(4)
29.60
—
0.34
0.34
0.85
0.34
0.34
0.85
Empresarial++
(7)
17.90
—
0.41
0.41
0.41
0.41
0.41
0.41
Zero Rate
84.90
—
0.41
0.41
0.41
0.41
0.41
0.41
Business 200
(6)
109.90
200
0.41
0.41
0.41
0.41
0.41
0.41
Pronto Tempo Livre
(5)
0.00
—
0.89
0.89
1.49
0.59
0.59
0.59
Pronto Tempo Todo
0.00
—
0.89
0.89
0.89
0.89
0.89
0.89
Pronto T
R$0.00
—
R$0.89
R$0.89
R$0.89
R$0.89
R$0.89
R$0.89
(1)
Number of free VC1 minutes of use after payment of monthly subscription
fee.
(2)
A 30% surcharge applies to calls from one cellular phone to another.
(3)
For VC1 off peak calls using another carrier's network the rate is
R$0.26.
(4)
Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier's network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$0.35. The rate
is R$0.53 for calls using another carrier's network. During off peak
hours the rate for VC1 and VC2 calls to a fixed line is R$0.35. The rate
is R$0.53 for calls using another carrier's network.
(5)
Rates vary depending on whether the service is rendered for a call to a
fixed line or for a call using another carrier's network. During peak
hours, the rate for VC1 and VC2 calls to a fixed line is R$1.49. The rate
is also R$1.49 for calls using another carrier's network. During off peak
hours, all calls under this plan are R$0.59.
(6)
Minutes may be shared among groups of up to four lines.
(7)
Packages of VC1 minutes and combinations of VC1 and VC2 minutes are
available.
32
Table of Contents
The following table sets forth the surcharge rates applicable to Incoming
Calls for some of our service plans on December 31, 2002, in nominal
reais
,
including value-added and other taxes.
Telepar Celular
On December 31, 2002
Peak Rates
(1)
Off-Peak Rates
(1)
Plans
DSL1
DSL2
AD1
(1)
DSL1
DSL2
AD1
(1)
TIM Basic
R$0.46
R$0.56
R$0.92
R$0.32
R$0.39
R$0.92
TIM Noite e Lazer
0.58
0.66
1.01
0.40
0.46
1.01
T Voce (Bundled for VC1)
0.70
1.01
0.70
0.70
1.01
0.70
Menu 30
0.00
0.80
0.00
0.00
0.80
0.00
Menu 50
0.00
0.80
0.00
0.00
0.80
0.00
Menu 100
0.00
0.80
0.00
0.00
0.80
0.00
Menu 200
0.00
0.80
0.00
0.00
0.80
0.00
Menu 400
0.00
0.80
0.00
0.00
0.80
0.00
Menu 200 Family
(2)
0.00
0.80
0.00
0.00
0.80
0.00
Empresarial
0.00
0.50
0.64
0.40
0.50
0.64
Empresarial ++
(3)
0.40
0.74
0.00
0.00
0.74
0.00
Zero Rate
0.00
0.80
0.00
0.00
0.80
0.00
Business 200
(2)
0.00
0.80
0.00
0.00
0.80
0.00
Pronto Tempo Livre
0.00
0.91
0.00
0.00
0.91
0.00
Pronto Tempo Todo
0.00
0.91
0.00
0.00
0.91
0.00
Pronto T
R$0.00
R$0.91
R$0.00
R$0.00
R$0.91
R$0.00
(1)
A 30% surcharge applies to calls from one cellular
phone to another for amounts within the Holding Company area.
If the client is not within the Holding Company area, the
amount will be the one charged by the operator of such area.
(2)
Minutes may be shared among groups of up to four
accesses.
(3)
Availability of packages with franchises of VC-1
minutes.
33
Table of Contents
Telesc Celular and CTMR Celular
On December 31, 2002
Peak Rates
(1)
Off-Peak Rates
(1)
Plans
DSL1
DSL2
AD1
(1)
DSL1
DSL2
AD1
(1)
TIM Basic
R$0.45
R$0.55
R$0.89
R$0.32
R$0.38
R$0.89
TIM Noite e Lazer
0.57
0.65
0.99
0.39
0.45
0.99
T Voce (Bundled for VC1)
0.69
0.99
0.69
0.69
0.99
0.69
Menu 30
0.00
0.78
0.00
0.00
0.78
0.00
Menu 50
0.00
0.78
0.00
0.00
0.78
0.00
Menu 100
0.00
0.78
0.00
0.00
0.78
0.00
Menu 200
0.00
0.78
0.00
0.00
0.78
0.00
Menu 400
0.00
0.78
0.00
0.00
0.78
0.00
Menu 200 Family
(2)
0.00
0.78
0.00
0.00
0.78
0.00
Empresarial
0.39
0.49
0.63
0.39
0.49
0.63
Empresarial ++
(3)
0.00
0.72
0.00
0.00
0.72
0.00
Zero Rate
0.00
0.78
0.00
0.00
0.78
0.00
Business 200
(2)
0.00
0.78
0.00
0.00
0.78
0.00
Pronto Tempo Livre
0.00
0.89
0.00
0.00
0.89
0.00
Pronto Tempo Todo
0.00
0.89
0.00
0.00
0.89
0.00
Pronto T
R$0.00
R$0.89
R$0.00
R$0.00
R$0.89
R$0.00
(1)
A 30% surcharge applies to calls from one cellular phone to
another for amounts within the Holding Company area. If the client
is not within the Holding Company area, the amount will be the one
charged by the operator of such area.
(2)
Minutes may be shared among groups of up to four accesses.
(3)
Availability of packages with franchises of VC1 minutes.
Roaming Fees.
We receive revenue pursuant to roaming agreements with
other cellular telecommunications service providers. When a call is made from
within the Region by a customer of a cellular service provider that operates
outside the Region, that service provider pays us for the call at the
applicable rate under the TIM Basic plan.
Similarly, when a customer makes a cellular call outside the Region, we
must pay the charges associated with that call to the cellular communication
service provider in whose region the call originates. See "—Roaming
Agreements."
Prepaid Service Fees.
Beginning April 1999, we started offering customers
pre-paid cellular telecommunications services. This pre-paid service is
offered through our Pronto plans, through which our customers acquire calling
cards that allow a certain number of call minutes. Our customers may purchase
the calling cards at various points of sale throughout our Region, such as
banks, grocery stores and gas stations. We estimate that these points of sale
numbered approximately 16,000 on December 31, 2002.
Interconnection Charges
We charge fixed-line and other cellular service providers for completion
on our network of calls originating on their network. We charge the
telecommunications service provider from whose network the call originates an
interconnection charge for every minute our network is used in connection with
such call. See "—Interconnection Agreements."
On January 1, 1999, the interconnection rate in effect was R$0.18 per
minute. On October 7, 1999, Anatel authorized a 15.47% increase in the
interconnection rate, to R$0.2078 per minute, net of taxes. On October 19,
2000, Anatel authorized a 22.81% increase in the interconnection rate, to
R$0.2552 per minute, net of taxes. On February 28, 2002, Anatel authorized a
10.6% increase in the interconnection rate, to R$0.2823 per minute, net of
taxes. On February 6, 2003, Anatel authorized a 21.96% increase in the
interconnection rate, to R$ 0.3443 per minute, net of taxes.
34
Table of Contents
WAP Services Charges
Beginning in 2001, we started providing Wireless Access Protocol services
to our customers. Using the Wireless Access Protocol, customers are able to
access the Internet. We are not currently charging a monthly fee for this
service.
Other Special Services
Other special services we offer include short messaging services, voice
mail, call waiting, call forwarding and conference calling services, among
others. We have entered into agreements with our competitors related to our
short messaging services. As a result of these agreements, beginning December
2001, clients were able to receive and send short messages throughout Brazil.
Sales of Cellular Handsets
We started selling digital cellular handsets in February 1999, both
directly and through its dealer network. During a certain period in 1999, we
sold cellular handsets at significantly low prices, as a marketing strategy
aimed at:
•
expanding our customer base using the same frequency band; and
•
migrating customers using our analog system to our
digital system, which would enable us to offer new digital system
services and improved service quality.
From May 2000 to August 2001, the sale and distribution of cellular
handsets to our authorized dealers were conducted by a third party. During this
period, we limited our sales of handsets to our 14 proprietary stores.
In August 2001, we resumed the sale of cellular handsets to our authorized
dealers and continued selling cellular handsets through our proprietary stores.
Sales and Marketing
Following the Privatization and the introduction of competition in our
market, we have implemented a number of significant sales and marketing
initiatives, including the introduction of a number of new service plans. We
vary the manner by which we market and promote our services, adopting special
plans and services for particular groups of customers. We also provide
additional support services, such as designating special account managers for
certain customers.
We market our services through a network of stores, including general
retail stores and outlets that offer exclusively our cellular
telecommunications services and ancillary merchandise. Sales of our products
and services are offered by our sales personnel and also by authorized dealers,
who are not our employees. We select our authorized dealers based on a number
of factors, including, but not limited to, the suitability of the premises in
which our services and ancillary merchandise will be offered. By October 1998,
we restructured our point-of-sale network by appointing new authorized dealers
and introducing a uniform commission structure for sales. Under this new
structure, all authorized dealers receive commissions for activating new
cellular service lines and selling additional services. Our personnel and
authorized dealers receive ongoing training and marketing support. We
generally have the ability to terminate contracts with our personnel and
authorized dealers for any reason by giving a written notice of termination.
On December 31, 2002, services were marketed through 917 points of sale, out of
which 12 were operated directly by our sales personnel and 905 through our
authorized dealers. This point of sale network enables us to market our
services and to provide after-sale service throughout the Region.
Anatel regulations require cellular telecommunications companies to
provide service to all individuals requesting their services. Nonetheless, we
can recommend service plans that are suitable to each potential customer's
needs, such as our pre-paid service plan. If a customer fails to make timely
payments, services can be interrupted.
In March 1999, we commenced marketing our cellular telecommunications
services under the brand "TIM," which is also used by Tele Nordeste Celular.
We intend to pay royalties to Telecom Italia Mobile S.p.A. for
35
Table of Contents
the use of the trademark "TIM." The payment of royalties to Telecom
Italia Mobile S.p.A. has already been approved by the shareholders at the time
of each of the Subsidiaries. In addition to the approval by the shareholders
of the Subsidiaries, it is necessary that the shareholders of Tele Celular Sul
approve any payments to be made to TIM with respect to such royalties. This
matter has not been submitted to vote by shareholders of Tele Celular Sul as of
this date. As a consequence, no agreement has been executed with Telecom
Italia Mobile S.p.A. so far, nor have we made any payment or reserved any
amount in this regard.
Customer Service
We operate a Mobile Phone Service Center that enables our customers to
obtain customer service 24 hours a day, seven days a week, by calling "1404," a
toll-free number.
We have one of the most modern customer service centers in Brazil. During
2002, it serviced an average of approximately 45,000 calls per day through two
service facilities: one located in the state of Paraná, with 227 service
positions, and the other in the state of Santa Catarina, with 73 service
positions. Calls may be routed from one unit to another, according to the
level of call traffic or the type of service requested. We believe this system
reduced the average waiting time of, and improved the quality of the
information provided to, our customers and allowed us to provide better
after-sales services.
In 2001, we created a customer relationship center ("CRC"), a pioneering
client service concept, which is the center of our communications with
customers and potential customers. In 2002, CRC telemarketing made over
400,000 proactive contacts. CRC answered over 7 million calls, all of which
represented an opportunity for the sale of products and services.
The Internet is another important channel of communication between us and
our post-paid clients. In 2002, we had over 100,000 online requests for plan
changes, copies of invoices and activation of additional services, including
"follow-me", a call forwarding service; call waiting; conference calling; as
well as timnet.com services.
Billing and Collection
Our billing and collection system, known as Business Support and Control
System, was provided by Communications System Inc. LHS, a German company. This
system has four main functions:
•
customer registration;
•
customer information management;
•
accounts receivable management; and
•
billing and collection.
Our billing system gives us significant flexibility in developing service
plans and billing options and is integrated with our computer systems. Our
billing system is an important tool in the performance of services, assisting
in many areas of our business, including marketing, customer service and credit
management. Pursuant to Brazilian law, customers must receive a
telecommunications service bill at least five days before due. We believe that
we are generally in compliance with this requirement. Currently, if a
customer's payment is more than 15 days overdue, we usually suspend the
customer's ability to make outgoing calls, and if the payment is 45 days
overdue, we discontinue the service entirely.
Fraud Detection and Prevention
We have experienced incidents of "cloning fraud." Cloning fraud consists
of duplicating the cellular signal of a customer's cellular phone, enabling
fraudulent calls to be made using the duplicated signal. These calls are
billed to the customer, but the receivable is written off when we determine
that it resulted from a fraudulent call. If part of a fraudulent call is
carried on the network of another telecommunication service provider, we must
pay that service provider the applicable interconnection fee, regardless of
whether we ever collect the receivable associated with the fraudulent call.
36
Table of Contents
We have implemented fraud-detection and fraud-prevention measures in an
effort to reduce fraud-related losses. Fraud-detection measures involve the
collection and review of call records to detect abnormal calling patterns.
When abnormal calling patterns are found, the customer is contacted by our
fraud-control staff and, if cloning has occurred, the customer's phone number
is changed. Fraud-prevention measures also include restrictions on
international calls from certain phone numbers and restrictions on three-way
calling by customers with international direct-dial access. Additionally, we
have established a credit limit for new customers.
Competition in Region
Currently, there are five different frequency ranges within which cellular
companies and PCS companies may operate in Brazil, as described below.
Band A Companies
The Brazilian territory was initially divided by Anatel into eight
separate cellular service regions ("Band A Regions"), each serviced by one of
the New Holding Companies operating in the cellular telecommunications
business. Such eight New Holding Companies received control of the assets and
liabilities held directly by the Predecessor Companies in connection with their
operations of cellular telecommunications services. The eight New Holding
Companies operating in the cellular telecommunications business were created at
the Breakup of the Telebrás System. Tele Celular Sul is one of such New
Holding Companies.
The New Holding Companies providing cellular service operate within a 25
MHz sub-band within the band of 800 to 850 MHz, and comprise the companies
operating under the Band A ("Band A"), according to concessions granted and
regulations issued by Anatel.
Band B Competition
Under the terms of Law 9,295, of July 19, 1996 (the "Minimum Law"), the
Federal Government granted authorizations to new companies to provide cellular
telecommunications service within a 25 MHz sub-band within the band of 800 to
850 MHz, which is referred to as Band B ("Band B"). Companies operating under
the Band B are distributed throughout ten different regions, which generally
overlap with the Band A Regions. See "—Regulation of the Brazilian
Telecommunications Industry."
States of Paraná and Santa Catarina
. Global Telecom S.A. ("Global
Telecom") provides cellular telecommunications service in the states of Paraná
and Santa Catarina through a Band B authorization. In December 1998, Global
Telecom started providing cellular telecommunications services based on
code-division multiple access technology ("CDMA").
Global Telecom is controlled by Telesp Celular, an operating company that
provides cellular telecommunications services in the state of São Paulo. Telesp
Celular holds 100% of the capital stock of Global Telecom, 76.83% directly and
23.17% indirectly. On November 27, 2002, there was a corporate restructuring
in Global Telecom's group, whereby the shareholders of Telesp Celular
transferred their direct and indirect interests held in Telesp Celular to a
Dutch joint venture named Brasilcel N.V. In early 2003, Portugal Telecom and
Global Telecom announced that they had entered into a joint venture that will
market itself under a single brand, "Vivo." We expect that Vivo will pursue a
national strategy as opposed to one focused just on our Region.
City of Pelotas, Rio Grande do Sul
. Telet S.A. ("Telet") was granted a
Band B authorization to provide cellular telecommunications service in the
state of Rio Grande do Sul, including the city of Pelotas area. It has been
publicly announced that Telet is controlled by: America Movil S.A. Telet
started providing cellular telecommunications service in the city of Pelotas
area in the second half of 1999. Telet uses TDMA technology.
The rights and obligations of Global Telecom and Telet, under their
respective authorizations granted by Anatel, are similar to our rights and
obligations under our authorizations.
PCS Band C Competition
There were no participants in the auctions held in February and August
2001, by Anatel for the sale of the PCS Band C authorizations.
37
Table of Contents
On May 2, 2002, Anatel commenced a new auction with respect to Band C
radio frequencies. This auction was open exclusively to cellular
telecommunications companies and to companies that had previously acquired PCS
authorizations. We have informed Anatel of our intention to acquire the right
to use the Band C radio frequencies, but Anatel had not made a decision as of
May 2003.
PCS Band D Competition
In February 2001 and in October 2002, Anatel held auctions for PCS Band D
authorizations.
States of Paraná and Santa Catarina
. In October 2002, Telecom Américas
("Telecom Américas"), a company organized according to the laws of the
Federative Republic of Brazil, and controlled by América Móvil acquired a PCS
Band D authorization covering the states of Paraná and Santa Catarina. Telecom
Américas is expected to begin offering services at the end of 2003 or the
beginning of 2004, and is expected to compete aggressively within our Region.
State of Rio Grande do Sul.
As of March 31, 2003 there were no bidders
for the PCS Band D authorization in the cities of Pelotas, Turuçu, Capão do
Leão and Morro Redondo in the state of Rio Grande do Sul within the Region.
PCS Band E Competition
In March 2001 and October 2002, Anatel held auctions for PCS Band E
authorizations.
States of Paraná, Santa Catarina and Rio Grande do Sul
. Group Brasil
Telecom ("Brasil Telecom"), a company organized according to the laws of the
Federative Republic of Brazil, acquired a PCS Band E authorization covering the
states of Paraná and Santa Catarina and a PCS Band E authorization covering the
state of Rio Grande do Sul.
Other Competition
We also compete with fixed-line phone service providers operating in the
Region. Certain customers might shift to fixed-line service providers for a
number of reasons, including lower prices. On September 24, 1999, the
Brazilian government authorized Global Village Telecom Ltda., a corporation
organized according to the laws of Brazil, to provide fixed-line
telecommunications service in competition with Brasil Telecom, the public
service fixed-line telephone service provider operating in an area that
includes our Region. Global Village Telecom Ltda. provides fixed-line
telecommunications services using Wireless Local Loop ("WLL") technology, which
permits access to fixed-line operators' switching centers through radio base
stations, operating in a frequency similar to those of cellular service
providers. This technology enables WLL service providers to reach places where
there is no conventional cable network.
On April 27, 2000, Anatel issued Resolution No. 221/00, regulating
Specialized Mobile Service ("Trunking"), with rules similar to the ones
applicable to the cellular telecommunications services. Trunking service
providers are not permitted to offer their services to individuals, competing
with us exclusively in the corporate segment of our market. Nextel S.A., a
company organized according to the laws of the Federative Republic of Brazil,
provides Trunking services in the city of São Paulo, and in 2001, started
providing Trunking services in the city of Curitiba, in the state of Paraná.
We compete, to a limited extent, with certain other wireless
telecommunications services, such as mobile radio, paging and beeper services,
which are widely used in Brazil. These competing wireless telecommunications
services are generally less expensive than cellular telecommunications
services.
The Holding Company and the Subsidiaries
Substantially all assets held by Tele Celular Sul consist of shares of
Telepar Celular. We rely almost exclusively on dividends from Telepar Celular
to meet our needs for cash, including to pay dividends to Tele Celular Sul
shareholders.
38
Table of Contents
We restructured the Subsidiaries in November 2002. The restructuring was
carried out by exchanging the shares of Telesc Celular and CTMR Celular for
shares of Telepar Celular, resulting in a capital increase for Telepar Celular,
while both Telesc Celular and CTMR Celular became wholly-owned subsidiaries of
Telepar Celular, instead of direct subsidiaries of the Holding Company. As a
result of this third step, Telesc Celular's and CTMR Celular's shareholders
became shareholders of a larger company with shares that are more liquid on the
Bovespa. On November 23, 2002, the shareholders of each of Telesc Celular and
CTMR Celular approved swap ratios for shares of Telesc Celular and CTMR Celular
based on the economic values assigned to them in reports generated by
an independent appraisal company plus a premium of 19%. The
resulting exchange ratios were 4.0015946198 shares of Telesc Celular per share
of Telepar Celular and 1.1473256922 shares of CTMR Celular per share of Telepar
Celular. On April 30, 2003, our Board of Directors approved the hiring of
consultants to explore the feasibility and desirability of merging Telesc
Celular and CTMR Celular into Telepar Celular. The following chart sets forth
our ownership structure as of April 30, 2003, after we restructured the
Subsidiaries:
Original Structure
New Structure
39
Table of Contents
The following table sets forth the contribution made by the Subsidiaries
to our consolidated net operating revenues and consolidated net income for the
year ended December 31, 2002.
Contribution of each Subsidiary to
Our 2002 Consolidated Results
Percentage of our
Net Operating
Percentage of
Company
Revenues
our Net Income
(1)
Telepar Celular
52.7
%
(1.6
)%
Telesc Celular
45.4
%
103.5
%
CTMR Celular
1.9
%
(1.9
)%
(1)
Percentage of net income, excluding the effect of
net revenues among the companies, which are eliminated upon
consolidation, divided by the consolidated net income.
Property, Plants and Equipment
Our principal properties consist of switching equipment, which connect
calls to and from customers, and radio base stations, which comprise certain
signal transmission and reception equipment covering a defined area. On the
sites of our radio base stations, we have also installed antennas and certain
equipment to connect these antennas with our switching equipment. On December
31, 2002, we had 14 large cellular switches and 795 radio base stations within
our Region.
We generally lease or buy the sites where our cellular telecommunications
network equipment is installed. On December 31, 2002, our Subsidiaries owned
approximately 141,464 square meters and leased about 25,480 square meters, all
of which were available for installation of our equipment. Most of our leasing
contracts expire in 2002 and 2004, and may be renewed.
We also lease 25,480 square meters and own about 2,683 square meters of
office space in the cities of Curitiba, Florianópolis and Pelotas, where we
conduct the majority of our management activities. These leasing contracts also
generally expire in 2002 to 2004 and may be renewed.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Critical Accounting Policies
Critical accounting policies are those that are both important to the
portrayal of our financial condition and results and require management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. As
the number of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgments become more complex.
We base our estimates and assumptions on historical experience, industry
trends or other factors that we believe to be reasonable under the
circumstances. Actual results may vary from what we anticipate and different
assumptions or estimates about the future could change our reported financial
results. In order to provide an understanding about how our management has
estimated the potential impact of certain uncertainties, including the
variables and assumptions underlying the estimates, we have identified the
critical accounting policies discussed below. We describe our significant
accounting policies, including the ones discussed below, in Note 3 to our
Consolidated Financial Statements.
Depreciation
Property, plant and equipment is stated at cost of acquisition or
construction. Depreciation is calculated using the straight-line method based
on the estimated useful lives of the underlying assets. See Notes 3.f and 12
to our Consolidated Financial Statements. We currently depreciate automatic
switching, transmission and other equipment based on an estimated useful life
of seven years. We disclose changes in the in the estimated useful lives of
underlying assets with a significant impact on our financial statements. Our
estimates of the useful lives of assets
could change in response to various factors, including the introduction of
new technologies, such as GSM; however, no such changes have occurred during
the three years ending December 31, 2002.
40
Table of Contents
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of customers to make required payments. The
provision for doubtful accounts for 2002 was based on the following estimates
of percentages of receivables, classified by the number of days such
receivables are overdue, that it projected to be uncollectible. These
estimates were based on historical experience of write-offs and future
expectations of conditions that might impact the collectibility of accounts.
See Note 3.c to our Consolidated Financial Statements. The amount of the loss,
if any, that we actually experience with respect to these accounts may differ
from the amount of the allowance maintained in connection with them.
Percentage
estimated to be
uncollectible
Receivables overdue 60 to 89 days
50.0
%
Receivables overdue 90 to 119 days
80.0
%
Receivables overdue 120 to 179 days
90.0
%
Receivables overdue more than 180 days
100.0
%
Contingent Liabilities
The accrual for a contingency involves considerable judgment on the part
of management. As prescribed by SFAS 5, "Accounting for Contingencies," a
contingency is "an existing condition, situation, or set of circumstances
involving uncertainty as to possible gain or loss to an enterprise that will
ultimately be resolved when one or more future events occur or fail to occur."
We are subject to various claims, legal and labor proceedings covering a
wide range of matters that arise in the ordinary course of business activities.
We adopted a policy of analyzing each such proceeding and making a judgment as
to whether a loss in relation to such proceeding is probable, possible or
remote. We make accruals for legal proceedings that we are party to when we
determine the losses are probable and can be reasonably estimated. Our
judgment is ordinarily based on the opinion of our internal and external legal
advisors. Accrual balances are adjusted to account for changes in
circumstances for ongoing matters and the establishment of additional accruals
for new matters. While we believe that the current level of accruals is
adequate, changes in the future could impact these determinations.
Impairment of Long-lived Assets
We review our long-lived assets, such as the Goodwill, for impairment
whenever events or circumstances indicate the carrying value of an asset may
not be recoverable from estimated future cash flows expected to result from its
use and eventual disposition.
However, asset impairment evaluations are, by nature, highly subjective.
If our projections are not met, we may have to record impairment charges not
previously recognized. In analyzing potential impairments, we use projections
based on our views of growth rates for our business, anticipated future
economic, regulatory and political conditions. See Notes 3.f and 12 to our
Consolidated Financial Statements.
Revenue Recognition and Customer Incentive Programs
Revenues are recorded when services are rendered and customer incentives,
including promotions to increase our customer base, are provided. As a result
of our billing cycle cut-off times, we are required to make estimates for
services revenue earned but not yet billed. These estimates, which are based
primarily upon historical minutes of use processed, could differ from our
actual experience. See Note 3.m to our Consolidated Financial Statements.
41
Table of Contents
Trend Information
Increased Competition
Our results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1998. As a result, we are facing greater competition. Our strongest
competition has been from Global Telecom. In early 2003, Portugal Telecom and
Global Telecom announced that they had entered into a joint venture that will
market itself under a single brand, "Vivo." In particular, we expect to face
greater competition from Brasil Telecom and Telecom Américas when they begin
operations in our region. We anticipate that Brasil Telecom and Telecom
Américas will begin their operations either during the fourth quarter of 2003
or the first quarter of 2004. Technological changes in the telecommunications
field, such as the development of GSM and mobile satellite services, are
expected to introduce additional sources of competition. The introduction of
competition into the industry has pushed us to adjust our marketing strategies.
Our market share for the entire concession area decreased from 64% on March
31, 2002 to 60% on March 31, 2003. In the future, we also may incur higher
advertising costs and experience greater competitive pressure on handset sales.
Increased Depreciation
As a part of our plan to implement a GSM system overlay, we expect to make
increased capital expenditures for the necessary telecommunications equipment.
As a result of these planned capital expenditures for this equipment, we expect
to record greater depreciation expense.
Cellular Telephone Sales
We started selling digital cellular telephones in December 1998, both
directly and through our dealer network. Our management believes that, while
sales of cellular telephones may be, from time to time, a significant source of
revenue, they are unlikely to become a significant source of income. See
"—Results of Operations for the years ended December 31, 2000, 2001 and
2002—Statement of Income—Operating Revenues—Sales of Cellular Handsets."
Operating Results
The following discussion should be read in conjunction with our
Consolidated Financial Statements and the notes thereto, which are included
elsewhere in this annual report. Certain important features of the
presentation of our Consolidated Financial Statements are described in "Key
Information — Selected Financial Data."
Brazilian Corporate Law Accounting Method and U.S. GAAP
Our Consolidated Financial Statements are prepared in accordance with the
Brazilian Corporate Law accounting method, which differs in certain material
respects from U.S. GAAP. See Note 31 to our Consolidated Financial Statements
for a summary of the differences between the Brazilian Corporate Law accounting
method and U.S. GAAP, as well as a reconciliation of our shareholders' equity
as of December 31, 2001 and 2002, and net income for the years ended December
31, 2000, 2001 and 2002 to U.S. GAAP. Net income for 2002 is R$88.0 million
under U.S. GAAP, compared with net income of R$65.8 million under the Corporate
Law Method. Shareholders' equity at December 31, 2002 was R$849.3 million
under U.S. GAAP, compared to R$845.3 million under the Corporate Law Method.
The differences between the Corporate Law Method and U.S. GAAP that have
the most significant effects on net income are differences in the valuation
allowance on social contribution, the rules regarding depreciation and
amortization of the effect of indexation of property, plant and equipment and
the adoption of a new accounting method for derivative instruments and hedging
activities. The differences between the Corporate Law Method and U.S. GAAP
that have the most significant effects on shareholders' equity are the rules
regarding indexation of property, plants and equipment, the treatment of a
provision for losses on our pension plan, the adoption of a new accounting
method for derivative instruments and hedging activities and the treatment of
capitalized interest.
42
Table of Contents
Results of Operations for the Years Ended December 31, 2000, 2001 and 2002
Statement of Income
The following table sets forth certain components of our statement of
income for each year in the three-year period ended December 31, 2002, as well
as the percentage change from year to year.
Statement of Income Data:
Brazilian Corporate Law
Year ended December 31, 2002
Year over year
2000
2001
2002
2000-2001
2001-2002
(thousands of
reais
)
Percentage Changes
Net operating revenue
R$716,887
R$791,429
R$891,264
10.4
%
12.6
%
Cost of services
(364,468
)
(406,033
)
(486,383
)
11.4
19.8
Gross profit
352,419
385,396
404,881
9.4
5.1
Operating expenses:
Selling expenses
(201,150
)
(181,424
)
(185,446
)
(9.8
)
2.2
General and administrative expenses
(76,300
)
(71,909
)
(83,346
)
(5.8
)
15.9
Other operating income (expense)
(14,522
)
(15,584
)
(14,902
)
7.3
(4.4
)
Equity Investment
—
(1,888
)
(4,288
)
—
127.1
Total operating expenses
(291,972
)
(270,805
)
(287,982
)
(7.2
)
6.3
Operating income before interest
60,447
114,591
116,899
89.6
2.0
Net financial income (expense)
(57,904
)
(44,405
)
(18,959
)
(23.3
)
(57.3
)
Net non-operating income (expense)
3,507
10
(127
)
(99.7
)
—
Income before taxes and minority interests
6,050
70,196
97,813
1,060.3
39.3
Income and social contribution tax
benefit (expense)
6,320
672
(19,473
)
(89.4
)
—
Minority interest benefit (expense)
2,998
(10,979
)
(12,566
)
—
14.5
Net income
R$15,368
R$59,889
R$65,774
289.7
%
9.8
%
43
Table of Contents
Operating Revenues
The following table sets forth certain components of our operating
revenues for each year in the three-year period ended December 31, 2002, as
well as the percentage change from year to year.
Statement of Income
Data:
Brazilian Corporate Law
Year ended December 31,
Year over year
2000
2001
2002
2000-2001
2001-2002
(thousands of
reais
)
Percentage Changes
Usage charges
R$408,722
R$447,071
R$409,766
9.4
%
(8.3
)%
Monthly subscription charges
182,075
178,275
197,307
(2.1
)
10.7
Interconnection charges
246,394
306,811
341,496
24.5
11.3
Other service revenues
3,247
8,163
22,500
151.4
175.6
Gross service revenue
840,438
940,320
971,069
11.9
3.3
Value-added and other indirect
taxes on services
(134,029
)
(172,890
)
(194,131
)
29.0
12.3
Discounts on services
(17,900
)
(67,075
)
(27,937
)
274.7
58.4
Net operating revenues from services
688,509
700,355
749,001
1.7
6.9
Sales of cellular handsets and
accessories
85,644
116,026
174,879
35.5
50.7
Value-added and other indirect
taxes on handset sales
(54,400
)
(14,288
)
(20,592
)
(73.7
)
44.1
Discounts on handset sales
(2,866
)
(10,664
)
(12,024
)
272.1
12.8
Net operating revenues from
sales of cellular handsets
and accessories
28,378
91,074
142,263
220.9
56.2
Total net operating revenues
R$716,887
R$791,429
R$891,264
10.4
%
12.6
%
Our net operating revenues increased 12.6% to R$891.3 million in 2002,
after increasing by 10.4% to R$791.4 million in 2001. The growth in revenues
over the three-year period was driven principally by the expansion of our
client base and the growth of handset sales.
In 2002, our average number of customers, calculated as the simple mean of
monthly averages, increased 10.2% to 1,663,786 customers in 2002, compared to
1,510,198 customers in 2001, which represented an increase of 23.2% from
1,255,375 customers in 2000. Our average number of customers using pre-paid
services in 2002 was 1,106,682, representing a 33.6% increase from 828,663 in
2001, which in turn represented an increase of 76.7% from 469,049 in 2000. We
started offering pre-paid services in April 1999.
Average monthly revenue per customer decreased 2.6% to R$38 in 2002,
compared to R$39 in 2001, a decrease of 13.3% from 2000, when the average was
R$45. The decrease throughout the three-year period resulted principally from:
•
the increase in the number of customers using our
pre-paid plans, which provides us lower average revenue per
customer; and
•
in 2002, a revision in our post-paid plans, which
provided us lower average usage charge revenues per post-paid
plan customer, partially offset by higher average monthly
subscription charge revenues per post-paid plan customer.
Usage charges
Revenues from usage charges decreased to R$409.8 million in 2002, an 8.3%
decrease compared to R$447.1 million in 2001, which represented a 9.4% increase
from R$408.7 million in 2000. The decrease in 2002
44
Table of Contents
was due mainly to the migration of customers to our new service plans with
a higher number of free minutes per plan, thus lowering the amount of usage
minutes. The increases in 2001 and 2000 were due mainly to the expansion of
our average client base of 23.2% and 47.8% in 2001 and 2000, respectively, and
increases in our rates, by an average of 5.6% and 5.9% in 2001 and 2000,
respectively.
The volume of outgoing minutes used by our customers in 2002 was 766.7
million minutes, representing a 15.4% decrease from 906.1 million minutes in
2001, which represented a 13.0% increase from 801.8 million minutes in 2000.
In 2002, we had 1,191.9 million incoming minutes, representing a 1.2% increase
from 1,177.9 million minutes in 2001, which in turn represented a 5.1% increase
from 1,120.5 million minutes in 2000.
Over the three-year period ending December 31, 2002, we had a decrease in
the total average monthly minutes of billed use per customer ("MOU").
The following table presents the MOU of our network, for the years
indicated:
Year Ended December 31,
2000
2001
2002
Average incoming MOU during the year (1)
76.2
65.0
59.7
Average outgoing MOU during the year (1)
54.5
50.0
38.4
Average total MOU during the year (1)
130.8
115.0
98.1
(1)
Calculated based on monthly averages, including
free MOU in connection with the following service plans:
TIM 30, TIM 50, TIM 100, and TIM 200.
We believe the decrease in the average MOU during the three-year period
ending December 31, 2002 was mainly due to the increase in the number of
customers served through our pre-paid plans. Customers using our pre-paid
plans have a lower average MOU than customers using our post-paid plans, who in
comparison with customers using pre-paid plans, show a higher average MOU over
the same period of time. We believe that the higher usage levels by customers
using post-paid plans results from customer loyalty programs, segmented
customer retention policies, the launching of new service plans and
improvements in TIM Business, a unit that specializes in the development of
communications solutions for corporate customers.
Monthly subscription charges
Revenues from monthly subscription charges increased 10.7% in 2002 to
R$197.3 million, compared to R$178.3 million in 2001, which amounted to a
decrease of 2.1% from R$182.1 million in 2000. The increase in revenues
derived from monthly subscription charges in 2002 was principally due to the
launch of a new group of service plans, each of which included a monthly
subscription charge, as well as an average 7.8% rate increase which took effect
in February 2002. The decrease in 2001 was principally due to the number of
customers switching to pre-paid plans, for which we do not charge monthly
subscription fees.
Year ended December 31,
2000
2001
2002
Average number of customers using post-paid plans(1)
756,326
681,535
1,106,682
Average number of customers using pre-paid plans(1)
469,049
828,663
557,104
Total number of customers(1)
1,225,375
1,510,198
1,663,786
(1)
Average numbers are based on the number of customers at the end of each
month during the relevant year.
Interconnection Charges
Interconnection revenues increased 11.3% to R$341.5 million in 2002 from
R$306.8 million in 2001, which in turn represented a 24.5% increase from
R$246.4 million in 2000. The increase during this three-year period was mainly
caused by:
45
Table of Contents
•
increases in our customer base; and
•
increases in interconnection fees.
Other Service Revenues
Revenues from other services principally include revenues from value added
services, including short-message services ("SMS"); timnet services such as
information services, ring tone services and SMS chat services; Internet
services; conference calling; account transfers; changing numbers; call
forwarding; call waiting; call blocking; and voicemail services that exceed the
customer's monthly limit for free service. Revenues from other services
increased 175.6% to R$22.5 million in 2002 from R$8.2 million in 2001, which in
turn represented a 151.4% increase from R$3.2 million in 2000. The increase
over the three year period was mainly caused by the growth of value added
services. We registered 52 million SMS messages in 2002, compared to 10
million messages in 2001. In addition, we pioneered the launch of SMS
interconnection services with competitors in the Brazilian market in 2002.
Sales of Cellular Handsets and Accessories
Sales of cellular handsets in 2002 increased 50.7% to R$174.9 million from
R$116.0 million in 2001, which in turn represented an increase of 35.5% from
R$85.6 million in 2000. From May 2000 until August 2001, we did not sell
cellular handsets to our authorized dealers. During this period, such sales
were made by a third-party, and we did not receive revenues in connection with
such sales. Beginning in August 2001, we resumed selling directly to our
authorized dealers in order to ensure quality in the supply of handsets and
because dealers preferred to deal directly with us. The increase in sales of
cellular handsets in 2002 was due principally to the full-year effect of the
restarted direct sales to our authorized dealers. The increase in 2001 was due
principally to handset sales resuming in 2001 during a period with higher
seasonal sales activity than the period during which handsets were sold in
2000.
Discounts
We treat discounts in the form of free minutes and discounts on handset
sales as deductions from gross revenue. Discounts amounted to R$40.0 million
in 2002, representing a 48.5% decrease from R$77.7 million in 2001, which
represented an increase of 274.4% from R$20.8 million in 2000. The decrease in
discounts provided to customers in 2002 resulted mainly from a reduction of
competitive pressure to offer discounts during the year. The increase in
discounts provided to customers in 2001 resulted mainly from marketing
strategies implemented in order to attract new customers as well as retain
existing customers.
46
Table of Contents
Our Costs
The following table sets forth the composition of costs of services and
sales of cellular handsets for each year in the three-year period ended
December 31, 2002, as well as the percentage change from year to year:
Statement of Income Data:
Brazilian Corporate Law
Year ended December 31,
Year over year
2000
2001
2002
2000
2002
(in thousands of
reais
)
Percentage Changes
Depreciation and amortization
R$128,341
R$150,121
R$164,362
17.0
%
9.5
%
Personnel
10,865
8,724
8,965
(19.7
)
2.8
Interconnection
62,199
80,187
90,066
28.9
12.3
Leased lines and radio sites
43,548
41,574
43,147
(4.5
)
3.8
Third party services and
materials
16,011
12,365
17,392
(22.8
)
40.7
Other costs of services
574
1,139
1,254
98.4
10.1
Total cost of services
261,538
294,110
325,186
12.5
10.6
Costs of handsets and
accessories sold
102,930
111,923
161,197
8.7
44.0
Total costs of services and
handset sales
R$364,468
R$406,033
R$486,383
11.4
%
19.8
%
Depreciation and amortization
Depreciation and amortization expenses increased 9.5% to R$164.4 million
in 2002, compared to R$150.1 million in 2001, which in turn represented an
increase of 17.0% from R$128.3 million in 2000. The increases throughout the
three-year period resulted mainly from increases in the amount of our
depreciable assets, as a result of investments made relating to the expansion
and modernization of our network.
We completed the replacement of base stations operating under analog
technology with base stations operating under digital technology throughout the
network during 2000. By the end of 2000, our network had 711 radio base
stations, all of which were digital. During 2001 and 2002, we increased the
number of our base stations from 754 to 795, all operating under digital
technology. See Notes 3.f and 12 to our Consolidated Financial Statements.
Personnel
Personnel costs increased 2.8% to R$9.0 million in 2002 from R$8.7 million
in 2001, which represented a 19.7% decrease from R$10.9 million in 2000. The
increase in 2002 compared to 2001 was mainly due to a salary adjustment in
accordance with a December 2001 collective-bargaining agreement with our labor
union. The decrease in 2001 compared to 2000 was mainly due to a decrease in
the number of employees.
Interconnection
Our interconnection costs are paid to fixed-line and other cellular
service providers for completion on their networks of calls originating on our
network. Interconnection costs increased 12.3% to R$90.1 million in 2002 from
R$80.2 million in 2001, which in turn represented a 28.9% increase from R$62.2
million in 2000.
The increase in the three-year period ending December 31, 2002 resulted
principally from the increase in the size of our customer base, which led to a
higher volume of calls originating from our network and completed on the
networks of other telecommunications service providers.
Leased lines and radio sites
Leased-line and radio site costs represent lease payments to Brasil
Telecom and Embratel for use of circuits interconnecting our base stations to
our switching centers and to their fixed network. Such leased line costs
increased 3.8% to R$43.1 million in 2002 from R$41.6 million in 2001, which
represented a 4.5% decrease from R$43.5 million in 2000. The increase in
leased line and radio site costs in 2002 was primarily due to an expansion
47
Table of Contents
of the network, which resulted in a 5.4% increase in the number of radio
base stations. The decrease in 2001 was primarily due to price reductions
negotiated with suppliers to reflect the high volume of circuits and capacity
we use.
Third-party services and materials
Third-party services and materials costs amounted to R$17.4 million in
2002, a 40.7% increase from R$12.4 million in 2001, which in turn reflected a
22.8% decrease from R$16.0 million in 2000. The increase in cost of
third-party services and materials in 2002 resulted principally from the
increase in costs in
reais
of dollar-denominated maintenance agreements as a
result of the devaluation of the
real
during the year and the incurrence for
the first time of maintenance fees for services previously provided under
product warranties. The decrease in 2001 resulted principally from the
reclassification of costs associated with network maintenance from third-party
servicer providers to general and administrative expenses.
Other costs of services
Other costs of services increased 10.1% to R$1.3 million in 2002 from
R$1.1 million in 2001, which in turn represented a 98.4% increase from R$0.6
million in 2000.
Costs of handsets and accessories sold
The cost of cellular handsets and accessories sold in 2002 was R$161.2
million, representing a 44.0% increase from R$111.9 million in 2001, which in
turn represented an increase of 8.7% from R$102.9 million in 2000. From May
2000 to August 2001, we did not sell cellular handsets to authorized dealers
and we significantly decreased our purchase of cellular handsets during the
period. Beginning in August 2001, we resumed direct sales of handsets to our
authorized dealers. The increase in the cost of cellular handsets in 2002 was
due principally to the full-year effect of resumed sales to our authorized
dealers. The increase in 2001 was principally due to sales resuming in 2001
during a period with higher seasonal sales activity than the period during
which handsets were sold in 2000.
Operating Expenses
The following table sets forth our operating expenses, as well as the
percentage change from year to year of each component, for the three-year
period ended December 31, 2002.
Statement of Income Data:
Brazilian Corporate Law
Year ended December 31,
Year over year
2000
2001
2002
2001
2002
(in thousands of
reais
)
Percentage Changes
Operating expenses:
Selling expenses
R$(201,150
)
R$(181,424
)
R$(185,446
)
(9.8
)%
2.2
%
General and administrative expenses
(76,300
)
(71,909
)
(83,346
)
(5.8
)
15.9
Other operating income (expenses),
net
(14,522
)
(15,584
)
(14,902
)
7.3
(4.4
)
Equity investment
—
(1,888
)
(4,288
)
—
127.1
Total operating expenses
R$(291,972
)
R$(270,805
)
R$(287,982
)
(7.2
)%
6.3
%
Our total operating expenses increased 6.3% to R$288.0 million in 2002
from R$270.8 million in 2001, which in turn represented a 7.8% decrease from
R$292.0 million in 2000.
Selling expenses
Selling expenses increased 2.2% to R$185.4 million in 2002 from R$181.4
million in 2001, which in turn represented a 9.8% decrease from R$201.2 million
in 2000. The increase in selling expenses in 2002, compared to 2001, was
mainly due to higher amounts of allowances for doubtful accounts in 2002,
compared to amounts we recorded in 2001, and was partially offset by a decrease
in costs of third-party services resulting from lower advertising costs. The
decrease in 2001, compared to 2000, was mainly due to lower amounts of
allowances for
48
Table of Contents
doubtful accounts in 2001, compared to the amounts we recorded in 2000.
See Note 24 to our Consolidated Financial Statements.
Provisions for doubtful accounts increased 67.8% to R$30.7 million in
2002, from R$18.3 million in 2001, which in turn represented a 68.9% decrease
from R$59.1 million in 2000. The changes over the three year period resulted
principally from our efforts during 2001 to recover past-due accounts,
including strengthening our collections practices and making efforts to reach
settlements on outstanding past-due amounts. As a result, the amount of our
provision (which is recorded in our financial statements net of recoveries)
declined dramatically in 2001 compared to 2000 and was lower than in 2002, when
the amount of the provision was not offset by large recoveries. Provisions for
doubtful accounts were higher in 2000 than in 2001 also because the 2000
provisions were made in respect of sales in 1999 which were more aggressively
pursued than sales in 2000. See Note 5 to our Consolidated Financial
Statements.
General and administrative expenses
General and administrative expenses increased 15.9% to R$83.3 million in
2002 from R$71.9 million in 2001, which in turn represented a 5.8% decrease
from R$76.3 million in 2000. The increase in general and administrative
expenses in 2002 resulted mainly from an increase in information technology
expenses relating to depreciation and amortization of information systems. The
decrease in 2001 compared to 2000 was mainly due to a decrease in costs of
third-party services. In 2002, in accordance with a new CVM rule, we began
classifying employees' profit sharing expense as general and administrative
expense instead of as a separate line item below operating income before
interest. All years prior to 2002 were restated for consistent presentation.
Other Net Operating Expense
We had other net operating expenses of R$14.9 million in 2002 a 4.4%
decrease from R$15.6 million in 2001, which in turn represented a 7.3% decrease
from R$14.5 million in 2000.
In 2002, other net operating expense principally included the amortization
of Goodwill in the amount of R$25.3 million. This expense was partially offset
by income derived from fines in connection with the collection of past-due
accounts, in the amount of R$3.5 million, income from rentals of circuits to
fixed-line providers, in the amount of R$5.6 million, income from the
settlement of an international roaming dispute, in the amount of R$1.2 million,
amounts recovered under an agreement with NEC, in the amount of R$1.2 million,
income in the form of free handsets and accessories from suppliers for market
testing, in the amount of R$1.1 million, a refund of taxes related to
intercompany loans, in the amount of R$0.7 million, and other revenues, in the
amount of R$6.4 million.
In 2001, other net operating expense principally included the amortization
of Goodwill in the amount of R$26.9 million. This expense was partially offset
by income derived from fines in connection with the collection of past-due
accounts, in the amount of R$3.7 million, by income from rentals of circuits to
fixed-line service providers, in the amount of R$5.4 million and by a reversal
of a provision for the reduction to market value of inventories, in the amount
of R$9.0 million.
In 2000, other net operating expense principally included expenses in
connection with the creation of a reserve to adjust our cellular handsets
inventory to market value, in the amount of R$8.3 million, and the amortization
of Goodwill, in the aggregate amount of R$14.3 million. These expenses were
partially offset by income derived from fines in connection with past due
accounts, in the amount of R$4.5 million, and by income from rentals of
circuits to fixed-line service providers, in the amount of R$6.4 million.
Net Financial Income (Expense)
We had net financial expenses of R$19.0 million in 2002, representing a
decrease of 57.3% from R$44.4 million net financial expense in 2001, which in
turn represented a 23.3% decrease from R$57.9 million net financial expense in
2000.
49
Table of Contents
Net financial expenses over the period resulted principally from expenses
in connection with :
•
interest expense in connection with a direct financing
facility with the Export-Import Bank of the United States
("Eximbank");
•
interest expenses in connection with certain loans from
the
Banco Nacional de Desenvolvimento Econômico e Social
("BNDES");
•
interest expenses in connection with debentures we issued; and
•
interest expenses on certain bridge loans we took
during the first three quarters of 2000, before finalizing the
negotiations of our long-term financing agreement with the BNDES
and the issuance of our debentures.
These interest expenses in 2002, 2001 and 2000 were partially offset by
interest income of R$121.3 million, R$45.3 million and R$17.5 million,
respectively. Although we recorded net foreign exchange losses of R$36.7
million, R$17.6 million and R$12.7 million in 2002, 2001 and 2000,
respectively, these losses were completely offset by equal net gains from our
hedging arrangements recorded as interest income.
A substantial portion of our capital expenditures were financed through
loans and financings which had principal amounts outstanding of R$321.1
million, R$334.4 million and R$352.8 million on December 31, 2002, 2001 and
2000, respectively. See "Item 4. Information on the
Company—Capital
Expenditures."
Net non-operating income (expense)
Net non-operating income and expenses consist mainly of gains and losses
on the disposition of fixed assets and write-offs of fixed assets. We had net
non-operating expense of R$127 thousand in 2002, compared to net non-operating
income of R$10 thousand and R$3.5 million in 2001 and 2000 respectively.
Income and social contribution taxes
In 2002, we recorded income and social contribution tax expense in the
amount of R$19.5 million. The income and social contribution tax expense in
2002 was mainly due to the recording of taxable income. We recorded income and
social contribution tax benefit of R$0.7 million and R$6.3 million in 2001 and
2000, respectively. Such gain resulted primarily from timing differences
between book and tax income.
Minority interests
Minority interests reflect the participation of minority shareholders in
the Subsidiaries in the net income or loss of such Subsidiaries, as the case
may be. In November 2002, we restructured the Subsidiaries. As a result of
this restructuring both Telesc Celular and CTMR Celular became wholly-owned
subsidiaries of Telepar Celular, as opposed to direct subsidiaries of the
Holding Company, and Telesc Celular's and CTMR Celular's shareholders became
shareholders of Telepar Celular. Minority interest participation in the net
income of Telepar Celular was R$12.6 million in 2002. Minority interest
participation in the net income of the Subsidiaries was R$11.0 million in 2001.
Minority interest participation in the net loss of the Subsidiaries was R$3.0
million in 2000. See Note 3.r to our Consolidated Financial Statements.
Brazilian Economic Environment
Our business, prospects, financial condition and results of operations are
dependent on general economic conditions in Brazil.
Brazil experienced extremely high rates of inflation and devaluation of
the Brazilian currency for years prior to the implementation of the
Real
Plan
in 1994. Inflation and certain governmental measures to combat inflation have
historically contributed to economic uncertainty in Brazil and to significant
volatility in the Brazilian securities markets. The following tables set forth
rates of inflation in Brazil, as measured by the IGP-M, and the devaluation of
the
real
against the dollar during the periods indicated.
50
Table of Contents
Year ended December 31,
1998
1999
2000
2001
2002
(percentages)
Inflation (IGP-M)
1.7
%
20.1
%
9.9
%
10.3
%
25.3
%
Devaluation (
real
vs. US$)(1)
8.2
48.0
9.3
18.6
52.3
First Quarter of 2003
Jan
Feb
Mar
Apr
(percentages)
Inflation (IGP-M)
2.3
%
2.3
%
1.5
%
0.9
%
Devaluation (real vs. US$)(1)
(0.2
)
1.1
(5.9
)
(13.8
)
(1)
Source:
Central Bank and Fundação Getúlio Vargas.
Liquidity and Capital Resources
Tele Celular Sul's principal assets are the shares of the Subsidiaries.
Tele Celular Sul relies almost exclusively on dividends from the Subsidiaries
to meet its needs for cash, including for the payment of dividends to its
shareholders. Tele Celular Sul controls the payment of dividends by the
Subsidiaries, subject to limitations set forth by Brazilian law.
We expect to fund our capital expenditures and distributions to our
shareholders in 2003 with cash from operating and investing activities. In the
event that cash from such sources were to fall short of our expectations, we
would seek to compensate for such shortfall through a combination of financing
and reduction of both capital expenditures and distributions to shareholders.
Distributions to our shareholders, however, cannot fall below minimum
thresholds required by Brazilian Corporate Law. See "Item 8. Financial
Information Dividend Policy."
Our Sources and Uses of Funds
We generated cash flows from operating activities in the amounts of
R$431.3 million, R$249.6 million and R$195.7 million in 2002, 2001 and 2000,
respectively.
Principal uses of funds during the three-year period ended December 31,
2002, were the purchase of fixed assets, the payment of distributions to our
shareholders and loan repayments. Funds used for the purchase of fixed assets
for the years ended December 2002, 2001 and 2000 totaled R$68.7 million,
R$158.4 million and R$204.3 million, respectively. Dividend payments to Tele
Celular Sul shareholders for the years ended December 31, 2002, 2001 and 2000
totaled R$18.7 million, R$10.2 million and R$11.3 million, respectively. Funds
used for loan payments for the years ended December 31, 2002, 2001 and 2000
totaled, respectively, R$47.6 million, R$36.3 million and R$432.6 million.
Financial Contracts
We and our Subsidiaries are parties to the following material financial
contracts:
•
Credit Agreement, dated as of December 3, 1999, among
Telepar Celular, as borrower, Tele Celular Sul, as guarantor, and
Export-Import Bank of the United States, as lender, in the
principal amount of US$46.1 million. Our payments of principal
and interest under this agreement are subject to currency
exchange rate fluctuations and bear interest at a rate of 7.03%
per annum;
•
Credit Agreement, dated as of December 22, 2000, among
BNDES, Telepar Celular, as borrower, and Tele Celular Sul, as
guarantor, in the principal amount of R$61.1 million. Under this
loan, R$46.4 million of the total principal amount bears interest
at a variable rate of 4% plus the long term interest rate
("TJLP"), which was 10.0% per annum on December 31, 2002. The
remaining
51
Table of Contents
R$14.7 million of principal is adjusted according to a "BNDES
currency basket," consisting mainly of the U.S. dollar. On
December 31, 2002, the outstanding amount under this credit
agreement, including accrued interest, was R$69.4 million; and
•
Indenture for the First Public Issuance of Subordinated
Single-Series Simple Debentures of Telepar Celular, dated as of
November 9, 2000, in the principal amount of R$200.0 million.
The debentures are nonconvertible and bear interest at a variable
rate equal to 102.7% of the inter-bank certificate of deposit
rate ("CDI"), which equaled an average of 19.1% per annum for the
year ended December 31, 2002. The debentures will mature in
October 2003. On December 31, 2002, the amount outstanding under
our debentures was R$210.1 million.
See notes 15 and 16 to our Consolidated Financial Statements for a further
description of such financing agreements. See "—Quantitative and Qualitative
Disclosures about Market Risk," for a discussion regarding our exposure to
foreign currency fluctuations and our hedging activities.
On December 31, 2002, we had R$321.1 million outstanding in loans,
financings and debentures compared to R$334.4 million on December 31, 2001, and
to R$352.8 million on December 31, 2000.
Investments in Fixed Assets
We made capital expenditures totaling R$68.7 million, R$158.4 million, and
R$204.3 million in 2002, 2001 and 2000, respectively. In 2002, capital
expenditures related primarily to:
•
expanding coverage and
•
enhancing information technology.
In 2001 and 2000, capital expenditures related primarily to:
•
expanding network capacity, coverage and digitalization;
•
developing new operational systems to meet customers' demands; and
•
creating the timnet internet portal.
The following table contains a breakdown of our investments in fixed
assets for the fiscal years ended December 31, 2002, 2001 and 2000.
Year ended December 31,
Capital Expenditures Categories
2000
2001
2002
(in millions of
reais
)
Telecommunications equipment
R$122.8
R$83.2
R$34.5
Network construction
20.7
20.2
1.4
Information technology
36.7
25.9
22.2
Others
24.1
29.1
10.6
Total capital expenditures
R$204.3
R$158.4
R$68.7
Our management has approved planned capital expenditures in 2003 in the
total amount of R$270.0 million. Most of the planned 2003 capital expenditures
relate to the implementation of the GSM overlay. See "—Information on the
Company—History and Development of the Company—Capital Expenditures."
Dividends
We are required to distribute 25% of our adjusted net income to our
shareholders either as dividends or as tax-deductible interest on shareholders'
equity. We are also required to pay a non-cumulative preferred dividend on our
preferred shares in an amount equal to the higher of: (i) 6% of our capital
("
capital social
") divided by the total
52
Table of Contents
number of ordinary and preferred shares, and (ii) 3% of the net
shareholders' equity ("
patrimônio líquido
"), according to the most recent
financial statements approved by the shareholders. See Note 21.e to our
Consolidated Financial Statements. Our Subsidiaries are also subject to
mandatory distribution requirements and are accordingly required to pay
dividends to their shareholders, in the case of Telesc Celular and CTMR
Celular, exclusively to Telepar Celular, and in the case of Telepar Celular, to
Tele Celular Sul and Telepar Celular's minority shareholders.
The following table contains a breakdown of the dividends and interest on
shareholders' equity paid (net of income taxes) by Tele Celular Sul to its
shareholders for the fiscal years ended December 31, 2002, 2001 and 2000.
Year ended December 31,
Distribution
2000
2001
2002
(in millions of
reais
)
Dividends
R$9.2
R$0.8
R$11.8
Interest on Shareholders' Equity
2.1
17.7
14.5
Total Distributions
R$11.3
R$18.5
R$26.2
Tele Celular Sul common shareholders approved on March 18, 2003 the
distribution of a total of R$28.8 million to its shareholders in respect of
2002 income, as dividends and interest on shareholders' equity.
Contractual Obligations and Commercial Commitments
The following table represents our contractual obligations and commercial
commitments as of December 31, 2002:
Payments due by Period
(in thousands
of
reais
)
Less than
1-3
4-5
After 5
Total
1 year
years
years
years
Contractual obligations
Long-term debt
R$110,971
R$38,052
R$72,536
R$383
—
Capital lease obligations
—
—
—
—
—
Operating leases
—
—
—
—
—
Unconditional purchase obligations
—
—
—
—
—
Other long-term obligations
210,114
210,114
—
—
—
Total contractual cash obligations
R$321,085
R$248,166
R$72,536
R$383
—
See Notes 15 and 16 to our Consolidated Financial Statements.
Research and Development
In connection with the Breakup of Telebrás, each of the Subsidiaries was
required to enter into three-year contracts with the
Centro de Pesquisa e
Desenvolvimento da Telebrás
, a research and development center formerly
operated by Telebrás that has continued to develop communications technology
since the Breakup as a private, independently managed entity. Under such
contracts, the Subsidiaries were required to pay the
Centro de Pesquisa e
Desenvolvimento da Telebrás
an aggregate total amount of R$2.3 million, during
the three-year period ended in May 2002.
We rely on research and development conducted by the manufacturers of
products we purchase. We do not carry out significant independent
technological research and development activities.
Our aggregate expenditures on research and development, including our
contributions to the
Centro de Pesquisa e Desenvolvimento da Telebrás
, were
R$0.6 million and R$1.1 million for 2001 and 2000, respectively.
53
Table of Contents
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and Senior Management
Board of Directors
Tele Celular Sul's management consists of a
Conselho de Administração
("Board of Directors") and a
Diretoria
("Board of Executive Officers"), which
are overseen by a
Conselho Fiscal
("Fiscal Committee"). The Tele Celular Sul
Board of Directors is comprised of three members serving for a three-year term.
The following are the current members of the Board of Directors and their
respective positions.
Name
Position
Date Appointed
Mario Cesar Pereira de Araújo
Chairman
March 18, 2003
Paulo Sérgio de Oliveira Diniz
Director
December 20, 2002
Franco Bertone
Director
December 20, 2002
Set forth below are brief biographical descriptions of the directors.
Mário César Pereira de Araújo
, 55 years old, has been a member of our
Board of Directors and the Chairman of our Board since March 2003. He
holds a degree in electrical engineering from Universidade Federal do Rio de
Janeiro – UFRJ. Mr. Araújo has been Chief Executive
Officer of TIM Brasil S.A., Tim Celular S.A. and Bitel
Participações S.A. since February 2003. He has also been
Chief Executive Officer and Technology Officer of Tele Nordeste
Celular since April 2003. Additionally, he has been Chairman of
the Board of Directors of Tele Nordeste Celular, Telpa Celular S.A.,
Telepisa Celular S.A., Teleceará Celular S.A. and Telasa Celular
S.A. since May 2003. From 1999 to 2002, he served as Chief Executive
Officer of Norte Brasil Telecom. From 1998 to 1999, he served as
Chief Executive Officer of Tele Centro Oeste Celular. From 1997 to
1998, he served as a Manager of Services in the areas of paging,
trunking and Internet services at Splice do Brasil S.A. From 1977 to
1997, he worked at Embratel as a Manager of Data Communications, an
Assistant to the Director of Engineering and as a Manager of the
Department of Corporate Clients. From 1973 to 1977, he worked in the
data and text communications department of Telerj.
Paulo Sérgio de Oliveira Diniz
, 46 years old, has been a member of our
Board of Directors since December 2002. He holds a degree in Production
Engineering from Universidade Politécnica de São Paulo, a post-graduate degree
in Human Resources from Insead in France, and an M.B.A. from the International
Management Development Institute in Switzerland. Since 1998, he has worked for
the Telecom Italia Group, initially as Chief Financial Officer for TIM Maxitel
S.A, and later as Chief Financial Officer for Tim Brasil S.A. He currently
serves as Director and Corporate Treasurer for Latin American Operations. From
1996 to 1998, he served as Corporate Treasurer for Keramik Holding AG Laufen in
Switzerland. From 1992 to 1995, he served as Finance and Administrative
Director for Incepa S.A in Brazil. From 1991 to 1992, he served as Controller
for Latin American Operations for United Technologies in the United States.
From 1987 to 1991, he served as Controller for Hoffman La Roche in Brazil.
From 1986 to 1987, he served as Senior Account Manager – Latin America
Corporate Banking for the Bank of Montreal in Canada. From 1983 to 1984, he
served as an Account Manager for the Banco Frances in Brazil.
Franco Bertone
, 51 years old, has been a member of our Board of Directors
since December 2002. Mr. Bertone holds a degree in electrical engineering and
a graduate degree in business, digital communications and systems management
from Scuola Superiore G. Reiss Romoli. Mr. Bertone is Corporate Vice President
of Telecom Italia Latin America. From 2001 to 2002, Mr. Bertone was the
Director of International Operations for Telecom Italia Latin America. From
1997 to 2000, Mr. Bertone was the Chief Executive Officer and Board President
of Entel-Bolivia. From 1992 to 1997, Mr. Bertone was the Chief Executive
Officer and Board President of Sirti Limited Corp. – USA. From 1986 to 1991,
Mr. Bertone was the Director of Systems at Sirt-Milano. From 1983 to 1985, Mr.
Bertone was the Programming Manager of the Sirt-Ericsson-Phillips joint
venture.
Board of Executive Officers
The Board of Executive Officers consists of four members, elected by the
board of directors for a term of three years. An executive officer may be
removed from office at any time.
54
Table of Contents
The following are the current executive officers and their respective
positions:
Name
Position
Date Appointed
Alvaro Pereira de Moraes Filho
President, Chief Executive Officer, Chief Information
Technology Officer and Chief Administrative Officer
October 31, 2002
Paulo Roberto Cruz Cozza
Chief Financial Officer and Director of Investor Relations
October 31, 2002
Gil Odebrecht
Chief Technology Officer
October 31, 2002
Maurício Roorda
Chief Marketing Officer and Chief Commercial Officer
October 31, 2002
Set forth below is a brief biographical description of the executive
officers.
Alvaro Pereira de Moraes Filho
, 54 years old, has been our president and
chief executive officer since September 1998. He also holds the position of
our chief information technology officer and chief administrative officer. He
also serves as the president of Telepar Celular S.A., Telesc Celular S.A. and
CTMR Celular S.A. He joined Telecomunicações do Paraná S.A.—Telepar in 1974
where he has served as manager of data processing (1974-78), manager of the
division of planning of operations (1976-80), manager of the coordination of
operations department (1979-87), manager of the engineering planning department
(1987-91), manager of the human resources development department (1991-93),
executive officer of engineering (1993-94), manager of the technical
coordination office (1994-95) and manager of the systems department (1996-98).
He has also served as manager of the services department (1995-96) of Telepar
Celular. He holds a degree in electronic engineering from the Instituto de
Tecnologia e Aeronáutica – ITA.
Paulo Roberto Cruz Cozza
, 39 years old, has been our chief financial
officer and investor relations director since January 2002. In 1988, he joined
Itautec Informática S.A., acting as an accounting manager. From 1992 to 1998,
he served as controlling manager at Holland Latina America Ltda. From 1998 to
1999, he served as controlling manager at Incepa Louças Sanitárias S.A. He
joined Tele Celular Sul in 1999, as controlling manager, and has served as
chief financial officer since January 2002. His professional experience
includes the preparation of management systems for the financial, human
resources and controlling areas. He holds an accounting degree from Faculdades
Integradas Garulhos.
Gil Odebrecht
, 36 years old, has been our chief technology officer since
June 1999. He joined Telesc in 1988 where he served as an engineer for
projects, implementation, operations and maintenance of switching centers until
1992. From 1992 to 1995, he served as manager of the technical division of
cellular telephony. From 1995 to 1998, he served as manager of the department
of cellular telephony, and since 1998, he has served as manager of the
department of operations for the state of Santa Catarina. He holds an
electrical engineering degree from the Federal University of Santa Catarina and
a business administration degree from the University for the Development of the
State of Santa Catarina.
Maurício
Roorda
, 39 years old, has been our chief business and
marketing officer since
March 2000. He served as a development engineer for Siemens in Brazil from
1986 to 1988. In 1989, he joined Shell in Brazil where acted as manager of
information technology until 1994. He joined Banco Nacional in 1996, where
after working on the reorganization of the distribution department of the bank,
he was named Marketing Director. He has a degree in electrical engineering
from the Technological Institute of Aeronautics – I.T.A., with a specialization
in telecommunications. He holds a master's degree in electrical engineering
from The Netherlands University Foundation for International Cooperation,
Holland (1985 – 1986), and an MBA from the Massachusetts Institute of
Technology, USA (1995 – 1996).
Fiscal Committee
The Fiscal Committee consists of five members: three members elected by
Bitel, one member elected by the minority common shareholders, and one member
elected by the holders of our Preferred Shares.
55
Table of Contents
The following are the current members of our fiscal committee:
Name
Date Appointed
Antonio Sidnei dos Santos
March 18, 2003
Isaac Salim Sutton
March 18, 2003
José Antonio Machado
March 18, 2003
Lara Cristina Ribeiro Piau
March 18, 2003
Walmir Urbano Kesseli
March 18, 2003
Compensation
For the year ended December 31, 2002, Tele Celular Sul paid the directors
and executive officers as compensation for their services, in the aggregate,
approximately R$1.2 million. The officers and directors did not receive any
benefit not included in the compensation referred to in this annual report.
Accordingly, we did not set aside or accrue any amounts to provide pension,
retirement or similar benefits to our officers and directors during 2002. See
"—Employee Stock Option Plan," for a description of our plan to compensate our
employees based on the results of operations.
Board Practices
Our directors' duties and responsibilities are set forth by Brazilian law
and our
Estatutos
("by-laws"). All decisions taken by our board of directors
are registered in the books of the Board of Directors' meetings. The Board of
Directors holds regular meetings once every quarter of the fiscal year and also
holds special meetings when discretionarily called by the chair, or two
directors. The chairperson of the Board of Directors may also invite to the
Board of Directors' meetings, at his discretion, any of our key employees, in
order to discuss any relevant corporate matter. Our Board of Directors does
not have an independent directors' committee or a compensation committee.
Our Employees
On December 31, 2002, we had 1,015 full-time employees and 50 independent
contractors, compared to 1,178 full-time employees and 55 independent
contractors in 2001, and 1,175 full-time employees and 70 independent
contractors in 2000. On December 31, 2002, approximately 22% of employees were
members of state labor unions associated with the
Federação Nacional dos
Trabalhadores em Telecomunicações – Fenattel and the Federação Interestadual
dos Trabalhadores em Telecomunicações – Fittel or the Sindicato dos Engenheiros
do Estado do Paraná.
We negotiate a new collective labor agreement every year
with the local unions. The collective agreements in force on December 31,
2002, expire on November 30, 2003. Management considers our relations with our
work force to be very good. We have not experienced a strike that had a
material effect on operations.
Employee Benefit Plans
Before the Breakup,
Fundação Telebrás de Seguridade Social – Sistel
administered a defined benefit plan for the benefit of the former employees of
the Predecessor Companies. All Predecessor Companies jointly sponsored the
single defined benefit plan managed by
Fundação Telebrás de Seguridade Social –
Sistel.
In preparation for the Breakup, separate defined benefit plans were
created, each exclusively covering employees of an individual Predecessor
Company. Telepar, Telesc, CTMR and the other sponsors of the defined benefit
plan managed by
Fundação Telebrás de Seguridade Social – Sistel
negotiated the
creation of independent defined benefit plans on January 13, 2000. According to
this segregation of the single defined benefit plan managed by
Fundação
Telebrás de Seguridade Social – Sistel
, Telepar, Telesc and CTMR were
responsible for funding the individual defined benefit plans covering their own
respective employees. As a result of the Telepar, Telesc, CTMR cellular
business spin-off, and the creation of our Subsidiaries, the Telepar, Telesc
and CTMR defined benefit plans became jointly sponsored by us and Brasil
Telecom, the fixed-line service provider operating within our Region after the
Breakup.
Fundação Telebrás de Seguridade Social – Sistel
still manages such defined
benefit plans independently from us, and its assets and liabilities are fully
segregated from ours. Those of our employees participating in the
56
Table of Contents
Telepar, Telesc and CTMR defined benefit plan administered by
Fundação
Telebrás de Seguridade Social – Sistel
at the time of our Privatization were
entitled to maintain their respective rights under such plans.
We currently make monthly contributions to
Fundação Telebrás de Seguridade
Social – Sistel
equal to approximately 13.5% of the salary paid to each of the
employees covered by the defined benefit plans administered by
Fundação
Telebrás de Seguridade Social – Sistel
. In addition, each of the employees
covered by such plans also makes a monthly contribution to
Fundação Telebrás de
Seguridade Social – Sistel,
which is determined according to age and salary.
Employees hired after our Privatization are not covered by
Fundação
Telebrás de Seguridade Social – Sistel
, and we do not contribute to any pension
fund on behalf of such employees. See Note 31.III.a to our Consolidated
Financial Statements.
During 2002, we created a new defined contribution pension plan
("TIMPREV") that would bring us in line with current social security practices
in the private sector and also allow for the migration of employees
participating in our private plan created in 2000 ("Tele Celular Sul PBS
Plan"). TIMPREV was approved by the Secretary of Complementary Pension on
November 13, 2002 in Notification 1,917 CGAJ/SPC. TIMPREV sets forth new
guidelines for the granting and maintenance of benefits and outlines new rights
and obligations for Sistel, the plan administrator; sponsors; participants and
their respective beneficiaries.
Migration from the Tele Celular Sul PBS Plan to TIMPREV is optional. In
order to encourage migration to TIMPREV, we offered bonuses to those employees
migrating before January 29, 2003. As of January 29, 2003, 94% of the
participants in our private plan had migrated to TIMPREV. Upon electing to
migrate to TIMPREV, a participant extinguishes all rights to benefits under the
Tele Celular Sul PBS Plan.
As more employees participate in TIMPREV, we anticipate that the sponsor's
risk to eventual actuarial deficit will decrease, consistent with the
characteristics of typical defined contribution plans. Under the rules of
defined contribution plans, the sponsor normally contributes 100% of the basic
contribution of the participant. In accordance with the terms and conditions of
the approved rules, the administrator of TIMPREV will ensure the benefits
listed below. However, the administrator will not assume responsibility for
granting any other benefit, even if social security officially grants it to its
beneficiaries:
•
a regular retirement pension;
•
an anticipated retirement pension;
•
a disability pension;
•
a deferred proportional benefit; and
•
a death pension.
Share Ownership
None of the directors or executive officers beneficially owned 0.01% or
more of our Common Shares or Preferred Shares on December 31, 2002.
Stock Option Plan
At our extraordinary shareholders' meeting held on May 2, 2001, our
shareholders approved a stock option plan that was effective as of that date.
The purposes of the stock option plan are:
•
to retain the services and advice of our key directors
and employees, upon whose judgment, initiative and efforts we
depend;
•
to make available to our key directors and employees
certain compensatory arrangements based on our market value
increase; and
57
Table of Contents
•
to align generally the interests of our key directors and employees
and the interests of our shareholders.
Our Board of Executive Officers may authorize future capital increases,
within the limit of the authorized capital, with the issuance of Preferred
Shares for the benefit of our key employees. The amount of shares that may be
issued under the stock option plan is limited to 1.5% of our capital stock.
The option exercise price per 1,000 Preferred Shares was set at R$4.27, the
closing price of 1,000 Preferred Shares at the São Paulo Stock Exchange
("Bovespa") on May 2, 2001.
Our employee stock option plan has a four-year term and will expire in
April 2005. No option may be exercised after four years from the date it was
granted. The exercise of the option shall occur at the end of the fourth year
after the granted date, but can be anticipated depending upon the achievement
of certain operational results, which are based on EBIT (earnings before
interest and taxes).
Our targeted EBIT was R$119.7 million and R$94.7 million for the years
ended December 31, 2001 and December 31, 2002, respectively. Our actual EBIT
for the years ended December 31, 2001 and December 31, 2002 exceeded their
respective targeted amounts. Accordingly, two-thirds of the granted options
may be exercised in March, August and December 2003. No option granted to our
key directors and employees was exercised as of March 31, 2003.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
Of the Holding Company's two classes of capital stock outstanding, only
our Common Shares have full voting rights. In June 1998, a consortium
comprised of UGB and Bitel acquired 51.8% of our Common Shares. On December
15, 1998, UGB exercised a put option under the Shareholders Agreement between
UGB and Bitel, dated as of July 24, 1998 (the "Shareholders Agreement"), under
which UGB had the right to sell all of its shares of the Holding Company to
Bitel, subject to the approval of Anatel and the Conselho Administrativo de
Defesa Econômica – CADE ("CADE"), Brazil's federal competition agency. The
sale was finalized on March 26, 1999, following its approval by Anatel and
CADE. Accordingly, Bitel has the ability to control the election of the
Holding Company's Board of Directors and the direction of our future
operations. The Shareholders Agreement was terminated following the sale, and
Bitel is no longer subject to any material obligations under such agreement.
The following table sets forth ownership information with respect to all
shareholders that, to our knowledge, own 5% of our Common Shares or more as of
April 30, 2003. Our Common Shares held by Bitel have the same voting rights as
the other Common Shares.
Percentage of
Thousands of Common
Outstanding
Name of owner
Shares Owned
Common Shares
Bitel Participações S.A.
67,344,277
52.06
Previ – Caixa de Previdência dos Funcionários do
Banco do Brasil S.A.
6,830,177
5.08
All our directors and executive officers as a group
42.06
0.03
Bitel is a Brazilian subsidiary of TIM Brasil S.A., which is part of a
group headed by TIM. TIM is part of a group whose parent company is Telecom
Italia. See "Item 4. Information on the Company—Organizational Structure."
As of April 30, 2003, there were 107,326,720,000 Preferred Shares
represented by ADSs. As of such date, the number of Preferred Shares
represented by ADSs constituted 48.3% of the total amount of Preferred Shares
outstanding and 30.1% of the total capital of the Holding Company.
58
Table of Contents
Related Party Transactions
Tele Celular Sul owed R$4.2 million to its affiliates arising out of
inter-company loans outstanding on December 31, 2002. The amounts Tele Celular
Sul owes to the Subsidiaries bear interest equal to the sum of (i) the CDI,
plus (ii) a 1.2% spread.
On the other hand, Tele Celular Sul had inter-company credits in the
amount of R$25.4 million on December 31, 2002. The amounts owed to Tele Celular
Sul by the Subsidiaries bear interest equal to the sum of (i) the CDI, plus
(ii) a 1.2% spread.
All these inter-company transactions were eliminated in our Consolidated
Financial Statements. See Note 9 to our Consolidated Financial Statements.
ITEM 8. FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
See Item 18 of this annual report for our Consolidated Financial
Statements.
Legal Proceedings
Litigation Related to the Conversion of Our Concessions into
Authorizations
In January 2003, a type of class action ("
ação popular
") was brought by an
individual against ANATEL and all the companies controlled by TIM in Brazil,
including us. The claim sought to suspend the effects of
Resolução
318, of
September 27, 2002, and other acts by ANATEL, including the Authorizations
PVCP/SPV nos. 001/2002 to 011/2002, published on December 12, 2002, which
authorized us to migrate from the SMC regime to the PCS regime.
The action specifically challenged the omission of provisions regulating
the return of the assets ("
bens reversíveis
") used by us in connection with the
provision of telecommunication services by the time of the expiration of the
Authorizations. By reason of such omission, argues the claimant, the Federal
Government would suffer irreparable damage and, therefore, the Anatel acts
allowing the migration from the SMC to PCS should be declared null and void.
We vigorously have challenged this action, and after some preliminary
decisions by lower courts ("
medidas liminares
"), we have obtained a unanimous
decision from the Regional Federal Court of Appeals ("
Tribunal Regional
Federal
") permitting the migration from SMC into PCS, reserving discussion
about the return of the assets to the Federal Government for a later date.
We believe that migration from the SMC regime to the PCS regime, and the
related acts by Anatel, will not be suspended or modified. The discussion with
respect to the return ("
reversão
") to the Federal Government of our assets used
in connection with the provision of telecommunication services should be
subject to further debate.
Litigation Related to the Application of the ICMS
In June 1998, the governments of the individual Brazilian states approved
an agreement to interpret existing Brazilian tax law to apply the ICMS tax in
respect of certain revenues, including cellular activation fees and monthly
subscription charges, that had not previously been subject to such taxes.
Under Brazilian law, there is a risk that the state governments could seek to
apply this interpretation retroactively to activation and subscription fees
charged during the five years proceeding June 30, 1998. Our management
believes that the attempt by the state governments to extend the scope of the
ICMS tax to services that are supplementary to basic telecommunications
services is unlawful because:
•
the state governments acted beyond the scope of their authority,
•
their interpretation would subject to taxation certain
services, particularly cellular activation, that are not
considered to be payments for telecommunications services and
59
Table of Contents
•
new taxes may not be applied retroactively.
Each of the Subsidiaries has filed a lawsuit with the treasury court of
the state in which it is located seeking injunctive relief from retroactive and
prospective application of the ICMS tax to activation fees. Each of the
Subsidiaries has obtained a temporary injunction relieving it from the payment
of the ICMS tax on activation fees during the pendency of the lawsuits. We
have collected the ICMS tax on activation fees and monthly subscriptions from
customers since June 1998 and deposited all activation fees and monthly
subscription fees collected since that date. Our management does not believe
that application of the ICMS tax on a prospective basis will have a material
impact on our results of operations.
Litigation Related to the Use of Premium Arising Out of the Breakup of
Telebrás
On April 4, 2002, a Congressman filed a lawsuit in federal court in
Brasília, Federal District, against a number of governmental telecommunication
entities and the New Holding Companies. The purpose of the lawsuit is to
prevent the New Holding Companies from using the amortization of the goodwill
paid by the New Holding Companies to the Brazilian government in the Breakup of
Telebrás to generate tax benefits.
Even though we are unable to predict the final outcome of this lawsuit, we
believe that a ruling favorable to the plaintiff is unlikely. Accordingly, we
have not created a reserve in connection with this litigation. If an
unfavorable ruling is issued against us, it will lose the tax benefit derived
from the premiums paid, and our tax liability will increase. We believe that
an unfavorable decision would not have a material adverse effect on our
business, results of operations, financial condition or prospects.
Litigation Related to the Breakup of Telebrás
The breakup of Telebrás is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the Breakup. All of these preliminary injunctions have
been quashed by decisions of the relevant federal court, although several such
decisions are currently on appeal. The lawsuits are based on a number of legal
theories, including that:
•
Brazil's constitution requires that the creation of the
12 new holding companies be specifically authorized by the
Telecommunications Law;
•
the shareholders' meeting of Telebrás held on May 22,
1998 which approved the breakup was not properly convened;
•
national sovereignty will be threatened if the
country's telecommunications companies are controlled by foreign
entities; and
•
the Telecommunications Law requires that certain
matters, such as the entry of new competitors and the
administration of development and technology funds, be regulated
prior to the breakup and privatization, either by an executive
order of the President or by an act of congress.
If any of these lawsuits ultimately succeed, the breakup will have to be
reinitiated. This could require, depending upon the prevailing plaintiff's
theory, any combination of
•
amendment of the Telecommunications Law; and
•
reconvening the May 22, 1998 Telebrás shareholders' meeting.
It is theoretically possible under Brazilian law for a court to require
that the breakup be unwound, although management believes that this would not
be likely to occur.
Litigation Arising Out of Events Prior to the Breakup of Telebrás
Telebrás and the Predecessor Companies are defendants in a number of legal
proceedings and subject to certain other claims and contingencies. Liability
for any claims arising out of acts committed by the Predecessor Companies prior
to the effective date of the spin-off of the cellular assets and liabilities of
the Predecessor
60
Table of Contents
Companies to the Subsidiaries remains with the Predecessor Companies,
except for those liabilities for which specific accounting provisions have been
assigned to our Subsidiaries. Any claims against the Predecessor Companies
which are not satisfied by the Predecessor Companies could result in claims
against our Subsidiaries to the extent that our Subsidiaries have received
assets which might have been used to settle those claims had they not been spun
off from the Predecessor Companies.
Under the terms of the Breakup of the Telebrás system, liability for any
claims arising out of acts committed by Telebrás prior to the effective date of
the breakup remains 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 one of the other new holding companies. Our
management believes that the chances of claims of this nature materializing and
having a material adverse financial effect on us are remote.
Other Litigation
We are a party to certain legal proceedings arising in the normal course
of business. We have provided for or deposited in court amounts to cover our
estimated losses due to adverse legal judgments. In the opinion of our
management, such actions, if decided adversely to us, would not have a material
adverse effect on our business, financial condition or results of operations.
Dividend Policy
Under our by-laws, we are required to distribute as dividends in respect
of each fiscal year ending on December 31, to the extent amounts are available
for distribution, an aggregate amount equal to at least 25% of adjusted net
income on such date as mandatory dividend. The annual dividend distributed to
the holders of our preferred shares has priority in the allocation of adjusted
net income.
For the purposes of the Brazilian Corporate Law, and in accordance with
our by-laws, the adjusted net income is an amount equal to net profit adjusted
to reflect allocations to and from:
•
the legal reserve; and
•
contingency reserves.
We are required to maintain a legal reserve, to which we must allocate 5%
of net profits for each fiscal year until the amount for such reserve equals
20% of our paid-in capital. However, we are not required to make any
allocations to our legal reserve in respect of any fiscal year in which it,
together with our other capital reserves, exceeds 30% of our capital. Net
losses, if any, may be charged against the legal reserve. On December 31,
2002, the balance of our legal reserve was R$23.8 million, which was equal to
7.3% of our total capital.
The Brazilian Corporate Law also provides for two discretionary
allocations of net profits that are subject to approval by the shareholders at
the annual meeting. First, a percentage of net profits may be allocated to a
contingency reserve for anticipated losses that are deemed probable in future
years. Any amount so allocated in a prior year must be either reversed in the
fiscal year in which the loss was anticipated if such loss does not in fact
occur, or written off in the event that the anticipated loss occurs. Second,
if the mandatory distributable amount exceeds the sum of realized net profits
in a given year, such excess may be allocated to unrealized revenue reserve.
Under the Brazilian Corporate Law, realized net profits is defined as the
amount of net profits that exceeds the net positive result of equity
adjustments and profits or revenues from operations with financial results
after the end of the next succeeding fiscal year.
Under the Brazilian Corporate Law, any company may, as a term in its
by-laws, create a discretionary reserve. By-laws which authorize the
allocation of a percentage of a company's net income to the discretionary
reserve must also indicate the purpose, criteria for allocation and a maximum
amount of the reserve.
We may also allocate a portion of our net profits for discretionary
appropriations for plan expansion and other capital investment projects, the
amount of which would be based on a capital budget previously presented by our
management and approved by shareholders. Under Law No. 10,313 of October 3,
2001, capital budgets for
61
Table of Contents
more than one year must be revised at each annual shareholders' meeting.
After completion of the relevant capital projects, we may retain the
appropriation until the shareholders vote to transfer all or a portion of the
reserve to capital or retained earnings. On December 31, 2002, we had an
income reserve for expansion of R$310.2 million.
The amounts available for distribution may be further increased by a
reversion of the contingency reserve for anticipated losses constituted in
prior years but not realized. The amounts available for distribution are
determined on the basis of financial statements prepared in accordance with the
Corporate Law method.
The legal reserve is subject to approval by the shareholders voting at the
annual meeting and may be transferred to capital but is not available for the
payment of dividends in subsequent years. Our calculation of net profits and
allocations to reserves for any fiscal year are determined on the basis of
financial statements prepared in accordance with the Brazilian Corporate Law.
Remaining amounts to be distributed are allocated first to the payment of
a dividend to holders of ordinary shares in an amount equal to the dividend
paid to the preferred shareholders. The remainder is distributed equally among
holders of preferred shares and ordinary shares.
Under the Brazilian Corporate Law, a company is permitted to suspend the
mandatory dividend in respect of ordinary shares and preferred shares not
entitled to a fixed or minimum dividend if:
•
its board of directors and fiscal committee report to
the shareholders' meeting that the distribution would be
incompatible with the financial circumstances of that company;
and
•
the shareholders ratify this conclusion at the
shareholder's meeting. In this case,
•
the board of directors must forward to the Brazilian
securities commission within five days of the shareholders'
meeting an explanation justifying the information transmitted at
the meeting; and
•
the profits which were not distributed are to be
recorded as a special reserve and, if not absorbed by losses in
subsequent fiscal years, are to be paid as dividends as soon as
our financial situation permits.
Our preferred shares are each entitled to a minimum dividend and thus the
mandatory dividend may be suspended only with respect to our ordinary shares.
Dividends may be paid by us out of retained earnings or accumulated profits in
any given fiscal year.
For the purposes of the Brazilian Corporate Law, accumulated profits are
defined as net income after income tax and social contribution for such fiscal
year, net of any accumulated losses from prior fiscal years and any amounts
allocated to warrants, income bonds, employees' and management's participation
in a company's profits.
Priority and Amount of Preferred Dividends
Our by-laws provide for a minimum yearly per share dividend for our
preferred shares equal to 6% of the amount obtained by dividing the total share
capital by the total number of preferred shares in an amount equal to the
higher of (i) 6% of our capital ("
capital social
") divided by the total number
of ordinary and preferred shares and (ii) 3% of the net shareholders' equity
("
patrimônio líquido
"), according to the most recent financial statements
approved by the shareholders.
As a result of such provision, holders of the our preferred shares are
entitled to receive in any year distributions of cash dividends prior to the
holders of our ordinary shares receiving any distribution of cash dividends in
such year. In addition, distributions of cash dividends in any year are made:
•
first, to the holders of preferred shares, up to the
amount of the dividend that must be paid to the holders of
preferred shares for such year;
•
then, to the holders of ordinary shares, until the
amount distributed in respect of each ordinary share is equal to
the amount distributed in respect of each preferred share; and
62
Table of Contents
•
thereafter, to the holders of ordinary shares and preferred shares
on a pro rata basis.
If the mandatory dividend in any year is higher than or equal to the
dividend paid to the holders of preferred shares in that year, the holders of
ordinary shares will not be entitled to receive any cash dividends from us in
that year. If the dividend to be paid to the holders of preferred shares is
not paid for a period of three years, holders of preferred shares will be
entitled to full voting rights until such time as that dividend is paid in full
for any year.
Payment of Dividends
We are required by law and by our by-laws to hold an annual shareholders'
meeting by April 30 of each year, at which, among other things, an annual
dividend may be declared by decision of our shareholders on the recommendation
of our executive officers, as approved by our Board of Directors. The payment
of annual dividends is based on the financial statements prepared for the
fiscal year ending December 31. Under the Brazilian Corporate Law, dividends
are required to be paid within 60 days following the date the dividend is
declared to shareholders of record on such declaration date, unless a
shareholders' resolution sets forth another date of payment, with must occur
prior to the end of the fiscal year in which such dividend was declared. A
shareholder has a three-year period from the dividend payment date to claim
dividends in respect of its shares, after which we have no liability for such
payment. Because our shares are issued in book-entry form, dividends with
respect to any share are credited to the account holding such
share. We are not
required to adjust the amount of paid-in capital for inflation. Annual
dividends may be paid to shareholders on a pro rata basis according to the date
when the subscription price is paid to us.
Our preferred shares underlying the ADSs are held in Brazil by a Brazilian
custodian, Banco Itaú S.A., as the agent for the depositary, which is the
registered owner of our shares.
Payments of cash dividends and distributions, if any, will be made in
Brazilian currency to the custodian on behalf of JPMorgan Chase Bank, as
depositary, which will then convert those proceeds into dollars and will cause
such dollars to be delivered to the depositary for distribution to holders of
ADRs. In the event that the custodian is unable to immediately convert the
Brazilian currency received as dividends into dollars, the amount of dollars
payable to holders of ADRs may be adversely affected by devaluations of the
Brazilian currency that occur before such dividends are converted and remitted.
Dividends in respect of our preferred shares paid to resident and non-resident
shareholders, including holders of ADSs, are not currently subject to Brazilian
withholding tax.
Significant Changes
No significant change has occurred since December 31, 2002, the date of
our Consolidated Financial Statements.
ITEM 9. THE OFFER AND LISTING
Offer and Listing Details
The principal market for our Preferred Shares is the Bovespa. On December
31, 2002, we had 213,612,105,811 Preferred Shares and 129,357,833,871 Common
Shares.
Our Preferred Shares commenced trading separately from any other security
on the Brazilian stock exchanges on September 21, 1998. See "—Presentation of
Information—Market Information."
63
Table of Contents
The following table sets forth the reported high and low sale prices for
our Preferred Shares on Bovespa, at closing of business day, for the periods
indicated.
Reais
per
1,000 Preferred Shares
Low
High
1998
Third quarter (beginning September 21)
R$1.68
R$1.80
Fourth quarter
0.87
3.20
1999
First quarter
2.04
3.50
Second quarter
3.17
4.05
Third quarter
2.95
3.85
Fourth quarter
3.75
6.50
2000
First quarter
8.20
12.10
Second quarter
4.70
9.00
Third Quarter
5.21
8.70
Fourth Quarter
3.93
5.85
2001
First quarter
3.68
5.50
Second quarter
3.94
5.23
Third quarter
2.35
4.70
Fourth quarter
2.64
4.02
2002
First quarter
3.01
3.84
Second quarter
2.67
3.17
Third quarter
2.42
3.38
Fourth quarter
2.29
3.02
Last Six Months
December 2002
2.66
2.80
January 2003
2.42
2.97
February 2003
2.09
2.44
March 2003
2.19
2.41
April 2003
2.28
2.52
May 2003
3.03
2.87
June 2003 (through June 11, 2003)
2.98
2.85
Our Preferred Shares traded in the United States on the NYSE are
represented by ADSs, each representing 10,000 Preferred Shares. Our ADSs are
issued by JPMorgan Chase Bank ("JPMorgan Chase"), as depositary ("Depositary"),
pursuant to a deposit agreement among Tele Celular Sul, JPMorgan Chase and the
registered holders and beneficial owners from time to time of our ADSs. The
ADSs commenced trading separately on the NYSE on November 16, 1998 under the
symbol "TSU."
64
Table of Contents
The following table sets forth the reported high and low sales prices for
our ADSs on the NYSE, at closing of business day, for the periods indicated.
U.S. dollars per
our ADS
Low
High
1998
Fourth quarter (beginning November 16, 1998)
US$12.35
US$30.25
1999
First quarter
15.38
21.00
Second quarter
16.56
25.00
Third quarter
15.94
21.69
Fourth quarter
16.37
33.25
2000
First quarter
47.88
69.20
Second quarter
25.62
50.88
Third Quarter
27.38
47.00
Fourth Quarter
20.13
30.56
2001
First quarter
16.50
29.49
Second quarter
16.99
22.19
Third quarter
9.69
19.49
Fourth quarter
9.50
15.70
2002
First quarter
12.55
16.97
Second quarter
8.90
14.25
Third quarter
6.37
12.00
Fourth quarter
5.70
9.00
Last Six Months
December 2002
6.85
8.25
January 2003
6.70
9.05
February 2003
5.70
7.10
March 2003
7.18
5.80
April 2003
7.06
8.53
May 2003
8.40
9.70
June 2003 (through June 11, 2003)
8.81
9.41
Since May 18, 1998, the common and preferred shares of Telepar Celular have
traded on the Bovespa.
Markets
Trading on the Brazilian Stock Exchanges
The Bovespa is the only Brazilian Stock Exchange on which equity and debt
securities issued by Brazilian companies are traded. The exclusive trading of
such securities on the Bovespa is the result of several memoranda of
understanding entered into by the Bovespa and the other Brazilian stock
exchanges. The Rio de Janeiro stock exchange is now exclusively responsible
for the electronic trade of public debt securities and for privatization
65
Table of Contents
auctions. In 2002, the Bovespa accounted for 100% of the trading value of
equity securities on all Brazilian stock exchanges.
Each Brazilian stock exchange is a nonprofit entity owned by its member
brokerage firms. Trading on each exchange is limited to member brokerage firms
and a limited number of authorized nonmembers. The Bovespa has two open outcry
trading sessions each day, from 11:00 a.m. to 1:30 p.m. and from 2:30 p.m. to
5:45 p.m., except during daylight savings time in the United States. During
daylight savings time in the United States, the sessions are from 10:00 a.m. to
1:00 p.m. and from 2:00 p.m. to 4:45 p.m., to closely mirror NYSE trading
hours. Trading is also conducted between 11:00 a.m. and 6:00 p.m., or between
10:00 a.m. and 5:00 p.m. during daylight savings time in the United States, on
an automated system known as the Computer Assisted Trading System (
Sistema de
Negociação Assistida por Computador
) on the Bovespa and on the National
Electronic Trading System (
Sistema Eletrônico de Negociação Nacional
). These
systems are computerized systems that link electronically with the seven
smaller regional exchanges. The Bovespa also permits trading from 6:45 p.m. to
7:30 p.m. on an online system connected to traditional and Internet brokers
called the "After Market." Trading on the After Market is subject to
regulatory limits on price volatility and on the volume of shares transacted
through Internet brokers. There are no specialists or market makers for our
shares on the Bovespa. Beginning March 31, 2003, the Bovespa modified its
trading practices with respect to its open outcry trading sessions and its
electronic trading system. Under these revised trading practices, orders
registered in an open outcry session will be matched through that open outcry
session only, while orders registered through the electronic trading system may
be matched both through the electronic system and through an open outcry
session, if a matching order better by five
centavos
(R$0.05) is available.
In order to better control volatility, Bovespa adopted a "circuit breaker"
system pursuant to which trading sessions may be suspended for a period of 30
minutes or one hour whenever the indexes of these stock exchanges fall below
10% or 15%, respectively, in relation to the index registered in the previous
trading session.
Settlement of transactions in effected three business days after the trade
date without adjustment of the purchase price for inflation. Delivery of and
payment for shares are made through the facilities of the clearinghouse, or
Companhia Brasileira de Liquidação e Custodia — CBLC
, 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 Bovespa is less liquid than the NYSE or other major exchanges in the
world. On April 30, 2003, the aggregate market capitalization of the 391
companies listed on Bovespa was approximately US $155.5 billion, and the 10
largest companies listed on Bovespa represented approximately 45.7% of the
total market capitalization of all listed companies. Although all the
outstanding shares of a listed company may trade on a Brazilian stock exchange,
in most cases less than half of the listed shares are actually available for
trading by the public, the remainder being held by small groups of controlling
persons by governmental entities or by one principal shareholder. For this
reason, data showing the total market capitalization of Brazilian stock
exchanges tend to overstate the liquidity of the Brazilian equity securities
market.
Trading on Brazilian stock exchanges by a holder not deemed to be
domiciled in Brazil, for Brazilian tax and regulatory purposes (a
"non-Brazilian holder"), is subject to certain limitations under Brazilian
foreign investment legislation. With limited exceptions, non-Brazilian holders
may only trade on Brazilian stock exchanges in accordance with the requirements
of Resolution No. 2,689, of January 26, 2000, of the National Monetary Council
("
Conselho Monetário Nacional
"). Resolution No. 2,689 requires that securities
held by non-Brazilian holders be maintained in the custody of, or in deposit
accounts with, financial institutions duly authorized by the Central Bank and
the Brazilian securities commission ("
Comissão de Valores Mobiliários
- "CVM").
In addition, Resolution No. 2,689 requires non-Brazilian holders to restrict
their securities trading to transactions on Brazilian stock exchanges or
qualified over-the-counter markets. With limited exceptions, non-Brazilian
holders may not transfer the ownership of investments made under Resolution No.
2,689 to other non-Brazilian holders through a private transaction. See
"—Taxation—Brazilian Tax Considerations" for a description of certain tax
benefits extended to non-Brazilian holders who qualify under Resolution No.
2,689.
66
Table of Contents
Differentiated Levels of Corporate Governance and the New Market
In order to increase the transparency of the Brazilian capital markets and
protect minority shareholders' rights, among others, the Bovespa has
implemented two new initiatives:
•
a classification system referred to as "Differentiated
Levels of Corporate Governance" applicable to the companies
already listed on the Bovespa, and
•
a new separate listing segment for qualifying issuers referred to as
the "New Market."
The Differentiated Levels of Corporate Governance, Level 1 and Level 2,
are applicable to listed companies that voluntarily comply with special
disclosure and corporate governance practices established by the Bovespa. The
companies may be classified into two different levels, depending on their
degree of adherence to the Bovespa practices of disclosure and corporate
governance.
To become a Level 1 company, an issuer must voluntarily satisfy the
following requirements: (i) ensure that shares amounting to at least 25% of its
capital are outstanding and available for trading in the market; (ii) adopt
procedures that favor the dispersion of shares into the market whenever making
a public offering; (iii) comply with minimum quarterly disclosure standards;
(iv) follow stricter disclosure policies with respect to transactions with
controlling shareholders, directors and officers involving the issuer's
securities; (v) disclose any existing shareholders agreements and stock option
plans; and (vi) make a schedule of corporate events available to the minority
shareholders. The Holding Company is currently considering complying with
these requirements for Level 1 of Corporate Governance
.
To become a Level 2 company, an issuer must, in addition to satisfying the
Level 1 criteria, satisfy the following requirements: (i) require all
directors to serve unstaggered one-year terms; (ii) prepare and publish annual
financial statements in U.S. GAAP or IAS GAAP; (iii) create tag-along rights
for minority shareholders, ensuring holders of ordinary shares of the right to
sell on the same terms as a controlling shareholder, and ensuring preferred
shareholders a price equal to at least 70% of that received by the selling
controlling shareholder; (iv) grant preferred shareholders the right to vote in
certain cases, including the transformation, spin-off or merger of the company,
approval of agreements with related parties or any other matters that may
constitute a conflict of interest between controlling shareholders and the
company; (v) make a tender offer for all outstanding shares, for a price equal
to fair market value, in the event of delisting or withdrawal of the issuer
from Level 2 qualification; and (vi) agree to submit any corporate disputes to
the Bovespa's Market Arbitration Chamber.
The New Market is a separate listing segment for the trading of shares
issued by companies that voluntarily adopt certain additional corporate
governance practices and disclosure requirements which are more demanding than
those required by the current law in Brazil. Companies may qualify to have
their shares traded in the New Market, if, in addition to complying with the
Level 2 corporate governance practices referred to above, their capital stock
consists only of voting common shares.
We are considering whether to undertake some or all of the disciplines
necessary to become a Level 1 Company.
Bovespa Market Administration Panel
Pursuant to Law No. 9,307/66, a Market Arbitration Panel (the "Panel") has
been established by the Bovespa. The Panel was established to settle certain
types of disputes, including disputes relating to corporate governance,
securities issues, financial regulatory issues and other capital market
matters, with respect to Bovespa listed companies that have undertaken to
voluntarily comply with Level 2 and New Market levels of corporate governance
and disclosure. The Panel will provide a forum for dispute resolution to,
among others, the Bovespa, the applicable listed company and the shareholders,
directors and management of the applicable listed company.
Regulation of Brazilian Securities Markets
The Brazilian securities markets are principally governed by Law No.
6,385, of December 7, 1976, and the Brazilian Corporate Law, each as amended,
and by regulations issued by the CVM which has authority over stock
67
Table of Contents
exchanges and the securities markets generally, the National Monetary
Council, and by the Central Bank of Brazil, which has, licensing authority over
brokerage firms and regulates foreign investment and foreign exchange
transactions. Both regulatory bodies are subordinate to the National Monetary
Council, the highest regulatory entity within the National Financial System.
These laws and regulations, among others, provide for disclosure requirements
applicable to issuers of traded securities protection of minority shareholders
and criminal penalties for insider trading and price manipulation. They also
provide for licensing and oversight of brokerage firms and governance of the
Brazilian stock exchanges. Nevertheless, the Brazilian securities markets are
not highly regulated and supervised as the U.S. securities markets.
Under the Brazilian Corporate Law, a company is either public, a
companhia
aberta,
like us, or private, a
companhia fechada.
All public companies,
including us, are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
on the Bovespa or in the Brazilian over-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.
Trading in securities on the Bovespa may be suspended at the request of a
company in anticipation of a material announcement. Trading may also be
suspended on the initiative of 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.
The Brazilian over-the-counter market consists of direct trades between
individuals in which a financial institution registered with CVM serves as
intermediary. No special application, other than registration with the, is
necessary for securities of a public company to be traded in this market. The
CVM requires that it be given notice of all trades carried out in the Brazilian
over-the-counter market by the respective financial institution intermediary.
Trading on Bovespa by non-residents of Brazil is subject to limitations
under Brazilian foreign investment and tax legislation. The Brazilian
custodian for our Preferred Shares on behalf of the depositary for the ADSs,
obtain registration from the Central Bank to remit U.S. dollars abroad for
payments of dividends, any other cash distributions, or upon the disposition of
the shares and sales proceeds thereto. In the event that a holder of ADSs
exchanges Preferred Shares for ADSs, the holder will be entitled to continue to
rely on the custodian's registration for five business days after the exchange.
Thereafter, the holder may not be able to obtain and remit U.S. dollars abroad
upon the disposition of our Preferred Shares, or distributions relating to our
Preferred Shares, unless the holder obtains a new registration. See "Item 10.
Additional Information—Memorandum and Articles of Associations."
Brazilian regulations also require that any person or group of persons
representing the same interest that has directly or indirectly acquired an
interest corresponding to 10% of the common shares of a publicly traded
company, shall disclose its share ownership to the CVM and stock exchanges. In
addition, a statement containing the required information shall be published in
appropriate Brazilian newspapers. Any subsequent increase to, or decrease
from, five percent or more in ownership of common shares, including warrants
and debentures convertible into common shares, shall be similarly disclosed.
ITEM 10. ADDITIONAL INFORMATION
Memorandum and Articles of Association
The following summarizes certain material provisions of Tele Celular Sul
bylaws and the Brazilian Corporate Law, the main bodies of regulation governing
us. Copies of Tele Celular Sul bylaws have been filed as exhibits to our
annual report on Form 20-F filed with the Securities and Exchange Commission on
June 28, 2002. Except as described in this section, the bylaws do not contain
provisions addressing the duties, authority or liabilities of the directors and
senior management, which are instead established by Brazilian Corporate Law.
Register
Tele Celular Sul bylaws were registered with the Public Registry of the
state of Paraná on June 4, 2001, under company number (NIRE) 200.109.384.78.
68
Table of Contents
Corporate Purpose
Article 2 of Tele Celular Sul bylaws provides that our main corporate
purpose is to exercise control over the operating companies that provides
mobile telephone and other services in concession areas 5 and 6, as defined by
Anatel regulations. Other corporate purposes include:
•
promote, through our controlled or affiliated
companies, the expansion of mobile telephone services in their
respective concession areas;
•
procure funding from internal or external sources;
•
promote and foster study and research for the development of mobile telephone services;
•
perform, through our controlled or affiliated
companies, specialized technical services related to the mobile
telephone industry;
•
promote and coordinate, through our controlled or
affiliated companies, the education and training of the staff
required by the telephone services;
•
effect or order the import of goods and services for our controlled and affiliated companies;
•
hold interests in other companies.
Directors
Following
is a description of some of the provisions of our bylaws
concerning members of the Board of Directors:
•
Pursuant to Art. 23, paragraph XV of, the Board of
Directors has the power to approve loans, financing and lease
agreements, as well as to issue promissory notes, for an amount
exceeding 2% of the shareholders' equity;
•
Pursuant to Art. 23, paragraph XXIII, the Board of
Directors has the power to apportion the global remuneration set
forth by the shareholders' meeting between the Directors and the
Executive Officers.
Pursuant to the Brazilian Corporate Law, each member of the Board of
Directors must have at least one share of our capital stock in order to qualify
to be a director. There are no provisions in the by-laws with respect to:
•
a director's power to vote
compensation to him or
herself in the absence of an independent quorum;
•
borrowing powers exercisable by the directors;
•
age limits for retirement of directors;
•
required shareholding for director qualification;
•
anti-takeover mechanisms or other procedures designed
to delay, defer or prevent changes in our control; or
•
disclosure of share ownership.
69
Table of Contents
Rights Relating to our Shares
Dividend Rights
See "—Financial Information —Consolidated Financial Statements and Other
Financial Information —Dividend Policy," and "—Payment of Dividends."
Voting Rights
Each Common Share entitles the holder to one vote at meetings of
shareholders. Our Preferred Shares do not entitle the holder to vote except as
set forth below. Holders of our Preferred Shares are each entitled to attend
or to address meetings of shareholders.
One of the members of our permanent fiscal committee and his or her
alternative may be elected by majority vote of the holders of our preferred
shares, as the case may be, present at the annual meeting of shareholders at
which member of the fiscal committee are elected.
Brazilian Corporate Law provides that certain non-voting shares, such as
our preferred shares, acquire voting rights in the event we, as the case may
be, fail for three consecutive fiscal years to pay the dividend to which such
shares are entitled until such payment is made.
Our Preferred Shares are entitled to full voting rights with respect to:
•
the approval of any long-term contract between us and
our affiliates, on the one hand, and any controlling shareholder
or, that shareholder's affiliates and related parties, on the
other hand;
•
resolutions modifying certain provisions of our
by-laws; and
•
any resolution submitted to the shareholders' meeting
for our delisting or during our liquidation of the shares.
Any change in the preference, benefits, conditions of redemption and
amortization of our preferred shares, or the creation of a class of shares
having priority or preference over our preferred shares, would require the
approval of holders of a majority of our outstanding preferred shares at a
special meeting of holders of our preferred shares, as the case may be. Such a
meeting would be called by publication of a notice in two Brazilian official
gazettes at least thirty days prior to the meeting but would not generally
require any other form of notice.
In any circumstances in which holders of our preferred shares are entitled
to vote, each of our preferred share will entitle the holder to one vote.
Meeting of Shareholders
According to Brazilian law, shareholders must be previously convoked in
order for a general or extraordinary shareholders' meeting to be installed.
The notification must occur at least 15 days prior to the meeting scheduled
date. If the first meeting is not installed for some reason, the second
notification must happen at least five days before the second meeting date.
On the first call, meetings may only be installed with a minimum quorum of
one fourth of the holders of voting shares. Extraordinary meetings for the
amendment of the bylaws may only be installed on the first call with a minimum
of two thirds of the voting capital present. On a second call, the meetings
are installed regardless of quorum.
Preemptive Rights
Each of our shareholders has a general preemptive right to subscribe for
shares in any capital increase, in proportion to its shareholding. A minimum
period of 30 days following the publication of notice of the capital increase
is allowed for the exercise of the right, and the right is negotiable.
70
Table of Contents
However, a shareholders' meeting is authorized to eliminate preemptive
rights with respect to the issuance of new share, debentures and warrants
convertible into new shares up to the limit of the authorized share capital,
provided that the distribution of these securities is effected:
•
on a stock exchange;
•
in a public offering;
•
through an exchange of shares in a public offering the
purpose of which is to acquire control of another company; or
•
through the use of certain tax incentives.
In the event of a capital increase, which would maintain or increase the
proportion of capital represented by our preferred shares, holders of the ADSs,
or of our preferred shares, would have preemptive rights to subscribe only to
the newly issued preferred shares. In the event of a capital increase, which
would reduce the proportion of capital represented by our preferred shares,
holders of the ADSs, or of our preferred shares, would have preemptive rights
to subscribe to our preferred shares, in proportion to their shareholdings and
to the ordinary shares only to the extent necessary to prevent dilution of
their interest in us.
Preemptive rights to purchase shares may not be offered to U.S. holders of
the ADSs unless a registration statement under the Securities Act of 1933 is
effective with respect to the shares underlying those rights, or an exemption
form the registration requirements of the Securities Act of 1933 is available.
Consequently, if you are a holder of our ADSs, who is a U.S. person or is
located in the United States, you may be restricted in your ability to
participate in the exercise of preemptive rights.
Right of Redemption
Subject to the right of a dissenting shareholder to seek redemption upon a
decision made at a shareholders' meeting by shareholders representing over 50%
of the voting shares, ordinary shares or preferred shares are redeemable in
case we decide:
•
to change the preference of our preferred shares or to
create a class of shares having priority or preference over our
preferred shares;
•
to reduce the mandatory distribution of dividends;
•
to change our corporate purposes;
•
to participate in group of companies;
•
to transfer all of our shares to another company in
order to make us a wholly-owned subsidiary of that company;
•
to split up, subject to the conditions set forth by Brazilian Corporate Law;
•
to adopt another corporate type;
•
to approve the acquisition of another company, the
price of which exceeds certain limits set forth in the Brazilian
Corporate Law; and
•
to merge or consolidate ourselves with another company.
The right to redemption lapses 30 days after publication of the minutes of
the relevant shareholders' meeting or, whenever the resolution requires the
approval of the holders of our preferred shares by vote taken in a special
meeting of a majority of the holders of our preferred shares affected by the
resolution within 30 days from the publication of the minutes of that special
meeting. We would be entitled to reconsider any action giving rise to
71
Table of Contents
redemption rights within 10 days following the expiration of those rights
if the redemption of shares of dissenting shareholders would jeopardize the
financial stability, as the case may be.
In addition, the rights of withdrawal connected to bullet points 4 and 9
above may not be exercised by holders of shares if such shares are (1) liquid,
defined as being part of the Bovespa Index or other stock exchange index (as
defined by the CVM), and (2) such that the controlling shareholder or companies
it controls have less than 50% of our shares. Our Preferred Shares are included
on the Bovespa Index.
Unless otherwise provided in the by-laws, which is not the case with us,
shares are redeemable at their book value, determined on the basis of the last
annual balance sheet approved by the shareholders. If the shareholders'
meeting giving rise to redemption rights occurs more than 60 days after the
date of the last annual balance sheet, a shareholder may demand that its shares
be valued on the basis of a new balance sheet that is as of a date within 60
days of such shareholders' meeting.
Form and Transfer
Our shares are maintained in book-entry form with a transfer agent, Banco
Real S.A., and the transfer of our shares is made in accordance with the
applicable provision of the Brazilian Corporate Law, which provides that a
transfer of shares is effected by an entry made by the transfer agent on its
books, debiting the share account of the seller and crediting the share account
of the purchaser, against presentation of a written order of the seller, or
judicial authorization or order, in an appropriate document which remains in
the possession of the transfer agent. Our preferred shares underlying our ADS
are registered on the transfer agent's records in the name of the Brazilian
depositary.
Transfers of shares by a foreign investor are made in the same way and
executed by such investor's local agent on the investor's behalf except that,
if the original investment was registered with the Central Bank of Brazil under
the Brazilian foreign investment in capital markets regulations, the foreign
investor should also seek amendment, if necessary, though its local agent, of
the certificate of registration to reflect the new ownership.
The São Paulo stock exchange reports transactions in its market to CBLC, a
central clearing system. A holder of our shares may choose, at its discretion,
to participate in this system. All shares elected to be put into the system
will be deposited in custody with the relevant stock exchange, though a
Brazilian institution duly authorized to operate by the Central Bank of Brazil
and having a clearing account with the relevant stock exchange. The fact that
such shares are subject to custody with the relevant stock exchange will be
reflected in our register of shareholders. Each participating shareholder
will, in turn, be registered in our register of beneficial shareholders, as the
case may be, maintained by the relevant stock exchange and will be treated in
the same way as registered shareholders.
Material Contracts
We and the Subsidiaries entered into the following material loan contracts
within the past three years:
•
Credit Agreement dated as of December 22, 2000, among
BNDES, Telepar Celular, as borrower, and Tele Celular Sul, as
guarantor, in the principal amount of R$61.1 million. Under this
loan, R$46.4 million of the total principal amount bears interest
at a variable rate of 4% plus the long term interest rate
("TJLP"), which was 10.0% per annum on December 31, 2002. The
remaining R$14.7 million of principal is adjusted according to a
"BNDES currency basket," consisting mainly of the U.S. dollar. On
December 31, 2002, the outstanding amount under this credit
agreement was R$69.3 million;
•
Indenture for the First Public Issuance of Subordinated
Single-Series Simple Debentures of Telepar Celular, dated as of
November 9, 2000, in the principal amount of R$200.0 million.
The debentures are nonconvertible and bear interest at a variable
rate equal to 102.7% of the CDI, which equaled an average of
19.1% per annum for the year ended December 31, 2002. The
debentures will mature in October 2003. On December 31, 2002,
the outstanding amount of our debentures was R$210.1 million.
72
Table of Contents
See Note 15 to our Consolidated Financial Statements for further
description of such financing agreements. See "—Quantitative and Qualitative
Disclosures about Market Risk," for a discussion regarding our exposure to
foreign currency fluctuations and our hedging activities.
Exchange Controls
There are no restrictions on ownership of our preferred shares or common
shares by individuals or legal entities domiciled outside Brazil.
The right to convert dividend payments and proceeds from the sale of
shares into foreign currency and to remit such amounts outside Brazil is
subject to restrictions under foreign investment legislation which generally
requires, among other things, that the relevant investments have been
registered with the Central Bank of Brazil. Such restrictions on the
remittance of foreign capital abroad may hinder or prevent Banco Itaú S.A., as
custodian for our preferred shares represented by ADSs, or holders who have
exchanged ADRs for preferred shares from converting dividends, distributions or
the proceeds from any sale of such preferred shares, as the case may be, into
U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs could be
adversely affected by delays in, or refusal to grant any, required government
approval for conversions of Brazilian currency payments and remittances abroad
of our preferred shares underlying the ADSs.
Under Annex IV to Resolution No. 1,289 of the National Monetary Council,
as amended, qualified foreign investors (which principally include foreign
financial institutions, insurance companies, pension and investment funds,
charitable foreign institutions and other institutions that meet certain
minimum capital and other requirements) registered with the Brazilian
securities commission and acting through authorized custody accounts managed by
local agents may buy and sell shares on Brazilian stock exchanges without
obtaining separate certificates of registration for each transaction.
Investors under the Annex IV regulations are also entitled to favorable tax
treatment. See "—Taxation—Brazilian Tax Considerations."
The Annex IV regulations were superseded as of March 31, 2000 by the rules
of Resolution No. 2,689, of January 26, 2000, of the Brazilian monetary
council, which sets forth new regulations for investments in capital markets.
Foreign investments registered under the Annex IV regulations must conform to
the new rules by June 30, 2000. These new rules allow foreign investors to
invest in almost all of the financial assets and to engage in almost all
transactions available in the Brazilian financial capital markets, provided
that some conditions are fulfilled. In accordance with Resolution No.
2,689/00, foreign investors are individuals, corporations, mutual funds and
collective investments domiciled or headquartered abroad.
Pursuant to these new rules, 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 investment registration form;
•
obtain registration as a foreign investor with the Brazilian securities commission; and
•
register the foreign investment with the Central Bank of Brazil.
The securities and other financial assets held by the foreign investor
pursuant to Resolution 2,689/00 must be:
•
registered or maintained in deposit accounts or under
the custody of an entity duly licensed by the Central Bank of
Brazil or by the Brazilian securities commission or
•
registered in register, clearing and custody systems
authorized by the Central Bank of Brazil or by the Brazilian
securities commission.
In addition, securities trading is restricted to transactions carried out
on the stock exchanges or organized over-the-counter markets licensed by the
Brazilian securities commission.
73
Table of Contents
On January 26, 2000, the Central Bank of Brazil enacted Circular No.
2,963, providing that beginning on March 31, 2000, all investments by a foreign
investor under the Resolution No. 2,689/00 are subject to the electronic
registration with the Central Bank of Brazil. Foreign investments registered
under the Annex IV regulations must conform to the new registration rules by
June 30, 2000.
Resolution No. 1,927 of the National Monetary Council, which is the
restated and amended Annex V to Resolution No. 1,289 of the National Monetary
Council, provides for the issuance of depositary receipts in foreign markets in
respect of shares of Brazilian issuers. The ADS program was approved under the
Annex V regulations by the Central Bank of Brazil and the Brazilian securities
commission prior to the issuance of the ADSs. Accordingly, the proceeds from
the sale of ADSs by ADR holders outside Brazil are free of Brazilian foreign
investment controls and holders of the ADSs will be entitled to favorable tax
treatment. See "—Taxation—Brazilian Tax Considerations." According to
Resolution No. 2,689/00, foreign investments registered under Annex V
Regulations may be converted into the new investment system and vice-versa,
provided the conditions set forth by the Central Bank of Brazil and by the
Brazilian securities commission are complied with.
An electronic registration has been generated in the name of the
depositary with respect to the ADSs and is maintained by the custodian on
behalf of the depositary. This electronic registration is carried on through
the Central Bank of Brazil's information system. Pursuant to the registration,
the custodian and the depositary are able to convert dividends and other
distributions with respect to our preferred shares represented by ADSs into
foreign currency and remit the proceeds outside Brazil. In the event that a
holder of ADSs exchanges such ADSs for preferred shares, such holder will be
entitled to continue to rely on the depositary's certificate of registration
for five business days after such exchange, following which such holder must
seek to obtain its own certificate of registration with the Central Bank of
Brazil. 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 the Annex IV or the Resolution 2,689/00
regulations, 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." In addition, if the holder is a qualified investor under the
Annex IV regulations but resides in a jurisdiction which does not impose income
tax or where the income tax is imposed at a maximum rate of 20%, this holder
will be subject to a less favorable tax treatment than a holder of ADSs.
Under current Brazilian legislation, the federal government may impose
temporary restrictions on remittances of foreign capital abroad in the event of
a serious imbalance or an anticipated serious imbalance of Brazil's balance of
payments. For approximately six months in 1989 and early 1990, the federal
government froze all dividend and capital repatriations held by the Central
Bank of Brazil that were owed to foreign equity investors, in order to conserve
Brazil's foreign currency reserves. These amounts were subsequently released
in accordance with federal government directives. The imbalance in Brazil's
balance of payments increased during 1999, and there can be no assurance that
the federal government will not impose similar restrictions on foreign
repatriations in the future.
Taxation
The following summary contains a description of the principal Brazilian
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of our 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 our preferred shares or ADSs. The summary is based upon
the tax laws of Brazil and regulations thereunder and on the tax laws of the
United States and regulations thereunder as in effect on the date hereof, which
are subject to change.
Prospective purchasers of our 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 U.S.
holders of our preferred shares or ADSs. Prospective holders of our preferred
shares or ADSs should consult their own tax advisors as to the tax consequences
of the acquisition, ownership and disposition of our preferred shares or ADSs
in their particular circumstances.
74
Table of Contents
Brazilian Tax Considerations
The following discussion summarizes the principal Brazilian tax
consequences of the acquisition, ownership and disposition of our preferred
shares or ADSs by 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 us 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 income tax
withholding. Dividends paid from profits generated before January 1, 1996 may
be subject to Brazilian withholding income tax at varying rates, except that
stock dividends are not subject to Brazilian tax unless the stock is
subsequently redeemed by us, or the non-Brazilian holder sells the stock in
Brazil, within five years after distribution.
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.
Taxation of Gains
Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs or our preferred shares 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 exempt from
Brazilian income tax, taxed at a rate of 20% or taxed at a rate of 15%,
depending on the circumstances. Gains on the disposition of our preferred
shares obtained upon cancellation of ADSs are not subject to income tax 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 maximum
rate of less than 20%). Gains realized through transactions with Brazilian
residents or through transactions in Brazil off of the Brazilian stock
exchanges are subject to tax at a rate of 15%. Gains realized through
transactions on Brazilian stock exchanges are subject to tax at a rate of 20%,
unless the investor is entitled to tax exempt treatment for the transaction
under Resolution 2,689 of the National Monetary Council Regulations, described
immediately below.
Non-Brazilian holders of preferred shares registered under Resolution
2,689, which as of March 31, 2000 superseded the Annex IV Regulations, may be
subject to favorable tax treatment since the investor 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 Brazilian stock exchanges
or qualified over-the-counter markets. The preferential treatment afforded
under Resolution 2,689 and afforded to investors in ADSs is not available to
investors resident or domiciled in 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 "—Exchange
Controls."
75
Table of Contents
There is a possibility that gains realized by a non-Brazilian holder upon
the redemption of our 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 our preferred shares or ADSs
will not be subject to Brazilian taxation. Gains on the sale or assignment of
preemptive rights relating to our preferred shares will be subject to the same
tax treatment applicable to a sale or disposition of our preferred shares. The
deposit of our preferred shares in exchange for the ADSs may be subject to
Brazilian income tax if the amount previously registered with the Central Bank
as a foreign investment in our 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 our 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 our preferred
shares, calculated as set forth above, shall be considered a capital gain
subject to income tax at a rate of 15% (unless our preferred shares were held
in accordance with Resolution 2,689, in which case the exchange would be
tax-free).
The withdrawal of our preferred shares in exchange for ADSs is not subject
to Brazilian income 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 U.S. dollar value of such shares with the Central Bank
as described above in "—Exchange Controls." 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 our preferred shares.
Distributions of Interest on Capital
A Brazilian corporation may make payments to its shareholders
characterized as interest on the corporation's capital as an alternative form
of making dividend distributions. See "Item 8. Financial Information—Policy
on 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 (9.50% per annum for the three-month period
beginning April 2002). The total amount distributed as interest on capital may
not exceed, for tax purposes, the greater of (i) 50% of net income (after the
deduction of social contribution or net profits and before the deduction of the
corporate income tax deduction and before taking such distribution 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 our Board of Directors.
Up to the limit mentioned above, distributions of interest on capital paid
to Brazilian and non-Brazilian holders of our preferred shares, including
payments to the Depositary in respect of preferred shares underlying ADSs, are
deductible by us for Brazilian tax purposes. Such payments are subject to
Brazilian income tax withholding at the rate of 15%, except for payments to
beneficiaries who are exempt from tax in Brazil, which are free of Brazilian
tax, and except for payments to beneficiaries situated in tax havens, which
payments are subject to withholding at a 25% rate.
No assurance can be given that our Board of Directors 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 income tax
withholding) may be treated as payments in respect of the dividends we are
obligated to distribute to our shareholders in accordance with our Charter and
Brazilian Corporate Law. Distributions of interest on capital in respect of
our preferred shares, including distributions to the Depositary in respect of
preferred shares underlying ADSs, may be converted into U.S. dollars and
remitted outside of Brazil, subject to applicable exchange controls.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to
the ownership, transfer or disposition of our 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.
76
Table of Contents
A financial transaction tax (the "IOF") 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) or the
conversion of foreign currency into Brazilian currency. The IOF tax rate for
most of these transactions 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.
The 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
our 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% per day.
In addition to such taxes, the temporary contribution on financial
transactions, or the CPMF tax, is currently levied at a rate of 0.38% on all
fund transfers in connection with financial transactions in Brazil. The CPMF
will be in effect until December 31, 2004. The current rate of 0.38% will be
maintained until December 31, 2003, changing to 0.08% for the subsequent
period. As of July 12, 2002, stock exchange transactions are exempted from the
CPMF tax.
U.S. Federal Income Tax Considerations
The statements regarding U.S. tax law set forth below are based on U.S.
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 our 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 our preferred shares or
ADSs. This summary applies only to purchasers of our preferred shares or ADSs
who will hold our preferred shares or ADSs as capital assets and does not apply
to special classes of holders such as dealers in securities or currencies,
holders whose functional currency is not the U.S. dollar, holders of 10% or
more of our shares (taking into account shares held directly 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 our 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 U.S. federal income tax laws, of an investment in our preferred shares or
ADSs.
In this discussion, references to ADSs also refer to our preferred shares,
and references to a "U.S. 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 U.S. federal income taxation on a net
basis with respect to the ADS.
For purposes of the U.S. Internal Revenue Code of 1986, as amended, (the
"Code") holders of ADSs will be treated as owners of our preferred shares
represented by such ADSs.
Taxation of Distributions
A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by the Holding Company as a dividend to the extent
that such distribution is paid out of the Holding Company's current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, when such distribution is received by the Custodian, or by the U.S.
holder in the case of a holder of preferred shares. The amount of any
distribution will include the amount of Brazilian tax withheld on the amount
distributed, and the amount of a distribution paid in
reais
will be measured by
reference to the exchange rate for converting
reais
into U.S. dollars in effect
on the date the distribution is received by the Custodian, or by a U.S. holder
in the case of a holder of preferred shares. If the Custodian, or U.S. holder
in the case of a holder of preferred shares, does not convert such
reais
into
U.S. dollars on the date it receives them, it
77
Table of Contents
is possible that the U.S. holder will recognize foreign currency loss or
gain, which would be ordinary loss or gain, when the
reais
are converted into
U.S. dollars. Under new rules applicable to dividends received after 2002 and
before 2009, an individual U.S. holder generally will be subject to U.S.
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 circumstances. Dividends paid
by the Holding Company will not be eligible for the dividends received
deduction allowed to corporations under the Code.
Distributions out of earnings and profits with respect to the ADSs
generally will be treated as dividend income from sources outside of the United
States and generally will be treated separately along with other items of
"passive" (or, in the case of certain U.S. holders, "financial services")
income for purposes of determining the credit for foreign income taxes allowed
under the Code. Subject to certain limitations, Brazilian income tax withheld
in connection with any distribution with respect to the ADSs may be claimed as
a credit against the U.S. federal income tax liability of a U.S. holder if such
U.S. 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 U.S.
holder's expected economic profit is insubstantial. U.S. holders should
consult their own tax advisors concerning the implications of these rules in
light of their particular circumstances.
Distributions of additional shares to holders with respect to their ADSs
that are made as part of a pro rata distribution to all shareholders of the
Holding Company generally will not be subject to U.S. federal income tax.
Holders of ADSs that are foreign corporations or nonresident alien
individuals ("non-U.S. holders") generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes unless such
dividends are effectively connected with the conduct by the holder of a trade
or business in the United States.
Passive Foreign Investment Company Rules
We believe that we are not considered a "passive foreign investment
company" ("PFIC") for United States federal income tax purposes. However,
since PFIC status depends upon the composition of our income and assets and the
market value of our assets from time to time, there can be no assurance that we
will not be considered a PFIC for any taxable year. If we were treated as a
PFIC for any taxable year during which a U.S. Holder held a preferred share or
ADS, certain adverse consequences could apply to the U.S. Holder.
If we are treated as a PFIC for any taxable year, gain recognized by a
U.S. Holder on a sale or other disposition of a preferred share or ADS would be
allocated ratably over the U.S. Holder's holding period for our preferred share
or ADS. The amounts allocated to the taxable year of the sale or other
exchange and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to
tax at the highest rate in effect for individuals or corporations, as
appropriate, and an interest charge would be imposed on the amount allocated to
such taxable year. Further, any distribution in respect of preferred shares or
ADSs in excess of 125 percent of the average of the annual distributions on
preferred shares or ADSs received by the U.S. Holder during the preceding three
years or the U.S. Holder's holding period, whichever is shorter, would be
subject to taxation as described above. Certain elections may be available
(including a mark to market election) to United States persons that may
mitigate the adverse consequences resulting from PFIC status.
Taxation of Capital Gains
Upon the sale or other disposition of an ADS, a U.S. holder will generally
recognize gain or loss for U.S. 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 U.S. holder's tax basis in
the ADS. Such gain or loss generally will be subject to U.S. 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%.
78
Table of Contents
Capital losses may be deducted from taxable income, subject to certain
limitations. Gain realized by a U.S. holder on a sale or disposition of ADSs
generally will be treated as U.S. source income. Consequently, if Brazilian
tax is imposed on such gain, the U.S. holder will not be able to use the
corresponding foreign tax credit, unless the holder has other foreign source
income of the appropriate type in respect of which the credit may be used.
A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (1) such gain is effectively connected with the conduct by the holder of
a trade or business in the United States, or (2) 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 U.S. holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup
withholding unless the U.S. holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any backup
withholding collected from a payment to a U.S. holder will be allowed as a
credit against the U.S. holder's U.S. federal income tax liability and may
entitle the U.S. holder to a refund, provided that certain required information
is furnished to the Internal Revenue Service.
A non-U.S. 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.
Documents on Display
Statements contained in this annual report as to the contents of any
contract or other document referred to are not necessarily complete, and each
of these statements is qualified in all respects by reference to the full text
of such contract or other document filed as an exhibit hereto. Anyone may read
and copy this report at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Information on the operation of the public reference rooms is available by
calling 1-800-SEC-0330.
We are subject to the information and periodic reporting requirements of
the Exchange Act and, in accordance therewith, will file periodic reports and
other information with the SEC. These periodic reports and other information
will be available for inspection and copying at the regional offices, public
reference facilities of the SEC referred to above. As a foreign private
issuer, we are exempt from certain provisions of the Exchange Act prescribing
the furnishing and content of proxy statements and periodic reports and from
Section 16 of the Exchange Act relating to short-swing profits reporting and
liability.
We will furnish to JPMorgan Chase, as Depositary, copies of all reports we
are required to file with the SEC under the Exchange Act, including our annual
reports in English, containing a brief description of our operations and our
audited annual Consolidated Financial Statements which will be prepared in
accordance with the Brazilian Corporate Law accounting method and include a
reconciliation to U.S. GAAP. In addition, we will be required under the
Deposit Agreement to furnish the Depositary with copies of English translations
to the extent required under the rules of the SEC of all notices of Tele
Celular Sul preferred shareholders' meetings and other reports and
communications that are generally made available to holders of Preferred
Shares. Under certain circumstances, the Depositary will arrange for the
mailing, at our expense, of these notices, other reports and communications to
all ADR holders.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Exchange rate risk
We are exposed to foreign exchange rate risk because certain of our costs
are denominated in currencies, primarily the U.S. dollar, other than those in
which we earn revenues, primarily the
real
. Prior to June 1999, we did not use
derivative instruments, such as foreign exchange forward contracts, foreign
currency options and interest rate swaps to manage these market risks.
79
Table of Contents
On December 31, 2002, approximately R$41.6 million of our indebtedness was
denominated in U.S. dollars and fully hedged. In addition, on the same date,
we owed approximately R$69.4 million, including accrued interest, under our
credit facility with BNDES, of which R$19.4 million was linked to the "BNDES's
basket of currencies," mostly based on the U.S. dollar/
real
exchange rate. On
May 31, 2002, we swapped all our exposure to such "BNDES basket of currencies"
to CDI. We do not hold or issue derivatives or other financial instruments for
trading purposes.
Interest rate risk
On December 31, 2002, our outstanding debt accrued interest at the CDI or
the TJLP, and totaled R$321.1 million. On the same date, we had cash and cash
equivalents, in the amount of R$432.8 million, of which approximately R$421.7
million were invested in short-term instruments accruing interest at the CDI
rate.
The potential loss that we would suffer in case of a hypothetical,
instantaneous and unfavorable change of 100 basis points in the interest rates
applicable to our financial assets and liabilities, as of December 31, 2002,
would be approximately R$5.0 million. See Note 15 to our Consolidated
Financial Statements.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
80
Table of Contents
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our 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 our evaluation, our Chief Executive Officer 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 we file and submit under the Exchange Act is recorded, processed,
summarized and reported as and when required.
Furthermore, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
ITEM 16. CODE OF ETHICS
We have adopted a Code of Conduct and Transparency that applies to its
directors, officers, controlling shareholders and members of the Fiscal
Committee in accordance with CVM rules satisfying the requirements of Brazilian
Law. Our 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.
81
Table of Contents
PART III
ITEM 17. FINANCIAL STATEMENTS
We have responded to Item 18 in lieu of responding to this Item.
ITEM 18. FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-75. The following financial
statements are filed as part of this Form 20-F:
Reports of Independent Accountants for the years ended December 31, 1999, 2000, and 2001
F-3
Consolidated Balance Sheet as of December 31, 2000 and 2001
F-4
Consolidated Statement of Income for the years ended on December 31, 1999, 2000, and 2001
F-6
Consolidated Statement of Changes in Shareholders' Equity for the years ended on December
31, 1999, 2000, and 2001
F-7
Consolidated Statements of Changes in Financial Position for the years ended on December
31, 1999, 2000, and 2001
F-8
Notes to our Consolidated Financial Statements
F-9
82
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2000, 2001 and 2002
with Report of Independent Auditors
F-1
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2000, 2001 and 2002
CONTENTS
Report Of Independent Auditors
1
Consolidated Balance Sheets
2
Consolidated Statements of Income
4
Consolidated Statements Of Changes In Shareholders' Equity
5
Consolidated Statements Of Changes In Financial Position
6
Notes to the Consolidated Financial Statements
7
F-2
Table of Contents
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of
Tele Celular Sul Participações S.A.
We have audited the accompanying consolidated balance sheets of
Tele Celular
Sul Participações S.A.
("the Company") and its subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of income, changes in
shareholders' equity and changes in financial position for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tele
Celular Sul Participações S.A. and its subsidiaries at December 31, 2002 and
2001, and the consolidated results of their operations and changes in financial
position for the years then ended in conformity with accounting principles
established under the Brazilian Corporate Law.
Accounting principles originating from the Brazilian Corporate Law vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States of America would have affected consolidated net
income for the years ended December 31, 2002 and 2001 and consolidated
shareholders' equity at December 31, 2002 and 2001 to the extent summarized in
Note 31 to the consolidated financial statements.
Curitiba, Brazil
January 17, 2003, except for notes 20.d and 31.III.a, for which the date is February 28, 2003
Auditores Independentes S.C.
/s/ Marcos Antonio Quintanilha
Partner
F-3
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2002
(In thousands of Brazilian Reais)
December 31,
2001
2002
Assets
Current assets
Cash and cash equivalents
5,462
11,147
Marketable securities (note 4)
134,397
421,687
Trade accounts receivable, net (note 5)
148,862
165,801
Inventories (note 6)
21,856
15,573
Recoverable taxes (note 7)
30,853
42,386
Deferred taxes (note 8)
22,344
44,590
Other
12,423
4,607
376,197
705,791
Non current assets
Marketable securities
—
7,705
Recoverable taxes (note 7)
5,268
4,667
Deferred taxes (note 8)
235,986
184,673
Judicial deposits (note 10)
10,908
11,148
Other
1,889
774
254,051
208,967
Permanent assets
Investments (note 11)
28,707
24,320
Property, plant and equipment, net (note 12)
775,575
655,949
Deferred charges (note 13)
67,649
52,858
871,931
733,127
Total Assets
1,502,179
1,647,885
F-4
Table of Contents
December 31,
2001
2002
Liabilities and shareholders' equity
Current liabilities
Trade accounts payable (note 14)
63,389
123,677
Loans and financings (note 15)
21,987
38,052
Debentures (note 16)
8,860
210,114
Salaries and related charges (note 17)
13,083
14,115
Taxes and social contribution payable (note 18)
20,794
42,958
Interest on shareholders' equity payable
26,636
17,697
Dividends payable
2,184
12,489
Other liabilities
14,548
24,968
171,481
484,070
Noncurrent liabilities
Loans and financings (note 15)
103,539
72,919
Debentures (note 16)
200,000
—
Taxes and social contributions payable (note 18)
60,727
74,193
Accrual for pension plan (note 20)
2,239
2,833
Provision for contingencies (note 19)
6,095
8,951
Other
75
—
372,675
158,896
Minority interest
149,694
159,589
Shareholders' equity (note 21)
Capital
245,033
324,666
Capital reserve
195,695
178,062
Revenue reserves
367,601
342,602
808,329
845,330
Total Liabilities and Shareholders' equity
1,502,179
1,647,885
See accompanying notes.
F-5
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2000, 2001 and 2002
(In thousands of Brazilian Reais)
Years ended December 31,
2000
2001
2002
Gross revenues (note 22)
926,082
1,056,346
1,145,948
Deductions from gross revenues (note 22)
(209,195
)
(264,917
)
(254,684
)
Net revenues (note 22)
716,887
791,429
891,264
Cost of goods sold and services rendered (note 23)
(364,468
)
(406,033
)
(486,383
)
Gross profit
352,419
385,396
404,881
Operating revenues (expenses)
Selling (note 24)
(201,150
)
(181,424
)
(185,446
)
General and administrative (note 25)
(76,300
)
(71,909
)
(83,346
)
Equity in loss of affiliated company
—
(1,888
)
(4,288
)
Other operating expense, net (note 26)
(14,522
)
(15,584
)
(14,902
)
(291,972
)
(270,805
)
(287,982
)
Operating income before financial results
60,447
114,591
116,899
Financing revenues (expenses)
Interest income
17,463
45,278
121,310
Interest expenses
(62,619
)
(72,045
)
(103,535
)
Foreign exchange losses, net
(12,748
)
(17,638
)
(36,734
)
(57,904
)
(44,405
)
(18,959
)
Operating income
2,543
70,186
97,940
Non-operating income (expenses), net (note 27)
3,507
10
(127
)
Income before taxes
6,050
70,196
97,813
Income tax and social contribution (note 28)
6,320
672
(19,473
)
Minority interest
2,998
(10,979
)
(12,566
)
Net income for the year
15,368
59,889
65,774
Net income per thousands shares outstanding at year
end (R$)
0.05
0.18
0.19
Number of outstanding shares on December 31 (thousands)
334,399
337,219
342,970
See accompanying notes.
F-6
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 2001 and 2002
(In thousands of Brazilian Reais)
Capital reserve
Revenue Reserves
Special
Unrealized
Special
Income
goodwill
Legal
profits
reserve for
reserve for
Retained
Capital
reserve
reserve
reserve
dividends
expansion
earnings
Total
Balances at December 31, 1999
175,872
—
16,744
126,655
—
—
241,695
560,966
. Partial reduction of capital
(100
)
100
—
—
—
—
—
—
. Incorporation of parent company goodwill
—
205,503
—
—
—
—
—
205,503
. Net income for the year
—
—
—
—
—
—
15,368
15,368
. Realization of unrealized profits reserve
—
—
—
(32,427
)
—
—
32,427
—
Appropriation of net income for the year:
. Legal reserve
—
—
768
—
—
—
(768
)
—
. Interest on shareholders' equity
—
—
—
—
—
—
(2,515
)
(2,515
)
. Dividends
—
—
—
—
—
—
(9,241
)
(9,241
)
Balances at December 31, 2000
175,772
205,603
17,512
94,228
—
—
276,966
770,081
Capital increase
69,261
(9,908
)
—
—
—
—
(59,353
)
—
. Net income for the year
—
—
—
—
—
—
59,889
59,889
. Realization of unrealized profits reserve
—
—
—
(94,228
)
—
—
94,228
—
. Special reserve for dividends
—
—
—
—
19,257
—
(19,257
)
—
. Profit reserve for expansion
—
—
—
—
—
327,838
(327,838
)
—
Appropriation of net income for the year:
. Legal reserve
—
—
2,994
—
—
—
(2,994
)
—
. Interest on shareholders' equity
—
—
—
—
—
—
(20,782
)
(20,782
)
. Dividends
—
—
—
—
—
—
(859
)
(859
)
Balances at December 31, 2001
245,033
195,695
20,506
—
19,257
327,838
—
808,329
. Capital increase
79,633
(17,633
)
—
—
—
(62,000
)
—
—
. Net income for the year
—
—
—
—
—
—
65,774
65,774
. Realization of special reserve for dividends
—
—
—
—
(10,602
)
—
(10,602
)
. Profit reserve for expansion
—
—
—
—
—
44,314
(44,314
)
—
Appropriation of net income for the year:
. Legal reserve
—
—
3,289
—
—
—
(3,289
)
—
. Interest on shareholders' equity
—
—
—
—
—
—
(17,000
)
(17,000
)
Dividends
—
—
—
—
—
—
(1,171
)
(1,171
)
Balances at December 31, 2002
324,666
178,062
23,795
—
8,655
310,152
—
845,330
See accompanying notes.
F-7
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Years ended December 31, 2000, 2001 and 2002
(In thousands of Brazilian Reais)
Years Ended December 31,
2000
2001
2002
Financial resources were provided by:
Operations
Net income for the year
15,368
59,889
65,774
Items not affecting working capital
Depreciation and amortization
156,089
181,950
201,763
Exchange and monetary variations and interest on long-term liabilities
6,475
12,519
12,992
Provision (reversal of provision) for contingencies
(2,003
)
4,578
2,858
Equity in loss of affiliated company
—
1,888
4,288
Net book value of property, plant and equipment sold
372
883
2,171
Pension plan contributions
294
65
594
Minority interest
(2,998
)
10,979
12,566
Capital gain on acquisition of minority interest
(2,130
)
—
—
TIMNET non-consolidation effects
—
(4,736
)
—
Other
—
—
(753
)
Third parties
Increase of long-term liabilities
341,886
23,436
18,343
Transfer from long-term receivables to current assets
18,597
19,093
49,524
Total resources provided
531,950
310,544
370,120
Financial resources were used for:
Deferred and recoverable taxes
32,814
19,614
16,534
Judicial deposits
902
225
240
Marketable securities
—
—
7,705
Other
2,156
1,168
242
Permanent assets
Investments
—
11,100
926
Property, plant and equipment
180,524
101,684
64,512
Deferred charges
23,786
45,615
3,227
Dividends and interest on shareholders' equity
11,756
21,641
28,773
Transfer from long-term liabilities to current
19,588
17,818
248,566
Total resources used
271,526
218,865
370,725
Increase (decrease) in working capital
260,424
91,679
(605
)
Changes in working capital
Working capital at the end of the year:
Current assets
312,175
376,197
701,268
Current liabilities
199,138
171,481
497,157
113,037
204,716
204,111
Less working capital at the beginning of the year
(147,387
)
113,037
204,716
Increase (decrease) in working capital
260,424
91,679
(605
)
See accompanying notes.
F-8
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
1
Operations and background
(a)
History
Tele Celular Sul Participações S.A. ("the Company") was founded in accordance
with Article 189 of Law No. 9,472/97 – General Telecommunications Law and based
on Decree No. 2546/98 as of April 14,1998, as a result of the spin-off of
Telecomunicações Brasileiras S.A. approved at the Shareholders Meeting held on
May 22, 1998.
The Company is a publicly traded company directly controlled by Bitel
Participações S.A., which has, as of December 31, 2002, 52.06% of the Company's
voting capital and 20.68% of the Company's total capital.
Although the economic situation in Brazil has remained stable in recent years,
a return to higher levels of inflation and currency fluctuations could
adversely affect the Company's operations. The foreign exchange volatility of
the Brazilian Real (R$) in relation to the US Dollar affects the Company's
financial statements. The exchange rate of the Brazilian Real to the US Dollar
was R$1.9554:US$1.00, R$2.3204:US$1.00 and R$3.5333:US$1.00 at December 31,
2000, 2001 and 2002, respectively. At December 31, 2001 and 2002, the loans
based in US Dollar represented 17% and 13% of Company's total consolidated
debt, respectively.
(b)
Corporate restructuring plan
When the parent company of Tele Celular Sul Participações S.A. ("parent
company") acquired the participation in common shares of the Company as a
result of the privatization process, a higher price was paid in relation to the
book value of the Company, thus generating a goodwill. During the first quarter
of 2000, Tele Celular Sul Participações S.A. and the parent company began a
restructuring process in order to transfer the goodwill to the operating
subsidiaries in order to obtain the tax deductibility of the goodwill
amortization. The estimated tax benefit is approximately R$205,000. During
2002, the tax benefit was R$25,250 (R$25,270 in 2001).
As a first step of the restructuring process, the goodwill was transferred from
the parent company to Tele Celular Sul Participações S.A. in two phases,
including the creation of a new subsidiary by the parent company to where the
goodwill was transferred, and subsequently the merger of this new subsidiary
into Tele Celular Sul Participações S.A. This first step was concluded at April
28, 2000 with the approval by the shareholders through an Extraordinary
Shareholders Meeting.
In the second step of the process, the Company spun off to the operating
subsidiaries their respective shares of the goodwill. This second step was
approved by the Extraordinary Shareholders General Meeting of each subsidiary
on June 30, 2000.
F-9
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
A valuation allowance, denominated in the books as "Provision for maintenance
of shareholders' equity", was recorded by the subsidiaries in relation to the
goodwill. Accordingly, the remaining balances correspond to the tax benefit
arisen from the future amortization of goodwill.
As of December 31, 2002 the remaining value of the resulting tax credit in
relation to both income taxes and social contribution tax on profits of the
subsidiaries was R$141,106 (R$166,358 in 2001). This is shown in the balance
sheet as part of deferred taxes (R$24,857 as current and R$116,249 as
noncurrent assets on December 31, 2002 and R$18,053 and R$148,305 on December
31, 2001, respectively).
Under the terms of the reorganization, the resulting tax benefit reverts to the
benefit of the controlling shareholder that originated the goodwill without,
however, causing any negative effects on the Company's profitability or the
flow of dividends to its minority shareholders. The effect of the
reorganization on the balance sheet and income statement accounts as at
December 31, 2001 and 2002 and for the years then ended is shown below:
Balance sheet effects:
December
December
31, 2001
31, 2002
Unamortized balance of goodwill
489,287
414,964
Provision for maintenance of shareholders equity
(322,929
)
(273,858
)
Tax benefit balance presented under "Deferred and
recoverable taxes"
166,358
141,106
Income statement effects:
2001
2002
Goodwill amortization
(74,322
)
(74,322
)
Provision reversal
49,052
49,072
Tax credit balance
25,270
25,250
Net income effect
—
—
F-10
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The goodwill is being amortized over 10 years, starting in August 1998, at a
rate of 4% p.a. in the first two years with the balance being amortized
straight line over the remaining eight years. The provision for maintenance of
shareholders equity was established at an amount sufficient to reduce the
unamortized balance of the goodwill to the estimated value of the future tax
benefits that will be generated by its amortization in the subsidiaries. This
is also the amount necessary to ensure that there will be no reduction in the
amount of retained earnings available for the distribution of dividends on
account of the future amortization of the goodwill in excess of the related tax
benefit. The counter-entry to the initial recognition of the tax credit balance
is recognized directly in shareholders equity as a capital reserve. Also under
the terms of the restructuring, the effective tax benefit realized in each
fiscal year will subsequently be capitalized in the name of the controlling
shareholder, and minority shareholders are ensured the right to preference in
the acquisition of a proportional amount of new capital from the controlling
shareholder.
(c)     Company subsidiaries
In the corporate restructuring process described in item (d) below, the Company
maintained the ownership control of Telepar Celular S.A., acting in an
integrated way with its subsidiary.
The Company also has an ownership interest in the affiliated company TIMnet.com
S.A.
Except for TIMnet.com S.A., the direct and indirect subsidiaries are providers
of mobile telephone services in the Brazilian states of Paraná (except for the
cities of Londrina and Tamarana) and Santa Catarina, and in the cities of
Pelotas, Capão do Leão, Morro Redondo and Turuçu in the State of Rio Grande do
Sul. The Company provides such mobile telephone services under concession terms
granted by the Federal Government. These concessions will expire on September
3, 2007, September 30, 2008 and April 14, 2009 for Telepar Celular S.A., Telesc
Celular S.A. and CTMR Celular S.A., respectively. Those concessions may be
subsequently renewed for an additional period of 15 years by the granting
authority.
Through November 30, 2002, the Company had ownership interests in Telesc
Celular S.A. and CTMR Celular S.A. As discussed in (d) below, the ownership
interests were transferred to Telepar Celular S.A.
TIMnet.com S.A. was founded on July 13, 2000, in order to provide Internet
access and related services to end users, including internet hosting, web
design, information technology and data processing services, information
technology and telecommunications consulting and technical support. At December
31, 2002 the Company's interest in TIMnet.com S.A. was 20% and is recorded as a
non-consolidated investment in an affiliated company.
F-11
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(d)     Corporate Reorganization
On December 26, 2002, the Board of Directors approved the corporate
reorganization, which was previously approved by the Extraordinary General
Meeting held on November 19, 2002, in which all shares issued by Telesc Celular
S.A. and CTMR Celular S.A., which were previously owned by Tele Celular Sul
Participações S.A., were transferred to Telepar Celular S.A.
The corporate restructuring was performed in order to achieve the following,
among other reasons: i) operational integration between the subsidiaries, which
will allow the sharing of the knowledge of the businesses and consequent cost
reductions; ii) concentration of the shares of the subsidiaries in one public
company generating a benefit to all shareholders.
The restructuring process was performed through the exchange of Telesc Celular
S.A. and CTMR Celular S.A. shares for shares issued by Telepar Celular S.A.,
resulting in a capital increase on Telepar of R$578,959 as well as Telepar's
ownership of Telesc and CTMR. Telesc and CTMR became subsidiaries of Telepar.
The new shares issued by Telepar, as a result of the capital increase, were
given to the shareholders of Telesc and CTMR.
(e)     Purchase of interest in Telesc Celular S.A.
On April 4, 2002, the Annual Shareholders' Meeting of the subsidiary Telesc
Celular S.A. approved a capital increase in the benefit of the Company, related
to the tax benefit originated from the amortization of the deferred tax related
to the goodwill formed during the partial spin off the Company, in accordance
to the article 7, paragraph 1, of the Brazilian Securities and Exchange
Commission — CVM Instruction 319/99. The capital increase of R$17,633, was
represented by the issuance of 73,697,887 common shares without nominal value,
with 72,082,532 shares issued in favor of the Company and 1,615,355 shares
issued in favor of the minority shareholders based on their right of
preferential exercise.
(f)     Technological platform
The Company and its subsidiaries are developing studies to offer mobile phones
that operate in the GSM technology, in addition to the services currently
offered in the TDMA technology, increasing its services portfolio to clients.
F-12
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
2. Presentation of the financial statements
a) Basis of preparation and disclosures
The consolidated financial statements were prepared in accordance with
accounting principles originating from Brazilian Corporate Law and in
conformity with accounting requirements and procedures established by the
Brazilian Securities Commission (CVM), and the related rules applicable to the
public telecommunication service concessionaires.
Tele Celular Sul Participações S.A. is a publicly traded company and has
American Depositary Receipts traded on the New York Stock Exchange.
Consequently, the Company is subject to the rules of the United States Security
and Exchange Commission (SEC) and is also required to include in its financial
statements specific disclosures relating to the reconciliation between
shareholders equity and net income prepared in accordance with Brazilian
Corporate Law and shareholders equity and net income based on accounting
principles generally accepted in the United States of America (US GAAP). See
Note 31.
b) Consolidated financial statements
The consolidated financial statements include the consolidated assets and
liabilities of the Company and its subsidiary, and the results of operations of
Telesc Celular S.A. and CTMR Celular S.A. for the years ended December 31, 2000
and 2001 and for the period from January 1, 2002, through November 30, 2002, as
well as, the results of operations of Telepar Celular S.A for the years ended
December 31 2000, 2001 and 2002.
Description of main consolidation procedures:
I.
Elimination of assets and liabilities balances between the consolidated
subsidiaries;
II.
Elimination of investments, reserves and retained earnings of the subsidiaries;
III.
Elimination of revenues and expenses generated by transactions between the companies;
IV.
Disclosure of the minority interest participation in the consolidated financial statements.
F-13
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The Company's ownership percentage in the subsidiaries as of December 31, 2000,
2001, and 2002 was the following (% of total capital and voting capital):
December 31,
2000
2001
2002
Telepar Celular S.A.
Total capital
73.57
%
73.57
%
80.79
%
Voting capital
87.43
%
87.43
%
90.19
%
Telesc Celular S.A.
Total capital
82.92
%
83.13
%
—
Voting capital
91.40
%
91.62
%
—
CTMR Celular S.A.
Total capital
78.55
%
78.55
%
—
Voting capital
81.32
%
81.32
%
—
On April 2001 the Company's ownership percentage of TIMnet.com S.A. was reduced
from 50% to 33% and as of December 2002, the ownership percentage was further
reduced to 20%. Consequently, commencing January 1, 2001 the Company has been
accounting for its investments in TIMnet.com S.A. under the equity method of
accounting. Since the acquisition of the investment in July 13, 2000 and
through December 31, 2000, the Company had proportionally consolidated the
financial position and results of TIMnet.com S.A.
F-14
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
c)
Reclassification to the financial statements for the years ended December 31, 2000 and 2001
Some reclassifications have been made to prior years amounts in order to
provide a better presentation and comparison with current year financial
statements as follows:
2000
2001
Amount originally
Amount originally
Current amount
disclosed
Current amount
disclosed
Current assets
Cash and cash equivalents
Reclassified to marketable securities
—
—
5,462
139,859
Marketable securities
Reclassified from cash and cash equivalents
—
—
134,397
—
Operating revenues (expenses)
General and administrative expenses
Reclassified employees bonus performance
76,300
74,038
71,909
67,780
F-15
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
3
Summary of significant accounting practices
These financial statements were prepared according to the accounting principles
originating from the Brazilian Corporate Law, and were translated from
Portuguese into English. Additionally, certain terminology was changed and
certain footnotes were complemented to better represent the reporting standards
prevailing in the United States of America.
The significant accounting practices adopted in the preparation of the
consolidated financial statements are consistent with those adopted in prior
periods.
(a)
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.
(b)
Marketable securities
Marketable securities represent temporary investments to be held up to the
maturity dates which are over one year, and are recorded at cost, as current
and long term assets, plus interest earned up to the balance sheet date.
(c)
Trade accounts receivable
Trade accounts receivable represent services and products billed to customers,
unbilled services rendered to customers, as well as amounts arising from the
use of the Company's telecommunications network by subscribers of other
telecommunications companies.
The allowance for doubtful accounts is recorded based on an analysis prepared
by management which considers the customer base profile, the aging of overdue
accounts and the overall economic environment. Management believes the
provision amount is sufficient to cover estimated losses of the receivables.
(d)
Inventories
Inventories primarily include cellular handset equipment which is stated at
average acquisition cost net of the provisions for realization value
adjustment, whenever applicable.
F-16
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(e)     Investments
Represent the permanent investments in the affiliated company, which is
recorded based on equity method, and the goodwill originated on the acquisition
of additional shares in Telepar Celular S.A. The accounting practices adopted
by the affiliated company are consistent with those adopted by the Company.
(f)     Property, plant and equipment
Property, plant and equipment is stated at acquisition and/or construction
cost, less accumulated depreciation calculated based on the straight-line
method at the rates shown in Note 12, which take into consideration the useful
lives of the assets. Expenditures for repairs and maintenance of existing
property, plant and equipment, which extend the useful lives of the related
assets, as well as the interest computed on debts that finance the construction
of property, plant and equipment, are capitalized and amortized over the
remaining useful life.
Interest on loans to finance constructions in progress is added to their cost,
in accordance with CVM Resolution 193/96.
The Company's management reviews property, plant and equipment for possible
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset or group of assets may not be recoverable on the
basis of undiscounted future cash flows. The reviews are carried out at the
lowest level of asset groups to which management is able to attribute
identifiable future cash flows. The Company analyzes the net book value of the
underlying assets and adjusts it if the sum of the expected future cash flows
is less than the net book value. These reviews have not indicated the need to
recognize any impairment losses during the years ended December 31, 2000, 2001
and 2002.
(g)     Deferred charges
Deferred charges represent expenses incurred in connection with the
implementation of data processing systems, net of accumulated amortization
calculated according to the straight-line method over five years. Such costs
represent direct developments costs associated with internal-use software,
including external direct costs of materials and services, and payroll costs
for employees devoting time to the software projects. Significant costs
incurred during the preliminary stage, as well as maintenance and training
costs, are expensed as incurred.
F-17
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(h)
Interest attributed to shareholders' equity
Brazilian corporations are permitted to pay interest on shareholders' equity,
which is similar to the payment of dividends. The amount of interest is at the
Company's discretion and is deductible for income tax purposes. The Company has
elected to pay such interest to its shareholders with respect to the years
ended December 31, 2000, 2001 and 2002, and has accrued the amount due, net of
withholding tax, with a direct charge to shareholders' equity. The distribution
of such interest to shareholders is subject to withholding for income tax at
the rate of 15%.
(i)
Income and social contribution taxes
These taxes are calculated and recorded based on the tax rates prevailing on
the date of the consolidated financial statements. Deferred taxes are recorded
on timing differences and on income and social contribution tax loss
carryforwards, whenever applicable. Management expects that deferred tax assets
will be realized over the next four years. Under Brazilian tax legislation, tax
losses related to income tax and negative social contribution tax basis have no
expiration date and may be used to off-set taxable income in any given year up
to a maximum of 30% of such taxable income.
Based on the business plan for future years and on the corporate reorganization
implemented during 2002, as described in Note 1(d), management expects the
deferred tax assets recorded by the subsidiary Telepar Celular S.A. be realized
in 4 years.
(j)
Foreign currency transactions
Transactions in foreign currency are recorded at the exchange rate at the date
of the transaction. Foreign currency denominated assets and liabilities are
translated into Brazilian Reais at the commercial selling exchange rate
reported by the Central Bank of Brazil at each balance sheet date. Exchange
gains and losses are recognized in the consolidated statement of income on a
current basis.
(k)
Provision for contingencies
The provision for contingencies is recorded based on estimates made by
management taking into consideration the opinion of its in-house and external
legal counsel, and is considered sufficient to cover losses and risks
classified as probable.
F-18
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(l)
Provision for compensated absences
Vacations and other employee benefits are recorded as they are earned by the
employees.
(m)
Revenue recognition
Wireless services revenue primarily includes monthly recurring charges
(subscriptions), airtime (usage of telephone), and roaming charges. Wireless
services revenue is recognized based upon minutes of use processed and
contracted fees, net of credits and adjustments for services discounts.
Billings are recorded monthly and the revenues not billed between the billings
date and the end of the month are estimated and recognized in the month the
service was rendered Revenues from prepaid services are recognized when the
services are rendered to customers. Revenue and related expenses associated
with the sale of wireless handsets and accessories are recognized when the
products are delivered and accepted by the customer or distributor.
(n)
Financial income (expenses)
Financial income consists of interest earned, exchange gains and gains from
financial investments. Financial expenses include interest expense, exchange
losses, and gain/losses on swaps contracts, which are recognized on an accrual
basis.
(o)
Research and development, and advertising costs
Research and development, and advertising costs are expensed as incurred.
(p)
Employees' bonus performance premium
As the operating targets are met, the Company records a provision for
employees' bonus performance premium, subjected to approval by the Annual
General Meeting of Shareholders. Such expenses are recorded as "general and
administrative expenses".
F-19
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(q)     Pension plan – actuarial gains and losses recognition
The Company and its subsidiaries maintain pension and post-retirement benefits
plan for certain employees (see Notes 20 and 31.III.a).
Accounting standards established by Brazilian Corporate Law through December
31, 2000 required recognition as pension plan cost of the amounts of
contributions due in each period on an accrual basis.
During the year ended December 31, 2001, the Brazilian Securities and Exchange
Commission – CVM approved a new standard (CVM No.371) which modified the
accounting for pension and other post-retirement benefits. As allowed by the
CVM, the Company and its subsidiaries have elected to record the adjustments
related to its actuarial liabilities over a period of five years commencing in
2002. The effect of such accounting change was R$587 for the year ended
December 31, 2002.
The actuarial gains and losses related to the pension plans financed by the
Company have been recognized beginning 2002 based on the highest value between
10% of the present value of the actuarial liability and 10% of the fair value
of the plan assets.
(r)     Minority interest
The minority interest corresponds to the interest of the minority shareholders
in the subsidiaries.
(s)     Use of estimates
The preparation of financial statements in accordance with accounting
principles under Brazilian Corporate Law requires management to use estimates
and assumptions concerning the amounts of recorded assets and liabilities and
the disclosures of contingent assets and liabilities at the balance sheet date,
as well as the estimation of revenues and expenses for the period. The actual
results may differ from those estimates.
(t)      Net income per thousand shares
These amounts are calculated based on the number of outstanding shares at the
balance sheet date. Thousands of shares are presented since the shares are
traded in thousand share lots.
F-20
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
4       Marketable securities
The balance of marketable securities is comprised as follows:
2001
2002
Banco do Brasil S.A.
125,303
288,226
Bank Boston S.A.
2,997
24,119
Unibanco S.A.
—
26,842
Santander S.A.
—
10,332
Citibank S.A.
3,622
30,489
HSBC Bank
—
30,902
Banco Real S.A.
2,463
18,480
Banco Bradesco S.A.
12
2
134,397
429,392
Current
134,397
421,687
Noncurrent
—
7,705
The investments consist of Federal Government securities and banking deposits
certificates (CDB), with due date between 2003 and 2005, with average interest
between 99.5% to 100% of the Interbank Deposit Certificate (CDI) rate.
F-21
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
5       Trade accounts receivable, net
2001
2002
Services billed
32,289
35,040
Services unbilled
36,094
35,649
Use of network
31,950
35,872
Sales of merchandise
55,381
65,773
155,714
172,334
Allowance for doubtful accounts
(6,852
)
(6,533
)
148,862
165,801
Accounts receivable aging list
2001
2002
Falling due
131,036
147,773
Due up to 60 days
15,710
16,029
Due over 60 days
8,968
8,532
Changes in the allowance for doubtful accounts were as follows:
2000
2001
2002
Balance at beginning of year
21,065
12,733
6,852
Amounts charged to selling expenses
59,051
18,335
30,761
Write-offs against the provision
(67,383
)
(24,216
)
(31,080
)
Balance at end of year
12,733
6,852
6,533
F-22
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
6       Inventories
2001
2002
New handsets, accessories, cards and kits
21,094
15,726
Used handsets
2,619
1,140
Provision for realization value adjustment
(1,857
)
(1,293
)
21,856
15,573
7       Recoverable taxes – current and noncurrent
2001
2002
Recoverable taxes
Income taxes
4,600
16,392
Prepayments
4,600
16,392
Withholding tax on financial investments
5,817
6,694
Withholding tax on interest on shareholders' equity
4,621
856
Social contribution tax
1,828
7,553
Prepayments
4,600
16,392
State VAT (ICMS)
19,255
15,558
36,121
47,053
Current
30,853
42,386
Noncurrent
5,268
4,667
F-23
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
8       Deferred taxes — current and noncurrent
2001
2002
Deferred taxes
Tax loss carryforwards
76,151
64,771
Timing differences
Exchange variations
6,456
7,413
Allowance for bad debt
2,999
3,055
Goodwill amortization
921
7,031
Provision for contingencies
2,070
3,043
Employees bonus performance premium
1,983
1,442
Provision for pension plan
761
963
Provision for reduction to market value of inventories
631
439
Tax benefit related to goodwill paid on privatization
166,358
141,106
258,330
229,263
Current
22,344
44,590
Long-term
235,986
184,673
Tax benefit related to goodwill paid on privatization refers to the future tax
benefit arising from the restructuring plan (see Note 1.b).
At December 31, 2002, the Company and its subsidiary Telepar Celular S.A. had
consolidated operating loss carryforwards totaling R$190,618 and R$190,721 for
income tax and social contribution purposes, respectively. The loss
carryforwards have no expiration date and are available to offset up to 30% of
the Companies' future taxable income in any given year.
Based on projections made by the Company, the deferred tax assets (long term)
will be realized as follows:
2002
2004
57,403
2005
39,897
2006
41,866
2007
45,507
184,673
F-24
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
9       Related party transactions
The main transactions between the Company and subsidiaries, which have been
eliminated in these consolidated financial statements, are represented by
network use services and loans, and were carried out under agreed upon terms. A
summary with transactions with related parties is as follows:
Tele
TIM
Nordeste
Maxitel
Celular
Partic.
Celular
Centro Sul
TIM Brasil
S.A.
S.A.
S.A.
S.A.
TIMnet
Total
Assets
Loans – Current
2002
—
—
31
141
—
172
2001
76
—
—
—
—
76
Other receivables
2002
47
244
—
—
—
291
Liabilities
Loans
2002
—
—
—
527
26
553
2001
—
—
—
1,356
—
1,356
Other liabilities
2002
54
51
—
—
162
267
2001
—
—
—
—
2,020
2,020
Other information
Financing revenues
2002
—
—
137
10
—
147
2001
—
1,324
164
45
—
1,533
Other revenues
2002
606
355
—
—
—
961
Cost of services – selling expenses
2002
(530
)
(435
)
—
—
(1,025
)
(1,990
)
2001
—
—
—
—
(1,542
)
(1,542
)
The related party transactions were made using usual market conditions, and
mainly summarize loans to affiliates and subsidiaries, with annual interest
rates of 101.2% of the Brazilian Interbank rate.
F-25
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
10     Judicial deposits
At December 31, 2002, the judicial deposits of R$11,148 (R$10,908 as of
December 31, 2001), represent mainly the lawsuit questioning the ICMS (VAT
State) Agreement 69/98. The Company, based on its legal advisors' opinion,
believes that it will win this cause; therefore, it did not record a
contingency reserve for this amount.
11     Investments
2001
2002
Investments
Affiliated company
13,712
10,179
Goodwill on acquisition of additional shares in
Telepar Celular S.A.
14,585
12,806
Other
410
1,335
28,707
24,320
Investment in affiliated company represents the participation of 20% in the
TIMNET.com S/A. capital and is summarized as follows:
Ownership(%)
20.0
%
Shareholders' equity as of December 31, 2002
50,894
Loss for the year
(21,441
)
Equity in loss
(4,288
)
Investment at December 31, 2002
10,179
2002
TIMNET com
Opening balance
13,712
Equity in loss
(4,288
)
Others
755
10,179
F-26
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S A E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
12     Property, plant and equipment
2001
2002
Estimated
Accum.
Depreciable
Net
Cost
Depreciation
Net
Lives (years)
Switching equipment
146,560
231,391
(102,335
)
129,056
7
Transmission equipment
462,403
825,456
(459,956
)
365,500
7
Terminals, energy equipment,
furniture, tools and
instruments
45,996
80,956
(42,978
)
37,978
10
Leasehold improvements
6,668
12,717
(8,147
)
4,570
3
Towers, posts, support and
protection devices
41,557
53,331
(10,385
)
42,946
25
Rights to use software and
computer equipment
32,106
71,059
(30,781
)
40,278
5
Buildings
17,879
26,882
(10,352
)
16,530
25
Vehicles
807
2,447
(1,863
)
584
5
Land
3,120
3,135
—
3,135
—
Assets and installations in use
757,096
1,307,374
(666,797
)
640,577
Construction in progress
18,479
15,372
—
15,372
775,575
1,322,746
(666,797
)
655,949
(a)     Interest capitalization
During the years ended December 31, 2000, 2001 and 2002, interest of R$14,680,
R$4,148, and R$646 respectively, was capitalized as part of the cost of
property, plant and equipment.
(b)     Leases
The Company leases equipment and facilities under many operating agreements
with different terms, which can be terminated without cost. The annual lease
expenses under those agreements were R$47,892, R$16,106, and R$16,675 for the
years ended December 31, 2000, 2001, and 2002, respectively.
F-27
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(c)     Recoverability of property, plant and equipment
As described in Note 1 (f), the Company and its subsidiaries plan the
implementation of the GSM technology in their networking, in addition to the
actual TDMA technology. The implementation studies of this new technology,
including investments plans, have not been completed. During 2002 and 2001, no
adjustment to the Company's assets was considered necessary, as a result of the
introduction of the new GSM technology.
13     Deferred charges
2001
2002
Software development costs
88,478
91,704
Accumulated amortization of software development costs
(20,829
)
(38,846
)
67,649
52,858
14     Accounts payable
2001
2002
Suppliers
52,244
110,186
Network usage service
11,145
13,491
63,389
123,677
F-28
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
15     Loans and financing
(a)     Composition
Swap entered into to swap financial charges to:
December 31, 2001
December 31, 2002
Balance
Balance
as of
as of
Interest rate
Interest rate
Currency of
Interest
December
December
Notional
swapped
Notional
swapped
denomination
rate (p.a%)
31, 2001
31, 2002
amount
(% p.a.)
amount
(% p.a.)
US dollars
Suppliers
US$
6.61% to 7.3%
5,519
2,482
5,519
100% of CDI
2,482
100% of CDI
Eximbank
US$
7.03
%
54,312
39,134
54,312
20
%
39,134
100% of CDI
Brazilian reais
BNDES
R$
TJLP plus 4%
49,928
49,993
—
—
—
—
BNDES
R$
Umbndes plus 4%
15,767
19,362
—
—
—
—
Total
125,526
110,971
Less current maturities
(21,987
)
(38,052
)
Long term
103,539
72,919
References:
TJLP
-
Taxa de Juros de Longo Prazo
", a long-term interest rate reset quarterly by the Brazilian Central Bank. At the fourth
quarter ended December 31, 2002, the TJLP rate was 10.00% per annum (10.00% at the fourth quarter ended December 31,
2001).
CDI
- Interest rate on interbank certificates of deposit. During the year ended December 31, 2002 the annual average CDI
interest rate was 19.10% (17.29% in 2001).
Umbndes
- Monetary unit of BNDES, a unit indexed to a basket of currencies in which the BNDES
is funded. During the year ended December 31, 2002 the annual average Umbndes
interest rate was 25.43% (15.36% in 2001).
Eximbank
- Export and Import Bank of the United States of America
BNDES
- Banco Nacional de Desenvolvimento Econômico and Social
(b)     Maturities over one year
2002
2004
37,704
2005
17,724
2006
17,108
2007
383
72,919
F-29
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(c)     Covenants
The BNDES loans are subject to certain covenants covering EBITDA margin, debt
coverage, coverage of net financial expenses and indebtedness. The Company was
in compliance with all such restrictive clauses in 2001 and 2002.
16     Debentures
In October 2000, the subsidiary Telepar Celular S.A. issued 20,000
non-convertible debentures, due in 2003. The interest rate is equal to 102.7%
of the Brazilian Interbank Rate (CDI), payable semiannually. Telepar Celular
S.A. has complied with all covenants as of December 31, 2002. The debentures
are guaranteed by the Company.
The debenture issuance expenses of R$1,670 were registered as Other Assets –
Current Assets, and are being amortized over a period of 36 months, since the
debentures issuance date. At December 31, 2002 the balance registered in this
account was R$451 (R$993 at December 31, 2001).
17     Salaries and related charges
2001
2002
Salaries
1,844
2,337
Social charges
6,771
6,977
Other labor benefits
566
555
Employees bonus performance premium
3,902
4,246
13,083
14,115
F-30
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
18
Taxes and social contribution payable – current and noncurrent
2001
2002
Income tax
10
747
Social contribution tax
48
74
ICMS (State value added tax)
75,183
106,035
PIS (Federal sales tax)
825
1,928
COFINS (Federal sales taxes)
3,804
6,659
Fistel fee
1,003
1,085
FUST fee
376
397
FUNTTEL fee
188
199
Other
84
27
81,521
117,151
Current
20,794
42,958
Noncurrent
60,727
74,193
Maturity dates
2002
2004
23,968
2005
29,773
2006
18,363
2007
2,089
74,193
The subsidiary Telepar Celular S.A. entered into an agreement with the Paraná
State to defer ICMS tax to be paid in 48 months after the respective generating
event, subject to interest based on UPF/PR index which in 2002 was 9.989% per
year (5.1204% in 2001). This benefit was granted by the State of Paraná through
the "Programa Paraná Mais Emprego" (Paraná Program for More Employment).
F-31
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
19
Provision for contingencies
The composition of the provisions recorded under Liabilities is as follows:
2001
2002
Labor
2,396
2,268
Tax
100
30
Civil
3,599
6,653
6,095
8,951
No provisions are recorded for the lawsuits whose outcome is considered
favorable to the Company by the lawyers, including the lawsuit challenging the
ICMS tax (State VAT) as mentioned in Note 10 and below.
Labor claims
The provision for labor claims represents management's estimate of probable
losses in relation to the various suits filed by former employees.
Civil claims
The provision for civil claims represents claims filed by former customers in
connection with billing disputes.
F-32
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Potential litigation
Telecomunicações Brasileiras S.A.-Telebrás, Telecomunicações de Santa Catarina
S.A.-Telesc, Telecomunicações do Paraná S.A.-Telepar and Companhia Telefônica
Melhoramento e Resistência-CTMR, legal predecessors of the Company and of
Telesc Celular S.A., Telepar Celular S.A. and CTMR Celular S.A., respectively,
are defendants in a number of legal proceedings and subject to certain other
claims and contingencies. Liability for any claims arising out of acts
committed by Telesc, Telepar and CTMR prior to the effective date of the
spin-off of their assets and liabilities to Telesc Celular S.A., Telepar
Celular S.A. and CTMR Celular S.A. remains with their respective predecessors,
except for those liabilities for which specific accounting provisions have been
assigned to the cellular telecommunications companies at the spin-off. Any
claims against Telesc, Telepar and CTMR which are not met by them could result
in claims against Telesc Celular S.A., Telepar Celular S.A. and CTMR Celular
S.A., since they received assets that could have been used to settle those
claims had they not been spun off from their respective predecessors. Under the
terms of the breakup of Telebrás, liabilities for any claims arising out of the
acts committed by Telebrás prior to the effective date of the breakup remains
with Telebrás, except for labor and tax claims (in which case Telebrás and the
Company are jointly and severally liable) and any liabilities for which
specific accounting provisions have been assigned to the Company. Creditors of
Telebrás may challenge this allocation of liability. Management believes that
the chances of any claims materializing and having a material adverse financial
effect on the subsidiaries and/or the Company are remote and, therefore, no
provision was recorded as of December 31, 2001 and 2002.
Tax Claims – VAT State (ICMS) on Activation Fees and Other Services
On June 19, 1998 the Secretaries of the Treasury of each Brazilian state
approved an agreement (Agreement 69/98) to interpret the existing Brazilian tax
law to broaden the application of the ICMS tax, to cover not only
telecommunication services but also other services, including cellular
activation, which had not been previously subject to such tax. Pursuant to this
new interpretation of the tax law, the ICMS tax may be applied retroactively
for such services rendered over the last five years.
F-33
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The Company and its subsidiaries believe that the attempt of the State
Treasuries to extend the scope of the ICMS tax to services which are
supplementary to basic telecommunications services is unlawful because: (i) the
state Secretaries acted beyond the scope of their authority; (ii) their
interpretation would subject certain services to taxation which are not
considered telecommunications services; and (iii) new taxes may not be applied
retroactively. Furthermore, the Company is of the opinion that Telesc, Telepar
and CTMR, legal predecessors of the Companies, would be liable for any payments
made in connection with any claim arising from the retroactive application of
the ICMS tax on activation fees for periods prior to 1998. No provision for
such taxes has been made in the accompanying consolidated financial statements
as the Company and the subsidiaries do not believe that it is probable that
such taxes will be payable for services during the last five years.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state Treasury Secretaries is unlawful. If ICMS
were applied retroactively to activation fees earned during the past five
years, it would give rise to a maximum liability estimated at R$24,409 as of
December 31, 2001. At December 31, 2002 the amount does not present a risk to
the Company since according to Brazilian legislation, after a period of five
years, the fiscal and accounting books of the companies cannot be assessed by
the tax authorities. If the ICMS were applied retroactively to activation fees
earned by the operating subsidiaries since its inception on January 5, 1998, it
could have a material negative impact on the financial condition of the Company
subsequent to January 5, 1998.
20      Pension plans
As detailed below, the Company and its subsidiaries sponsor several defined
benefit pension and health-care plans. The Company and its subsidiaries
contributed to all the pension and health-care benefit plans, and recorded as
expenses the amounts of R$1,388, R$1,267 and R$1,459 in 2000, 2001, and 2002,
respectively. These plans were sponsored by all companies of the old Telebras
system (PBS-A-Sistel and PAMA-Sistel Plans).
F-34
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(a)
PBS Tele Celular Sul and PAMA – Tele Celular Sul
Since January, 2000 the Company and its subsidiary sponsor a defined benefit
retirement pension plan – Plano PBS Tele Celular Sul, covering approximately
25% of the Company employees. In addition to supplementary pension payments,
the plan offers medical assistance (PAMA – Tele Celular Sul) to retirees and
their dependents, under a shared cost system. Contributions to the plans (PBS
Tele Celular Sul e PAMA) are determined based on actuarial studies prepared by
independent actuaries, in accordance with current Brazilian rules. The costing
method used is the capitalization method, and the sponsor contribution is equal
to 13.5% of the payroll of the employees covered by the plan, from which 12%
are marked for funding the PBS Tele Celular Sul plan. During 2002, the Company
recognized as expenses the amount of R$1,459.
(b)
PBS-A-SISTEL plan and PAMA-SISTEL plan
The Company, together with other companies of the former Telebrás System,
sponsors private pension and medical plans to retirees, managed by Fundação
Sistel de Seguridade Social – SISTEL. Up to December 1999, all companies
sponsoring Sistel-managed plans were jointly responsible for all plans then in
place. On December 28, 1999, the sponsors of Sistel-managed plans reached an
agreement to create individual company pension plans, maintaining joint
responsibility for only those employees who were participants as of January 31,
2000. This led to a proposal for a restatement of the Sistel By-Laws and
Regulations, which was approved by the Supplementary Pension Department on
January 13, 2000.
The post-retirement health care benefits (PAMA-Sistel) and the social security
plan (PBS-A-Sistel) are multi-employer defined benefit plans. The contributions
of the Company and its subsidiaries are not segregated or restricted in the
plan accounts to identify the assets and obligations relating to the Companies.
The Company and its subsidiaries are also jointly liable for the total
liabilities of the plans.
(c)
PBT-Telepar plan and PAMEC-Telepar plan
Telepar Celular S.A. also sponsors a defined benefit plan and a health care
plan to the retirees of its predecessor company (Telecomunicações do Paraná
S.A.), formerly sponsored by such predecessor company and that are managed by
SISTEL. As a consequence of the breakup of Telebras System, in May 1998,
Telepar Celular S.A. and Brasil Telecom Participações S.A. (the company that
received the fixed-line operations previously held by Telecomunicações do
Paraná S.A.) became a jointly sponsorship of a Defined Benefit Plan – PBT
(Plano de Benefício Telepar), the Supplementary Medical Plan (PAMEC) and the
Agreement for Management of Pension Payments to Retirees and Pensioners –
Telepar, because of the split-off from the Telebras System.
F-35
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The costing method of the PBT plan is the capitalization method and the
contribution payable by the Company is equal to 10% of the payroll of the
participants.
The contributions to the PAMEC plan and Agreement for Management were fully
paid in July 1998, through a single funding payment.
(d)     TIMPREV
The Company sponsors a defined benefit pension plan to a group of employees
from the former Telebrás system that is managed by SISTEL, which resulted from
the legal provisions established at the time of privatization of that company
in July 1998, as described in items a, b and c above.
During 1999 and 2000, each sponsor of the plans managed by SISTEL began
creating their own individual retirement plans. The sponsors maintained the
joint plan only for those participants who had retired prior to January 31,
2000. During 2002, the Company began structuring a defined contribution plan.
On November 13, 2002, through Notification 1,917 CGAJ/SPC, the Secretary of
Complementary Pension approved the new defined contribution pension plan,
TIMPREV, which provides new conditions for the granting and maintenance of
benefits, as well as the rights and obligations of the Plan Administration
Entity, the Sponsors, the Participants and their respective beneficiaries.
Migration to the new plan was optional for participants of the defined benefit
plan. The option to migrate could be exercised up to January 29, 2003.
During 2002, the human resources department began taking steps to provide
employees information about the new plan, including information about the
differences between the defined benefit plan and TIMPREV.
Under TIMPREV, the risk of the sponsor in relation to eventual actuarial
deficits decreases, due to the characteristics of a defined contribution plan.
F-36
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Under TIMPREV, the normal contribution of the sponsor corresponds to 100% of
the basic contribution of the participant, while the administrator of TIMPREV
will assure, as per the terms and conditions of the approved regulations, the
benefits listed below, not assuming the responsibility for granting any other
benefit even if the official social security grants it to its beneficiaries:
•
Regular retirement pension
•
Anticipated retirement pension
•
Disability pension
•
Deferred proportional benefit
•
Death pension
The effects of TIMPREV, which became effective as of February 2, 2003 are
described in note 31.III.a.
(e)     Supplementary pension
As successor in the partial spin-off of Telecomunicações do Paraná S.A. –
TELEPAR, the Company sponsors the supplementary pension plan established in
1970 under a Collective Agreement ratified by the Atypical Contractual
Relationship Agreement entered into by the Company and labor unions
representing the then existing professional categories.
The agreement encompasses 86 employees hired before December 31, 1982, who are
entitled to additional retirement benefits, only if they retire after having
worked for the minimum time required for retirement (30 years for men and 25
years for women).
In June 1998, after the breakup of Telebrás, the Company and its subsidiary
Telepar Celular S.A. opted for the extinction of this additional pension plan.
As a consequence of the extinction of the plan, the Company and Telepar Celular
S.A. allowed its participants to receive a payment in cash for the accumulated
benefits or to transfer them to the PBS-A-Sistel plan. Most participating
employees opted for the cash payment, which resulted in a disbursement of
nearly R$7,000 in 1998. The remaining provisioned amount of R$2,310, on
December 31, 2002 (R$2,239 in 2001) will be used to cover the benefits of those
employees who have not opted yet (4 employees on December 31, 2001 and 2002).
F-37
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
21     Shareholder's equity
(a)     Capital
The Company is authorized to increase its capital, through approval by a
shareholders' meeting, so as not to exceed 700 billion common or preferred
shares, without the need to maintain the proportion between the shares, but
keeping the legal limit of 2/3 (two thirds) for issuing preferred shares
without voting rights.
The limit to increase the Company's capital may be modified with the approval
of an Extraordinary General Meeting if and when the capital has been fully
utilized or when the difference between such limit and the subscribed capital
is not sufficient to guarantee the capitalization plan for the year.
On April 16, 2002, the shareholders meeting approved a capital increase of
R$17,633, through the issuance of 2,169,230,189 common shares and 3,582,108,751
preferred shares with no par value to Bitel Participações S.A. This capital
increase was made using the tax benefit from the goodwill amortization due to
the partial spin-off of Tele Celular Sul Participações S.A., as permitted by
CVM Instruction No.319/99, Article 7, Paragraph 1.
The subscription price per 1,000 shares was R$2.82 for the common shares and
R$3.21 for the preferred shares.
During 2002, the shareholders approved a capital increase. As permitted by
Brazilian Corporate law, the capital increase was accomplished by transferring
amounts from retained earnings and legal reserve accounts, totaling R$62,000.
No capital shares were issued.
The subscribed and paid-in capital at December 31, 2002 is represented by
shares with no par value, as follows:
Common
Preferred
Total
Quantity (in millions of shares)
129,358
213,612
342,970
Amount (R$)
122,454
202,212
324,666
F-38
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The preferred shares are non-voting except under limited circumstances and are
entitled to a preferential, noncumulative, 6% dividend based upon their nominal
capital value and to priority over the common shares in the case of
liquidation. Under the Brazilian Corporation Law, the number of non-voting
shares or shares with limited voting rights, such as the preferred shares, may
not exceed two-thirds of the total number of shares.
In the Extraordinary Shareholders Meeting of December 20, 2002, the Company
bylaws were amended to adapt them to the New Corporation Law, including the
first paragraph of article 10, which assures holders of preferred shares,
annually, the right to receive dividend per share corresponding to 3% of net
equity per share as per the latest approved balance sheet, whenever the
established dividend in accordance with this criterion is higher than the
dividend calculated in accordance with the prior criterion, described in the
preceding paragraph.
(b)     Capital reserve
This reserve was generated by the corporate restructuring process implemented
during 2000, mentioned in Note 1-b. At the end of each fiscal year, a portion
of this reserve which corresponds to the tax benefit for the year can be
capitalized in favor of the majority shareholder with the issuing of new
shares. The respective capital increase should respect the preference of the
minority shareholders in the proportion of its participation, by type and class
of shares at the time of issuance. The amounts paid for exercising this right
will be paid to the majority shareholder, in accordance with the Instruction
CVM 319/99.
(c)     Legal reserve
Brazilian companies are required to appropriate 5% of their annual net income
to a legal reserve until that reserve equals 20% of paid-up share capital, or
30% of nominal paid-up share capital plus capital reserves; thereafter,
appropriations to this reserve are not compulsory. This reserve can only be
used to increase capital or offset accumulated losses.
(d)     Unrealized profits reserve
This reserve was constituted due to the spin-off of TELEBRÁS and represents
profits recorded and not realized in cash. It was transferred to Tele Celular
Sul Participações S.A. offsetting its investment in subsidiary companies. The
Company is fully realizing this reserve in 2001.
F-39
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(e)     Dividends
The dividends are being calculated in accordance with the Company's by Laws and
with Brazilian Corporate Law. According to the Company's by Laws, the Company
should distribute as minimum dividends at each fiscal year ending December
31,considering there are available funds for distribution, a total amount
equivalent to 25% of the adjusted net income (as described below)
For the purposes of the Brazilian Corporation Law, and in accordance with Tele
Celular Sul Participações S.A.'s By-Laws, "adjusted net income" is an amount
equal to the net profit adjusted to reflect allocations to or from: (i) the
statutory and legal reserves, (ii) a contingency reserve for probable losses,
if applicable, (iii) profit reserve for expansion, and iv) unrealized profit
for reserve.
Statutory minimum dividends at December 31, 2001 and 2002 were calculated as
follows:
2001
2002
Net income for the year
59,889
65,774
(-) Constitution of legal reserve
(2,994
)
(3,289
)
(+) Realization of the unearned income reserve
94,228
—
Basis for computation of mandatory dividends
151,123
62,485
Mandatory dividends (25%)
37,781
15,621
Interest on shareholders' equity
17,665
14,450
Complementary dividends
20,116
1,171
Realization (transfer to special reserve for dividends) of special
reserve for dividends
(19,257
)
10,602
Final proposed dividends
18,524
26,223
Common shares
6,987
9,891
Preferred shares
11,537
16,332
Dividends and Interest on shareholders' equity per thousand shares (reais)
Common shares
0.0549
0.0765
Preferred shares
0.0549
0.0765
F-40
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The payable balances of dividends and interest on shareholders' equity (Law No.
9,249/95) will be updated based on the "Reference Rate (TR)" starting as of
year-end to the date fixed for its payment.
(f)      Interest on shareholders' equity
As suggested by management, at December 31, 2001 and 2002, interest on
shareholders' equity, fully added to the dividends, was recorded in accordance
with Law No. 9,249/95, Article 9. This amount was recorded net of income tax
after the shareholders meeting approval.
The amount is shown as follows:
2001
2002
Interest on shareholders' equity
Common shares
12,944
6,412
Preferred shares
7,838
10,588
Withholding tax
(3,117
)
(2,550
)
Net amount
17,665
14,450
(g)     Special reserve for dividends
During 2001, the Shareholders Meeting approved the proposal made by management
for the formation of a reserve for dividends payable in the amount of R$19,527,
referring to the portion of dividends declared based on the balance sheet at
December 31, 2001, with the objective of preserving the economic and financial
equilibrium of the Company and concurrently satisfying the needs of relevant
investments to meet demand.
During 2002, management is proposing "Ad referendum" of the Shareholders
Meeting the realization of the special reserve for dividends, in the amount of
R$10,602 leaving a remaining portion of R$8,655 to be realized in the future.
F-41
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(h) Income reserve for expansion
The remaining balance of the year's net income for 2002, allocated as
prescribed by Law No. 6,404/76, Article 202, in the amount of R$44,314
comprises the balance of income reserve for expansion and will be used to
continue expansion of network. The retention will be sustained by a capital
budget to be approved at a shareholders meeting based on management proposal.
(i) Excess of reserves
As required by Law No. 6,404/76, Article 199, the Company will propose at the
shareholders meeting the approval of a capital increase of R$15,000 due to the
income reserves excess in relation to capital.
(j) Stock option plan
Under Brazilian Corporate Law, the Company can grant the option to acquire
shares to its executives, employees and service-providers based on a plan
approved by the Shareholders' Meeting.
On May 2, 2001, the Company's shareholders approved an employee stock option
plan, with the following objectives:
i)
to retain the services and advice of key employees, upon whose judgment,
initiative and efforts the Company depends;
ii)
to make available to key employees certain compensatory arrangements based
on market value increase; and
iii)
to align generally the interests of key employees and the interests of
shareholders.
The Board of Executive Officers may authorize future capital increases, within
the limit of the authorized capital, with the issuance of preferred shares for
the benefit of the directors and key officers. The amount of shares that may be
issued under the stock option plan is limited to 1.5% of the Company's capital
stock on May 2, 2001.
The option exercise price per 1,000 Preferred Shares was set at R$4.27, the
closing price of 1,000 Preferred Shares at the São Paulo Stock Exchange
("Bovespa"), on May 2, 2001. The stock option plan has a four-year term and
will expire in 2005. No option may be exercised after four years from the date
it was granted.
F-42
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The options may not be exercised before one year from the date they are
granted. The exercise of the option may occur in the end of the fourth year
after the granted date, but can be accelerated depending upon the achievement
of certain results, which are based on certain EBIT (earnings before interest
and taxes).
During 2002 and 2001, no option granted to the Company's key employees was
exercised. At December 31, 2002, the closing price per 1,000 preferred shares
was set as R$2.74 (R$3.61 – 2001) at the São Paulo Stock Exchange, a price
lower than the option exercise price per 1,000 preferred shares at the grant
date.
22      Net revenues
2000
2001
2002
Revenues from telecommunication services
Subscriptions
182,075
178,275
197,307
Usage of telephone
408,722
447,071
409,766
Use of network
246,394
306,811
341,496
Other services
3,247
8,163
22,500
840,438
940,320
971,069
Sale of cellular handsets and accessories
85,644
116,026
174,879
Gross operating income
926,082
1,056,346
1,145,948
Deductions from gross income
Taxes
(188,429
)
(187,178
)
(214,723
)
Discounts
(17,886
)
(75,825
)
(38,307
)
Other
(2,880
)
(1,914
)
(1,654
)
(209,195
)
(264,917
)
(254,684
)
716,887
791,429
891,264
F-43
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
23     Costs of merchandise sold and services rendered
2000
2001
2002
Salaries and social contribution charges
(10,865
)
(8,724
)
(8,965
)
Third-party services
(16,011
)
(12,365
)
(17,392
)
Interconnection
(105,747
)
(121,761
)
(133,213
)
Depreciation and amortization
(128,341
)
(150,121
)
(164,362
)
Cost of merchandise sold
(102,930
)
(111,923
)
(161,197
)
Other
(574
)
(1,139
)
(1,254
)
(364,468
)
(406,033
)
(486,383
)
24     Selling expenses
2000
2001
2002
Salaries and social security charges
(19,032
)
(22,445
)
(20,388
)
Third-party services
(88,993
)
(106,746
)
(94,888
)
Allowance for doubtful accounts and losses
(59,051
)
(18,335
)
(30,761
)
FISTEL fee
(24,601
)
(24,642
)
Depreciation and amortization
(3,451
)
(8,028
)
(13,802
)
Other
(30,623
)
(1,269
)
(965
)
(201,150
)
(181,424
)
(185,446
)
25     General and administrative expenses
2000
2001
2002
Salaries and social security charges
(12,152
)
(20,132
)
(19,823
)
Third-party services
(48,644
)
(31,065
)
(35,808
)
Depreciation and amortization
(9,934
)
(14,893
)
(21,814
)
Other
(5,570
)
(5,819
)
(5,901
)
(76,300
)
(71,909
)
(83,346
)
During the years ended December 31, 2000, 2001, and 2002, the Company and its
subsidiaries paid R$939, R$2,108, and R$2,389 to the Board of Directors,
respective
F-44
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
26     Other operating income (expenses), net
2000
2001
2002
Revenues
Penalty charged to customers on
overdue payments
4,483
3,702
3,478
Equipment and infra-structure rental
6,357
5,450
5,560
Reversal of provision for reduction
to market value of inventories
—
8,983
646
Other
5,282
3,618
10,519
16,122
21,753
20,203
Expenses
Taxes and contributions
(1,937
)
(1,068
)
(1,226
)
Goodwill amortization (tax benefit
from shareholders)
(13,876
)
(25,270
)
(25,250
)
Goodwill amortization
(416
)
(1,691
)
(1,779
)
Provision for contingencies
(647
)
(4,578
)
(2,533
)
Other
(13,768
)
(4,730
)
(4,317
)
(30,644
)
(37,337
)
(35,105
)
(14,522
)
(15,584
)
(14,902
)
27     Nonoperating income (expenses), net
2000
2001
2002
Gain (loss) on assets sale
1.340
266
207
Gain (loss) on investments
2.130
(256
)
(334
)
Others, net
37
3.507
10
(127
)
F-45
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
28
Income and social contribution taxes
Current and deferred income and social contribution taxes are composed as
follows:
2000
2001
2002
Current income tax
4,452
(2,269
)
(11,453
)
Current social contribution
1,060
(939
)
(4,203
)
Deferred income tax
559
2,847
(2,785
)
Deferred social contribution
249
1,033
(1,032
)
Total
6,620
(672
)
(19,473
)
Income taxes in Brazil include income and social contribution taxes. The
composite statutory rate was 34% for 2000, 2001 and 2002. Income tax expense at
the statutory rate is reconciled to income tax expense in the statements of
income as follows:
2000
2001
2002
Income taxes
Income before taxes
6,050
70,196
97,813
Reconciliation of statutory to effective rate:
Benefit from deductibility of interest on shareholders' equity
(4,424
)
(25,000
)
(17,000
)
Participation in subsidiaries/affiliates
—
1,888
4,288
Gain/loss on non operating investment
(2,130
)
256
—
Basis of calculation
(504
)
47,340
85,101
Standard rate – 25%
127
(11,835
)
(21,275
)
Permanent differences
Goodwill amortization
6,722
12,268
12,268
Gain exchange variation and swap
—
—
(1,368
)
Depreciation of handsets
—
(539
)
(1,485
)
Others
(1,838
)
684
(2,378
)
4,884
12,413
7,037
5,011
578
(14,238
)
F-46
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
2000
2001
2002
Social contribution tax
Income before taxes
6,050
59,217
97,813
Reconciliation of statutory to effective rate:
Benefit from deductibility of interest on shareholders' equity
(4,424
)
(25,000
)
(17,000
)
Participation in subsidiaries/affiliates
—
1,888
4,288
Gain/loss on non operating investment
(2,130
)
256
—
Basis of calculation
(504
)
47,340
85,101
Standard rate — 9%
46
(4,261
)
(7,659
)
Permanent differences
Goodwill amortization
2,430
4,416
4,416
Gain exchange variation and swap
—
—
(492
)
Depreciation of handsets
—
(194
)
(535
)
Others
(1,167
)
133
(965
)
1,263
4,355
2,424
1,309
94
(5,235
)
Total income and social contribution taxes
6,320
672
(19,473
)
F-47
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
29     Financial instruments
The Company carries out operations involving financial instruments with the aim
of reducing risks relating to market, foreign exchange and interest rates. Such
risks are controlled through specific policies, the establishment of operating
strategies and limits, and other techniques for monitoring the positions.
The estimated market value of the financial instruments, primarily cash and
cash equivalents, trade accounts receivable, and short-term financing
instruments, approximates its book value because of the short maturity of those
instruments.
At December 31, 2002 and 2001, the Company and its subsidiaries invested their
financial resources mainly in investments backed by Certificados de Depósito
Interbancário (CDIs — Interbank Deposit Certificates), recorded as Marketable
Securities. There are no financial assets indexed to a foreign currency.
The estimated fair value of long-term loans and financings are based on
interest rates as of December 31, 2002 for transactions with similar
characteristics, as below.
December 31, 2002
Book Value
Market Value
Long-term loans and financing and debentures, including current portion
321,085
310,862
(a)     Loans and financing
Fair values of loans and financing are determined based on future cash flow and
interest rates applicable to similar transactions, in same conditions and
risks. The total liabilities denominated in United States dollars totaled
R$41,616.
In addition to those financial instruments, the subsidiary Telepar Celular S.A.
has Swap Contracts between US Dollars and mix of currencies (UMBNDES) to CDI,
in the amount of R$28,224 (R$5,513 in 2001), with due dates between 2003 and
2007. At December 31, 2002 the Company recognized gains related to these swap
transactions of R$28,271 (R$9,172 in 2001), which were recorded as Financing
Revenues and as a reduction on Loans and Financing.
(b)     Limitations
The market values were estimated at a certain period, based on market
information. Changes in assumptions may affect the estimates presented.
F-48
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(c)     Risk factors
The risk factors affecting the Company's instruments are the following:
(i) Exchange and interest rates risk
The exchange and interest rates risk relate to the possibility of the Company
computing losses resulting from fluctuations in exchange and interest rates,
thus increasing debt balances of loans obtained in the market and the
corresponding financial charges. In order to mitigate this kind of risk, the
Company carries out hedge contracts with financial institutions.
At December 31, 2002, a portion of Company loans was denominated in U.S.
dollars and 100% of the loans were covered by hedge contracts. The income or
loss resulting from these hedge contracts is charged to operating results. The
Company is also a party in agreements that allow it to effectively pay interest
at fixed rates on some of its debts contracted in variable interest rates.
(ii) Credit operating risk
The risk is related to the possibility of the Company computing losses
originating from the difficulty of collecting the amounts billed to customers,
which are represented by traders of prepaid telephone cards and distributors of
cellular equipment. In order to have this risk reduced, the Company performs
credit analyses to assist the risk management in respect to collection problems
and monitors the accounts receivable from subscribers, blocking the telephony
ability in case customers do not pay their bills. With respect to
distributors, the Company maintains individual credit limits, based on
potential sales analysis, risk history and risk with collection problems. The
Company generally does not require collateral from its customers.
F-49
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(iii) Credit risk related to the sale of telephone sets
The Company's policy for the sale of telephone sets and distribution of prepaid
telephone cards is directly related to the risk of credit levels accepted
during the normal course of business. The selection of partners, the
diversification of the accounts payable portfolio, the monitoring of loan
conditions, the positions and limits of requests established for traders, the
constitution of real guarantees are procedures adopted by the Company to
minimize possible collection problems with its commercial partners.
(iv) Financial credit risk
The risks related to the possibility of the Company computing losses
originating from the difficulty in realizing its short-term investments and
hedge contracts. The Company and its subsidiaries minimize the risk associated
to these financial instruments by investing in well-reputed financial
institutions. Approximately, 40.4% of the financial investments are
concentrated with one sole financial institution.
There is no concentration of available resources of work, service, concessions
or rights that have not been mentioned above that could, if eliminated
suddenly, severely impact the operations of the Company.
30     Insurance
At December 31, 2002, the Company carries insurance to cover losses against
fire and various risks affecting inventories and fixed assets in amounts
considered sufficient to cover possible losses.
F-50
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
31      Reconciliation between Brazilian Corporate Law and US GAAP
I         Description of differences between Brazilian Corporate Law and US GAAP
The Company's consolidated financial statements are prepared in accordance with
Brazilian Corporate Law, whose accounting practices and policies are described
in Note 3. Such practices and policies differ significantly from US GAAP. The
tables below represent the reconciliation between the Company's consolidated
income and net equity under Brazilian Corporate Law and US GAAP:
Reconciliation of the differences between Brazilian Corporate Law and US GAAP
in net income
Reference to Note
2000
2001
2002
Consolidated net income under Brazilian
Corporate Law
15,368
59,889
65,774
Depreciation and amortization of the
effect of indexation for the years
ended December 31, 1996 and 1997
31.I.a
(6,794
)
(14,010
)
(9,327
)
Amortization of capitalized interest
31.I.b
1,390
1,394
1,872
Pre-operating expenses of TIMnet.com
S.A.
31.I.c
(1,738
)
(5,268
)
3,688
Provision for pension plan
31.I.d
(276
)
1,397
751
Financial instruments
31.I.f
—
2,515
7,711
Goodwill amortization
31.I.i
—
—
1,779
Deferred tax on the above adjustments
2,448
4,611
(2,201
)
Valuation allowance on social
contribution
31.I.e
(7,259
)
(5,020
)
24,180
Minority interest on the above
adjustments
3,534
2,603
(6,235
)
Estimated net income under US GAAP
6,673
48,111
87,992
F-51
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Reconciliation of the differences between Brazilian Corporate Law and US GAAP
in shareholders' equity
Reference to Note
2001
2002
Consolidated shareholders' equity under Brazilian corporate
Law
808,329
845,330
Effect of the indexation for the years ended
December 31, 1996 and 1997
31.I.a
66,441
66,441
Depreciation and amortization of the effect of the
indexation for the years
Ended December 31, 1996 and 1997
31.I.a
(40,099
)
(49,426
)
Sub-total
26,342
17,015
Capitalized interest
31.I.b
(9,658
)
(9,658
)
Amortization of capitalized interest
31.I.b
6,189
8,061
Pre-operating expenses of Timnet.com S.A.
31.I.c
(7,006
)
(3,318
)
Provision for pension plan
31.I.d
(17,247
)
(16,496
)
Financial instruments
31.I.f
2,515
10,226
Goodwill amortization
31.I.i
—
1,779
Effect of deferred taxes on the above adjustments
374
(1,827
)
Valuation allowance on social contribution
31.I.e
(24,180
)
—
Minority interest on the above adjustments
4,394
(1,841
)
Estimated shareholders' equity under US GAAP
790,052
849,271
(a)     Inflation accounting for the years ended December 31, 1996 and 1997
Until December 31, 1995, publicly traded companies in Brazil were required to
prepare their financial statements according to two sets of accounting
principles: (a) the Brazilian Corporate Law, which was and remains in full
force and is valid for all legal purposes, including the basis for calculating
the income tax and mandatory minimum dividends; and (b) generally accepted
accounting principles in Brazil (Brazilian GAAP), which require the application
of the constant currency method of accounting to reflect the effect of
inflation in the preparation of supplementary financial statements, in
accordance to the standards recommended by the
Comissão de Valores Mobiliários
(CVM), the Brazilian securities commission. The accounting principles under the
Brazilian Corporate Law and the Brazilian GAAP differ solely in the method of
recognizing the effect of inflation in the financial statements.
Brazilian Corporate Law
F-52
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Under the Brazilian Corporate Law, until December 31, 1995 a simplified method
was used to recognize the effects of inflation, which consisted in indexing
permanent assets (investments, property, plant and equipment and deferred
charges) and shareholders' equity accounts using indices set forth by the
Federal Government, based on the variation of the
Unidade Fiscal de Referência
(UFIR). The net effect of the indexation was stated in the statement of income
under a single account. The Brazilian corporate law, however, does not
recognize the effect of inflation in certain balance sheet accounts, such as
inventories and customer advances; this method also does not require the
indexation of information from the preceding years when presenting comparative
financial information. In the highly inflationary environment prevailing in
Brazil until July 1, 1994, the financial statements prepared according to
accounting principles set forth in the Brazilian Corporate Law did not allow a
consistent comparison of financial information concerning two different
periods.
Under the Brazilian Corporate Law and the CVM rules, the application of the
method to account for the effects of inflation described above was prohibited,
beginning January 1, 1996 and, therefore, the financial statements prepared
according to the Brazilian Corporate Law do not include the recognition of the
effects of inflation since then.
Constant currency method (Brazilian GAAP)
Under the constant currency method required by the Brazilian GAAP, all amounts
stated in Reais are stated in constant purchasing power currency on the date of
the latest balance sheet presented, pursuant to the CVM rules for publicly
traded companies.
Brazilian GAAP requires application of the constant currency method also after
January 1, 1996.
The constant currency method requires the recognition of the following effects
of inflation in the financial statements:
—
Adjustment of the opening balances, non-monetary assets additions and
depreciation by applying a general inflation index, recognizing the
gain by means of a credit to the income.
—
Adjustment of the shareholders' equity opening balances and movements
for the period by applying a general inflation index, recognizing the
loss by means of a debit to income.
—
Allocation of inflationary gains and losses of other non-monetary
items to the corresponding income and expenses. Gains and losses for
which the corresponding income and expenses were not identified are
allocated to a specific account under "Other net operating income
(expenses), net".
F-53
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Changes in the presentation of the consolidated financial statements
Until the year ended December 31, 1999 the consolidated financial statements of
the Company presented in documents filed with the Securities and Exchange
Commission of the United States (SEC) were submitted pursuant to Brazilian GAAP
requiring the application of full indexation after January 1, 1996.
In common with other Brazilian SEC registrants, the Company, as from the year
ended December 31, 2000, has been granted the option to present its primary
financial statements on the basis of accounting principles established under
Brazilian Corporate Law. This accommodation arose from a position paper
prepared by the "International Task Force" of the American Institute of
Certified Public Accountants (AICPA). The SEC staff informally indicated that
it would not object such presentation.
To harmonize the presentation format of financial statements to be used by
shareholders in the United States with those used in the Brazilian market,
management has prepared the Company's consolidated financial statements
pursuant to the principles set forth in the Brazilian Corporate Law.
All periods are presented according to the Brazilian Corporate Law, since the
change in the reporting currency from constant
Reais
of purchasing power of the
latest balance sheet date to nominal
Reais
requires a restatement of all period
submitted, so as to maintain consistency in the presentation of the
consolidated financial statements.
Inflation accounting under US GAAP for the years ended December 31, 1996 and 1997
Under US GAAP, Brazil would be considered to have ceased to be
hyper-inflationary economy in a period between July 1, 1997 and December 31,
1997 requiring the recognition of the effect of inflation until such date. In
determining amounts under US GAAP, the effects of inflation for the years ended
December 31, 1996 and 1997 were determined using the
Índice Geral de Preços do
Mercado
- IGP-M index. For periods prior to 1996, the Company and its
subsidiaries used the same index as in the Corporate Law financial statements
(UFIR).
F-54
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(b)     Differences in criteria for the capitalization of interest and the respective amortization
Until December 31, 1993, the capitalized interest was not permitted for
individual property, plant and equipment. Under US GAAP, capitalized interest
is added to the value of the individual assets and amortized over their useful
lives. Also, according to the accounting principles under the Brazilian
Corporate Law, and until December 31, 1998, applicable to the
telecommunications companies, the interest attributable to construction in
progress was calculated at 12% per year on the balance of the account of
construction in progress, and the part related to interest on third-party loans
was credited to financial expenses, on the basis of actual financial costs, and
the balance concerning own capital was credited to shareholders' equity. During
1999, the Company and its subsidiaries started to capitalize interest on
specific loans based on the respective interest rates, related to financing for
construction in progress.
According to US GAAP,
"Statement of Financial Accounting Standards"
(SFAS) Nº
34 — "Capitalization of Interest Costs", interest on loans is capitalized up to
the total of construction in progress. The credit is a reduction of financial
expenses. Under US GAAP, the amount of capitalized interest excludes foreign
exchange gains and losses on foreign currency borrowing.
As a result of the change in the policy concerning interest capitalization in
financial statements prepared under Brazilian Corporate Law mentioned above,
starting in the year ended on December 31, 2000 the amount of capitalized
interest is substantially similar to that capitalized under US GAAP.
F-55
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The effects of these different criteria for capitalizing and amortizing
capitalized interest are presented below:
Year ended December 31,
2000
2001
2002
Capitalized interest difference
Capitalized interest under USGAAP:
Interest that would have been capitalized and credited to
income (interest incurred on loans, computed up to the
amount of construction-in-progress)
14,680
4,148
646
Less — capitalized interest under Brazilian Corporate Law
Interest capitalized and credited to income (up to the
limit of interest incurred on loans to fund investments in
property, plant and equipment)
(14,680
)
(4,148
)
(646
)
Net effect of difference in capitalized interest:
For the year
—
—
—
Accumulated at the beginning of the year
(9,658
)
(9,658
)
(9,658
)
Accumulated at the end of the year
(9,658
)
(9,658
)
(9,658
)
Amortization of capitalized interest difference
Amortization under the Brazilian Corporate Law
(7,749
)
(11,551
)
(13,148
)
Less — amortization under US GAAP
6,359
10,157
11,276
Difference in amortization of capitalized interest on disposals
—
—
—
Amount of reconciling item in US GAAP reconciliation
1,390
1,394
1,872
(c)     Pre-operating expenses
Under Brazilian Corporate Law, pre-operating expenses incurred may be deferred
until the commercial operations begin. Subsequently all costs related to the
organization and start-up of a new business may be capitalized to the extent
that they are considered recoverable. The amounts are amortized over a period
of five to ten years.
Under U.S. GAAP, the rules are generally more restrictive as to the costs that
can be capitalized and the periods over which such costs are amortized and
these expenses are normally charged to operations.
F-56
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(d)     Pensions and other post-retirement benefits
As discussed in Note 20, the Company and its subsidiaries sponsor several
pension plans and other post-retirement benefit plans. Until December 31, 1999
all plans were considered to be multi-employer defined benefits plans, in which
the Company and its subsidiaries contribute towards the pension and other
post-retirement benefits on the basis of a fixed percentage of salary, as
annually recommended by independent actuaries. For the purposes of the
financial statements under the accounting practices established by Brazilian
Corporate Law and for US GAAP purposes, the Companies recognized the expenses
for the contributions to the multi-employer defined plans on the accrual basis
and disclose their annual contributions.
In December 1999, the Companies announced their intention to withdraw from the
plans sponsored by all the companies belonging to the Telebrás system covering
active employees while remaining jointly and severally liable solely for the
obligations under the pension and health care plans covering retirees and their
dependants. In the consolidated financial statements under Brazilian Corporate
Law this change had no accounting impact and the contributions to the plans
sponsored exclusively by the Companies, PBS-Tele Celular Sul and PAMA-Tele
Celular Sul, are still recognized as expenses on the accrual basis.
For US GAAP purposes, since the sponsors decided to split-off the total assets
and related actuarial obligations for the multi-employer plan prior to December
31, 1999 the Companies recognized a contingent liability, which was probable
and estimable, for the accrued pension cost as of such date. The funded status
of those plans was recognized as of December 31, 1999, in shareholders' equity
and in net income for the year, as required by SFAS 87 "Employer's Accounting
for Pensions" and SFAS 106 "Employer's Accounting for Postretirement Benefits
and Than Pensions". The provisions of SFAS Nº. 87 concerning the calculation of
the funded status were applied with effect from January 1, 1992, since it was
impossible to apply them from the effective date specified in the standard. See
note 31.III.a for detail of the pension plans.
F-57
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(e)     Valuation allowance on social contribution tax
Both the accounting principles under Brazilian Corporate Law and US GAAP adopt
the liability method to record the effects of income tax.
Under the Brazilian constitution, the President of the Federative Republic of
Brazil may issue provisional measures having the force of law for 30 days or
less, which is only enacted after approval by Congress. Provisional measures
are frequently re-issued by the President after the 30-day period. On December
31, 1999 and 2000, the enacted social contribution rate was 8%; however,
provisional measures set forth rates of 12% for the period from May 1, 1999 to
January 31, 2000 and 9% for the period from February 1, 2000 to December 31,
2002.
To calculate deferred taxes, the accounting principles under the Brazilian
Corporate Law determine the use of the tax rate applicable for the estimated
period of realization of the temporary differences or tax losses to be
compensated. When applying such rules, the provisional measures that made
changes to the tax rates are considered substantially approved and used to
calculate deferred taxes.
Under US GAAP, only enacted tax rates may be used to calculate deferred taxes.
The tax rates for future periods set forth by provisional measures are not
enacted and, therefore, are not taken into account.
Effective 1999, the COFINS tax rate was increased from 2% to 3% of taxable
gross revenues. As the additional 1% can be, in accordance with enacted tax
law, offset against the social contribution tax for the year, and the
additional 1% is currently expected to exceed the social contribution for the
year, until such time as the law is repealed, the social contribution net
operating losses and other temporary differences are not expected to be
realized. Although a provisional measure has been issued which proposes to
eliminate the availability of offset, such measure has not yet been enacted and
the Company and its subsidiaries have not yet realized the accumulated amount
of net operating losses and other temporary differences. Accordingly, for US
GAAP purposes, a valuation allowance has been recorded as of December 31, 2001
and 2002 to offset the amount of deferred social contribution tax that is
considered, taking into account the effect of the law mentioned about, more
likely than not that will not be realized.
The social contribution rate was set at 9% effective from January 1, 2003.
Therefore, the recorded allowance for deferred social contribution tax was
reversed in 2002, as the realization of such deferred tax is assured.
F-58
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(f)     Adoption of FAS 133
As of January 1, 2001, the Company adopted Financial Accounting Standards Board
(FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities", which was issued in June, 1998 and its amendments Statements 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133 and 138, Accounting for Derivative
Instruments and Certain Hedging Activities
issued in June 1999 and June 2000,
respectively (collectively referred to as Statement 133). Under Brazilian
Corporate Law, the Company has been recording its hedging activities in the
balance sheet as either an asset or liability measured at the spot rates at
December 31, 2002 plus the coupon rate as stated in the agreements and
adjustments to contract value were recorded through income.
As a result of adoption of Statement 133, the Company recognizes its foreign
currency and interest rate swap agreements on the balance sheet at fair value
and adjustments to fair value are recorded through income. The Company
accounted for the accounting change as a cumulative effect of a change in an
accounting principle. The adoption of Statement 133, resulted in an effect of
R$2,515, which resulted in a gain in the consolidated statement of income for
the twelve months ended December 31, 2001. The cumulative effect of R$351 was
considered immaterial by the Company for adjustment.
Swaps
At December 31, 2001 and 2002 the subsidiary Telepar Celular S.A. had entered
into swaps contracts between US Dollars and mix of currencies (UMBNDES) to CDI,
in the amount of R$28,224 (R$5,513 in 2001), with due dates between 2003 and
2007. For Brazilian GAAP purposes the Company recorded gains related to these
swap transactions of R$28,271 (R$9,172 in 2001) which was recorded as a
reduction of the loans. For US GAAP purposes such gains were reclassified to
assets. The fair values adjustments of the Company's foreign currency and
interest rate swap contracts were estimated based on quoted market prices of
comparable contracts, and at December 31, 2001 and 2002 were approximately
R$2,515 and R$7,711.
F-59
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(g)     Incorporation of tax benefit of goodwill by Subsidiaries
According to the Brazilian Corporate Law accounting principles, companies may
assign the tax benefit of the goodwill to their subsidiaries in order to
receive the tax benefit generated by the amortization of such goodwill. The tax
benefit is shown as deferred and recoverable taxes with a contra account in a
special reserve within Shareholders' equity. The deferred tax is amortized and
recognized as an expense in the statement of income for the amount of the tax
benefit. The tax benefit of the deduction of the amortization from the tax
basis for income tax and social contribution generates a reduction of income
tax and social contribution payable. Therefore, the amount recognized as an
expense resulting from tax deductible amortization of goodwill is equal to the
reduction in tax on taxable income. Such accounting generates a reduction in
taxes payable, but has no effect on the determination of net income for the
period.
Once the benefit is realized, shares will be issued to the controlling
shareholder for the amount of the realized benefit; minority shareholders will
be entitled to buy shares in proportion to their interests by paying them
directly to the controlling shareholder.
Under US GAAP, goodwill generated internally is not recognized; however, the
future tax benefit generated by the amortization of goodwill is recognized as a
contribution from the controlling shareholder within additional paid-in
capital, similarly to the accounting principles under the Brazilian Corporate
Law. The realization of the tax benefit by the amortization of the goodwill is
recognized as a decrease in the value of the deferred tax with a consequent
decrease in the tax payable, and does not affect the determination of income
for the period, similar to the accounting principles under the Brazilian
Corporate Law. The additional capital paid is transferred to Capital upon the
issuance of the shares.
(h)     Financial revenues (expenses)
Accounting principles under the Brazilian Corporate Law require such amounts to
be stated as part of operating profit. Under US GAAP, financial revenue and
expenses is presented after operating profit in the statement of income
F-60
Table of Contents
TELE CELULAR SUL
PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(i)
Goodwill amortization
Accounting principles under the Brazilian Corporate Law require that the
amortization of the deferred tax benefit related the goodwill amortization be
stated as an appropriation of income for the year as other operating expenses.
Under US GAAP, such amortization is shown as a reduction of the provision for
income tax.
Additionally, the Company has recognized goodwill of R$16,669 in 2000 related
to acquisition of minority interest on Telepar Celular S.A. For Brazilian GAAP
purposes such goodwill has been amortized for a period of 10 years. For US GAAP
purposes, the goodwill is not subject to amortization beginning January 1,
2002. The amount of such amortization on December 31, 2002 is R$1,779. Based on
management's assessment of the fair value of the Company's recorded goodwill,
there was no impairment recorded for US GAAP purposes as of December 31, 2002.
Management will make annual assessments of such goodwill as required by SFAS
142.
(j)
Dividends and Interest on shareholders' equity
Under Brazilian Corporate Law, proposed dividends are accrued for in the
financial statements in advance of their approval at the Annual General
Shareholders' Meeting, which is usually a merely formality.
In December 31, 2001 and 2002, the related dividends were fully accrued, since
the approval by the Annual General Shareholders' Meeting is considered more
likely than not to occur. Interest on shareholders' equity paid or credited to
shareholders as capital remuneration under Brazilian legislation would be
considered as declared for US GAAP purposes.
F-61
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(k) Corporate Reorganization — acquisition of minority interest
As mentioned in the footnote 1.d, the Company concluded a corporate
reorganization on December 26, 2002 in which Telepar Celular S.A. acquired the
Company and minority interest in the other two subsidiaries, Telesc Celular
S.A. and CTMR Celular S.A., being the owner of 100% of those subsidiaries.
Under Brazilian GAAP the accounting was a capital increase by the book value of
the two subsidiaries at Telepar Celular S.A. and a contra account in
investments. For the consolidated financial statements purposes this investment
was eliminated.
For US GAAP purposes, such corporate reorganization was recorded using the
purchase method in accordance with SFAS 141 and was recorded based on the fair
value.
On a consolidated level for US GAAP purposes, the Company recorded an asset of
R$14,520 and increase in minority interest. The effect on operating and net
income is not significant.
II Changes in shareholders' equity under US GAAP
Balance on December 31, 1999
563,163
Additional capital provided by the controlling shareholder (tax benefit in the
amortization of the goodwill paid at privatization)
205,502
Net income for the year
6,673
Interest on shareholders' equity
(2,515
)
Balance on December 31, 2000
772,823
Net income for the year
48,111
Dividends paid in 2001
(9,241
)
Dividends and Interest on shareholders' equity
(21,641
)
Balance on December 31, 2001
790,052
Net income for the year
87,992
Dividends and Interest on shareholders' equity
(28,773
)
Balance on December 31, 2002
849,271
F-62
Table of Contents
TELE CELULAR SUL
PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
III
Additional disclosures required by US GAAP
(a)
Pension and other post-retirement benefits
As discussed in Note 20 the Company, and practically all other companies
belonging to the Telebrás System, participates in multi-employer defined post
retirement pension and other benefits plans operated and managed by Sistel.
In December 1999, the Company and the other companies participating in the
plans identified in these consolidated financial statements as PBS-A-Sistel and
PAMA-Sistel reached an agreement to remove the active employees from the
pension plan and create a new plan for each one of the new holding companies,
including the Company (PBS-Tele Celular Sul and PAMA-Tele Celular Sul plans as
identified in Note 20). The parties agreed to allocate the plan assets based on
the reserves under the Brazilian Corporate Law. The allocation of the initial
transition liabilities and non-amortized gains and losses was based on the
projected benefit liability (PBO) of each individual employer divided by the
total Sistel PBO in December 31, 1999, under SFAS 87. Retirees of the new
holding companies participating in the Sistel-defined pension plan would remain
as part of the Sistel multi-employer defined plan. The post-retirement health
benefit plans would also remain as multi-employer defined plans; Sistel,
however, no longer subsidizes life insurance premiums for retirees.
Since the withdrawal of the participating active employees was probable and the
effect reasonable estimable at December 31, 1999, the Company recorded a charge
in income for the year ended December 31, 1999 to recognize the liability of
active employees, amounting to R$18,368. The Company remains liable for
contributing to the multi-employer defined plan, but no additional provision,
other than the contributions due on the accrual basis, was recorded for the
multi-employer plans.
F-63
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The funding status on December 31, 2001 and 2002 for the pension plan for the
active employees (PBS-Tele Celular Sul) is summarized below:
December 31,
2001
2002
Pension plan funded status:
Accumulated benefit obligation (ABO):
Vested
(6,281
)
(8,745
)
Not vested
(20,688
)
(24,262
)
Total
(26,969
)
(33,007
)
Projected benefit obligation (PBO)
(35,545
)
(43,660
)
Fair value of the plan assets
31,561
41,592
Projected liabilities in excess of assets
(3,984
)
(2,068
)
Unrecognized gains
(18,557
)
(19,054
)
Unrecognized net transition obligation, net
5,294
4,626
Liabilities recognized in equity under US GAAP
17,247
16,496
The components of net periodic benefit cost for the PBS-Tele Celular Sul plan
for the years ended December 31, 2000, 2001 and 2002 are as follows:
December 31,
2000
2001
2002
Service cost
(1,043
)
(975
)
(1,307
)
Interest cost
(3,213
)
(3,533
)
(3,996
)
Expected return on plan assets
2,658
3,999
4,674
Amortization of unrecognized gains
650
992
935
Amortization of transitional obligation
(667
)
(667
)
(667
)
Net periodic benefit cost
(1,615
)
(184
)
(361
)
F-64
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The change in benefit obligation and plan assets related to the PBS- Tele
Celular Sul plan for the years ended December 31, 2001 and 2002 are as follows:
December 31,
2001
2002
Projected benefit obligation at beginning of year
(31,737
)
(35,545
)
Service cost
(975
)
(1,307
)
Interest cost
(3,533
)
(3,996
)
Benefits paid
(599
)
(472
)
Actuarial gain (loss)
1,299
(2,340
)
Projected benefit obligation at end of year
(35,545
)
(43,660
)
Change
in plan assets
Fair value of plan assets at beginning of year
27,475
31,561
Actual return on plan assets
2,152
8,406
Contributions
2,533
2,097
Benefits paid
(599
)
(472
)
Fair value of plan assets at end of year
31,561
41,592
A summary of the funding status of the Sistel (PBS-A- Sistel) pension plan on
December 31, 2001 and 2002 for the multi-employer plan is presented below:
December 31,
2001
2002
Projected benefit obligation (PBO)
(2,809,643
)
(2,922,542
)
Fair value of the plan assets
3,214,439
3,684,884
(Projected liabilities in excess of assets) Excess of assets over
projected liabilities
404,796
762,342
Unrecognized actuarial gains
(1,534,831
)
(1,690,371
)
Unrecognized transition liabilities, net
487,420
426,032
Liabilities recognized in equity under US GAAP
(642,615
)
(501,997
)
The actuarial assumptions for 2001 and 2002 used in the computation of the
funding status of the PBS-A-Sistel and PBS-Tele Celular Sul were the following:
2001
2002
Discount rates to determine the projected benefit liabilities
11.30
%
11.30
%
Rate of growth in compensation levels
8.15
%
8.15
%
Expected long-term rate of return for the plan assets
14.45
%
14.45
%
F-65
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian  Reais unless otherwise indicated
As mentioned in the note 20.d, the Company changed its pension plan to a
defined contribution pension plan, TIMPREV. Migration to this new plan was
exercised up to January 29, 2003 and approximately 94% of the participants
migrated to the new plan. TIMPREV became effective as of February 2, 2003 and
the Company asked for its actuaries to calculate the effects of the curtailment
and the settlement as of February 28, 2003, which is used only for disclosure
purposes, since the effectiveness of the migration to the new plan occurred in
2003.
The effects of such curtailment and settlement for the active employees
(PBS–Tele Celular Sul) are as follows:
Before
After
Curtailment
Effect of
Effect of
Curtailment
PBS - Tele Celular Sul
and Settlement
Curtailment
Settlement
and Settlement
1. Projected benefit obligation (PBO)
44,786
(6,030
)
(27,712
)
11,044
2. Plan assets at fair value
(42,428
)
—
27,712
(14,716
)
3. Funded status
2,358
(6,030
)
—
(3,672
)
4. Unrecognized items
(a) Initial transition obligation (asset)
4,516
(4,232
)
—
284
(b) (Gain) & loss
(18,506
)
—
13,232
(5,274
)
5. Accrued / (prepaid) post-retirement
benefit liability
(3-(4a+4b))
16,348
(1,798
)
(13,232
)
1,318
(b)
Statement of cash flows
Accounting principles under the Brazilian Corporate Law require presentation of
a statement of changes in financial position reflecting the sources and uses of
funds. A statement of cash flows was prepared based on
SFAS 95 – Statements of
Cash Flows,
to complement the information disclosed under Brazilian Corporate
Law
is presented below:
F-66
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Year ended December 31,
2000
2001
2002
Operating activities
Net income for the year
15,368
59,889
65,774
Adjustments to reconcile income to the cash
generated by operations:
Depreciation and amortization
156,089
174,733
201,763
Effects of non-consolidation of TIMnet.com
—
(4,736
)
—
Losses on non-operational investments
—
(753
)
Equity losses of affiliate
—
1,888
4,288
Loss on disposal
372
883
2,171
Minority interest
(2,998
)
10,979
9,895
Foreign exchange variation of loans
11,925
17,341
34,262
Changes in operating assets and liabilities:
Trade accounts receivable
72,260
(15,343
)
(16,620
)
Allowance for doubtful accounts
(8,332
)
(5,881
)
(319
)
Inventories
32,628
(9,491
)
6,283
Recoverable taxes
(2,955
)
15,391
(10,932
)
Deferred taxes
(25,161
)
(15,749
)
29,067
Other current assets
(7,740
)
15,556
7,816
Other long-term assets
(2,514
)
(352
)
(6,830
)
Salaries and social charges
1,107
3,893
1,032
Accounts payable
(65,857
)
(35,335
)
60,288
Taxes and contributions payable
23,335
20,909
35,630
Accrued interest
1,442
592
566
Provision for contingencies
(3,523
)
4,578
2,856
Pension plan liabilities
294
65
594
Other current liabilities
—
9,813
4,537
Other non-current liabilities
—
(75
)
Net cash provided by operating activities
195,740
249,623
431,293
Investing activities:
Marketable securities
—
(134,397
)
(287,290
)
Investments purchases
—
(11,100
)
(926
)
Acquisition of property, plant and equipment and
deferred charges
(204,310
)
(147,299
)
(67,739
)
Net cash provided by investing activities
(204,310
)
(292,796
)
(355,955
)
Financing activities:
Loan and financing payments
(432,606
)
(36,332
)
(47,563
)
Funds borrowed
549,827
—
—
Dividends and interest on shareholders' equity paid
(11,305
)
(10,172
)
(18,709
)
Dividends paid by subsidiaries to minority shareholders
(2,421
)
(1,870
)
(3,381
)
Net cash provided by (used in) financing activities
103,495
(48,374
)
(69,653
)
Net increase (decrease) in cash and cash equivalents
94,925
(91,547
)
5,685
Cash and cash equivalents at the beginning of the year
2,084
97,009
5,462
Cash and cash equivalents at year end
97,009
5,462
11,147
F-67
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Additional cash flow information
Income taxes paid
19,148
10,896
14,007
Interest paid
42,262
42,086
42,606
Holding Company credits capitalized in Telepar Celular S.A.
114,312
—
—
(c)
New accounting standards
In June of 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets", which requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized; however, these assets must be reviewed at
least annually for impairment. Intangible assets with finite useful lives will
continue to be amortized over their respective useful lives. The standard also
establishes specific guidance for testing for impairment of goodwill and
intangible assets with indefinite useful lives. Application of SFAS 142 in
earlier years would have resulted in a reduction in goodwill of R$416 and
R$1,691 in 2000 and 2001, respectively which would have resulted in net income,
net of tax effect, under US GAPAP of R$6,948 and R$49,227, respectively.
In June of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," on the accounting for obligations associated with the retirement
of long-lived assets. SFAS 143 requires a liability to be recognized in the
financial statements for retirement obligations meeting specific criteria. SFAS
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 or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 amends existing accounting guidance on
asset impairment and provides a single accounting model for long-lived assets
to be disposed of. Among other provisions, the new rules change the criteria
for classifying an asset as held-for-sale. The standard also broadens the scope
of businesses to be disposed of that qualify for reporting as discontinued
operations, and changes the timing of recognizing losses on such operations.
The provisions of SFAS 144 will be effective for the Company's fiscal year 2002
and will be applied prospectively. The Company is currently in the process of
evaluating the potential impact that the adoption of SFAS 144 will have on its
consolidated financial position and results of operations, but believes that
adoption of this statement will not have a significant impact on its
consolidated financial position or results of operations.
F-68
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 provides guidance related to
accounting for costs associated with disposal activities covered by SFAS 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 146 supersedes 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 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS 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 148 are effective for the Company's fiscal ending after December 15, 2002.
The Company does not expect SFAS 148 to have a material effect on its results
of operations or financial condition.
In November 2002, the FASB issued Interpretation No. 45,
Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others
,
an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34
. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002.
F-69
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
In January 2003, the FASB issued Interpretation No. 46,
Consolidation of
Variable Entities, an interpretation of Account Research Bulletin – ARB No. 51
.
This Interpretation addresses consolidation by business enterprises of variable
interests entities which have one of the following characteristics:
i)
the 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 the expected losses of the entity.
ii)
the equity investors lack on or more of the following essential
characteristics of a controlling financial interest:
a)
the direct or indirect ability to make decisions about the entity's
activities through voting rights or similar rights.
b)
the obligation to absorb the expected losses of the entity if they
occur, which makes it possible for the entity to finance its activities
c)
the right to receive the expected residual returns of the entity if
they occur, which is the compensation for the risk of absorbing the
expected losses.
The disclosure requirements is immediately effective for all variable interest
entities created after January 31, 2003 and for the fiscal year or interim
period beginning after June 15, 2003 for variable entities in which an
enterprise holds a variable interest that is acquired before February 1, 2003.
The initial recognition of the Interpretation is applicable after December 31,
2002 and is not expected to have effect on the Company's financial statements.
(d)
Segment information
Accounting principles under the Brazilian Corporate Law do not require
disclosure of information on business segments.
Under US GAAP, SFAS Nº 131, "Disclosures about Segments of an Enterprise and
Related Information" sets forth the rules under which publicly traded companies
are obliged to disclose financial and descriptive information on their business
segments. Management is of the opinion that the Company and its subsidiaries
operate in a single business segment as telecommunication services providers
and, therefore, the disclosure of information requirements under US GAAP do not
apply.
F-70
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(e)
Additional information under US GAAP
2000
2001
2002
Total assets
1,505,553
1,713,002
Valuation allowance on social contribution
(24,180
)
—
Financial instruments
9,172
28,271
Fair value on financial instruments
2,515
10,226
Asset on minority interest acquisition
—
14,520
Property, plant and equipment
1,335,426
1,379,529
Accumulated depreciation
(543,984
)
(711,480
)
Property, plant and equipment, net
791,442
668,049
Advertising expenses for the year
32,346
35,440
33,927
Research and development costs for the year
1,051
627
—
(f)
Termination benefits
The Companies are required to deposit 8% of the gross salary of each employee
to an account under the employee's name for
Fundo de Garantia do Tempo de
Serviço
(FGTS — Workers' Compensation Fund). No other contribution to the FGTS
is required. Contributions are recorded as they occur.
Brazilian labor law requires the Company to pay additional compensation to
employees terminated without cause, equivalent to 50% of the total amount of
deposits already made by the Company to the individual employee's FGTS account,
for the period such employee worked for the Company. The total termination
compensation actually paid in the years ended on December 31, 2001 and 2002 was
R$143 and R$244, respectively.
(g)
Comprehensive income
Under US GAAP, the Company adopted SFAS Nº 130, "Reporting Comprehensive
Income". Comprehensive income is not different from net income under US GAAP.
F-71
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
(h)  Earnings per share
Under Brazilian Corporate Law, earnings per share are determined based upon the
total number of shares, common and preferred, outstanding as of the end of the
period.
Under US GAAP, earnings per share are determined based upon the weighted
average number of shares outstanding during the period. Entities whose capital
structures include securities that may participate in dividends with common
stocks according to a predetermined formula should use the two-class method of
computing earnings per share as described in SFAS N.º 128, "Earnings per
Share".
Since the preferred and common shareholders have different dividend, voting and
liquidation rights, basic earnings per share has been calculated using the
"two-class" method. The "two-class" method is an earnings allocation formula
that determines earnings per share for preferred and common shares according to
the dividends to be paid as required by the Company's by-laws and participation
rights in undistributed earnings.
Basic earnings per common share is computed by reducing net income by
distributable and undistributable net income available to preferred
shareholders and dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Net
income available to preferred shareholders is the sum of the preferred
dividends distributable net income and the preferred shareholders' portion of
undistributed net income.
Undistributed net income is computed by deducting preferred dividends and
common dividends from net income. Undistributed net income is shared equally on
a per share basis by the preferred and common shareholders. Options issued
under the Company's stock options plan are antidilutive for each of the years
presented. Therefore, diluted earnings per share equals basic earnings per
share.
Under the Company's bylaws, if the Company is able to pay dividends in excess
of the minimum requirement for preferred shareholders and the remainder of the
net income is sufficient to provide equal dividends to both common and
preferred shareholders, then the earnings per share will be the same for both
common and preferred shareholders.
F-72
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
The following table sets forth the computation of basic and diluted earnings
per thousand of common shares:
Year ended December 31,
2000
2001
2002
Numerator:
Net income for the year under US GAAP
6,673
48,111
87,992
Net income available to preferred
shareholders – numerator for basic and
diluted earnings per thousand share
(6,624
)
(30,044
)
(54,804
)
Net income available to common shareholders –
numerator for basic and diluted earnings per
thousand shares
49
18,067
33,188
Denominator:
Weighted-average outstanding shares (in millions)
Common
124,369
126,301
129,358
Preferred
210,030
210,030
213,612
Earnings per 1,000 shares (basic and diluted)
Common shares
0.000
0.143
0.257
Preferred shares
0.032
0.143
0.257
(i)
Stock Option
As mentioned in the footnote 21-j, for Brazilian GAAP purposes there is no
effect in stock option plan since any stock option was exercised up to December
31, 2002.
For US GAAP purposes the Company applies APB Opinion No. 25 in accounting for
its Stock Option Plan. No compensation cost has been recognized for its stock
options in the financial statements in 2001 and 2002. In 2002, the year end
market price was below the exercise price. In 2001, the year end market price
was slightly above the exercise price, resulting in an amount of compensation
cost that was not material.
F-73
Table of Contents
TELE CELULAR SUL PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the per share
weighted-average fair value of stock options granted would have been R$2.97 on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividends of R$28,773 thousand
in 2002, R$31,670 thousand in 2003, R$27,817 thousand in 2004 and R$32,098
thousand in 2005, a risk-free interest rate of 19%, expected life of 5 years,
and expected volatility of 68%. The Company's net income also would have been
reduced to the pro forma amounts indicated below for the respective years:
2001
2002
Net income as reported
48,111
87,992
Deduct: Total stock-based employee
compensation expense determined under
fair value based net of related tax
effects
(1,066
)
(1,599
)
Pro forma net income
47,045
86,393
Earnings per share
Basic and diluted earnings (losses), in
Reais per thousand preferred and common
shares as reported
0.143
0.257
Proforma basic and diluted earnings
(losses), in Reais per thousand preferred
and common shares as reported
0.140
0.252
Stock option activity during the periods indicated is as follows:
Weighted-
Number of
average
Shares
exercise price
(Thousands)
Balance at December 31, 2000
—
—
Granted
4,073
4.27
Exercised
—
Forfeited
—
Expired
—
Balance at December 31, 2001
4,073
4.27
Exercised
Forfeited
Expired
Balance at December 31, 2002
4,073
4.27
F-74
Table of Contents
TELE CELULAR SUL
PARTICIPAÇÕES S.A. E CONTROLADA
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2000, 2001 and 2002
All amount in thousand of Brazilian Reais unless otherwise indicated
32
Subsequent events (Unaudited)
At March 18 2003, the Shareholders' Annual Meeting approved the capital
increase of the Company, in name of Bitel Participações, in the amount of
R$29,229, equivalent to the tax benefit generated in the period, in accordance
to the article 7, paragraph 1, of CVM Instruction 319/99. The capital increase
considered the issuance of 5,095,007,583 common shares and 8,413,524,457
preferred shares, both without nominal value.
The subscription price was R$1.772 for the common shares and R$2.4010 for the
preferred shares, per 1000 shares. The period for the right of preference
exercise is from March 19, 2003 to April 17, 2003.
It was also approved the capital increase of R$15,000, in accordance with
article 199 of Law 6,404/76, without issuance of new shares, based on the
exceeding resources remaining from the retained income account and income
reserves, in relation to the Company social capital. Additionally, it was
approved the distribution of dividends as described on Note 21 e.
F-75
Table of Contents
ITEM 19. EXHIBITS
1.1
By-laws of Tele Celular Sul Participações S.A., as amended (English Translation).
4.1
Credit Agreement dated as of December 3, 1999, among Telepar Celular S.A., as Borrower, Tele
Celular Sul Participações S.A., as Guarantor, and Export-Import Bank of the United States,
which is incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.
4.2
Credit Agreement dated as of December 22, 2000, among
Banco Nacional de Desenvolvimento
Econômico e Social
– BNDES, Telepar Celular S.A., as Borrower, and Tele Celular Sul
Participações S.A., as Guarantor (Portuguese Version), which is incorporated by reference
from our 2000 annual report filed under form 20-F with the Securities and Exchange
Commission.
4.3
Credit Agreement dated as of December 22, 2000, among
Banco Nacional de Desenvolvimento
Econômico e Social
– BNDES, Telepar Celular S.A., as Borrower, and Tele Celular Sul
Participações S.A., as Guarantor (English Translation), which is incorporated by reference
from our 2000 annual report filed under form 20-F with the Securities and Exchange
Commission.
4.4
Indenture for the First Public Issuance of Subordinated Single-Series Simple Debentures of
Telepar Celular S.A., dated as of November 9, 2000 (Portuguese Version), which is
incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.
4.5
Indenture for the First Public Issuance of Subordinated Single-Series Simple Debentures of
Telepar Celular S.A., dated as of November 9, 2000 (English Translation), which is
incorporated by reference from our 2000 annual report filed under form 20-F with the
Securities and Exchange Commission.
4.6
Standard Concession Agreement for Mobile Cellular Service (Portuguese Version), which is
incorporated by reference from our 1998 registration statement filed under form 20-F with the
Securities and Exchange Commission.
4.7
Standard Concession Agreement for Mobile Cellular Service (English Translation), which is
incorporated by reference from our 1998 registration statement filed under form 20-F with the
Securities and Exchange Commission.
4.8
Authorization Agreement for Mobile Cellular Service for Telepar Celular (English Translation).
4.9
Authorization Agreement for Mobile Cellular Service for CTMR Celular (English Translation).
4.10
Authorization Agreement for Mobile Cellular Service for Telesc Celular (English Translation).
8.1
List of Subsidiaries.
10.1
Certification of Chief Executive Officer and Financial Executive Officer of Tele Celular Sul,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
83
Table of Contents
SIGNATURES
The registrant 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 CELULAR SUL PARTICIPAÇÕES S.A.
By:
/s/ Alvaro Pereira de Moraes Filho
Name:
Alvaro Pereira de Moraes Filho
Title:
Chief Executive Officer
By:
/s/ Paulo Roberto Cruz Cozza
Name:
Paulo Roberto Cruz Cozza
Title:
Chief Financial Officer
Dated: June 18, 2003
84
Table of Contents
CERTIFICATIONS
I, Alvaro Pereira de Moraes Filho, certify that:
1.
I have reviewed this annual report on Form 20-F of Tele Celular Sul
Participações S.A.;
2.
Based on my knowledge, this annual 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
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 annual
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 date 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 officers 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 could 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 18, 2003
By:
/s/ Alvaro Pereira de Moraes Filho
Name:
Alvaro Pereira de Moraes Filho
Title:
Chief Executive Officer
85
Table of Contents
CERTIFICATIONS
I, Paulo Roberto Cruz Cozza, certify that:
1.
I have reviewed this annual report on Form 20-F of Tele Celular Sul
Participações S.A.;
2.
Based on my knowledge, this annual 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
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 annual
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 date 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 officers 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 could 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 18, 2003
By:
/s/ Paulo Roberto Cruz Cozza
Name:
Paulo Roberto Cruz Cozza
Title:
Chief Financial Officer
86