---

|UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|----------------------------------------------------------------------
|                                                                      

| | REGISTRATION STATEMENT
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934                                   | 
| | -------------------------------------------------------------------------------------------------------------------------------- | 
| | OR                                                                                                                               | 
| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 | 
| | OR                                                                                                                               | 
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934                                         | 

|Commission file number: 001-14481
TELE LESTE CELULAR PARTICIPAÇÕES S.A.
(Exact name of Registrant as specified in its charter) Tele Leste Cellular Holding Company
(Translation of Registrants name into English) The Federative Republic of Brazil
(Jurisdiction of incorporation or organization) Av. Silveira Martins 1036, Cabula41150-000 Salvador, BA, 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:
|--------------------------------------------- | ------------------------------------------
|Prefered Shares, without par value            | New York Stock Exchange*                  
|American Depositary Shares (as evidenced      | New York Stock Exchange                   
|by American Depositary Receipts), each        |                                           
|representing 50,000 shares of Preferred Stock |                                           
|                                             

---

|* | Not for trading purposes, but only in connection with the registration on the New York Stock Exchange of American Depositary Shares
     representing those preferred shares.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                   
|-----------------------------------------------------------------------------------
|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
|----------------------------------------------------------------------------------------------
|                                                                                              

The number of outstanding shares of each class of stock of Tele Leste
Celular Participações S.A., as of December 31, 2002:

166,008,044,051 Shares of Common Stock313,436,994,532 Shares of Preferred Stock

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     |  | No      |  | 
|------------------------------------------------------------------------------------------- | ------- |  | ------- |  | 
|Indicate by check mark which financial
statement item the registrant has elected to follow:
|                                                                                            | Item 17 |  | Item 18 |  | 

---



# TABLE OF CONTENTS

Page

# PART I

|ITEM 1.  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      | 1 
|-------- | ---------------------------------------------------------- | --
|ITEM 2.  | OFFER STATISTICS AND EXPECTED TIMETABLE                    | 1 
|ITEM 3.  | KEY INFORMATION                                            | 1 
|ITEM 4.  | INFORMATION ON THE COMPANY                                 | 10
|ITEM 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS               | 30
|ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 | 44
|ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          | 52
|ITEM 8.  | FINANCIAL INFORMATION                                      | 54
|ITEM 9.  | THE OFFER AND LISTING                                      | 60
|ITEM 10. | ADDITIONAL INFORMATION                                     | 64
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 75
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     | 77

# PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 77
|-------- | ---------------------------------------------------------------------------- | --
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 77
|ITEM 15. | CONTROLS AND PROCEDURES                                                      | 77
|ITEM 16. | [Reserved]                                                                   | 77

# PART III

|ITEM 17. | FINANCIAL STATEMENTS | 77
|-------- | -------------------- | --
|ITEM 18. | FINANCIAL STATEMENTS | 77
|ITEM 19. | EXHIBITS             | 77

# INTRODUCTION

All references in this annual report
to:

- "Tele
Leste Celular Participacoes S.A.," "Tele Leste," "we," "our" and "us" are to Tele Leste
Celular Participacoes S.A. and               its consolidated subsidiaries (unless the
context otherwise requires), including the operations of Telebahia Celular
              S.A., known as Telebahia, and Telergipe Celular S.A., known as Telergipe;
- "Brazilian
government" are to the federal government of the Federative Republic of Brazil;
- "real,"
"reais" or "R$" are to Brazilian reais, the official currency of Brazil;
- "U.S.$,"
"dollars" or "U.S. dollars" are to United States dollars;
- "ADSs"
are to our American Depositary Shares, each representing 50,000 shares of our non-voting
preferred stock;
- "Commission"
are to the U.S. Securities and Exchange Commission;
- "CVM"
are to the Comissao de Valores Mobiliarios, the Brazilian securities commission;
- "Brazilian
Central Bank," "Central Bank of Brazil" or "Central Bank" are to the Banco Central do
Brasil, the Brazilian central bank;
- "General
Telecommunications Law" are to Lei Geral de Telecomunicacoes, as amended, which regulates
the telecommunications industry in Brazil;
- "Brazilian
corporate law" are to Law No. 6,404 of December, 1976, as amended;
- "Anatel"
are to Agencia Nacional de Telecomunicacoes--ANATEL, the Brazilian telecommunication
regulatory agency; and
- "SMP" are to Serviço Móvel Pessoal, a service rendered pursuant to a new legislation that authorizes wireless companies to provide wireless services.

Unless
otherwise specified, data relating to the Brazilian telecommunications industry included
in this annual report was obtained from Anatel.

The
Annex AGlossary of Telecommunications Terms that begins on page A-1
provides the definitions of certain technical terms used in this annual report.

PRESENTATION
OF FINANCIAL INFORMATION

The
consolidated financial statements as of December 31, 2002 and 2001 and for the years
ended December 31, 2002, 2001 and 2000, have been prepared in accordance with generally
accepted accounting principles in Brazil, or Brazilian GAAP, which differs in certain
significant respects from generally accepted accounting principles in the United States,
or U.S. GAAP. Note 32 to our financial statements appearing elsewhere in this
annual report describes the principal differences between Brazilian GAAP and U.S. GAAP
as they relate to us, and provides a reconciliation from Brazilian GAAP to U.S. GAAP
of net income (loss) and shareholders equity. These consolidated financial
statements have been audited by Deloitte Touche Tohmatsu Auditores Independentes.

We
publish our financial statements in Brazil in accordance with accounting practices
adopted in Brazil, or Brazilian corporate law, which provided a simplified methodology
for accounting for the effects of inflation until December 31, 1995. It consisted of
restating permanent assets (property, plant and equipment, investments and deferred
charges) and shareholders equity accounts using indices mandated by the federal
government. The net effect of these restatements was credited or charged to the statement
of income in a single caption, usually entitled Monetary correction adjustments or
Inflation adjustments. Dividends, shareholders equity and tax amounts
presented in this annual report are calculated pursuant to Brazilian corporate law.

Generally
accepted accounting principles in Brazil, or Brazilian GAAP, requires companies to cease
to recognize inflationary effects in their financial statements (including financial
statements prepared using the constant currency method) from January 1, 2001.
Accordingly, in order to comply with the requirements of accounting principles in
Brazilian GAAP, the accompanying financial statements for 1999 and 2000 have been fully
indexed through December 31, 2000, while information after December 31, 2000 has not
been so indexed. The disclosure of inflationary effects subsequent to December 31, 2000
is mandatory under Brazilian GAAP only in cases where the accumulated inflation rate
measured by IGP-M, the general price index published by the Fundação Getúlio
Vargas, a Brazilian economic research organization, reaches 100% or more in the most
recent three years. Inflation in Brazil did not reach this threshold in 2001 or 2002.

# FORWARD-LOOKING
STATEMENTS

The
U.S. Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. Certain sections in this annual report, principally in Item
3D. Risk Factors,Item 4. Information on the Company and Item 5.
Operating and Financial Review and Prospects, contains information that is
forward-looking, including, but not limited to:

- statements
concerning our operations and prospects;
- the
size of the Brazilian telecommunications market;
- estimated demand forecasts;
- our
ability to secure and maintain telecommunications infrastructure licenses, rights-of-way
and other regulatory approvals;
- our
strategic initiatives and plans for business growth;
- industry
conditions;
- our
funding needs and financing sources;
- network
completion and product development schedules;
- expected
characteristics of competing networks, products and services; and
- other
statements of managements expectations, beliefs, future plans and strategies,
anticipated developments and other matters that are not historical facts.

Forward-looking
statements may also be identified by words such as believe, expect, anticipate, project, intend, should, seek, estimate, future or
similar expressions. Forward-looking information involves risks and uncertainties that
could significantly affect expected results. The risks and uncertainties include, but are
not limited to:

- the
short history of our operations as an independent, private-sector entity and the
introduction of competition to the Brazilian telecommunications sector;
- the
cost and availability of financing;
- uncertainties
relating to political and economic conditions in Brazil;
- inflation
and exchange rate risks;
- the
Brazilian government's telecommunications policy; and
- the
adverse determination of disputes under litigation.

We
undertake no obligation to update publicly or revise any forward-looking statements
because of new information, future events or otherwise. In light of these risks and
uncertainties, the forward-looking information, events and circumstances discussed in
this annual report might not occur. Our actual results and performance could differ
substantially from those anticipated in our forward-looking statements.

# 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

A.        Selected
Financial Data

The
selected financial data as of December 31, 2002 and 2001 and for the years ended December
31, 2002, 2001 and 2000 included in this annual report have been derived from, and should
be read in conjunction with, our audited consolidated financial statements and notes
thereto included elsewhere in this annual report and audited by Deloitte Touche Tohmatsu
Auditores Independentes. The selected financial data as of December 31, 2000 and for the
year ended December 31, 1999 included in this annual report have been derived from our
audited financial statements and notes thereto also audited by Deloitte Touche Tohmatsu
Auditores Independentes, which are not included in this annual report. The selected
financial data as of December 31, 1999 and 1998 and for the year ended December 31, 1998
included in this annual report have been derived from our audited financial statements
and notes thereto also audited by Arthur Andersen S/C, which are not included in this
annual report. See Presentation of Financial Information above for more
information on the presentation of our financial data.

# Accounting Consequences
of the Restructuring of Telebrás

At
the May 22, 1998 shareholders meeting for Telecomunicações
Brasileiras S.A.Telebrás, or Telebras, the shareholders established the
shareholders equity of each new holding company formed as a result of the
reorganization of the Telebrás system, or the Breakup of Telebrás, and
allocated to each a portion of the retained earnings of Telebrás. Telebrás
preserved sufficient retained earnings from which to pay certain dividends and other
amounts. The balance of its retained earnings was allocated to each new holding company
in proportion to the total net assets allocated to each such company. We were one of
these new holding companies.

The
following tables present a summary of our selected financial data at the dates and for
each of the periods indicated. You should read the following information together with
our financial statements and the notes thereto included elsewhere in this annual report
and with Item 5. Operating and Financial Review and Prospects.

Selected
Financial Information

|                                                    | December 31,                                      
|--------------------------------------------------- | --------------------------------------------------
|                                                    | 1998                                              
|                                                    | (in thousands ofreais, except dividend amounts)(1)
|Income Statement Data:                              |                                                   
|Brazilian GAAP                                     
|Net operating revenue                               | 329,165                                           
|Cost of services and goods                          | (134,200)                                         
|Gross profit                                        | 194,965                                           
|Operating expenses                                 
|Selling expense                                     | (53,103)                                          
|General and administrative expense                  | (35,329)                                          
|Other net operating income (expense)                | (660)                                             
|Operating income (loss) before interest             | 105,873                                           
|Interest expense, net                               | (17,069)                                          
|Operating income (loss)                             | 88,804                                            
|Net non-operating (loss)                            | (4,665)                                           
|Employees' profit share                             | (615)                                             
|Income (loss) before minority interests and taxes.. | 83,524                                            
|Income and social contribution taxes                | (20,390)                                          
|Minority interests                                  | (7,604)                                           
|Net income (loss)                                   | 55,530                                            
|Earnings (loss) per thousand shares                 | 0.17                                              
|Dividends per thousand preferred shares--R$         | 0.099                                             
|Dividends per thousand preferred shares--U.S.$ (2)  | 0.014                                             
|Dividends per thousand common shares--R$            | 0.099                                             
|Dividends per thousand common shares--U.S.$ (2)     | 0.014                                             
|U.S. GAAP                                          
|Net income (loss)                                   | 56,676                                            
|Net income per thousand shares:                    
|common shares--basic                                | 0.18                                              
|common shares--diluted                              | 0.18                                              
|preferred shares--basic                             | 0.18                                              
|preferred shares--diluted                           | 0.18                                              

(1)    
          For 1998 through 2000, information is presented in constant reais of
          December 31, 2000. For 2001 and 2002, information is presented according to
          historical amounts. (2)    
          U.S. dollar amount determined according to the applicable exchange rate at the
          date of the general shareholders meeting that approved the dividend
          distribution.

|                                                          | Year ended December 31,                        
|--------------------------------------------------------- | -----------------------------------------------
|                                                          | 1998                                           
|Cash Flow Data:                                           | (in thousand of reais except when indicated)(1)
|Operating activities:                                    
|Total net cash provided by (used in) operating activities | 99,198                                         
|Investing activities                                     
|Total net cash used in investing activities               | (77,779)                                       
|Financing activities:                                    
|Total net cash provided by (used in) financing activities | (12,634)                                       
|                                                         
|Increase (decrease) in cash and cash equivalents          | 8,785                                          
|                                                         
|Cash and cash equivalents at beginning of year            | 12,973                                         
|                                                          |                                                
|Cash and cash equivalents at end of year                  | 21,758                                         

|                                   | December 31,             
|---------------------------------- | -------------------------
|                                   | 1998                     
|                                   | (in thousands ofreais)(1)
|Balance Sheet Data:                |                          
|Brazilian GAAP                    
|Property, plant and equipment, net | 486,480                  
|Total assets                       | 647,145                  
|Loans and financing                | 120,394                  
|Capital stock                      | 115,089                  
|Net assets                         | 357,786                  
|                                  
|U.S. GAAP                         
|Property, plant and equipment, net | 482,279                  
|Total assets                       | 645,854                  
|Loans and financing                | 118,099                  
|Capital stock                      | 115,089                  
|Net assets                         | 363,657                  

(1)    
          For 1998 through 2000, information is presented in constant reais of
          December 31, 2000. For 2001 and 2002, information is presented according to
          historical amounts.

# Exchange Rates

There
are two legal exchange markets in Brazil:

- the commercial rate exchange market, and
- the
floating rate exchange market.

Most
trade and financial foreign-exchange transactions, including transactions relating to the
purchase or sale of preferred shares or the payment of dividends, are carried out on the
commercial market at the applicable commercial market rate. Purchase of foreign
currencies in the commercial market may be carried out only through a Brazilian bank
authorized to buy and sell currency in that market. In both markets, rates are freely
negotiated but may be strongly influenced by Central Bank intervention.

Between
March 1995 and January 1999, the Brazilian Central Bank permitted the gradual devaluation
of the real against the U.S. dollar pursuant to an exchange rate policy that
established a band within which the real/U.S. dollar exchange rate could
fluctuate.

Responding
to pressure on the real, on January 13, 1999, the Brazilian Central Bank
widened the foreign exchange band and, on January 15, 1999, allowed the real to
float freely. Since then, the real reached a low of R$1.4659 on January 15, 1999
and a high of R$3.9552 on October 22, 2002. At June 18, 2003, the commercial
market rate for purchasing U.S. dollars was R$2.8902 to U.S.$1.00.

The
Brazilian government may impose temporary restrictions on the conversion of reais into
foreign currencies and on the remittance to foreign investors of proceeds from their
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 reason to
foresee a serious imbalance.

The
following tables show, for the periods and date indicated, certain information regarding
the real/U.S. dollar commercial exchange rate.

|                        | Exchange Rate of R$ per U.S.$
|----------------------- | -----------------------------
|                        | Low                          
|Year ended December 31, |                              
|1998                    | 1.1165                       
|1999                    | 1.2078                       
|2000                    | 1.7234                       
|2001                    | 1.9357                       
|2002                    | 2.2709                       

Source:    
Central Bank of Brazil, PTAX. PTAX is the average of the exchange rates negotiated in the
commercial rate market on a given day. (1)    
Represents the average of the exchange rates (PTAX) on the last day of each month during
the relevant period.

|                                 | Exchange Rate of R$ per U.S.$
|-------------------------------- | -----------------------------
|                                 | Low                          
|Month Ended                     
|December 31, 2002                | 3.4278                       
|January 31, 2003                 | 3.2758                       
|February 28, 2003                | 3.4930                       
|March 31, 2003                   | 3.3531                       
|April 30, 2003                   | 2.8898                       
|May 31, 2003                     | 2.8653                       
|June, 2003 (until June 18, 2003) | 2.8491                       

Source:
 Central Bank of Brazil, PTAX.  PTAX is the average of the exchange rates negotiated in
the commercial rate market on a    given day.

# B.        Capitalization and
Indebtedness

Not
applicable.

# C.        Reasons for the Offer
and Use of Proceeds

Not
applicable.

# D.        Risk Factors

This
section is intended to be a summary of more detailed discussions contained elsewhere in
this annual report. The risks described below are not the only ones we face. Our
business, results of operations or financial condition could be harmed if any of these
risks materializes and, as a result, the trading price of the ADSs could decline.

# Risks Relating to Brazil

The
Brazilian government has exercised, and continues to exercise, significant influence over
the Brazilian economy. Brazilian political and economic conditions have a direct impact on
our business, operations and the market price of our preferred shares and our ADSs.

In the past, the Brazilian government has intervened in the Brazilian economy and occasionally made drastic changes in
policy.  The Brazilian governments actions to control inflation and effect other policies have often involved wage and price
controls, currency devaluations, capital controls, and limits on imports, among other things.  Our business, financial condition,
results of operations and the market price of our preferred shares and ADSs may be adversely affected by changes in government
policies, as well as general economic factors, including:

- currency
fluctuations;
- inflation;
- price instability;
- energy policy;
- interest rates;
- tax policy; and
- other political,
diplomatic, social and economic developments in or affecting Brazil.

Tax
reforms may affect our tariff rates.

If
our subsidiaries providing telecommunication services experience a higher tax burden as a
result of the tax reform, they may have to pass the cost of such tax increase to their
customers.  This increase may have a material negative impact on their and our revenues
and operating results, and as a result, in the dividends paid by them to us.

Inflation
and certain government measures to curb inflation may have adverse effects on the
Brazilian economy, the Braziliansecurities market and/or our business and operations.

Brazil
has historically experienced extremely high rates of inflation. Inflation and certain of
the Brazilian governments measures taken in the attempt to curb inflation have had
significant negative effects on the Brazilian economy. Since 1994, Brazils
inflation rate has been substantially lower than in previous periods. However,
inflationary pressures persist, and actions taken in an effort to curb inflation, coupled
with public speculation about possible future governmental actions, have contributed to
economic uncertainty in Brazil and heightened volatility in the Brazilian securities
market. In 2002, the general price index, or the IGP-DI (theÍndice Geral de Preços
Disponibilidade Interna), an inflation index developed by the Fundação
Getúlio Vargas, a private Brazilian economic organization, reflected inflation
of 26.4% compared to 10.4% in 2001 and 9.8% in 2000. If Brazil experiences significant
inflation, we may be unable to increase service rates to our customers in amounts that
are sufficient to cover our increasing operating costs, and our business may be adversely
affected.

Fluctuations in the value
of the real against the value of the U.S. dollar may adversely affect our ability to pay
U.S.dollar-denominated or U.S. dollar-linked obligations and could lower the market
value of our preferred shares and ADSs.

The
Brazilian currency has historically experienced frequent devaluations. The realdevalued
against the U.S. dollar by 9.3% in 2000 and by 18.7% in 2001. During 2002, the real continued
to undergo significant devaluation due in part to the political uncertainty in connection
with the elections and the global economic slowdown. In 2002, the realdevalued
against the U.S. dollar by 52.3%. See Selected Financial DataExchange
Rates for more information on exchange rates.

As
of December 31, 2002, we had R$369.6 million in total debt, all of which was denominated
in U.S. dollars and R$23.9 million in other obligations, all of which were U.S.
dollar-linked. As of December 31, 2002, we had currency derivatives in place to cover
100% of our U.S. dollar-denominated debt and U.S. dollar-linked obligations. Also,
significant costs relating to our network infrastructure are payable or linked to payment
by us in U.S. dollars. At the same time, while we may derive income from derivative
transactions denominated in foreign currencies, all of our operating revenues are
generated in reais. To the extent that the value of the realdecreases
relative to the U.S. dollar, our debt becomes more expensive to service and it becomes
more costly for us to import the technology and the goods that are necessary to operate
our business.

Deterioration in economic
and market conditions in other countries, especially emerging market countries, may
adversely affect the Brazilian economy and our business.

The
market for securities issued by Brazilian companies is influenced by economic and market
conditions in Brazil and, to varying degrees, market conditions in other Latin American
and emerging market countries. Although economic conditions are different in each
country, the reaction of investors to developments in one country may cause the capital
markets in other countries to fluctuate. Developments or conditions in other emerging
market countries have at times significantly affected the availability of credit in the
Brazilian economy and resulted in considerable outflows of funds and declines in the
amount of foreign currency invested in Brazil.

For
example, in 2001, after a prolonged recession, followed by political instability,
Argentina announced that it would no longer continue to service its public debt. In order
to address the deteriorating economic and social crisis, the Argentine government
abandoned its decade-old fixed dollar-peso exchange rate, allowing the peso to
float to market rate levels. In 2002, the Argentine peso experienced a 237%
devaluation against the U.S. dollar. The situation in Argentina has negatively affected
investors perceptions towards Brazilian securities.

The
recent political crisis in Venezuela may also influence investors perception of
risk in Brazil. If market conditions in Argentina and Venezuela continue to deteriorate,
they may adversely affect our ability to borrow funds at favorable interest rates or to
raise equity capital, when and if there is a need. Adverse developments in Argentina, in
Venezuela or in other emerging market countries could lead to a reduction in both demand
and the market price for our preferred shares and ADSs.

# Risks Relating to the
Brazilian Telecommunications Industry and Us

Extensive government
regulation of the telecommunications industry may limit our flexibility in responding to
market conditions, competition and changes in our cost structure.

Our
business is subject to extensive government regulation, including any changes that may
occur during the period of our authorization to provide telecommunication services.
Anatel, which is the main telecommunications industry regulator in Brazil, regulates,
among other things:

- industry policies
and regulations;
- licensing;
- tariffs;
- competition;
- telecommunications
resource allocation;
- service standards;
- technical
standards;
- interconnection
and settlement arrangements; and
- universal service
obligations.

This
extensive regulation and the conditions imposed by our authorization to provide
telecommunication services may limit our flexibility in responding to market conditions,
competition and changes in our cost structure.

Our results may be
affected in the medium or long term as a result of the new SMP rules.

In
2002, Anatel changed the SMP regime (first enacted in December 2000), thus encouraging
companies operating under the SMC system to migrate to the SMP system. New rules will be
applicable to the migrating companies, as contemplated by Anatel Resolutions Nos. 316/02
through 321/02 and 326/02.

Under
the SMP regime, we will no longer receive payment from our customers for outbound long
distance traffic, but will receive payment for the use of our network, in accordance with
the network usage remuneration plan. However, there is no assurance that the
interconnection fees that we will receive from long distance operators will compensate us
for the revenues that we would have received from our customers for outbound long
distance traffic.

The
SMP regime establishes free negotiation of the network usage fee among telecommunication
service providers or a confirmation, until June 30, 2004, of the maximum fee by Anatel.
After that date, negotiation of that fee will be the rule.

We
cannot assure you that the new rules will not affect negatively our revenues and results
of operations.

If
the inflation adjustment index now applied to our tariffs is changed, the new index may
not be adequate.

The
Brazilian government is considering replacing the IGP-DI, the monetary adjustment index
currently used in connection with the tariffs applied in the telecommunications industry,
with another index, which has not yet been identified. We cannot assure you that a new
index, if any, would adequately reflect the effect of inflation on our tariffs.

We
face substantial competition that may reduce our market share and harm our financial
performance.

There
is substantial competition in the telecommunications industry. We not only compete with
wireless telecommunications companies, but also with companies that provide fixed-line
telecommunications and Internet access services.

We expect competition to intensify as a result of the entrance of new competitors and the rapid
development of new technologies, products and services. Our ability to compete successfully will depend on
our marketing techniques, as well as on our ability to anticipate and respond to various 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 our competitors.
To the extent that we do not keep pace with technological advances, or fail to timely respond to changes
in competitive factors in our industry, we could lose a portion of our market share or experience a
decline in our revenue.  Competition from other mobile communications service providers in the region in
which we operate may also affect our financial results by causing, among other things, the rate of our
customer growth to decline and bring about decreases in tariff rates and increases in selling expenses.
This could have a material adverse effect on our results of operations.

There
has been consolidation in the Brazilian telecommunications market, and we believe this
trend may continue. Consolidations may result in increased competitive pressures within
our market. We may be unable to adequately respond to pricing pressures resulting from
consolidation, which would adversely affect our business, financial condition and results
of operations.

Our
results of operations would be affected by a high rate of customer turnover or a decrease
in our customer growth.

A
high rate of customer turnover and/or a decrease in our customer growth could adversely
affect our results of operations as well as our competitive position. The rate of
customer turnover may be the result of several factors, including limited network
coverage and lack of sufficient reliability of our services, as well as increased
competition in the region in which we operate and the economic conditions in Brazil.

The
industry in which we conduct our business is subject to rapid technological changes and
these changes could have amaterial adverse effect on our ability to provide competitive
services.

The
telecommunications industry is subject to rapid and significant technological changes.
Our success depends, in part, on our ability to anticipate and adapt in a timely manner
to technological changes. We expect that new products and technologies will emerge and
that existing products and technologies will be further developed.

The
advent of new products and technologies could have a variety of consequences for us.
These new products and technologies may reduce the price of our services by providing
lower-cost alternatives, or they may be superior to, and render obsolete, the products
and services we offer and the technologies we use, requiring investment in new
technology. The cost of upgrading our products and technology in order to continue to
compete effectively could be significant, and our ability to fund this upgrading may
depend on our ability to obtain additional financing.

Our
controlling shareholders have a great deal of influence over our business.

PT
Móveis S.G.P.S., S.A. and Telefónica Móviles, S.A., our principal
shareholders, currently own through Brasilcel, N.V., directly and indirectly,
approximately 58.4% of our common shares and 27.7% of our total capital. PT Móveis
S.G.P.S., S.A. is 100% controlled by Portugal Telecom, S.G.P.S., S.A. See Item 7.
Major Shareholders and Related Party TransactionsMajor Shareholders. Due to
their share ownership, our principal shareholders have the power to control us and our
subsidiaries, including the power to elect our directors and officers and determine the
outcome of any action requiring shareholder approval, including transactions with related
parties, corporate reorganizations and the timing and payment of our dividends. In
addition, PT Móveis S.G.P.S., S.A. and Telefónica Móviles, S.A.
share their participation in us equally. Any disagreement or dispute between our
controlling shareholders may have an impact on the decision-making capabilities of our
management.

The
wireless industry, including us, may be harmed by reports suggesting that radio frequency
emissions cause health problems and interfere with medical devices.

Media
and other reports have suggested that radio frequency emissions from wireless handsets
and base stations may cause health problems. If consumers harbor health-related concerns,
they may be discouraged from using wireless handsets. These concerns could have an
adverse effect on the wireless communications industry and, possibly, expose wireless
providers, including us, to litigation. We cannot assure you that further medical
research and studies will refute a link between the radio frequency emissions of wireless
handsets and base stations and these health concerns. Government authorities could
increase regulation of wireless handsets and base stations as a result of these health
concerns or wireless companies, including us, could be held liable for costs or damages
associated with these concerns, which could have an adverse effect on our business.   The
expansion of our network may be affected by these perceived risks if we experience
problems in finding new sites to expand our network, which in turn may delay the
expansion and may affect the quality of our services.

We
face risks associated with litigation.

We
are party to lawsuits and other proceedings in the ordinary course of our business.  An
adverse outcome in, or any settlement of, these or other lawsuits could result in
significant costs to us.  In addition, our senior management may be required to devote
substantial time to these lawsuits, which they could otherwise devote to our business.
 For a more detailed description of these lawsuits, see Item 8.A Legal Matters.

# Risks Relating to Our
Preferred Shares and Our ADSs

Our
preferred shares and our ADSs generally do not have voting rights.

In
accordance with Brazilian corporate law and our by-laws, holders of our preferred shares,
and therefore of our ADSs, are not entitled to vote at meetings of our shareholders,
except in limited circumstances. See Item 10. Additional
InformationMemorandum and Articles of Association.

You
might be unable to exercise preemptive rights with respect to our preferred shares unless
there is a currentregistration statement in effect that covers those rights or unless an
exemption from registration applies.

You
will not be able to exercise the preemptive rights relating to our preferred shares
underlying your ADSs unless a registration statement under the U.S. Securities Act of
1933, as amended, or the Securities Act, is effective with respect to those rights, or
unless an exemption from the registration requirements of the Securities Act is
available. We are not obligated to file a registration statement. Unless we file a
registration statement or an exemption from registration applies, you may receive only
the net proceeds from the sale of your preemptive rights by the depositary, or, if the
preemptive rights cannot be sold, they will lapse and you will not receive any value for
them. For more information on the exercise of your rights, see Item 10. Additional
Information.

An
exchange of ADSs for preferred shares risks loss of certain foreign currency remittance
and Brazilian tax advantages.

The
ADSs benefit from the certificate of foreign capital registration, which permits The Bank
of New York, as depositary, to convert dividends and other distributions with respect to
preferred shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs
who exchange their ADSs for preferred shares will then be entitled to rely on the
depositarys certificate of foreign capital registration for five business days from
the date of exchange. Thereafter, they will not be able to remit non-Brazilian currency
abroad unless they obtain their own certificate of foreign capital registration, or
unless they qualify under Resolution 2,689 of the Central Bank of Brazil, dated January
26, 2000, known as Resolution 2,689, which entitles certain investors to buy and sell
shares on Brazilian stock exchanges without obtaining separate certificates of
registration.

If
holders of ADSs do not qualify under Resolution 2,689, they will generally be subject to
less favorable tax treatment on distributions with respect to our preferred shares. There
can be no assurance that the depositarys certificate of registration or any
certificate of foreign capital registration obtained by holders of ADSs will not be
affected by future legislative or regulatory changes, or that additional Brazilian law
restrictions applicable to their investment in the ADSs may not be imposed in the future.

The
relative volatility and illiquidity of the Brazilian securities markets may adversely
affect holders of ADSs.

Investments
in securities, such as the preferred shares or the ADSs, of issuers from emerging market
countries, including Brazil, involves a higher degree of risk than investing in
securities of issuers from more developed countries.

The
Brazilian securities market is substantially smaller, less liquid, more concentrated and
more volatile than major securities markets in the United States. These features may
substantially limit the ability to sell the preferred shares underlying the ADSs at a
price and time at which holders wish to do so. The São Paulo Stock Exchange (Bolsa
de Valores de São Paulo), or BOVESPA, the main Brazilian stock exchange, had a
market capitalization of U.S.$124 billion as of December 31, 2002, and an average monthly
trading volume of approximately U.S.$4.1 billion for 2002. In comparison, the NYSE had a
market capitalization of U.S.$9.7 trillion as of December 31, 2002, and an average
monthly trading volume of approximately U.S.$859 billion for 2002.

There
is also significantly greater concentration in the Brazilian securities market than in
major securities markets in the United States. The 10 largest companies in terms of
market capitalization represented approximately 46.8% of the aggregate market
capitalization of BOVESPA as of December 31, 2002. The top 10 stocks in terms of trading
volume accounted for approximately 56.5% of all shares traded on BOVESPA.

# ITEM 4. INFORMATION ON
THE COMPANY

# A.        Our History and
Development

# General

We
are incorporated under the laws of the Federative Republic of Brazil under the name Tele
Leste Celular Participações S.A., as a corporation with unlimited duration,
known as Tele Leste. We have the legal status of a sociedade por ações,
or a stock corporation, operating under Brazilian corporate law. Our principal executive
offices are located at Av. Silveira Martins 1036, Cabula, 41150-000 Salvador, Bahia,
Brazil. Our telephone number is +55 71 387-7610, our facsimile number is +55 71 387 7602
and our website is www.vivo.com.br. The information on our websites is not part of
this annual report. Our agent for service of process in the United States is CT
Corporation, located at 111 Eighth Avenue, New York, NY 10011.

We
are a holding company engaged through wholly owned companies in cellular
telecommunications businesses in Brazil. We directly control Telebahia Celular and
Telergipe Celular.

Below
you will find a chart showing the major companies in our ownership structure as of
December 31, 2002:

(1)    
          PT Móveis S.G.P.S., S.A. is 100% controlled by Portugal Telecom S.G.P.S.,
          S.A.

# Telebrás and the
Privatization

Tele
Leste was created as a result of a restructuring of Telebrás in July 1998. Before
1972, there were more than 900 telecommunications companies operating throughout Brazil.
Between 1972 and 1975, Telebrás and its operating subsidiaries, know as the
Predecessor Companies, collectively known as the Telebrás System, were created,
acquiring almost all of the telecommunication companies in Brazil, and creating a near
monopoly over the provision of public telecommunications services in Brazil.

In
July 1993, our predecessor company began providing cellular telecommunications services
as a Telebrás System operating company in the states of Bahia and Sergipe.

In
1995, the federal government began a comprehensive reform of Brazils
telecommunications regulatory system. In July 1997, Brazils national congress
adopted the General Telecommunications Law, which provided for the establishment of a new
regulatory framework, the introduction of competition and the privatization of the Telebrás
System.

In
January 1998, in preparation for the restructuring and privatization of the Telebrás
System, the cellular telecommunications operations of the Telebrás System were
spun off into separate companies. In May 1998, the Telebrás System was
restructured to form, in addition to Telebrás, 12 new holding companies. Virtually
all of the Predecessor companies assets and liabilities were allocated to the new
holding companies, which we refer to as the New Holding Companies. The New Holding
Companies, together with their respective subsidiaries, consisted of: (i) eight cellular
holding companies, each in one of eight cellular regions, holding one or more operating
companies that provide cellular services; (ii) three wireline holding companies, each in
one of three wireline regions, holding one or more operating companies that provide local
and intraregional long distance services; and (iii) Embratel Participações
S.A., or Embratel, a holding company of Empresa Brasileira de Telecomunicações
S.A.

Tele
Leste was one of the New Holding Companies. In connection with the reorganization of the
Telebrás system, or the Breakup of Telebrás, Tele Leste was allocated all
of the share capital held by Telebrás in Telebahia and Telergipe, the cellular
operating companies that provided cellular telecommunications service in the states of
Bahia and Sergipe, respectively. In July 1998, as part of its restructuring and
privatization plan, the federal government sold substantially all its common shares of
the New Holding Companies, including Tele Leste, to private sector buyers.

The
Brazilian federal governments common shares of Tele Lestes capital stock were
purchased by a consortium comprising Iberdrola Investimentos Sociedade Unipessoal Ltda.,
an equity investment company controlled by Iberdrola S.A., or Iberdrola (62%), and Telefónica
Internacional S.A., a subsidiary of Telefónica S.A. dealing with investments in
the telecommunication industry outside of Spain (38%).

# Iberoleste Tender Offer

On
May 17, 1999, Iberoleste Participações S.A., or Iberoleste, our controlling
shareholder, requested the approval of the CVM to carry out a public tender for all the
shares of Telebahia Celular and Telergipe Celular. As a result, on July 6, 1999,
Iberoleste acquired 32,022,206 shares of common stock and 257,444,541 shares of preferred
stock of Telebahia Celular, representing in the aggregate 3.07% of the capital stock of
Telebahia Celular and 13,144,933 shares of common stock and 52,774,986 shares of
preferred stock of Telergipe Celular, representing in the aggregate 6.54% of the capital
stock of Telergipe Celular. In February 2000, Telefónica and Iberdrola transferred
their shares to Iberoleste, where the consortium shareholding was replicated.

Following
these acquisitions and until November 2000, the free float of both companies were still
traded on the stock market. See Item 9. The Offer and ListingMarkets. On
October 11, 2000, Telebahia Celular and Telergipe Celular announced and carried out a
capital restructuring, as described below.

# Capital Increase

On
February 21, 2000, we carried out a capital increase in the amount of R$137 million. As a
result, a total of 35,234,415,522 new shares of common stock and 59,502,628,241 new
shares of preferred stock were issued, all without par value, within our authorized
capital limit.

Reorganization

In
November 2000, we conducted a reorganization to:

- transfer to us
the acquisition premium paid by our controlling shareholder in the privatization of the
Telebrás System and in the operating companies Tender Offer, allowing us to
deduct the amount of such premium against income in the calculation of income and social
contribution taxes;
- achieve tax
savings from the deduction of the premium; and
- simplify our
corporate structure and consolidate the position of our controlling shareholders.


After
the reorganization, Iberoleste became the beneficial owner of:
- 89,321,041,172 of
our common shares; and
- 15,699,537,789 of
our preferred shares.



See
Organizational Structure below.

On
January 5, 2001, the 38% stake in Iberoleste held by Telefónica Internacional S.A.
was transferred to Telefónica Móviles, the vehicle established to
consolidate the wireless telecommunication operations of the Telefónica Group.

# Purchase of Shares from
Iberdrola

On
April 5, 2001, Telefónica S.A. and Iberdrola S.A. signed an agreement through which Telefónica S.A.
was going acquire all the Iberdrola group's shareholdings in the Brazilian telecommunications operators in which
both groups held interests.

Telefónica S.A. acquired all the capital
stock held directly and indirectly by the Iberdrola group on our capital. In exchange, Iberdrola received shares of Telefónica S.A.

In
May 2002 Telefónica S.A. contributed these shares to its affiliated company Telefónica Móviles S.A.

# Brasilcel

On
January 23, 2001, Portugal Telecom and Telefónica Móviles entered into a
strategic agreement to create a mobile services company in Brazil that would aggregate
all of their investments in cellular telecommunications businesses to the extent
permitted under Brazilian law. In December 2002, Anatel approved the joint venture
between Portugal Telecom and Telefónica Móviles. This joint venture named
Brasilcel N.V., or Brasilcel, with headquarters in the Netherlands, created a company
that has 40% of the total market in Brazil, with 13.7 million users at December 31, 2002.
Its operations cover an area of more than 100 million inhabitants, or 56% of the
Brazilian population, and approximately 71% of its GDP. Portugal Telecom and Telefónica
Móviles are managing the joint venture on an equal basis.

In
December 2002, Portugal Telecom and Telefónica transferred to Brasilcel all of
their direct and indirect interests in:

- us;
- Telesp Celular
Participacoes S.A., which controls an A Band operator in the state of Sao Paulo, and a B
Band operator in the states of Paranáand Santa Catarina;
- Tele Sudeste
Celular Participacoes S.A., which controls A Band operators in the states of Rio de
Janeiro and Espirito Santo; and
- Celular CRT
Participacoes S.A., which controls an A Band operator in the state of Rio Grande do Sul.

On
December 31, 2002, we were controlled by Iberoleste Participações S.A.
(21.90% of the total capital), Brasilcel N.V. (3.38% of the total capital) and Tagilo
Participações Ltda. (2.42% of the total capital). Iberoleste Participações
S.A. and Tagilo Participações Ltda. are controlled by Brasilcel (100% of
the total capital).

Portugal Telecom and Telefónica Móviles agreed to propose to the operating companies
controlled by Brasilcel would agree to retain the financial services of related third parties,
at market conditions.

On
April 25, 2003, Telesp Celular Participações S.A. acquired 61.10% of the
voting stock of Tele Centro-Oeste Celular Participações S.A., or TCO. TCO
is an A Band operator providing cellular telecommunications services in the Federal
District of Brazil, as well as in the Brazilian states of Goiás, Mato Grosso do
Sul, Mato Grosso, Rondônia, Acre and Tocantins and a B Band operator, which
provides cellular telecommunications service in the Brazilian states of Amapá,
Amazonas, Maranhão, Pará and Roraima.

# Capital Expenditures

The
following table sets forth our capital expenditures for the periods indicated:

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2000(1)                
|                              | (in millions ofreais)  
|                             
|Automatic switching equipment | 15.1                   
|Other equipment               | 46.7                   
|Real estate                   | 14.7                   
|Information technology        | 26.1                   
|Other assets(3)               | 42.7                   
|                              |                        
|Total capital expenditures    | 145.3                  

(1)    Information
is presented in constant reais of December 31, 2000.  (2)    Information
is presented according to historical amounts.  (3)    Handsets for rental, network constructions, furniture and fixtures, office
          equipment, and store layouts.

We
anticipate that our capital expenditures for 2003 will be approximately R$63.0 million,
of which approximately R$52.9 million are for Telebahia Celular and R$10.1 million are
for Telergipe Celular. We intend for these capital expenditures to be funded by our cash
generation. See Item 5. Operating and Financial Review and ProspectsLiquidity
and Capital Resources.

The primary focus of our capital expenditure program has been, and continues to be, the expansion
of the capacity of the services we currently offer and the provision of new services.

# B.        Business Overview

# Overview

We
provide cellular telecommunications services in the Brazilian states of Bahia and
Sergipe, referred to in this annual report as our Region, under authorizations from the
Brazilian federal government. Cellular telecommunications services were first offered in
our Region in July 1993. We are the leading provider of cellular telecommunications
services in our Region. At December 31, 2002, we had 972,729 customers. Our net operating
revenues in 2000, 2001 and 2002 were as follows:

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2000                   
|                              | (in millions ofreais)  
|                             
|Telebahia Celular             | 283.1                  
|Telergipe Celular             | 59.9                   
|Deductions from consolidation | (2.3)                  
|Total                         | 340.7                  

Our
Region covers an area of 586,603 square kilometers (564,273 square kilometers in the
state of Bahia and 21,962 square kilometers in the state of Sergipe), representing
approximately 7% of Brazils territory. The GDP of our Region in 2002 was an
estimated R$64 billion, or approximately U.S.$18 billion, representing approximately 5.0%
of Brazils GDP for 2002 (approximately 4.3% generated by Bahia and 0.6% by
Sergipe). The states of Bahias and Sergipes per capita income in 2002 was an
estimated R$4,278 and R$3,981, respectively, or approximately U.S.$1,211 and U.S.$1,127,
respectively.

We
provide mobile telecommunication services on a frequency range known as A Band in Region
I of the General Authorization PlanPGA, which covers 31% of the municipalities and
63% of the population of our Region. At December 31, 2002, we had approximately 973
thousand lines in service, an 18% increase from the end of the previous year, and a
market share of approximately 61% in our Region.

The
combined population of our Region is approximately 15.2 million, representing 8.7% of
Brazils total population, and encompassing 14 metropolitan areas with populations
in excess of 100,000, including Salvador, Brazils third largest city, which has
approximately 2.4 million inhabitants. Approximately 67.31% of the population of the
state of Bahia and 71.43% of the population of the state of Sergipe live in urban areas.

All
our assets consist of shares in our subsidiaries. We rely almost exclusively on dividends
from our subsidiaries to meet our liquidity needs, including cash to pay dividends to our
shareholders. See Item 5. Operating and Financial Review and ProspectsLiquidity
and Capital Resources.

# Our Operations

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

|                                                        | 2000    | 2001    | 2002   
|------------------------------------------------------- | ------- | ------- | -------
|Cellular lines in service at year-end                   | 673,675 | 821,932 | 972,729
|Customer growth during year                             | 25.6%   | 22.0%   | 18.3%  
|Churn(1)                                                | 22.1%   | 19.8%   | 25.5%  
|Estimated population of region at year-end (million)(2) | 14.8    | 15.1    | 15.1   
|Estimated covered population at year-end (million)(3)   | 9.1     | 9.3     | 9.5    
|Percentage of population covered at year-end(4)         | 62%     | 62%     | 63%    
|Penetration at year-end(5)                              | 7.5%    | 8.9%    | 10.6%  
|Average monthly minutes of use per customer(6)          | 144     | 116     | 101    

(1)              Churn
is the number of customers that leave us during the year, calculated as a
          percentage of the simple average of customers at the beginning and the end of
          the year.(2)              Projections
based on estimates of the Instituto Brasileiro de Geografia e           EstatísticaIBGE
and Target 2002 Brasil im Foco.(3)    
Number of people within our Region that can access our cellular
          telecommunication signal.(4)    
Percentage of the population in our Region that           can access our cellular
telecommunication signal.(5)    
Number of cellular lines           in service, including those of our competitors,
divided by the population of our           Region. (6)    
Average monthly minutes of use per lines in service is the total           minutes of
calls received and made by our customers divided by the simple average of lines in
service during the relevant year (includes roaming in and excludes roaming out).

# Our Services

We
are the leading supplier of cellular telecommunication services in our Region and supply
both analog and digital services. Our digital cellular telecommunication service is based
on the CDMAstandard and was launched in Salvador, Bahia in March 1998 and in
Aracaju, Sergipe in April 1999. We began to sell handsets in December 1998 in connection
with the provision of our cellular telecommunication services. We also offer ancillary
services, including voicemail, call forwarding, call waiting, caller identification and
three-way calling. In October 1999, we started to offer short text messaging services on
an experimental basis. Since November 2000, short text messaging services have been
commercialized through the brand name MoviStar Torpedo.

Focusing
on the corporate market, in January 2000 we launched Movistar Gestão, a
service that allows a corporation to control its cellular expenses in real time over the
Internet. This service allows the corporate customer to access call lists per phone line,
and to limit maximum usage per line or on a per-month basis. In addition, this service
allows the corporate customer to block, on a per-user basis, the usage of certain
non-permitted numbers and/or dialing prefixes, or to allow calls only to certain pre-set
numbers or dialing prefixes.

In
August 2000, we launched the service e-mocion, based on wireless application
protocol technology, known as WAP. By using this service, customers can access
information services and data on the Internet through their cellular phones without
connecting to a computer. WAP services are available in areas with digital coverage in
our Region to all customers who own handsets that are compatible with this technology. In
addition, customers who have WAPcompatible handsets may use the MoviStar Data/Fax
service that enables fax transmission from the cellular phones to computers.

In
May 2002, we began offering the possibility of usage control to all of our customers.
This is a service that informs customers of their usage either through periodic
notification messages or upon request (over the phone or by short message service, or
SMS). For certain tariff plans monthly consumption limits can be established.

In
2002, we implemented certain new services for our customers, including the control of
minutes consumed for our contract customers, a package plan, whereby the customer pays a
monthly fee and is able to use a certain number of minutes per month and a package plan
for our corporate customers, whereby all customers of a certain group can share minutes
in the plan.

Through
agreements with other cellular service providers, we offer automatic roaming services
throughout Brazil, allowing customers to make and receive calls outside our Region. We
offer automatic international roaming in Argentina, Chile, Peru and Uruguay through
agreements with local cellular service providers. In turn, we provide roaming services in
our Region to customers of other cellular service providers. We also have international
agreements that allow our customers to use services provided by international cellular
operators while traveling abroad in several countries in Europe, North America, Asia,
Africa and Oceania. We also provide fixed-line and cellular service providers with
interconnection pursuant to which we complete calls to our customers that originate from
those other service providers. Since 2002, we have also been offering a manual roaming
service in Japan and an automatic roaming service in Korea.

# Customer Service

Customer
service is provided through our call center, which is outsourced to Atento do Brasil
S.A., or Atento, a wholly owned subsidiary of Telefónica Internacional S.A., or
through our website, which was introduced in 2002. Using their phone number and an
electronic password, our customers may obtain services and information on their phone
service and their latest bills.

The
call center provides 24-hour customer service. On December 31, 2002, we had 524 operators
in 255 answering positions (peak hours), which represented one customer service attendant
per 1,856 customers. During 2002, the customer service team answered, on average, 23,045
calls per business day.

The
back office (technical assistance and billing questions customer service department) has
32 employees who respond to questions and requests placed through e-mails, letters,
faxes, the website and the call center. In 2002 they responded to, on average, 7,790
requests per month.

Quality of Service

Our
services, and customersperception of the quality of our services, are an important
aspect of our business. We consider three main points when evaluating the way that our
customers perceive the quality of our services:

- infrastructure;
- terminal
equipment and its performance in its environmental conditions (either in home area or
when roaming nationally or               internationally); and
- our Customer Care
departments and their effectiveness in handling customers' complaints.


We have addressed these concerns in
several ways:
- through frequent
network performance evaluations based on drive testing and collected data analyses;
- by evaluating the
data gathered from the several event counters available in the network as well as
specific analysis tools; and
- through customers
complaints handled by the Customer Care and Corporate Sales teams.


Another important
aspect of our quality of service analysis relates to our methods for comparison with our
competitors. We use the following three types of analysis to analyze the competition:
- tests and
performance comparisons, to address issues such as call completion, dropped calls,
interference levels or signal to noise ratios, voice quality scoring, etc;
- comparison with
the monthly data reported to Anatel and the data that is publicly available; and
- use of competitors services
as customers, in order to evaluate the way that their customer care centers evaluate and
solve complaints.

Recent
tests have steadily shown that our quality of service, as measured by a quality of
service indicator known as QoS, compares favorably with that provided by its competitors
in all geographic areas. Its technology minimizes the potential problems that can be
linked to bugs in the software programs or hardware malfunctioning.

As
a standard procedure, before making a product for the general public, a device (either a
cell phone or a PCMCIA card) must be closely evaluated in three ways:

- suppliers are
required to present a CDG2 certificate issued by each major infrastructure manufacturer,
along with a general compliance statement. This certificate provides assurance that the
device has been tested in a laboratory environment, and is able to operate properly with
the particular manufacturers technology. This is a pass/fail procedure
with the standard infra version, which does not guaranty that the terminal equipment will
operate properly in the specific and customized implementation in the operator plant.
- in an effort to
eliminate any possible problems resulting from that implementation, the device is also
evaluated in another set of tests (know as CDG3), which will show clearly if the
equipment complies with the issued specification, and is able to function properly with
the network in all aspects related to the regular service provisioning. If not, it will
be possible to immediately identify which function does not meet the requirements, and
locate the source of the problem. The device also supplies the manufacturers with
information that will allow them to solve the problem in a short period of time.
- some other
characteristics are also tested and evaluated in a lab before the device is submitted for
legal approval. These characteristics are mainly related to their radio properties
(transmitted frequencies, spurious, radiation level, etc.).

The
Customer Care department is one of our key areas of operation, and it has been made a
priority in terms of organization and human resources management.

In
December 2000, we received the ISO 9001 certificate awarded by the Brazilian Bureau
Veritas Quality International, known as BVQI. The scope of this certification includes
the following areas:

- product and
service development;
- customer and
sales services;
- indirect sales;
- corporate sales;
- commercial
logistics;
- fraud detection
control; and
- network
operations, optimization and maintenance.

The
quality of service project is aimed at ensuring our capacity to provide adequate and
reliable services to our customers. In 1999, our call center received the ISO 9002
certificate also awarded by BVQI. At the beginning of 2002, we applied to receive another
ISO 9001 certificate.

# Our Region

The
following table sets forth population, GDP and per capita income statistics for each
state in our Region at the dates and for the year indicated.

|              | At December 31, 2002(1) | Year ended December 31, 2002(1)
|------------- | ----------------------- | -------------------------------
|              | Population              | % of Brazil's                  
|Area          | (millions)              | population                     
|Bahia state   | 13.3                    | 7.6%                           
|Sergipe state | 1.9                     | 1.1%                           
|Our Region    | 15.2                    | 8.7%                           

(1)              Estimates
from Target 2002Brazil em Foco.(2)    
Our estimates           expressed in nominal reais.(3)              Nominal
Brazilian GDP was R$1,320 billion as of December 2002. Source: IBGE. We
          calculated the GDP for the states based on percentages published by IBGE in
          previous years.

Our
business, financial condition, results of operations and prospects depend, in part, on
the performance of the Brazilian economy. See Item 3D. Risk Factors.

# Marketing and Sales

We classify our customers as either contract users or prepaid users.  We vary the manner in which
we market and promote our services and occasionally develop special plans and services for particular
categories of customers.  We provide additional support services such as dedicated account representatives
and Internet-based account management systems to certain customer groups, especially to corporate
customers.

During
the second quarter of 1999, we introduced prepaid cellular telecommunications service,
which has no activation fee and allows customers to pay only for services used. The
prepaid plans are designed to meet the needs of new customers willing to pay higher
per-minute rates as opposed to regular monthly subscription charges. Customers of these
plans do not enter into contracts with us, but are instead required to make up-front
payments for service. At December 31, 2002, 69% of our customers used prepaid service.

We
are offering our customers reward-type programs in order to increase customer loyalty.
For prepaid customers, we have introduced a bonus program, and for contract customers, we
have both a point-based program and an advantages club. The bonus program for prepaid
incoming calls consists of certain promotions in which we grant our prepaid customers
extra airtime credits for every incoming minute of airtime in order to maximize network
usage charges. Through the points program, calls translate into points that contract
customers can apply toward discounts in the purchase of a new, more modern handset. The
longer a customer has been with us, the more points a customer receives. The points are
personal, nontransferable and expire in three years. The advantages club offers contract
customers, through a customized card, discounts and advantages in participating
establishments, including gyms, language courses, computer courses, travel agencies,
airlines, hotels, restaurants, publishers and shops.

From
time to time, we also offer various short-term promotions in connection with the
provision of cellular telecommunication services. Promotions in connection with the
introduction of digital service included providing heavy users with digital cellular
handsets at a significant discount or free of charge.

In
2002, we created a promotion targeted at younger segments of the population and other
plans designed to increase the use of the SMS service, known as Coisa.

Anatel
requires cellular telecommunication services to be provided to all individual applicants,
regardless of income level, in the order in which applications are received. We conduct
credit checks to facilitate the management of the risk of payment default. Service can be
interrupted if a customer fails to make timely payments. See Billing and
Collection.

On
April 13, 2003, Brasilcel launched a new trademark and logo, known as Vivo, for all of
its telecommunication companies in Brazil, including us. In connection with the launch of
the new trademark, we are changing the names of the services we offer to our customers.

# Network Sales

We
market our services through a network of stores that include general retail stores and
outlets that sell only our cellular telecommunication services and related goods. As of
December 31, 2002, our services were marketed through 348 stores, 19 of which were
operated by us and 329 of which were operated by independent distributors. Prepaid
calling cards may be purchased not only in our own stores and in those of our authorized
dealers but also in more than 4,200 sales points, which are not necessarily exclusive.
These include gas stations, post offices, lottery shops and bookstores. The prepaid cards
may also be recharged at branches of certain banks. This network enables us to market our
services and provide after-sale services throughout our Region.

# Our Network

Before
November 1998, our network used only AMPS analog technology. After 1998, we began the
digitalization of our network using CDMA technology. Digitalization offers certain
advantages, such as greater network capacity and additional revenue through the sale of
value-added services. Digital cellular telecommunications service also reduces the risk
of fraud. We continue to increase network capacity and coverage to improve our quality of
service and to meet customer demand.

As
of December 31, 2002, our cellular telecommunications network covered 31% of the
municipalities, or 63% of the population, of our Region.  Our network provides both CDMA
digital and AMPS analog services.  Our network is connected primarily using a fiber-optic
transmission system we lease from Tele Norte Leste Participacoes S.A., or Telemar.  It
also includes eight cellular switches (six in Bahia and two in Sergipe), and 534 base
stations (438 in Bahia and 96 in Sergipe) as of year-end 2002.  NEC do Brasil S.A.,
Ericsson Telecomunicacoes S.A. and Lucent Technologies do Brasil, Ind. e Com. Ltda. are
our main suppliers.  We continue to increase network capacity and coverage to improve
service quality and to meet consumer demand.

We
have a network management center located in Salvador, which can identify any problems in
our, and in other, networks using the failure and signal monitoring systems. In addition,
quality and service standards are constantly monitored. The network management center is
integrated with the maintenance and operations center, which is designed to supervise our
Network Elements, Infrastructure and Transmission division, and operate the Radio Network
Elements, Computing Centrals, Backbone and Service Platforms divisions.

Our
advanced network management technology ensures global management and supervision of our
network process and performance.

Our
network is equipped to provide continuity of service to our customers in the event of
network interruptions due to power failures. We have developed the following standard
operating and maintenance procedures to be used in such emergencies:

- Contingency
plan for catastrophes in our switching centers. This plan allows us to recover the
most important BTSs, or digital base stations, which are connected to the trunk line that
has been affected by an accident, by redirecting the transmission route of these BTSs.
- Contingency
plan for interruption of the public power supply. This plan ensures autonomy in our
network, through a battery system in all BTSs that provides between six and eight
consecutive hours of power and also through generators at strategic sites.
- Security
contingency plan. This plan includes a detection and alarm system, restricted access
and a fire combat system for our sites.


In 2002, among other developments,
we:
- improved the
quality of our coverage and our services in order to respond to our corporate customers'
needs;
- migrated from 64
cell sites leased lines into a transmission network of our own;
- established a SMS
interconnection with our competitors;
- began to maintain
our own IP network; and
- moved two
commuting centrals and one voicemail platform to a site of our own.

Telecommunication
concessions or authorizations require companies to meet certain obligations for service
quality and annual network expansion. See Regulation of the Brazilian
Telecommunications IndustryObligations of Telecommunications Companies. We
have already met all of our network expansion obligations required under our
authorization.

In
March 2003 we received our certification of quality ISO 9001, version 2000.

# Sources of Revenue

- usage charges,
which include charges for outgoing calls, roaming charges, Internet access through
wireless application protocols and prepaid card charges;
- monthly
subscription charges;
- network usage
charges (or interconnection charges), which are amounts that we charge to cellular,
fixed-line and long distance service providers for the use of our network;
- other charges,
including charges for call forwarding, call waiting, three-way calling, call blocking and
short-text               messaging; and
- the sale of
cellular handsets and accessories.

Our rates are
subject to approval by Anatel.  See "--Regulation of the Brazilian Telecommunications
Industry--Rate Regulation."

Monthly
Subscription Charges

Since
October 14, 1994, cellular telecommunications service in Brazil, unlike in North America,
has been offered on a calling-party-pays basis, under which the customer pays
only for calls that it originates. In addition, customers pay roaming charges on calls
made or received outside of their home registration area.

Monthly
subscription charges are calculated based on the customers calling plan, the
location of the party called, the place from which the call originates and certain other
factors, as described below. Our Region is divided into 43 areas called registration
areas, designated for payment purposes.

Network
Usage Charges

We
earn revenues from any call originated in another cellular or fixed-line service provider
network connecting one of our customers. We charge the service provider from whose
network the call originates a network usage charge for every minute our network is used
during the call. See Operating AgreementsInterconnection Agreements. Our
average network usage charges for 2000, 2001 and 2002 were R$0.2159, R$0.2512 and
R$0.2738 per minute, net of value-added taxes, respectively. In February 2003, Anatel
authorized the increase of our network usage charges to R$0.3538, net of value-added
taxes. The wireless telecommunication companies that were authorized to increase their
network usage charges were also ordered to give Telemar (for certain tariffs) a 30%
discount on certain tariffs for local calls at reduced tariff hours.

Bill
and Keep

Under
the digital cellular telecommunications system known as SMP, remuneration for network
usage between SMP mobile operators will only be due if traffic carried in the same
registration areabetween two networks, in a given direction, exceeds 55% of the
total traffic exchanged between them. In this case, only those calls which have surpassed
the 55% threshold will be subject to payment for network usage. We are in the process of
implementation of, and adaptation to, these rules. This rule is valid until June 30,
2005. Thereafter, SMP operators will adopt full Bill and Keep, by which no remuneration
will be due for network usage among SMP networks, regardless of the amount of carried
traffic.

Roaming
Fees

We
receive revenue pursuant to roaming agreements with other cellular service providers.
When a call is made from within our Region by a customer of another cellular service
provider, that service provider pays us for the call at the applicable rate. Conversely,
when one of our customers makes a cellular call outside our Region, we must pay the
charges associated with that call to the cellular service provider in whose region the
call originates. See Operating AgreementsRoaming Agreements.

Handset
Sales

We
sell dual-mode (800MHz CDMA/AMPS) and tri-mode (1900MHz CDMA and 800MHz CDMA/AMPS)
cellular handsets through our own stores and dealers. Our current suppliers are Motorola,
LG, Samsung and Nokia.

We
have provided a number of incentives to encourage our analog customers to switch to
digital handsets by offering discounts on digital handsets and on monthly digital service
fees so that our customers can take advantage of our services that require digital
handsets. From time to time, we offer certain advantages or promotions to create
incentives for customers to switch their existing handsets for more technologically
advanced digital handsets.

We
also offer our individual contract customers the option of using their points to
partially pay for the acquisition of new handsets or for a new line. See Business
OverviewMarketing and Sales above.

# Operating Agreements

Interconnection
Agreements

The
terms of our interconnection agreements include provisions with respect to the number of
connection points and traffic signals. See Regulation of the Brazilian
Telecommunications IndustryObligations of Telecommunications Companies and
Interconnection. When we began operating after the Break-up of Telebrás,
we entered into interconnection agreements with Embratel, and each of the Predecessor
Companies.

In
July 1998, we entered into an interconnection agreement with Maxitel S.A., or Maxitel,
one of our competitors, and in November 1999, with Vésper S.A., or Vésper,
a WLL (Wireless Local Loop) company that provides fixed-line services in our Region. In
2000, we entered into new interconnection agreements with Embratel, and Intelig
Telecomunicações S.A., or Intelig.

In
January 2002, we entered into interconnection agreements with Telecomunicações
de São Paulo S.A., or Telesp. In April 2002, we also entered into interconnection
agreements with Nextel Telecomunicações Ltda., or Nextel, and our new
competitor, TNL PCS S.A., or Oi Celular.

In
2002, we entered into an interconnection agreement with Maxitel for the supply of SMS to
our customers. We also entered into an interconnection agreement with all the Brazilian
wireless telecommunications operators through the Brazilian Roaming Committee, for
dispatching and receiving SMS.

Roaming
Agreements

We
are a member of the Brazilian Roaming Committee, a group comprising 21 cellular
telecommunications service providers operating in Brazil through either A Band or B Band.
The Roaming Management Committee was created to independently conduct 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 the Mercosur.

Automatic
roaming permits our customers to use their cellular handsets on the networks of other
cellular service providers while traveling or roaming outside our Region.
Conversely, we provide cellular telecommunications service to customers of other cellular
service providers from outside our Region when those customers are within our Region.

The
Roaming Management Committee requires us and the other cellular service providers to
provide service to roaming customers on the same basis as each member provides service to
their own customers and to carry out a monthly reconciliation of roaming customer usage
charges.

We
offer international roaming in Argentina, Uruguay, Chile and Peru. In the third quarter
of 2000 we started providing international GSM (Global System for Mobile) services,
through rental of GSM handsets, in most parts of Europe, Asia, Africa and Oceania. At the
first half of 2002, we launched international roaming in South Korea. Additionally, we
offer our customers, through third-party partners, international cellular services in
more than 1,000 cities within the United States, Mexico, Canada and Japan.

# Taxes on
Telecommunications Services and Handset Sales

The
cost of telecommunications services and handset sales to customers incorporates a variety
of taxes, including:

- ICMS. The
principal tax is the Imposto sobre Circulação de Mercadorias e Serviços,
or ICMS. ICMS is a tax that the Brazilian states impose at varying rates on certain
revenues from the sale of goods and services, including telecommunications services. At
December 31, 2002, the ICMS rates for telecommunication services in the states of Bahia
and Sergipe were 27% and 25%, respectively, and the ICMS rate for goods, including
handsets, was 17%. Since January 1, 2003, the ICMS rate for domestic telecommunications
in the states of Bahia and Sergipe is 27%.
- COFINS.
The Contribuição Para Financiamento da Seguridade Social, or COFINS,
is a social contribution tax on gross operating revenues. On November 27, 1998, the
Brazilian federal government, through Law No. 9,718, increased the COFINS rate from
2% to 3%, allowing a set-off of up to one-third of the COFINS amount with the amount owed
as a result of the Contribuição Social Sobre Lucro Líquido,
or CSLL. On January 1, 2000, we began to include the COFINS tax in our bills at a
rate of 3%.
- PIS. The
Programa de Integração Social, or PIS, is another social
contribution tax that is imposed on gross operating revenue at a rate of 0.65%. Law No. 9,718
also indirectly raised the PIS contribution tax owed by Telebahia and Telergipe, leading
our subsidiaries to challenge such increase judicially. See Item 8A.
Consolidated Statements and Other Financial InformationLegal Matters. In
October 2002, Law No. 10,637 was enacted, making such contribution noncumulative and
increasing the rate to 1.65%, except in connection with telecommunication services, where
the rate continues to be 0.65%.
- FUST. On
August 17, 2000, the Brazilian federal government, through Law No. 9,998,
created the Fundo de Universalização dosServiços de
Telecomunicações, or FUST, a social contribution tax applicable to all
telecommunications services. The purpose of the FUST tax is to fund a portion of the
costs incurred by telecommunication service providers to meet the universal service
targets required by Anatel, in case these costs are not entirely recoverable through the
provision of the telecommunications services. FUST is imposed at a rate of 1% of gross
operating revenues exclusively from telecommunication services, net of ICMS, PIS and
COFINS and its cost may not be passed on to customers. It became effective on January 1,
2001.
- FUNTTEL.
On November 28, 2000, the Brazilian federal government, through Law No. 10,052,
created the Fundo paraDesenvolvimento Tecnológico das Telecomunicações,
or FUNTTEL, a social contribution tax applicable to all telecommunications services. The
purpose of the FUNTTEL tax is to promote the development of telecommunications technology
in Brazil and to improve competition in the industry by:
- encouraging
research and the development of new technologies;
- promoting the
training of personnel;
- creating new
employment opportunities; and
- allowing small-
and medium-sized companies to access the lending market.


FUNTTEL is imposed at a rate of 0.5%
of gross operating revenues exclusively from telecommunication services, net of ICMS, PIS
and COFINS, and its cost may not be passed on to customers. It became effective on
March 1, 2001.
- FISTEL. On
July 7, 1966, the Brazilian federal government, through Law No. 5,070, created
the Fundo de Fiscalização dasTelecomunicações,
or FISTEL, a tax applicable to telecommunications transmission equipment. The purpose of
FISTEL is to provide financial resources for the Brazilian federal government to control
and inspect the industry.


The FISTEL tax is comprised of two
different fees:
- an installation
and inspection fee that is assessed every time we activate a new cellular number, as well
as every time an authorization certificate is issued with respect to new equipment in
telecommunications stations; and
- an operation and
inspection fee, assessed annually on the basis of the total number of cellular numbers in
use and the total number of radio base stations installed at the end of the fiscal year,
which is equal to 50% of the installation and inspection fee.

Effective
April 2001, the installation and inspection fee has been assessed based on the net
activation of cellular numbers, i.e., the number of new cellular activations
subtracted from the number of cancelled subscriptions, as well as on the basis of the net
additions of radio base stations.

# Billing and Collection

In
2002, we improved our billing system by implementing revenue assurance processes
throughout all of our operational cycles, including traffic recording, rating, billing
and collections in an effort to maximize performance. We improved our practices in order
to increase our level of service and to meet customers expectations.

Under
our billing system, we have created more than 42 price plans and other services, directed
to different customer profiles. We use two staggered billing cycles and nine different
payment dates each month. The date of payment can be chosen by the customer when the
contract is signed.

Pursuant
to Brazilian law, customers must receive a bill at least five days before the due date
and companies must allow customers at least 15 days from the due date before suspending
outgoing service for nonpayment.

We
have established a uniform policy for dealing with delinquent customer accounts. Any
suspension of service may be done only after providing notice to the customer. If a
customers payment is more than 15 days past due, outgoing service is suspended, and
if payment is more than 40 days past due, both outgoing and incoming services are
suspended until full payment for all outstanding charges is received. If a customers
payment is more than 90 days past due, service is discontinued. In 2002, approximately
53% of our mobile bills were paid in full within the due date, 77% before the first
reminder was sent, and 88% before the second reminder was sent.

Our
collection system has an excellent mechanism for tracking customers who are delinquent in
making payments. Our collections department has had a continued success rate collecting
payments from customers. In addition, we have employed six outside collection agencies
that recover payments from customers that are more than 95 days past due.

We provision for customer accounts
over 90 days past due and write off customer accounts related to telecommunication service
charges for services provided that are over 180 days past due. We wrote off approximately
R$9.0 million for accounts more than 180 days past due in 2002.

Our provisions for doubtful accounts
(Provision for doubtful accounts including handsets /Gross operating revenue) were 3.61%,
2.57% and 2.21% of the gross amountin 2000, 2001 and 2002 respectively. See
Item 5A. Operating ResultsResults of Operations for 2000, 2001 and
2002Operating Expenses.

After each collection cycle, we and
other telecommunications service providers settle the roaming and network usage fees and
outstanding balances. See Sources of RevenueRoaming Fees and
Regulation of the Brazilian Telecommunications
IndustryInterconnection. For international calls made by our customers, we
charge Embratel a fee for the use of our cellular telecommunications network, after
forwarding the gross amounts collected for such calls to Embratel. Domestic long distance
fees are reconciled and distributed to each Brazilian telecommunication operating company
by a clearinghouse operated by Embratel.

# Fraud Detection and
Prevention

We incur costs associated with the
unauthorized use of our wireless networks, particularly our analog cellular networks.
These costs include administrative and capital costs associated with detecting, monitoring
and reducing the incidence of fraud. Fraud also affects interconnection costs, capacity
costs, administrative costs and payments to other carriers for unbillable fraudulent
roaming.

The three most prevalent types of
fraud are cloning fraud, subscription fraud and default fraud. Cloning fraud consists of
duplicating the cellular signal of a bona fide customer, enabling the perpetrator
of the fraud to make calls using the customers signal. We ultimately bear the costs
of all fraudulent calls originating from our cell phone base. We have installed a fraud
detection system that analyzes various aspects of customers usage in order to detect
cloning fraud. In addition, the introduction of digital service is significantly reducing
the incidence of cloning fraud. We do not consider cloning fraud a significant problem.

Subscription fraud occurs when a
person, typically using false or stolen documents, obtains cellular telecommunications
service, and then incurs substantial charges that are billed to a customer who does not
exist or who did not request the service.

Default fraud is similar to
subscription fraud, except that the customer does not make use of false documentation, but
nonetheless fails to pay for services used.

Historically, the majority of our
fraud-related losses are related to the types of fraud listed above. In order to safeguard
ourselves against these fraudulent activities, we review documentation provided by
customers and conduct a credit check prior to initiating service. We use credit bureaus to
enhance our reviews.

We have implemented certain
fraud-detection and fraud-prevention measures in an effort to reduce fraud-related losses,
including the automatic review of call detail records in the states of Bahia and Sergipe.
These records are analyzed to identify abnormal calling patterns. When abnormal patterns
are found, our fraud control staff contacts the customer and, if cloning has occurred, the
customers number is changed or an exchange of handsets is made. Fraud prevention
measures include restrictions on international calls from a given number, restrictions on
international calls to certain high-risk destinations, automatic blocking of calls to
certain high-risk destinations and restrictions on three-way calling by customers with
international direct-dial access.

We have installed, and are a part of,
a nationwide fraud-detection system. This system aids in fraud detection in various ways,
including identifying simultaneous usage by a single customer, call frequency and
unusually high usage patterns. We are able to monitor usage by our customers even when
they are located outside of our Region. In the states of Bahia and Sergipe, the antifraud
system became operational in early 1998.

# Competition

A Band

The Brazilian territory was initially
divided by Anatel into eight separate cellular service regions, each known as A Band, and
each serviced by one of the New Holding Companies operating in the cellular
telecommunications business, created with the Breakup of Telebrás (see
Our History and DevelopmentTelebrás and the Privatization).

The New Holding Companies operate in
the 800+ MHz frequency, according to concessions or authorizations granted and regulations
issued by Anatel. We are one of these companies.

B Band

The General Telecommunications Law
provided for the introduction of competition to telecommunications services in Brazil. The
Brazilian federal government has granted 10 licenses to provide cellular
telecommunications service within certain regions in Brazil, known as B Band. There is one
B Band service provider operating in our Region, Maxitel, which operates in the states of
Bahia, Sergipe and Minas Gerais.

Maxitel began providing cellular
telecommunications services based on the Time Division Multiple Access, or TDMA, digital
standard in our Region in April 1998. Maxitel also acquired a license to provide cellular
telecommunications services in the neighboring state of Minas Gerais. Maxitels
rights and obligations under its authorization are substantially identical to our rights
and obligations under our authorizations. Maxitels customers use dual-mode cellular
handsets, which operate with Advanced Mobile Phone Service analog networks, such as ours,
as well as TDMA networks. As Maxitel is indirectly controlled by TIM, since the beginning
of 2002, it has been using the TIM brand as part of its strategy. Therefore, the group
controlled by Telecom Italia Mobile, or TIM, may overlap in GSM/GPRS technology. Our
management estimates that our share of the cellular service market in our region was 61%
at December 31, 2002.

C Band Competition

We face no C Band competition in our
Region.

D and E Band Competition

On February 13, 2001, Anatel held an auction
for the D Band SMP licenses. Telemar, the primary fixed-line operator in our Region, bid
successfully for the SMP license covering the region in which Telemar offers fixed-line
telecommunications services, comprising 16 states in northeastern Brazil, including the
states of Bahia and Sergipe. Telemar will provide SMP services through GSM technology.
Telemar commenced its D Band operations on June 24, 2002, through TNL PCS S.A., a fully
owned subsidiary, under the brand name Oi and provides SMP services through GSM/GPRS
digital technology.

Through an auction held in October
2002, the remaining D Band and E Band licenses were allocated to the remaining nine areas
as follows: three licenses to the Telecom América Group, controlled by
América Móvil, three licenses to Brasil Telecom in the regions in which it
already operated wireline telecommunications and three licenses to Vésper.

TIM controls two A Band operators
serving the states of Paraná and Santa Catarina and the Northeast region, and two B
Band service providers, one operating in the state of Minas Gerais and the other in the
states of Bahia and Sergipe. TIM also acquired two D band licenses and one E band license
in the SMP service auctions carried out by the Brazilian government during 2001. However,
TIM had to give back part of its SMP license to provide mobile services in those areas
within the D Band, including Paraná and Santa Catarina, and the E Band where it is
already providing mobile services. TIM is able to offer wireless services nationwide.

The Telecom Américas Group, which already controls ATL, TESS (B Band operator in the inner region
of the state of São Paulo), Telet (B Band operator in Rio Grande do Sul) and Americel (B Band operator in
the Region encompassing the states of Mato Grosso do Sul, Minas Gerais, Goiânia, Tocantins, Rondônia and
Acre), purchased the D Band remaining license in connection with the region of Paraná and Santa Catarina.
It also purchased the E Band SMP license in the states of Bahia, Sergipe and the metropolitan region of
São Paulo.  These operators migrated to SMP service and, in March 2003, Telecom Américas Group communicated
that it is acquiring BSE (B Band operator in the northeastern area).

Brasil Telecom S.A., or Brasil
Telecom, purchased the remaining E Band license in the region of Rio Grande do Sul and in
the region encompassing the states of Acre, Goiás, Mato Grosso, Mato Grosso do Sul,
Rondônia and Tocantins and the Federal District. It also purchased the E Band SMP
service licenses in the states of Paraná and Santa Catarina. Brasil Telecom is
controlled by Grupo Opportunity, which also has shareholding in Telemig Celular and Tele
Norte Celular Participações.

Vésper purchased the remaining
E Band license in the inner region of São Paulo. In the region of Minas Gerais,
Vésper purchased the E Band SMP license, and it also purchased the E Band SMP
license in the states of the northeastern region: Alagoas, Ceará, Paraíba,
Pernambuco, Piauí and Rio Grande do Norte.

Other Competition

We also compete with wireline
telecommunication service providers. Some existing and potential customers may shift to
wireline service providers for a number of reasons, including price, if sufficient capital
is invested in the wireline telecommunication industry in our Region to increase wireline
availability and improve service. The main wireline service provider in our Region is
Telemar.

We also compete with certain other
wireless telecommunications services, such as mobile radio (including digital trunking
technology, offered by Nextel), paging and beeper services, which are used by some in our
Region as a substitute for cellular telecommunications services. These competing wireless
telecommunications services are generally less expensive than mobile telecommunications
services. Satellite services, which provide nationwide coverage, are also available in
Brazil. Although satellite services have the benefit of covering a much greater area than
cellular telecommunications services, they are considerably more expensive than cellular
telecommunications services and do not offer comparable coverage inside buildings. We do
not plan to offer mobile satellite services (other than pursuant to a roaming arrangement
with a satellite service provider).

# Regulation of the
Brazilian Telecommunications Industry

General

Our business, the services we provide
and the prices we charge are subject to regulation under the General Telecommunications
Law and various administrative enactments, which regulate the services provided by
Brazilian telecommunications operators.

Anatel is the agency that regulates
telecommunications under the General Telecommunications Law and the July 2001
Regulamento da Agência Nacional de Telecomunicações, known as
the Anatel Decree. Anatel is financially autonomous, and administratively independent of
the federal government. Anatel maintains a close relationship with the Ministry of
Communications. Any regulation proposed by Anatel is subject to a period of public
comment, which may include public hearings. Anatels actions may be challenged in the
Brazilian courts. On November 25, 1998, Anatel enacted Resolution 73 
Regulation of Telecommunication Services, which regulates, in detail, the new
comprehensive framework for the provision of telecommunications services in Brazil
established by the General Telecommunications Law.

Concessions and
Authorizations

Before January 2000, Anatel had only
authorized two mobile service providers in each of the 10 franchise areas under A
Band and B Band. A Band and B Band mobile service providers were granted
concessions pursuant to theLei Mínima, or the Minimum Law. Each concession
is a specific grant of authority to supply cellular telecommunications services, subject
to certain requirements contained in the applicable list of obligations appended to each
concession. If a mobile service provider wishes to offer any telecommunications service
other than those authorized by its concession, it may apply to Anatel for an authorization
to offer such other services.

In accordance with the General
Telecommunications Law, a concession relates to the provision of telecommunication
services under the public regime, as determined by the public administration. A concession
may only be granted upon a prior auction bidding process. As a result, regulatory
provisions are included in the relevant concession agreements and the concessionaire is
subject to public service principles of continuity, changeability and equal treatment of
customers. Also, Anatel is empowered to direct and control the performance of the
services, to apply penalties and to declare the expiration of the concession and the
return of assets of the concessionaire to the government authority upon termination of the
concession. Another distinctive feature is the right of the concessionaire under the
concession agreement to be able to maintain certain economic and financial standards. The
concession is granted for a fixed period of time and is generally renewable only once.

An authorization is a permission
granted by the public administration under the private regime, which may or may not be
granted upon a prior auction bidding process, to the extent that the authorized party
complies with the objective and subjective conditions deemed necessary for the rendering
of the relevant type of telecommunication service in the private regime. The authorization
is granted for an indeterminate period of time. Under the authorization, the government
does not guarantee to the authorized company certain economic and financial standards, as
was the case under the concessions.

SMP Regulation

In November 2000, Anatel adopted
certain regulations for the issuance of new licenses, which are authorizations to provide
wireless communication services through SMP, personal mobile service, to compete with the
then existing cellular operators in the various regions of Brazil. These regulations
divided Brazil into three main regions covering the same geographic areas as the
concessions for the fixed-line telecommunication services. Anatel organized auctions for
three new licenses for each of those regions. The new licenses provided that the new
services would be operated in the 1,800 MHz radio frequency bands, and they were
denominated C Band, D Band and E Band. These new licenses were auctioned by Anatel and
awarded during the first quarter of 2001 and at the end of 2002.

Under these new licenses:

- services
are to be provided using the 1,800 MHz frequency; and
- each
operator may provide domestic and international long distance services in its licensed
area;
- existing
cellular service providers, as long as they do not have partnerships with fixed-line
operators, as well as new entrants into the Brazilian telecommunications market can bid
for C Band, D Band and E Band SMP licenses. However, fixed-line operators, their
controlling shareholders and affiliated cellular providers can only bid for D Band and E
Band SMP licenses;
- a
cellular or SMP operator, or its respective controlling shareholders, may not have
geographical overlap between licenses; and
- current
A Band and B Band cellular service providers can apply for an extra frequency range.

Pursuant to the SMP services
regulation, each of the three main regions is divided into registration areas, or tariff
areas.

In order to transfer our services to
SMP, we were required to comply with several technical and operational conditions,
including, among others, the adoption of a carrier selection code for long distance calls
originating from our network.

Under the General Telecommunications
Law, all mobile telecommunications service providers must provide interconnection upon the
request of any other mobile or fixed-line telecommunications service provider. Until June
30, 2004, SMP service providers may opt to establish a price cap or fully negotiate their
interconnection charges. Thereafter, the terms and conditions of the interconnection are
freely negotiated between wireless and fixed-line operators, subject to a price cap and
compliance with regulations established by Anatel relating to the traffic capacity and
interconnection infrastructure that must be made available to requesting parties. If a
service provider offers any party an interconnection tariff below the price cap, it must
offer the same tariff to any other requesting party on a nondiscriminatory basis. If the
parties cannot reach an agreement on the terms of interconnection, including with respect
to the interconnection tariff, Anatel will act as the final arbiter. Because Anatel
considers us to be affiliated with Telefónica, which already provides wireline long
distance services in the state of São Paulo and was awarded a license to provide
these services nationwide, Anatel will not award a wireline long distance license to us.
Though we and other mobile operators have requested that Anatel revise the current SMP
regime, there can be no assurance it will do so. Under the SMP regime, we will receive
revenues from interconnection fees paid to us by wireline long distance operators due to
long distance traffic originating and terminating on our network.

The authorizations consist of two
licenses: one to provide mobile telecommunications services, and another to use the
frequency spectrum for a period of 15 years. The frequency license is renewable for
another 15-year period upon the payment of an additional license fee.

Benefit of the SMP System

According to the General
Telecommunications Law and Decree No. 2056/96, control of the concessionaire can only be
transferred after five years from the date of the privatization in the case of A Band
concessionaires or the commencement of services in the case of B Band concessionaires. On
the other hand, under the SMP system, the authorization or control of the authorized party
can be transferred through merger of the relevant cellular mobile service provider,
whether it is providing services under the A Band or the B Band.

Obligations of
Telecommunications Companies

As a telecommunications service
provider, we are subject to regulations concerning quality of service and network
expansion, as established in our authorizations and our original concession agreements.

Any breach by the companies of
telecommunications legislation or of any obligation set forth in their authorizations may
result in a fine of up to R$50 million.

Our authorizations impose obligations
to meet such quality of service standards as: the systems ability to make and
receive calls, call failure rates, the networks capacity to handle peak periods,
failed interconnection of calls and customer complaints. Anatel published the method for
collecting these quality service standards data on April 23, 2003 (Anatel Resolution No.
335/03).

Interconnection

Under the General Telecommunications
Law, telecommunications service providers are classified as providers of either collective
or restricted services. All cellular operators, including SMP service providers, are
classified by Anatel as collective service providers. All providers of collective services
are required to provide interconnection upon request to any other collective service
provider. The terms and conditions of interconnection are freely negotiated between
parties, subject to price caps and other rules established by Anatel. Providers must enter
into interconnection agreements, regarding, among other things, tariffs, commercial
conditions and technical issues, with all requesting parties on a nondiscriminatory basis.
If the parties cannot agree upon the terms and conditions of interconnection, Anatel may
determine terms and conditions by arbitration.

Interconnection agreements must be
approved by Anatel and may be rejected if they are contrary to the principles of free
competition and the applicable regulations.

Rate Regulation

Our authorizations continue to
provide for a price-cap mechanism to set and adjust rates on an annual basis. The cap is a
maximum weighted average price for a package of services. The package consists of the
services in our Basic Plan, including activation fees, monthly subscription fees, and
certain roaming charges, which are charged for the use of mobile services under the SMP
regime. The price cap is revised annually to reflect the rate of inflation as measured by
the IGP-DI. However, mobile operators are able to freely set the rates for alternative
service plans.

The initial price cap agreed to by
Anatel and us in our authorizations had been based on the previously existing or bidding
prices, and was adjusted annually on the basis of a formula contained in our
authorizations. The price cap has been revised to reflect the rate of inflation as
measured by the IGP-DI. The weighted average price for the entire package of services may
not exceed the price cap, but the price for individual services within the package may be
increased.

Other telecommunications companies
that interconnect with and use our network must pay certain fees, primarily an
interconnection fee. The interconnection fee is a flat fee charged per minute of use. The
interconnection fee charged by us and other A and B Band service providers is still
subject to a price cap stipulated by Anatel. The price cap for the interconnection fee
varies from company to company, on the basis of the underlying cost characteristics of
each companys network. B Band service providers are subject to price caps
established during the auction process for their licenses.

Internet and Related
Services in Brazil

In Brazil, Internet service
providers, or ISPs, are deemed to be suppliers of value-added services and not
telecommunications service providers. Anatels Resolution 190 requires cable
operators to act as carriers of third-party Internet service providers. The Brazilian
House of Representatives is considering a law that would penalize Internet service
providers for knowingly providing services that allow illegal goods or services to be sold
on the Internet, and would impose confidentiality requirements on Internet service
providers regarding nonpublic information transmitted or stored on their networks.

# C.  Organizational
Structure

As of December 31, 2002, our
voting shares were indirectly controlled by two major shareholders: PT Móveis and
Telefónica Móviles, through Brasilcel N.V., with 58.4% of our voting stock,
11.4% of our preferred shares and 27.7% of our total capital stock.

For a more detailed description of
our ownership structure and the joint venture between PT Móveis and
Telefónica Móviles, see Our History and Development.

# D.  Property, Plant and
Equipment

Our principal physical property
consists of transmission equipment, switching equipment and base stations. All switches,
cell sites, administrative buildings, administrative facilities, warehouses and stores are
insured against damages for policy operation risks.

At December 31, 2002, we had eight
cellular switches and other equipment installed in two owned spaces, five shared places
and one lease. We lease almost all of the sites where our cellular telecommunications
network equipment is installed. Our 534 permanent base stations were installed in 370 cell
sites and the average term of these leases is five years. In addition, we have our own
administrative buildings (approximately 6,950 square meters), warehouse space
(approximately 898 square meters) and also lease administrative facilities (approximately
2,132 square meters), warehouse space (approximately 1,455 square meters) and 19 retail
stores throughout our region.

# ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

You should read the following
discussion in conjunction with our consolidated financial statements and accompanying
notes and other financial information included elsewhere in this annual report, and in
conjunction with the financial information included under Item 3A. Selected
Financial Data.

# Critical Accounting
Policies

The significant accounting policies
that we believe are critical to aid in fully understanding and evaluating our reported
financial position and results of operations reported under Brazilian Corporate Law are
described in Note 3 to our consolidated financial statements. A description of the
differences in accounting policies between Brazilian Corporate Law and U.S. GAAP is
included in Note 32 to our consolidated financial statements. The accounting policies
require us to make estimates, judgments and assumptions that we believe are reasonable
based upon the information available. The most important estimates include: (i) the
valuation and useful lives of our permanent assets, including equipment, concessions,
authorizations, licenses, intangible assets and goodwill on our investments;
(ii) allowance for doubtful accounts; (iii) realization of deferred tax assets;
(iv) reserve for loss contingencies; and (v) the fair value of our financial
instruments, including derivatives, as further explained below. While our revenue
recognition policy does not require the exercise of significant judgment or the use of
estimates, we believe that our policy is significant as revenue is a key component of our
results of operations.

- Revenue
Recognition: While our revenue recognition policy does not require the exercise of
significant judgment or the use of significant estimates, we believe that our policy is
significant as revenue is a key component of our results of operations.
- Depreciation
on property, plant and equipment is calculated on a straight-line method of the estimated
useful lives of the underlying assets, which consider historical information available to
us, as well as known industry trends. Sensitivity to an impact in changes in the useful
lives of property, plant and equipment was assessed by applying a hypothetical decrease
of 10% to the useful lives of switching and transmission equipment existing at December
31, 2002. This hypothetical decrease would result in an increase in the annual
depreciation expense of R$23.7 million in the year of the change.
- Realization
of the deferred tax assets is dependent on our ability to generate future taxable income.
Management believes that it is more likely than not that the assets will be realized,
based on forecasted income. However, there can be no assurance that we will meet our
expectations of future income. Management frequently evaluates the likelihood of
realizing the deferred tax assets and assesses the need for valuation allowances. A
future possible increase in our estimate of the valuation allowance would result in a
reduction in net income for the period that the increase in valuation allowance is
recorded.
- We
are subject to proceedings, lawsuits and other claims related to tax, labor and civil
matters. We are required to assess the likelihood of any adverse judgments or outcomes to
these matters as well as potential ranges of probable losses. A determination of the
amount of reserves required, if any, for these contingencies is made after careful
analysis of each individual issue, based on legal advice. The required reserves may
change in the future due to new developments in each matter or changes in approach, such
as a change in settlement strategy in dealing with these matters. Future possible changes
in the recorded reserve amounts would impact our results of operations in the period that
such changes are recorded.
- With
respect to financial instruments, we must make assumptions as to future foreign currency
exchange and interest rates. For a discussion of the possible impact of fluctuations in
the foreign currency exchange and interest rates on our principal financial instruments
and positions, see Item 11. Quantitative and Qualitative Disclosures About Market
Risk.

We do not have any off-balance sheet
financing. We have no majority-owned subsidiaries that are not included in our
consolidated financial statements, nor do we have any interests in, or relationships with,
any special purpose entities that are not reflected in our consolidated financial
statements.

Effects of Changes in Presentation
of the Selected Financial Data and the Consolidated Financial Statements in 2000, 2001 and
2002

Brazilian GAAP requires companies to
cease to recognize inflationary effects in their financial statements (including financial
statements prepared using the constant currency method) from January 1, 2001.
Accordingly, in order to comply with the requirements of accounting principles in
Brazilian GAAP, the accompanying financial statements for 1999 and 2000 have been fully
indexed through December 31, 2000 while information after December 31, 2000 has not
been so indexed. The disclosure of inflationary effects subsequent to December 31, 2000 is
mandatory under Brazilian GAAP only in cases where the accumulated inflation rate measured
by IGP-M, the general price index published by the Fundação
Getúlio Vargas, a Brazilian economic research organization, reaches 100% or
more in the most recent three years. Inflation in Brazil did not reach this threshold in
2001 or 2002.

# U.S. GAAP Reconciliation

We prepare our consolidated financial
statements in accordance with Brazilian GAAP, which differs in significant respects from
U.S. GAAP. The differences are described in Note 32 to our consolidated financial
statements. Under U.S. GAAP, we experienced a net income (loss) for 2002, 2001 and 2000 of
approximately R$71.2 million, R$0.3 million, and R$(15.5) million, respectively, compared
to a net income (loss) of R$(25.4) million, R$(13.6) million and R$(16.3) million under
Brazilian GAAP. Shareholders equity at December 31, 2002 and 2001 was R$478.4
million and R$559.4 million, under U.S. GAAP, compared to R$497.9million and
R$520.8 million under Brazilian GAAP. The differences between Brazilian GAAP and U.S. GAAP
that had the most significant effects on loss and shareholders equity in 2002 and
2001 were the treatment of deferred FISTEL tax on activation fees, purchase accounting
differences related to the acquisition of our minority interest in 2000, gains and losses
on derivative instruments not yet realized, and the reversal of proposed dividends.

# New U.S. GAAP Accounting
Pronouncements

SFAS No. 141 
Business Combinations

In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.
141 (SFAS No. 141), Business Combinations. SFAS No. 141 addresses financial
accounting and reporting for business combinations and supersedes Accounting Principles
Board, or APB Opinion No. 16 (APB No. 16), Business Combinations and FASB
Statement No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. All business combinations within the scope of SFAS No. 141 are to be
accounted for using the purchase method. In addition, SFAS No. 141 requires that
intangible assets be recognized as assets apart from goodwill if they meet two criteria:
the contractual-legal criterion or the separability criterion. To assist in identifying
acquired intangible assets, SFAS No. 141 also provides a list of intangible assets that
meet either one of these criteria. In addition to the disclosure requirements prescribed
in APB No. 16, SFAS No. 141 requires disclosure of the primary reasons for a business
combination and the allocation of the purchase price paid to the assets acquired and
liabilities assumed by a major caption on the balance sheet. SFAS No. 141 also requires
that when the amounts of goodwill and intangible assets acquired are significant to the
purchase price paid, disclosure of other information about those assets is required, such
as the amount of goodwill by reportable segment and the amount of the purchase price
assigned to each major intangible asset class. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001. SFAS No. 141 also applies to all
business combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later. The adoption of SFAS No. 141 on January 1, 2002,
did not have any impact on our financial position, cash flows or results of operations.

SFAS No. 142 
Goodwill and Other Intangible Assets

In June 2001, FASB issued SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets and supersedes
APB Opinion No. 17, Intangible Assets. SFAS No. 142 also amends SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, to exclude from its scope goodwill and intangible assets that are not
amortized. SFAS No. 142 addresses the manner in which intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a business
combination) should be accounted for in financial statements upon their acquisition. This
Statement also addresses the way that goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial statements. The
provision of SFAS No. 142 is required to be applied in fiscal years beginning after
December 15, 2001. Early application is permitted for entities with fiscal years beginning
after March 15, 2001, provided that the first interim financial statements have not been
issued. An exception to the SFAS No. 142 application date is for goodwill and intangible
assets acquired after June 30, 2001, which will be immediately subject to the
non-amortization and amortization provisions of this statement. The adoption of SFAS No.
142 on January 1, 2002 did not have any impact on our financial position, cash flows or
results of operations.

SFAS No. 143 
Accounting for Asset Retirement Obligations

In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No.
143 Accounting for Asset Retirement Obligations, (SFAS No. 143). SFAS No. 143
basically requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. Under SFAS No. 143, the liability for an asset retirement
obligation is discounted and accretion expense is recognized using the credit-adjusted
risk-free interest rate in effect when the liability was initially recognized. In
addition, disclosure requirements contained in SFAS No. 143 will provide more information
about asset retirement obligations. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with earlier application encouraged.
Based on an initial assessment of the provisions and requirements of SFAS No. 143, our
management believes that the implementation of this statement will not result in any
impact on our financial position, cash flows or results of operations.

SFAS No. 144 
Accounting for the Impairment or Disposal of Long-Lived Assets

In August 2001, the FASB issued
Statement of Financial Accounting Standards No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, (SFAS No. 144) which supersedes Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of but retains SFAS
No. 121s fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. SFAS No. 144 also supersedes the accounting and reporting provisions
of APB Opinion No. 30 (APB No. 30), Reporting the Results of Operations for
segments of a business to be disposed of but retains APB No. 30s requirement to
report discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of or is classified as
held for sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 and interim periods within those years. The adoption of SFAS No. 144 on
January 1, 2002, did not have any impact on our financial position, cash flows or results
of operations.

SFAS No. 145 
Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical
Corrections as of April 2002 of SFAS No. 145"

In April 2002, the FASB issued
Statements of Accounting Standards No. 145, Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS No. 13, and Technical Corrections as of April 2002
(SFAS No. 145). SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, SFAS No. 44, Accounting for Intangible
Assets of Motor Carriers, and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. As a result, gains and losses from extinguishment
of debt will no longer be classified as extraordinary items unless they meet the criteria
of unusual or infrequent as described in ABP No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. In
addition, SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. We are currently evaluating the impact that the
adoption of SFAS No. 145 will have on our results of operations, cash flows and financial
position, but do not believe that the impact will be material.

SFAS No. 146 
Accounting for Costs Associated with Exit or Disposal Activities

In June 2002, the FASB issued
Statement of Accounting Standards No. 146, Accounting for Costs Associated with Exit
or Disposal Activities (SFAS No. 146). This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force 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) (EITF 94-3). SFAS No. 146 eliminates the definition and
requirements for recognition of exit costs in EITF No. 94-3. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost as defined in
EITF No. 94-3 was recognized at the date of an entitys commitment to an exit plan.
SFAS No. 146 also states that an entitys commitment to a plan, by itself, does not
create a present obligation to others that meets the definition of a liability. In
addition, SFAS No. 146 establishes that fair value is the objective for initial
measurement of the liability. The requirements of SFAS No. 146 apply prospectively to
activities initiated after December 31, 2002, and, as such, we cannot reasonably estimate
the impact that the adoption of these new rules will have until and unless they affect
relevant activities in future periods.

FIN No. 45 
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees ofIndebtedness of Others

In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN No.
45). This interpretation requires certain disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under certain guarantees
that it has issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual
periods ending after December 15, 2002. The initial recognition and initial measurement
requirements of FIN No. 45 are effective prospectively for guarantees issued or modified
after December 31, 2002. Based on an initial assessment of the provisions and requirements
of FIN No. 45, our management believes that the implementation of this statement will not
result in any impact on our financial position, cash flows or results of operations.

EITF 00-21 Revenue
Arrangements with Multiple Deliverables

At the September and October 2002
meetings of the Emerging Issues Task Force (EITF), the Task Force reached a tentative
conclusion on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, which outlines an approach to be used to determine when a revenue
arrangement for multiple deliverables should be divided into separate units of accounting
and, if separation is appropriate, how the arrangement consideration should be allocated
to the identified accounting units. Specifically, in an arrangement with multiple
deliverables, the delivered item(s) should be considered a separate unit of accounting if:
(1) the delivered item(s) has value to the customer on a stand-alone basis, (2) there is
objective and reliable evidence of the fair value of the undelivered item(s) and (3) the
arrangement includes a general right of return, delivery or performance of the undelivered
item(s) is considered probable and substantially in the control of the vendor.

The arrangement consideration
allocable to a delivered item(s) that does not qualify as a separate unit of accounting
within the arrangement should be combined with the amount allocable to the other
applicable undelivered item(s) within the arrangement. The appropriate recognition of
revenue should then be determined for those combined deliverables as a single unit of
accounting.

The guidance in EITF 00-21 is
effective prospectively for revenue arrangements entered into for the fiscal years
beginning after December 15, 2002. In the alternative, entities may elect to report the
change in accounting as a cumulative-effect adjustment in accordance with APB Opinion No.
20, Accounting Changes. We are currently evaluating the impact of EITF 00-21
on our financial statements, specifically our treatment of revenue from handset sales
under U.S. GAAP. We currently cannot reasonably estimate the impact that the adoption of
the new rule would have on us.

# A.       Operating Results

The following discussion presents
certain important features that you should keep in mind when reading our Operating and
Financial Results and Prospects. These and other aspects of the accounting policies and
methods we used to prepare our consolidated financial statements are described in the
Item 3A. Selected Financial Data.

# Results of Operations
for 2000, 2001 and 2002

The following table sets forth
certain components of our income, as well as the percentage change of each from the prior
year, for the years ended December 31, 2000, 2001 and 2002.

|                                        | Year ended December 31, | Percentage Change
|--------------------------------------- | ----------------------- | -----------------
|                                        | 2000(1)                 | 2001(2)          
|                                        | (in thousands of reais) |                  
|Net operating revenue                   | 340,735                 | 386,299          
|Cost of services and sales              | (211,370)               | (224,696)        
|Gross profit                            | 129,365                 | 161,603          
|Operating expenses:                    
|Selling expense                         | (95,028)                | (102,672)        
|General and administrative expense      | (47,028)                | (57,201)         
|Other net operating income (expense)    | 13,210                  | 1,749            
|Operating income (loss)                 | 519                     | 3,479            
|Financial expense, net                  | (15,801)                | (24,111)         
|Net nonoperating income (expense)       | (2,753)                 | (576)            
|Income (loss) before taxes and minority
|interests                               | (18,035)                | (21,208)         
|Minority interests                      | 2,330                   | -                
|Income and social contribution taxes    | (597)                   | 7,616            
|Net income (loss)                       | (16,302)                | (13,592)         

(1)    Information is presented in constant reais of December 31, 2000.
         (2)    Information is presented according to historical amounts.

Operating Revenues

We generate revenue from:

- usage
charges, which include charges for outgoing calls, roaming charges, Internet access
through wireless application         protocols and prepaid card charges;
- monthly
subscription charges paid by contract customers.  Prepaid customers do not pay
subscription charges;
- network
usage charges, which are amounts that we charge to cellular, fixed-line and long distance
service providers for use          of our network;
- other
charges, including charges for call forwarding, call waiting, three-way calling, call
blocking and short-text          messaging; and
- proceeds
from the sale of cellular handsets and accessories.

The composition of operating revenues
by category of services is presented in our consolidated financial statements and
discussed below before deduction of taxes. We do not determine net operating revenues or
allocate cost by category of service.

The following table sets forth
certain components of our operating revenues, as well as the percentage change of each
from the prior year, for the years ended December 31, 2000, 2001 and 2002.

|                                  | Year ended December 31, | Percentage Change
|--------------------------------- | ----------------------- | -----------------
|                                  | 2000(1)                 | 2001(2)          
|                                  | (in thousands of reais) |                  
|Usage charges                     | 227,372                 | 242,485          
|Monthly subscription charges      | 39,435                  | 44,123           
|Network usage charges             | 130,934                 | 169,325          
|Other                             | 8,693                   | 10,969           
|Gross revenue from services       | 406,434                 | 466,902          
|Products sold                     | 40,716                  | 47,115           
|Gross revenue                     | 447,150                 | 514,017          
|Value-added, other indirect taxes
|and discounts                     | (106,415)               | (127,718)        
|Net operating revenues            | 340,735                 | 386,299          

(1)    
          Information is presented in constant reais of December 31, 2000.
         (2)    Information is presented according to historical amounts.

Net operating revenue increased 11.7%
to R$431.4 million in 2002 from R$386.3 million in 2001, which in turn represented a 13.4%
increase from R$340.7 million in 2000. The increase in net operating revenues in 2002 was
principally due to:

- an
increase of 18.3% in our customer base, along with the tariff increases resulted in an
increase in usage charges;
- an
increase in revenues from products sold due to increase in penetration and marketing
campaigns to attract new customers;
- an
increase in network usage         charges resulting from incoming calls, mainly due to
the growth of the prepaid customer         base and increase in rates charged to other
companies.

The increase in net operating
revenues in 2001 was principally due to:

- an
increase of 22.0% in our customer base;
- an
increase in revenues from products sold; and
- an
increase in network usage charges resulting from incoming calls, mainly due to
the growth of the prepaid customers.

The increases in 2002 and 2001 were
partially offset by lower average monthly revenues per customer.

The average number of customers, calculated on the basis of the average of the monthly average
customer base over the year increased 20.0% to 890,369 customers in 2002 from 742,145 customers in 2001,
representing in turn a 24.9% increase from 594,184 customers in 2000.  Average monthly net revenues from
services per user decreased principally as a result of:

- an
increasing penetration into lower income customer segments;
- the
introduction of new service plans directed at users with lower monthly subscription
charges; and
- an
increase in the percentage of          prepaid customers in relation to total customers
as a result of new customers acquired and          customers switching from contract
plans to prepaid plans.

Usage charges. Revenues from
usage charges increased 13.6% to R$275.3 million in 2002 from R$242.5 million in 2001,
which in turn represented a 6.7% increase from R$227.4 million in 2000. The increase in
revenues from usage charges in 2002 and 2001 was principally due to an increase in the
customer base. In 2001, this increase was partially offset by lower
outgoing traffic, as a result of customers switching from contract plans to prepaid plans.

Monthly subscription charges.
Revenues from monthly subscription charges increased 10.1% to R$48.6 million in 2002 from
R$44.1 million in 2001, which in turn represented an 11.9% increase from R$39.4 million in
2000. The increase in 2002 resulted mainly from the increase of the monthly subscription
fees charged to the contract customers, which was partially offset by:

- contract
plan customers switching to service plans with lower monthly subscription fees; and
- an
increase in the percentage of         prepaid customers. Prepaid customers do not pay
monthly subscription fees. Prepaid         customers accounted for 69.2% of the customer
base in 2002, up from 60.7% in 2001 as a         result of new subscribers, as well as
the migration from contract to prepaid plans.

The increase in 2001 resulted mainly
from the increase of the monthly subscription fees charged to the contract customers. See
Item 4. Information on the CompanyRegulation of the Brazilian
Telecommunications IndustryRate Regulation.

Network usage charges.Revenues from network usage charges, which consist of fees paid to us for the use of
our network to complete calls originated outside our network, increased 6.2% to R$179.8
million in 2002 from R$169.3 million in 2001, which in turn represented a 29.3% increase
from R$130.9 million in 2000. The increase in network usage revenues in 2002 reflected the
increase in our average network usage charges, which were higher due to rate increases,
partially offset by a reduction in the incoming calling traffic, despite the increase in
our customer base of prepaid customers. The increase in network usage revenues in 2001
also resulted from an increase in our average network usage charges, which were higher due
to rate increases, as well as growth in the volume of calls to our customers that
originated outside our network, principally calls from fixed-line telephones in the
region. The volume of calls to our customers resulted from the increase in our customer
base of prepaid customers, who tend to have greater incoming traffic.

Other.Revenues from other services increased 11.7% to R$12.3 million in 2002 from
          R$11.0 million in 2001, which in turn represented a 26.2% increase from R$8.7
          million in 2000. The increase in other revenues throughout the three-year period
          resulted mainly from greater utilization of such supplementary services as
          caller identification, data transmission, SMS and other services aimed
          principally at corporate customers.

Products sold.The sale of
cellular handsets represented a significant portion of our revenues in 2000, 2001 and
2002. Revenues from the sale of cellular handsets increased 83.5% to R$86.5 million in
2002 from R$47.1 million in 2001, which in turn represented a 15.7% increase from R$40.7
million in 2000. The increase in 2002 was a result of the increase in volume of sales
(50.4%), as well as a change in the mix of handsets sold, with an increase in the number
of more sophisticated handsets. In 1999, we began to subsidize the price of new handsets
as a broad-based marketing strategy aimed at increasing our customer base. Revenues from
handset sales are reported before commissions and promotional discounts, and include
value-added taxes. In general, the purpose of handset sales is to encourage growth in
customers and traffic, as opposed to generating profits on the sales, and we therefore
subsidize varying portions of the costs of handsets. Although profit margins vary from one
handset model to another and from time to time, on average profit margins are negative
after taxes, commissions and discounts. In 2000 and 2001, this subsidy strategy resulted
in a gross loss (calculated as the difference from operating revenues from sales minus the
cost of goods sold) of approximately R$13.0 million and R$4.2 million on handsets sales in
2000 and 2001, respectively. In 2002, we recorded a gross loss on handsets sales of
approximately R$7.9 million, as a result of the higher subsidies to respond to increased
competition during the second half of 2002.

Value-added, other indirect taxes
and discounts.Value-added, other indirect taxes and discounts increased 34.0% to
R$171.1 million in 2002 from R$127.7 million in 2001, which in turn represented a 20.0%
increase from R$106.4 million in 2000. The variations from year to year reflect (i)
fluctuations in the composition of our gross operating revenues, not all of which have
been subject to value-added and other indirect taxes over the entire period and (ii) the
increase in the sale of handsets at discount prices, which represented an increase of
152.8% and 152.9% in 2002 and 2001, respectively, as well as changes in commercial
policies regarding the amount of discounts on services (increase of 10.6% and 81.9% in
2002 and 2001, respectively). Value-added and other indirect taxes represented 28.4% of
gross operating revenues in 2002, 24.8% in 2001, and 23.8% in 2000. The increase in the
value-added and other indirect taxes in 2002, relative to 2001 and 2000 was principally
due to an increase in COFINS and an increase in the telecommunications tax in one of the
operating subsidiaries.

Cost of Services and Goods

Cost of services and goods increased
12.8% to R$264.0 million in 2002 from R$224.7 million in 2001, which in turn represented a
6.3% increase from R$211.4 million in 2000.

The increase in 2002 was principally
due to:

- an
increase in the cost of products         sold, principally due to an increase in the cost
of handsets due to the devaluation of the real and to the change in the mix of
handsets sold, with an increase in the number         of more sophisticated handsets
sold;
- an
increase in depreciation expense due to the expansion of our network and supporting
systems during the period;
- an
increase in materials and services expenses principally due to the expansion, maintenance
and operation of our network and               increases in the rates charged due to
inflation; and
- an
increase in network usage         charges, as a result of the increase in the network
usage charges paid to other cellular         service and fixed-line providers.

The increase in 2001 was principally
due to:

- an
increase in depreciation expense due to the expansion of our network during the period,
including investment in radio base               stations and equipment; and
- an
increase in network usage charges, as a result of the increase in the network usage
charges paid to other cellular service and fixed-line providers.

The increase in 2001 was partially
offset by the decrease in the cost of the products sold as a result of the reduction of
the unit cost of handsets sold.

The following table sets forth the
components of our costs of services and products sold, as well as the percentage change of
each from the prior year, for the years ended December 31, 2000, 2001 and 2002.

|                                    | Year ended December 31, | Percentage Change
|----------------------------------- | ----------------------- | -----------------
|                                    | 2000(1)                 | 2001(2)          
|                                    | (in thousands of reais) |                  
|Depreciation                        | (80,812)                | (93,073)         
|Personnel                           | (2,935)                 | (3,293)          
|Materials and services              | (6,366)                 | (7,810)          
|Rental and insurance costs          | (16,789)                | (17,181)         
|Fixed-line network expenses         | (17,649)                | (18,269)         
|Network usage charges               | (32,551)                | (37,390)         
|Taxes                               | (16,358)                | (17,869)         
|Cost of services                    | (173,460)               | (194,885)        
|Products sold                       | (37,910)                | (29,811)         
|Cost of services and products sold. | (211,370)               | (224,696)        

(1)    
          Information is presented in constant reais as of December 31, 2000. (2)    
          Information is presented according to historical amounts.

Depreciation. Depreciation expenses increased 9.9% to R$102.3 million in 2002 from R$93.1
          million in 2001, which in turn represented a 15.2% increase from R$80.8 million
          in 2000. The increases in 2002 and 2001 were primarily due to the expansion of
          our network and supporting systems.

Personnel.    
          Personnel costs include salaries and other payroll expenses and benefits,
          including pension benefits, of operating personnel. Personnel costs increased
          6.7% to R$3.5 million in 2002 from R$3.3 million in 2001, which in turn
          represented a 12.2% increase from R$2.9 million in 2000.

The increase in 2002, relative to
2001, was largely due to salary increases prescribed by our union contract. The increase
in 2001, relative to 2000, was largely due to the hiring of personnel, as a result of the
growth in our business. At December 31, 2002, 2001 and 2000 we had 494, 534 and 456
full-time employees, respectively.

Materials and services.Materials and services includes:

- costs
of materials and services purchased from third-parties for the expansion and operation of
our network and amounts paid for certain outsourced services, such as maintenance; and
- cost
of other services, and, in particular, the cost of electric power.

Cost of materials and services
increased 71.1% to R$13.4 million in 2002 from R$7.8 million in 2001, which in turn
represented a 22.7% increase from R$6.4 million in 2000. The increase in 2002 was due
primarily to increases in the cost of energy as a result of increases in electric power
rates and expansion of our cellular network and outsourced services related to platform
and equipment maintenance due to the end of the warranty period of some of our equipment.
The increases from 2000 to 2001 were due primarily to the continued expansion of our
network.

Rental and insurance costs.
Rental and insurance costs increased 2.1% to R$17.6 million in 2002 from R$17.2 million in
2001, which in turn represented a 2.3% increase from R$16.8 million in 2000. The increase
in 2002 was principally due to rent increases resulting from inflationary adjustments,
partially offset by a 1.1% reduction in the number of base stations sites. The increase in
2001 was principally due to increases in rent arising from an 8.2% increase in the number
of base stations sites in 2001. The reduction in the number of rented sites in 2002
reflects the companys decision to reduce its dependence on the rental of base
station sites. See Item 4. Information on the CompanyBusiness
OverviewOur Network and Property, Plant and Equipment.

Fixed-line network expenses.
Fixed-line network expenses represent lease payments to Telemar, the fixed-line service
provider in our Region, for use of circuits between our base stations, cellular sites and
switching centers, and between our network and the networks of Telemar and Embratel, the
long distance service provider. Fixed-line network expenses increased 7.0% to R$19.5
million in 2002 from R$18.3 million in 2001, which in turn represented a 3.5% increase
from R$17.6 million in 2000. The increases in 2002 and 2001 can be attributed, in large
part, to the increase in the number of circuits leased and, the increase in 2002 was also
due to inflation adjustments applicable to the lease rates.

Network usage charges. Network
usage charges include network usage charges paid to telecommunications service providers
for the use of their network to complete local, long distance and international calls
originating in our network. Network usage charges increased 13.9% to R$42.6 million in
2002 from R$37.4 million in 2001, which in turn represented a 14.9% increase from R$32.6
million in 2000. The increases in 2002 and 2001 mainly reflected the increase in
interconnection rates paid to other providers, partially offset by a decrease in the
volume of calls originated by our customer base to the network of other providers as our
prepaid customer base grew over the period.

Taxes.    
          Taxes are mainly comprised of theFundo de Fiscalização das
          Telecomunicações,or FISTEL. See Item 4. Information on
          the CompanyBusiness OverviewTaxes on Telecommunications Services and
          Handset Sales. The FISTEL tax decreased 6.7% to R$16.7 million in 2002
          from R$17.9 million in 2001, which in turn represented a 9.2% increase from
          R$16.4 million in 2000. The decrease in 2002 was principally due to the
          reduction in the amount of FISTEL tax due to the change in the assessment of
          this tax. The increase in 2001 was principally due to the 22.0% expansion of our
          customer base, partially offset by the reduction of the FISTEL tax as a result
          of a change in the basis for the assessment of this tax. Before 2001, the FISTEL
          tax was based on the total number of subscriptions over the year, regardless of
          the number of deactivations. In 2001, the assessment was based on the net number
          of customers, resulting in a smaller taxable amount.

Products sold. Cellular
handset costs increased 62.7% to R$48.5 million in 2002 from R$29.8 million in 2001, which
in turn represented a 21.4% decrease from R$37.9 million in 2000. The increase in 2002 was
mainly due to the higher volume of handsets sold, together with higher handset costs due
to the devaluation of the real and to the change in the mix of handsets sold, with
an increase in the number of more sophisticated handsets sold. The increase in 2001 was
mainly due to the higher volume of handsets sold and to the change in the models of
handsets sold, offset by a reduction in the average unit cost of handsets.

Operating Expenses

Operating expenses increased 10.6% to
R$174.8 million in 2002 from R$158.1 million in 2001, which in turn represented a 22.7%
increase from R$128.8 million in 2000. The following table sets forth the composition of
our operating expenses, as well as the percentage change of each from the prior year, for
the years ended December 31, 2000, 2001 and 2002.

|                                     | Year ended December 31,     | Percentage Change
|------------------------------------ | --------------------------- | -----------------
|                                     | 2000                        | 2001             
|                                     | (in thousands of reais) (1) |                  
|Selling expense                      | (95,028)                    | (102,672)        
|General and administrative expense   | (47,028)                    | (57,201)         
|Other net operating income (expense) | 13,210                      | 1,749            
|Operating expenses                   | (128,846)                   | (158,124)        

(1)    
          Information is presented in constant reais of December 31, 2000. (2)    
          Information is presented according to historical amounts.

Selling expense. Selling
expense increased 17.8% to R$120.9 million in 2002 from R$102.7 million in 2001, which in
turn represented an 8.0% increase from R$95.0 million in 2000.

The increases in selling expenses in
2002 were a result of an increase in commissions and outside service expenses, as a result
of higher subsidies and marketing campaigns to respond to increased competition during the
second half of 2002 due to the entry of a new competitor in the second half of 2002.

The increase in selling expenses in
2001 compared to 2000 was a result of:

- an
increase in the size of our sales force and outside services in response to the growth in
competition; and
- an
increase in depreciation expenses in connection with the increase of handsets rented to
corporate customers.

The increase in 2001 was partially
offset by a decrease in the allowance for doubtful accounts.

Allowances for doubtful accounts were
R$13.3 million in 2002, compared with R$13.2 million in 2001 and R$16.1 million in 2000.
See Item 4. Information on the CompanyBusiness OverviewBilling and
Collection and Note 13 to our consolidated financial statements. The stabilization
of the allowance for doubtful accounts in 2002 and the decrease in 2001 were primarily due
to:

- the
improvement of the credit quality of new contract plan customers as a result of the
development of better credit risk               analysis; and
- customers
with lower purchasing power switching to prepaid service plans.

General and administrative
expense. General and administrative expenses decreased 7.0% to R$53.2 million in 2002
from R$57.2 million in 2001, which in turn represented a 21.6% increase from R$47.0 in
2000. The decrease in 2002 resulted from a decrease in personnel.

The increase in 2001 resulted from:

- an
increase in outsourced services, mainly relating to corporate and information technology
services and to an increase in               the annual payment to Telefónica Móviles; and
- the
incidence of FUST and FUNTTEL         charges, which began on August 17, 2000 and
November 28, 2000, respectively.

Net Financial Expense

Our financial expense increased 12.5%
to R$27.1 million in 2002 from R$24.1 million in 2001, which in turn represented a 52.6%
increase from R$15.8 million in 2000. The increase in 2002 was principally due to:

- an
increase in expense due to the foreign exchange variation as a result of the effects of
the Brazilian currency devaluation, partially offset by an increase in income from
derivative contracts and by lower interest expenses.

The increase in 2001 principally
reflected:

- the
increase in expense due to the foreign exchange variation as a result of the effects of
the Brazilian currency devaluation, partially offset by the increase in income from
derivative transactions; and
- the
decrease in financial income, as a result of a decrease in the amount of cash equivalents
and short-term investments.

Minority interests

Minority interests reflect the
participation of our subsidiaries minority shareholders in the net income or loss,
as the case may be, of our subsidiaries. We recorded minority interests in our net loss of
R$2.3 million income in 2000, since, until November 29, 2000, minority shareholders owned
10.9% and 26.4% of the share capital of Telebahia Celular and Telergipe Celular,
respectively. In 2002 and 2001, we did not record minority interests in our net loss,
since Telebahia Celular and Telergipe Celular were wholly owned subsidiaries.

Income and Social
Contribution Taxes

Brazilian income taxes are comprised
of federal income tax and social contribution tax. In 2000, 2001 and 2002, the federal
income tax rate was 25%. The social contribution tax rate was 12% in January 2000, but was
decreased to 9% on February 1, 2000.

We recorded income and social
contribution tax credit of R$10.8 million and of R$7.6 million in 2002 and 2001,
respectively, due principally to the pretax loss of R$36.2 million and R$21.2 million,
respectively. In 2000 we recorded an income and social contribution tax expense of R$0.6
million because our net income tax credit results from our pretax loss in 2000 were more
than offset by the R$6.8 million effect of the temporary adjustments made to correct for
inflation in 2000. See Note 10 to our consolidated financial statements.

Net Income/loss

As a result of the foregoing, we
recorded a R$25.4 million net loss in 2002, compared to a R$13.6 million net loss in 2001
and a net loss of R$16.3 million in 2000.

# B. Liquidity and Capital
Resources

# Sources of Funds

We generated cash from operations in
2002 of R$204.8 million, compared to cash generation from operations of R$151.6 million in
2001, and to cash generation from operations of R$126.9 in 2000. See our consolidated
statements of cash flows.

We had R$269.9 million in long-term
loans and financing as of December 31, 2002. Our R$99.7 million in short-term indebtedness
as of December 31, 2002 primarily consisted of working capital funding from financial
institutions. As of December 31, 2002, approximately R$82.0 million and R$2.5 million of
interest and principal payments on our indebtedness will be due in 2004 and 2005,
respectively. We expect to pay this indebtedness with cash flow from operations. See Note
22(b) to our consolidated financial statements.

Our principal assets are the shares
of Telebahia Celular and Telergipe Celular, and we rely on dividends from our subsidiaries
to meet our cash needs, including the payment of dividends to our shareholders. We control
the payment of dividends by the subsidiaries, subject to limitations under Brazilian law.
There are no contractual restrictions on the payment of dividends by our subsidiaries to
us.

Debt

As of December 31, 2002, our
financial indebtedness, including the short-term portion of long-term debt, was as
follows:

|                               | Amount                 
|------------------------------ | -----------------------
|Debt                           | Outstanding            
|                               | (in thousands of reais)
|U.S. dollar-denominated loans:
|Loans                          | 360,769                
|Fixed asset financing          | 8,787                  
|Total                          | 369,556                

Our indebtedness consisted of loans
from financial institutions and equipment financing, 75.0% of which bore interest at
floating rates and 25.0% at fixed rates. Our R$99.7 million of short-term indebtedness at
December 31, 2002 primarily consisted of working capital funding from financial
institutions. We have no committed lines of credit or other credit commitments available
to us. See Note 22 to our Consolidated Financial Statements.

Our long-term debt as of December 31,
2002 matures in accordance with the following schedule:

|Year ending December 31, | Amount                 
|------------------------ | -----------------------
|                         | (in thousands of reais)
|2004                     | 81,981                 
|2005                     | 2,482                  
|2006                     | -                      
|2007                     | -                      
|2008 and forward         | 185,428                
|Total                    | 269,891                

As of December 31, 2002, financing
contracts of Telebahia Celular and Telergipe Celular amounting to R$297.4 million and
R$50.6 million, respectively, have financial covenants (particularly related to cash
generation and leverage ratios) typically applicable to loans executed with financial
institutions. As of December 31, 2002 we were in full compliance with these financial
covenants, which have not restricted our ability to conduct our normal businesses or incur
additional debt to fund our working capital or capital expenditures as of the date of this
annual report.

# Uses of Funds

Our principal uses of funds are for
capital expenditures, service of our debt, and payments of dividends to shareholders.
Dividends and interest on shareholders equity payments consumed cash flows of R$12.2
million in 2002, R$0.8 million in 2001, and R$1 million in 2000. Repayment of debt
consumed cash flows of R$78.8 in 2002, R$134.4 million in 2001, and R$174.2 million
in 2000.

Capital Expenditures

Our capital expenditures over the
past three years related primarily to increasing our network capacity and coverage. See
Item 4A. Our History and DevelopmentCapital Expenditures. The following
table, which corresponds to approximate details of investment items, shows our capital
expenditures for property, plant and equipment in 2000, 2001 and 2002.

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2000(1)                
|                              | (in millions of reais) 
|Automatic switching equipment | 15.1                   
|Other equipment               | 46.7                   
|Real estate                   | 14.7                   
|Information technology        | 26.1                   
|Other assets (3)              | 42.7                   
|Total                         | 145.3                  

(1)    
          Information is presented in constant reais of December 31, 2000. (2)    
          Information is presented according to historical amounts.(3)    
          Handsets for rent, network constructions, furniture and fixtures, office
          equipment, and store layouts.

Our capital expenditure budget for 2003 is R$63.0 million.  Approximately R$8.0 million of our budgeted
capital expenditures are committed.  Planned 2003 capital expenditures will be funded initially by cash
generation from operations.  Most of the planned 2003 capital expenditures will be dedicated to the
expansion of the capacity of the services we currently offer and the provision of new services.  We
believe that our working capital is sufficient for funding our operations and almost all of our
requirements.

Contractual Obligations
and Commercial Commitments

The following table represents our
contractual obligations as of December 31, 2002:

|                                        | Payments due by period 
|--------------------------------------- | -----------------------
|                                        | (in thousands of reais)
|                                        |                        
|                                        | Total                  
|Long-term debt                          | 369,556                
|Operating Leases                        | 6,078                  
|Unconditional Purchase Obligations(1).. | 8,019                  
|Total contractual cash obligations      | 383,653                

(1)    
          Includes committed capital expenditures.

Payments of Dividends to
Shareholders

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. Preferred shares are entitled
to receive minimum noncumulative cash dividends of 10% higher than those attributed to
common shares, or noncumulative minimum annual preferred dividends of 6% of social capital
attributed to those shares, whichever is greater. Our obligation, if any, to pay a general
dividend to holders of our preferred shares is satisfied to the extent of any preferred
dividend paid. We may also make additional distributions to the extent of available
distributable profits and reserves. Our subsidiaries are also subject to mandatory
distribution requirements and, to the extent of distributable profits and reserves, are
accordingly required to pay dividends to the minority shareholders as well as to us. All
of the aforementioned distributions may be made as dividends or as tax-deductible interest
on capital. No dividends were paid for the year ended December 31, 2000 as the management
decided to retain resources to finance our investment plan and also to improve its
financial condition. As of December 31, 2001, we recorded minimum dividends, attributable
to preferred shareholders, based on 6% of the capital stock attributable to these shares,
which amounted to a total provision of approximately R$12.0 million. See Note 25(d) to our
consolidated financial statements. No dividends were declared in 2002 due our net loss in
that year.

# C.  Research and
Development

In connection with the Breakup of
Telebrás, we were required to enter into a contract of indefinite term in May 1998
with the Centro de Pesquisa e Desenvolvimento da Telebrás, or the Center,
the research and development center formerly operated by Telebrás and now
administered as a private foundation. Since the Breakup of Telebrás, the Center has
continued to develop telecommunications technology as a private, independently
administered nonprofit foundation financed with resources from the public and private
sector. While that agreement was effective, we had access to telecommunications software
developed, and other technological services provided, by the Center, such as equipment
testing and consulting and training services.

Our aggregate expenditures on
research and development, including our contribution to the Center, were R$0.4 million in
2001, and R$0.4million in 2000. We did not make any contributions or incur any
expenses related to research and development in 2002.

We do not conduct any independent research and primarily depend upon the manufacturers of
telecommunications products for the development of new hardware.  During the life of our agreement with
the Center, we have access to telecommunications software developed and other technological services
provided by the Center, such as equipment testing and consulting and training services.  The Center may
also provide services to third-parties such as Band B service providers on a fee-for-service basis.  In
addition, we utilize the research and development centers of the Telefónica Móviles, making use of
software and related items in exchange for a management fee paid to cover the Telefónica Móviles costs.

# D.  Trend Information

We expect an increase in competition
over the next few years. During 2001 and 2002, Anatel auctioned many telecommunication
licenses and newcomers began operating in our Region. We do not believe any more licenses
will be auctioned in our Region. Nevertheless, we believe these newcomers may increase
competition and the competition may affect our market share and profit margin.

# ITEM 6. DIRECTORS, SENIOR
MANAGEMENT AND EMPLOYEES

# A.  Directors and Senior
Management

# Board of Directors

Our administration consists of a
board of directorsand a board of executive officers. Our shareholders elect the
members of the board of directors. The board of directors should maintain a number of
members ranging from eight to 12, each serving three-year terms. The board currently
consists of 12 members. The term of office of the current members of the board of
directors will expire in March 2006. The board of directors holds regular quarterly
meetings, and the chairman or two board members may call special meetings.

The following are the current members of our board of directors and their respective positions.

|Name                                | Position | Date Elected  
|----------------------------------- | -------- | --------------
|Félix Pablo Ivorra Cano             | Director | March 24, 2003
|Iriarte Jose Araujo Esteves         | Director | March 24, 2003
|Fernando Xavier Ferreira            | Director | March 24, 2003
|Antonio Viana Baptista              | Director | March 24, 2003
|Ernesto Lopez Mozo                  | Director | March 24, 2003
|Ignacio Aller Malo                  | Director | March 24, 2003
|Zeinal Abedin M. Bava               | Director | March 24, 2003
|Carlos Manuel L. Vasconcellos Cruz  | Director | March 24, 2003
|Eduardo Perestrelo Correia de Matos | Director | March 24, 2003
|Paulo Jorge da Costa G. Fernandes   | Director | March 24, 2003
|João Fábio de Souza Tavares         | Director | March 24, 2003
|Eduardo Carlos Gadelha de Faria     | Director | March 24, 2003

Our directors will serve until the
general shareholders meeting to be held in 2006. Set forth below are brief
biographical descriptions of the directors.

Félix Pablo Ivorra
Cano, 56 years old, is the president of the board of directors and has been a member
of the board of directors since February 1999. He is also the president of the board of
directors of Celular CRT
Participações S.A., Tele Sudeste Celular Participações S.A.,
Telesp Celular Participações S.A. and a member of the board of directors of
Telecomunicações de São Paulo S.A.  Telesp and Tele Centro
Oeste Celular Participações S.A. He is a director of Atento Brasil S.A., 4A
Telemarketing, Telefónica Peru and Portelcom Participações S.A. He is
the main executive officer for Telefónica Móviles in Brazil and the vice
president of Telefónica Móviles Latino-America. He is also the president of
the board of directors of Brasilcel N.V. After graduating, he joined the Telefónica
Group where he worked in the areas of technical specifications, network planning,
commercial planning and developed new services. In 1993 he was the general director of the
group that funded and developed Telefónica Móviles. In 1997 and a portion of
1998, Mr. Cano was the president of the board of directors of Mensatel S.A. and Radiored
S.A., which are part of Telefónica Móviles. He has a degree in
telecommunication engineering from Escola Técnica Superior de Engenharia 
ETSI in Madrid, and a post-graduate degree in Business Administration from the Instituto
Católico de Administração de Empresas  ICADE.

Iriarte José Araújo
Esteves, 53 years old, is currently also the chairman of the board of directors of
TMN-Telecomunicações Móveis Nacionais, S.A., the chief executive
officer of TMN, the chief executive officer of PT Móveis, S.G.P.S., S.A., and a
member of the board of directors of each of Portugal Telecom S.G.P.S., S.A., PT Prime
S.G.P.S., S.A., Celular CRT Participações S.A., Tele Sudeste Celular
Participações S.A., Tele Centro Oeste Celular Participações
S.A. and Telesp Celular Participações S.A. From 1981 until 1992, Mr. Esteves
performed several functions at CTT, Corrêios e Telecomunicações de
Portugal, including regional telecommunications general manager, manager of the
telecommunications business planning department, deputy general manager of
telecommunications, director-general of telecommunications and member of the board of
directors. From 1991 until 1997, Mr. Esteves was the chairman of the board of directors of
Telepac, Serviços de Telecomunicações, S.A., and from 1991 until 1992
he was the vice chairman of the board of directors of TMN. Mr. Esteves was also a vice
chairman of the board of directors of Portugal Telecom Internacional S.G.P.S., S.A. from
2000 until 2002. He holds a degree in electronic engineering from the Higher Education
Technical Institute, Portugal.

Fernando Xavier Ferreira,55
years old, is currently also the president of the Telefónica Group in Brazil, the
chairman of the board of directors and chief executive officer of Sudestecel
Participações S.A, TBS Celular Participações S.A., Iberoleste
Participações S.A. and Telecomunicações de São Paulo
S.A.  Telesp, and vice chairman of the board of directors of Telefônica Data
Brasil Holding S.A. He is also member of the board of directors of each of
Telefónica Móviles S.A., Brasilcel, N.V., Tele Sudeste Celular
Participações S.A., Telesp Celular Participações S.A., Celular
CRT Participações S.A. and Tele Centro Oeste Celular
Participações S.A. He also currently serves as chief executive officer of SP
Telecomunicações Holding S.A. and Telefônica Data Brasil Holding S.A.
Participações S.A. Beginning in 1971, he held various positions at
Telecomunicações do Paraná S.A.  Telepar, including those of
vice president, economic-financial and market relations officer and president. Since that
time he has served on the board of directors of Telebrás, Telesp
Participações S.A., Embratel Participações S.A.,
Embratel-Empresa Brasileira de Telecomunicações S.A., Empresa Brasileira de
Corrêios e Telégrafos-ECT, CRT-Companhia Riograndense de
Telecomunicações S.A., Telebahia Celular S.A., Telergipe Celular S.A.,
Telesp Celular S.A., Telesp Celular Participações S.A. and Portugal Telecom
S.A. Mr. Ferreira served as officer and chief executive officer of
Telecomunicações Brasileiras S.A.-Telebrás, chairman of the board of
directors of Telerj Celular S.A., chairman of the board of directors of Telest Celular
S.A., chairman of the board of directors of Ceterp-Centrais Telefônicas de
Ribeirão Preto S.A., chief financial officer, chief executive officer, chairman and
vice chairman of the board of directors of Tele Sudeste Celular
Participações S.A. From December 2001 to April 2003, he was chief executive
officer of Tele Leste Celular Participações S.A. and Celular CRT
Participações S.A. During 1998, he has also served as a member of a
consulting committee of Anatel, and at present is a member of the Latin American Committee
of the New York Stock Exchange and the Global Information Infrastructure
CommissionGIIC. He holds a degree in electrical engineering from the Catholic
University of Rio de Janeiro, Brazil, and attended a business administration course at
Western Ontario University, Canada, in 1982.

Antonio Viana Baptista,45 years old, is an economist who graduated from the Catholic University of Lisbon in
1980. He has a post-graduate degree in European Economy (1981) and an MBA, obtained with a
mention of distinction from INSEAD (Fontainebleu). In August 2002, he was appointed as
Executive President of Telefónica Móviles, S.A. He is member of the board of
directors of the Delegate Committee and the Executive Committee of Telefónica S.A.
He is also a member of the board of directors of Terra Network, S.G.P.S., S.A., Portugal
Telecom S.G.P.S., S.A., Brasilcel N.V., Telesp Celular Participações, S.A.,
Tele Sudeste Celular Participações S.A., Tele Centro Oeste Celular
Participações S.A. and Celular CRT Participações S.A. Until
July 2002, he served as President of Telefónica Internacional and Executive
President of Telefónica LATAM. Before that he also served from 1991 until 1996, as
Executive Director of BPI (Banco Portugues de Investimento). From 1985 until 1991 he was
Principal Partner of McKinsey & Co. in Madrid and Lisbon.

Ernesto Lopez Mozo, 39 years
old, serves as Chief Financial Officer General Manager for Finance and Management Control of Telefónica Móviles S.A.
Mr. Lopez is a member of the board of directors of each of Telefónica
Móviles de España, S.A., Terra Mobile, S.A., Telefónia Móviles México, S.A. de C.V., Brasilcel N.V, Telesp Celular
Participações, S.A., Tele Sudeste Celular Participações, S.A.,
Tele Centro Oeste Celular Participações S.A. and Celular CRT
Participações, S.A. He was previously a senior manager in the financing
department of Telefónica, S.A., where he was also responsible for relationships
with credit rating agencies. Before joining Telefónica in March 1999, Mr. Lopez
worked for five years at J.P. Morgan where he was a vice president in charge of the
interest rate derivatives trading desk for Spain and Portugal for three years. At J.P.
Morgan, he was also involved in sales to mutual and pension funds. Before joining J.P.
Morgan, Mr. Lopez worked as an engineer, managing the construction of highways and other
infrastructure. He holds a degree in civil engineering from ETSICCP in Madrid and a
masters degree in business administration from the Wharton School.

Ignacio Aller Malo, 58 years
old, serves as Chief Operating Officer of Telefónica Móviles S.A. Mr. Aller is a member of the board of directors of
Terra Mobile, S.A., Mobipay España, S.A., Mobipay Internacional, S.A., Medi
Telecom, Telefónica Móviles de España, S.A., Telefónia
Móviles México, S.A. de C.V., Brasilcel N.V, Telesp Celular
Participações, S.A., Tele Sudeste Celular Participações, S.A.,
Tele Centro Oeste Celular Participações S.A. and Celular CRT
Participações, S.A. Mr. Aller has held several positions at
Telefónica de España since 1967, including Director of Operations and
Information Services in 1986, General Director of Mensatel in 1995 and General Executive
Director of Operations of Telefónica Servicios Móviles in 1999. Mr. Aller
has also served as a member of the board of directors of Venturini España, S.A.,
Mensatel and is currently a board member of Telyco and PMT.

Zeinal Abedin Mahomed Bava, 37
years old, is currently also the chief financial officer of Portugal Telecom S.G.P.S.,
S.A., the vice chairman of the board of directors of PT Multimédia-Serviços
Telecomunicações e Multimédia, S.G.P.S., S.A., a member of the board
of directors of Brasilcel N.V., the chairman of the board of directors of P T
PRO-Serviços de Gestão S.A., and a member of the board of directors of each
of BEST-Banco Electrónico de Serviço Total, S.A., Tele Sudeste Celular
Participações S.A., Telesp Celular Participações S.A., Tele
Centro Oeste Celular Participações S.A. and Celular CRT
Participações S.A. Mr. Bava was vice chairman of the board of directors of
Portugal Telecom Internacional, S.G.P.S., S.A. from 2000 until 2002; the director and
relationship manager for Portugal of Merrill Lynch International from 1998 until 1999; an
executive director of Deutsche Morgan Grenfell from 1997 until 1998; and an executive
director of Warburg Dillon Read from 1989 until 1996. He holds a degree in electronic and
electrical engineering from the University of London B.S.C.

Carlos Manuel L. Vasconcellos
Cruz, 45 years old, is currently also a member of the board of directors of Portugal
Telecom S.G.P.S., S.A., the chairman and chief executive officer of PT Prime S.G.P.S.,
S.A., the chairman of the board of directors of PT Contact-Telemarketing e Serviços
de Informação, S.A., chief executive officer of PT
Comunicações, S.A. and a member of the board of directors of each of
Brasilcel N.V., Telecomunicações Móveis Nacionais S.A.  TMN,
Celular CRT Participações S.A., Tele Sudeste Celular
Participações S.A., Tele Centro Oeste Celular Participações
S.A. and Telesp Celular Participações S.A. From 1978 to 1983, Mr. Cruz was
an economist at the Ministry of Finance of Portugal, and from 1983 to 1985 he was a senior
economist at LEASEINVEST. From 1985 until 1999, Mr. Cruz performed several functions
worldwide at Dun & Bradstreet Corporation, including president and chief executive
officer of Dun & Bradstreet for Portugal, Iberia and the Middle East, executive vice
president of Dun & Bradstreet for Europe, president and chief executive officer of Dun
& Bradstreet GMC and member of the worldwide board and executive vice president of Dun
& Bradstreet Corporation. From 1990 to 1993, he was also vice president of
Associação Portuguesa para a Qualidade. In 1996, he was vice president of
A.P.E.I.N.-Associação Portuguesa de Empresas de Informação de
Negócios. From 1999 to 2001, Mr. Cruz was the president and chief executive officer
of Tradecom S.G.P.S., and from 2000 he also served as executive manager of PT Prime
S.G.P.S., S.A. From 2000 to 2001 he was an invited professor at Portuguese Catholic
University and ISCTE for postgraduate courses and MBA programs. He also served as
president of Telesp Celular S.A., from May 2001 until May 2002, and as vice president of
Telesp Celular Participações S.A. from September 2001 until May 2002. Mr.
Cruz holds a degree in business from the I.S.C.T.E. (Instituto Superior de Ciências
do Trabalho e da Empresa or Higher Education Institute for Labor and Corporate Sciences),
Portugal, and a post-graduate degree in management from D.S.E. (the German Foundation for
International Development), Germany.

Eduardo Perestrelo Correia de
Matos, 54 years old, is currently also the president of Portugal Telecom Brasil S.A.
and a member of the board of directors of each of PT Móveis, Serviços de
Telecomunicações, S.G.P.S., S.A., Tele Sudeste Celular
Participações S.A., Telesp Celular Participações S.A., Tele
Centro Oeste Celular Participações S.A. and Celular CRT
Participações S.A. From 1976 to 1984, Mr. Matos held various operational
positions in the planning and control areas of CTT  Corrêios e
Telecomunicações de Portugal S.A. and TLP  Telefones de Lisboa e Porto
S.A. From 1984 to 1987 he served as general post master of CTT and from 1987 to 1990 he
was the secretary of state for external transportation and communications in Portugal. In
addition, he served as president at Marconi S.G.P.S. Comunicações, S.A. from
1990 to 1991 and at Mobitel S.A. from 1991 to 1996. Mr. Matos was also a member of the
board of Portugal Telecom, S.G.P.S., S.A. from 1996 until May 2002. He holds a degree in
economics from the Technical University of Lisbon, Portugal.

Paulo Jorge da Costa
Gonçalves Fernandes, 37 years old, is currently also vice chairman of the board
of directors of PT Ventures, S.G.P.S., S.A., the chairman of the board of directors of
PT-Sistemas de Informação S.A. and a member of the board of directors of
each of Portugal Telecom S.G.P.S., S.A., Brasilcel N.V., Celular CRT
Participações S.A., Telesp Celular Participações S.A., Tele
Centro Oeste Celular Participações S.A. and Tele Sudeste Celular
Participações S.A. In the period from 1990 through 1991, he was manager and
partner at Spades Lda., a company focused on consulting and information technology
services. From 1991 to 2000, he acted as a consultant for McKinsey & Company, where he
was admitted as a partner in 1997, and also worked as member of the leadership world
groups for the telecommunications and transports industries. Mr. Fernandes holds an
electric-technical engineering degree from the Higher Education Technical Institute of
Lisbon, Portugal.

João Fábio de Souza
Tavares, 32 years old, is currently also a partner at MJ Partners Ltda., a firm
specializing in financial consulting in mergers and acquisitions, located in Rio de
Janeiro. In 1993 and 1994, Mr. Tavares was a corporate finance senior analyst at Banco
Icatu, and, from 1996 and 2000, he worked as an investment-banking associate at Lehman
Brothers, New York. In 2000 and 2001, he served as an officer at Latintech Capital S.A., a
private equity fund. Mr Tavares holds an economics degree from the Catholic University of
Rio de Janeiro, Brazil, a law degree from Candido Mendes Faculty, Brazil, and a
masters degree in finance from Columbia University, USA.

Eduardo Carlos Gadelha de
Faria, 45 years old, is currently also one of the founding partners of FR Capital S/C
Ltda., an independent alternative asset management company. From 1982 until 1986, Mr.
Faria worked as a civil engineer at Sir William Halcrow & Partners Consulting
Engineers, London. From 1987 until 1990, he was a financial consultant at Price Waterhouse
Management Consultants, London, and, from 1990 until 1994, he served as an officer at
Foreign & Colonial Emerging Markets, London. From 1994 until 1997, Mr. Faria was the
chief of the sale division for foreign institutional customers at Banco Icatu, Rio de
Janeiro and New York, and, from 1997 until 2001, he worked as a financial consultant for
small and medium-sized companies in strategic planning, corporate governance and investor
relations. Mr. Faria holds an engineering degree from the University of Surrey, England,
and a masters degree in finance from the City University Business School in London,
England.

On January 23, 2001, Portugal Telecom
S.G.P.S., S.A., PT Movéis S.G.P.S., S.A. and Telefónica Móviles S.A.
entered into a strategic agreement to create a Joint Venture, named Brasilcel and a
related shareholders agreement. In accordance with the shareholders agreement,
PT Movéis is responsible for the appointment of our Chief Executive Officer and
Telefónica Móviles is responsible to appoint the Chief Financial Officer. PT
Movéis and Telefónica Móviles appointed 10 (five each) of the 11
members of our Board of Directors.

# Board of Executive
Officers

The board of executive officers
consists of eight members, elected by the board of directors for a term of three years.
The chief executive officer is the chairman and, in his absence or temporary inability to
perform his duties, he will be replaced by the vice president for finance, planning and
control. In the case of a vacancy in any position in the board of executive officers, the
respective replacement shall be appointed by the board of directors; in case of any
inability, the chief executive officer shall chose a replacement for that officer among
the remaining officers. One officer may be elected for more than one position in the board
of executive officers, but the members of the board of executive officers cannot be
elected for the board of directors. The board of directors may remove executive officers
from office at any time.

The following are the current
executive officers, appointed on April 16, 2003, and their respective positions.

|Name                                           | Position                                | Date appointed
|---------------------------------------------- | --------------------------------------- | --------------
|Francisco Jose Azevedo Padinha(1)              | Chief Executive Officer                 | April 16, 2003
|Fernando Abella Garcia                         | Executive Vice President for Finance,   | April 16, 2003
|                                               | Planning and Control and Investors     
|                                               | Relations Officer                      
|Paulo Cesar Pereira Teixeira                   | Executive Vice President for Operations | April 16, 2003
|Gilson Rondinelli Filho                        | Executive Vice President for Marketing  | April 16, 2003
|                                               | and Innovation                         
|Javier Rodriguez Garcia                        | Vice President for Technology and       | April 16, 2003
|                                               | Networks                               
|Guilherme Silverio Portela Santos(2)           | Vice President for Customers            | April 16, 2003
|Luis Filipe Saraiva Castel-Branco de Avelar(3) | Vice President for IT and Product and   | April 16, 2003
|                                               | Service Engineering                    
|Jose Carlos de la Rosa Guardiola(4)            | Vice President for Regulatory Matters   | April 16, 2003
|                                               | and Institutional Relations            

(1)    
          Mr. Padinha will be formally elected and take office as soon as he receives his
          working permit from the Brazilian authorities. For the time being, his position
          is being temporarily filled by Mr. Fernando Abella Garcia. (2)    
          Mr. Santos will be formally elected and take office as soon as he receives his
          working permit from the Brazilian authorities. For the time being, his position
          is being temporarily filled by Mr. Gilson Rondinelli Filho. (3)    
          Mr. Avelar will be formally elected and take office as soon as he receives his
          working permit from the Brazilian authorities. For the time being, his position
          is being temporarily filled by Mr. Gilson Rondinelli Filho. (4)    
          Mr. Guardiola will be formally elected and take office as soon as he receives
          his working permit from the Brazilian authorities. For the time being, his
          position is being temporarily filled by Mr. Paulo Cesar Pereira Teixeira.

Set forth below is a brief
biographical description of our executive officers.

Francisco José Azevedo
Padinha, 56 years old, is currently also the chief executive officer of each of
Brasilcel N.V., Tele Sudeste Celular Participações S.A., Telesp Celular
Celular Participações S.A., Celular CRT Participações S.A.,
Telerj Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A.,
Celular CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; the chairman of the board
of directors of each of PT Prime
Tradecom Soluções Empresariais de Comércio Electrónico, S.A.,
Megamedia Soluções Multimédia, S.A., PT Prime, S.G.P.S., S.A., the
vice chairman of the board of directors of PT Ventures S.A.; a member of the board of
directors of PT Comunicações S.A.; and a member of the scientific committee
of Taguspark Sociedade de Promoção e Desenvolvimento do Parque da
Ciência e Tecnologia da área de Lisboa, S.A. He was also the chairman of
the board of directors of Prymesys - Soluções Empresariais S.A. From 1989 until 1992 Mr. Padinha
was the manager of the central department for research and development of Companhia
Portuguesa Rádio Marconi, S.A., and from 1992 until 1994 he was the chairman of the
board of directors of Telecom Portugal, S.A. Mr. Padinha was also the chairman of the
board of directors of each of Cabo TV Açoreana, S.A. (from 1993 until 1996) and
INESCTEL Engenharia de Sistemas e Computadores nas Telecomunicações, Lda
(from 1996 until 1999). From 1994 until 1998, he was a member of the board of directors of
Taguspark Sociedade de Promoção e Desenvolvimento do Parque da Ciência
e Tecnologia da área de Lisboa, S.A., and from 1999 until 2000, he was the chairman
of the board of directors of each of PT Inovação, S.A. and PT Sistemas de
Informação, S.A. From 2000 until 2001, Mr. Padinha was the chief executive
officer of PT Prime S.G.P.S., S.A., and from 1994 until 2002, he was a member of the board
of directors of Portugal Telecom. He holds a telecommunications and electronic engineering
degree from the Technical University of Lisbon, Portugal, a degree in corporate upper
management from AESE/University of Navarra, Spain, and a masters degree in
innovation and technology management from the Sloan School of Management/MIT, United
States.

Fernando Abella Garcia, 39
years old, is currently also the executive vice president for finance, planning and
control of each of Brasilcel N.V., Tele Sudeste Celular Participações S.A.,
Celular CRT Participações S.A., Telesp Celular Participações
S.A., Telerj Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular
S.A., Celular CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; the investor
relations officer of Tele Sudeste Celular Participações S.A., Telesp Celular
Participações S.A., Celular CRT Participações S.A. and Tele
Leste Celular Participações S.A.; the temporary chief executive officer of
Tele Sudeste Celular Participações S.A. and Tele Leste Celular
Participações S.A.; and a member of the board of directors of
Telefónica Factoring do Brasil Ltda. From 1994 until 1997, Mr. Garcia worked as an
external consultant for the Telefónica Group in several different areas. He was
admitted in the Telefónica Group in 1997, where he served in different positions in
the financial and strategic planning areas in Spain and Brazil. He was also a member of
the board of directors of Telefónica Móviles S.A.C. in Peru,
Telefónica Móvil S.A. in Chile, Telefónica Móviles El
Salvador, S.A. de C.V. in El Salvador and Telefónica Centroamérica
Guatemala, S.A. in Guatemala. Mr. Garcia holds a degree in business from the Faculty of
Economic and Corporate Sciences at Valladolid, Spain, and masters degree in business
administration from the Corporate Institute of Madrid, Spain.

Paulo Cesar Pereira Teixeira,
45 years old, is currently also the executive vice president for operations of Tele
Sudeste Celular Participações S.A., Telesp Celular
Participações S.A., Celular CRT Participações S.A., Telerj
Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Celular
CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; and temporary vice president for
regulatory matters and institutional relations of Tele Sudeste Celular
Participações S.A. and Tele Leste Celular Participações S.A.
From 1980 until 1987, Mr. Teixeira performed several different managerial duties in
Companhia Riograndense de Telecomunicações S.A.-CRT and was also a member of
the board of directors (1985-1986). In 1987 and 1988, he served at several different
positions in Telebrás or in the companies of the Telebrás group, including
vice president of Tele Celular Sul Participações S.A., Superintendent
Officer of Telepar Celular S.A., Telesc Celular S.A. and CTMR Celular S.A., engineering
officer of Telecomunicações do Mato Grosso do Sul S.A., manager of the
investment management department of Telecomunicações Brasileiras
S.A.-Telebrás, assistant to the planning and engineering officer of
Telecomunicações Brasileiras S.A.-Telebrás and manager of the
coordination and expansion division of Telecomunicações Brasileiras
S.A.-Telebrás. Mr. Teixeira holds an electrical engineering degree from the
Catholic University of Pelotas, Brazil.

Gilson Rondinelli Filho, 54
years old, is currently also the executive vice president for marketing and innovation of
Tele Sudeste Celular Participações S.A., Celular CRT
Participações S.A., Telesp Celular Participações S.A., Telerj
Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Celular
CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; and the temporary vice president
for customers and temporary vice president for IT and service and product engineering of
Tele Sudeste Celular Participações S.A. and Tele Leste Celular
Participações S.A. Mr. Rondinelli served in different positions at
Telecomunicações de São Paulo S.A., including manager of the
long-term planning department (1974-1981), manager of the external network planning
division (1981-1990), manager of the technical planning department (1990-1992) and manager
of the mobile telecommunication department (1992-1995). From 1992 until 1995, he was also
an officer at Associação Brasileira de Telecomunicações. From
1995 until April 2003, Mr. Rondinelli performed several different duties at Telesp Celular
S.A.: business superintendent of the mobile unit (1996-1997), business and network officer
(1998-2001), member of the board of directors (2000-2001), executive vice president
(2001-2002) and chief executive officer (2002-2003). From April 2002 until April 2003, Mr.
Rondinelli was our vice president. He holds a degree in electric engineering from the
Faculty of Engineering of Mauá, Brazil, a degree in business from the Armando
álvares Penteado Foundation, Brazil, a masters degree in system engineering
from the Technical Faculty of the University of São Paulo, Brazil, and a
masters degree in operational research from the Faculty of Industrial Engineering,
Brazil.

Javier Rodríguez
García, 47 years old, is currently also the chief technology officer of each
Tele Sudeste Celular Participações S.A., Celular CRT
Participações S.A., Telesp Celular Participações S.A., Telerj
Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Celular
CRT S.A., Telesp Celular S.A. and Global Telecom S.A. From 1986 until 1988, Mr.
García worked at INDELEC  Indústria Electrónica de
Comunicaciones S.A., as the manager responsible for the implementation of an automatic
mobile telecommunications project for Telefónica de España S.A. From 1988
until 1990, he worked at Red Electrica de España S.A., as the person responsible
for the project, installation and maintenance of radio mobile systems in Spain. From 1990
until 1992, Mr. García served as an engineering manager at Telcel S.A., where he
was responsible for the implementation of automatic mobile telecommunication system for
Telefónica de España S.A. in Barcelona, Madrid and Palma de Mallorca. From
1992 until 1996, he was an engineering manager responsible for the installation and
maintenance of systems at Compañia Europea de Radiobusqueda S.A., and from 1996
until 1998, he worked in cellular businesses for Telefónica Groupin Spain
and Peru, as a network quality manager and technical area sub-manager, respectively. From
1998 until 2000, Mr. García was the technology manager in the cellular business of
Telefónica Group in Brazil and from 2000 until 2002 he was the network manager of
Telerj Celular S.A. and Telest Celular S.A. He holds a degree in technical
telecommunications engineering from the Technical University of Madrid, Spain.

Guilherme Silvério Portela
Santos, 37 years old, is also currently the vice president for customers of each of
Tele Sudeste Celular Participações S.A., Telesp Celular
Participações S.A., Celular CRT Participações S.A., Telerj
Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Celular
CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; and an executive manager at PT
Móveis, S.G.P.S., S.A. From 1989 until 1993, Mr. Santos was a consultant at
McKinsey & Co., and from 1994 until 1998 he worked as an officer for operations and an
officer for special projects at Parque Expo 98, S.A. He was also a coordination
officer at Companhia de Seguros Tranquilidade (1998-2000) and a member of our board of
directors (April 2001-April 2003). Mr. Santos holds a civil engineering degree from the
Higher Education Technical Institute, Portugal, and a masters degree from INSEAD,
France.

Luis Filipe Saraiva Castel-Branco
de Avelar, 49 years old, is also currently the vice president for IT and product and
service engineering of each of Tele Sudeste Celular Participações S.A.,
Celular CRT Participações S.A., Telesp Celular Participações
S.A., Telerj Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular
S.A., Celular CRT S.A., Telesp Celular S.A. and Global Telecom S.A. In 1989, 1991 and
1993, Mr. Avelar was respectively the corporate accounts director of Telefones de Lisboa e
Porto, an expert in telecommunications services for the European Commission (DG XIII,
Telecom Policy Unit) and a strategic planning director at Comunicações
Nacionais. From 1993 to 1998 he was a consultant in privatization and regulation projects
for the World Bank, the European Bank for Reconstruction and Development and the European
Commission. From 1996 to 1998 he was a portfolio director of Portugal Telecom Group in the
strategic marketing board of Portugal Telecom. From 1998 to 2000, Mr. Avelar was a special
consultant to the president of Telesp Celular Participações S.A. for the
areas of marketing, sales, strategy, regulation and special projects, and, from 2000 to
2001, he was a director at the internet and e-commerce business unit at the same company.
He holds an electrical-technical engineering degree (specialized in telecommunications and
electronics) from the Lisbon Higher Education Technical Institute.

José Carlos de la Rosa
Guardiola, 55 years old, is also currently the vice president for regulatory
matters and institutional relations of each of Telesp Celular Participações
S.A., Tele Sudeste Celular Participações S.A., Celular CRT
Participações S.A., Telerj Celular S.A., Telest Celular S.A., Telebahia
Celular S.A., Telergipe Celular S.A., Celular CRT S.A., Telesp Celular S.A. and Global
Telecom S.A. From November 1998 until February 2002, Mr. Guardiola was engaged in the
Regulation and Operations Departments of these companies, and occupied the function of
vice president of Operations responsible for the commercial, administrative and operations
activities of each of Telebahia Celular S.A. and Telergipe Celular S.A. During the last 25
years, he worked in American, European and Japanese multinational companies in the areas
of commercialization to security instrumentation equipments to petrochemical,
semiconductors, IT companies and communication equipment. He occupies the position of
chairman in companies as Saint Gobain (France), National Semiconductors (USA) and NEC
Eletronics (Japan). He holds a degree in telecommunications engineering from Universidad
Politecnica de Madrid, Spain.

# Board of Auditors
(Conselho Fiscal)

We have a permanent board of auditors
that consists of a minimum of three and a maximum of five members. They are elected
annually at the annual general shareholders meeting. The board currently consists of
five members.

The board of auditors is responsible
for overseeing our management. Its main duties are:

- to
review and provide an opinion on the annual report of our management,
- to
review and approve the proposals of the management bodies to be submitted to the
shareholders meeting regarding changes to share capital, issuance of debentures and
subscription rights, capital investment plans and budgets, distributions of dividends,
changes in corporate form, consolidations, mergers or split-up, and
- to
review and approve the financial statements for the fiscal year.

The following are the current members
of our board of auditors and their alternates:

|Name                                        | Position  | Date Appointed
|------------------------------------------- | --------- | --------------
|Gustavo Lessa Campos Netto(1)               | Member    | March 24, 2003
|Luiz Alberto de Castro Falleiros(2)         | Member    | March 24, 2003
|Wolney Quirino Schuler Carvalho(3)          | Member    | March 24, 2003
|Joao Luis Tenreiro Barroso(3)               | Member    | March 24, 2003
|Cleuton Augusto Alves(3)                    | Member    | March 24, 2003
|Fabio Anderaos de Araujo(1)                 | Alternate | March 24, 2003
|Luciano Carvalho Ventura(2)                 | Alternate | March 24, 2003
|Oswaldo Vieira Luz(3)                       | Alternate | March 24, 2003
|José Guilherme Feijão Queiroz de Ataide(3)  | Alternate | March 24, 2003
|José Alberto Bettencourt da Câmara Graça(3) | Alternate | March 24, 2003

(1)    
          Appointed by our common minority shareholders. (2)     Appointed by our preferred
          shareholders. (3)     Appointed by our controlling shareholder.

# B.  Compensation

For the year ended December 31, 2002,
we paid to our directors and executive officers, as compensation, an aggregate amount of
R$0.9 million. This amount includes performance remuneration and profit sharing
arrangements applicable to all employees. Furthermore, the members of our board of
executive officers are eligible to participate in the same complementary retirement
pension plan available to our employees, called Plano Visão. The aggregate
amount of compensation we paid to the members of the board of auditors was approximately
R$0.03 million.

We did not set aside or accrue any
amounts for, and our officers and directors did not receive any pension, retirement or
similar form of compensation.

# C.  Board Practices

Our board of directors duties
and responsibilities are set forth by Brazilian law and our by-laws.

Our board of directors is comprised of
four members, all shareholders, each serving a three-year term. Our directors are elected
by our shareholders at the annual general shareholders meeting. There are no service
contracts between us and our directors that provide for benefits upon termination of
employment. The board of directors holds regular quarterly meetings, and the chairman or
two board members may call special meetings.

Our board of directors does not have
a remuneration committee.

# D.  Employees

At December 31, 2002, we had 494
full-time employees and 3 temporary employees and 37 trainees. During 2002, we had an
average of 22 trainees and temporary employees.

The following table sets forth the
number of our employees and a breakdown of employees by main category of activity as of
the dates indicated:

|                                               | December 31,
|---------------------------------------------- | ------------
|                                               | 2000        
|Total number of employees (including trainees) | 498         
|Number by category of activity:               
|Technical and operations area                  | 114         
|Sales and marketing                            | 180         
|Finance and administrative support             | 94          
|Customer service                               | 110         

Employees are represented by the
Sindicato dos Trabalhadores em Empresas de Telecomunicações no Estado da
Bahia(SINTEL-BA) and by the Sindicato dos Trabalhadores em Empresas de
Telecomunicações no Estado de Sergipe (SINTEL-SE). We negotiate new
collective labor agreements every year with the labor unions. The collective agreements
currently in force include a salary and benefit increase of 4% effective as of December
31, 2002.

Our management considers the
relations between our work force and us to be satisfactory. We have not experienced any
work stoppage that materially affected our operations. Each of our subsidiaries negotiates
a new collective labor agreement every year with each local union. The collective
agreements now in force expire on November 30, 2003.

At the time of the privatization,
employees had the right to maintain their rights and benefits in Fundação
Sistel de Seguridade Social, orSistel, a multi-employer defined benefit plan
that supplements government-provided retirement benefits. Under the Sistel plan, we made
monthly contributions to Sistel equal to a percentage of the salary of each employee who
was a Sistel member. Each employee member also made a monthly contribution to Sistel based
on age and salary. Members of Sistel qualified for pension benefits when they qualified
for the government-provided retirement benefits. Sistel operates independently from us,
and its assets and liabilities are fully segregated from us. Employees hired since January
1999 are not members of Sistel.

Before December 1999, the Sistel plan
covered the employees of the former Telebrás System and we were contingently liable
for all of the unfunded obligations of the plan. In January 2000, we and the other
companies that formerly belonged to the Telebrás system agreed to divide the
existing Sistel plan into 15 separate plans, resulting in the creation of private plans
covering those employees already enrolled in the Sistel plan. These new private pension
plans are still administered by Sistel and have retained the same terms and conditions of
the Sistel plan. The division was carried out so as to allocate liability among the
companies that formerly belonged to the Telebrás system according to each
companys contributions in respect of its own employees. Joint liability among the
Sistel plan sponsors will continue with respect to retired employees who will necessarily
remain members of the Sistel plan.

In 2000, we established the Plano
de Benefícios Visão Celular, a new private pension plan for our
employees. Unlike Sistels defined benefits plan, the Plano de Benefícios
Visão Celular calls for defined contributions by our operating subsidiaries, as
sponsors, and our employees, as participants. These contributions are credited to the
participants individual accounts. Those employees who were members of the Sistel
plan had the option to transfer to the new pension plan by October 31, 2000. Newly hired
employees may choose to become participants of the new plan within 30 days from the date
of employment. As of December 31, 2002, approximately 95.34% of our employees were members
of the Plano de Benefícios Visão Celular. We continue to have a
contingent liability for the unfunded obligations of the plan with respect to all inactive
employees of the former Telebrás and all post-retirement health care benefits for
former Telebrás employees and current employees of all the new holding companies.

Our employees also receive payments
based on our financial performance. The amount of the payment is determined by a
collective bargain agreement between the unions representing our employees and us.

Also, Telefónica
Móviles de España created a Stock Option plan for its employees hired until
June 30, 2002. Telefónica Móviles stock options are offered in Spain and
each employee has the choice to participate or not in such plans. Options may be exercised
at the choice of the beneficiary, upon delivery of shares of Telefónica
Móviles S.A., or payment of balances with effective delivery.

The employees will be entitled to the
amounts or the number of shares corresponding to any positive valuation of these shares
with respect to a certain pre-defined amount established at the time of issue. This type
of transaction is duly registered with the Securities Commission in Spain (CNMV).

The program has a four-year term,
during which part of the options will be made available with pre-defined periods.

# E.  Share Ownership

As of December 31, 2002, each of the
members of the board of directors and the board of executive officers owned, directly or
directly, less than 0.01% of any class of our shares.

# ITEM 7. MAJOR SHAREHOLDERS
AND RELATED PARTY TRANSACTIONS

# A.  Major Shareholders

Of our two classes of capital stock
outstanding, only the common shares have full voting rights. None of the principal
shareholders have voting rights that differ from those of the other holders of the common
shares and preferred shares. The preferred shares have voting rights under limited
circumstances.

Any significant change in the
percentage ownership held by any major shareholders during the past three years is
disclosed in Item 4A.Our History and Development.

The following table sets forth
information concerning the ownership of common shares by Iberoleste (wholly
controlled by Brasilcel), Brasilcel, Tagilo Participações Ltda. (an equity investment
company wholly controlled by Brasilcel), Utilitivest II Delaware LLC (a private
institutional fund), BNDES Participações S.A. (a venture capital fund,
controlled by Banco Nacional de Desenvolvimento Econômico e Social, or BNDES,
the Brazilian Development Bank) and our officers and directors as a group, at May 31, 2003:

|                                        | Number of      | Percentag     | Number of        | Percentage      
|--------------------------------------- | -------------- | ------------- | ---------------- | ----------------
|                                        | common shares  | outstanding   | preferred shares | outstanding     
|Name of owner                           | owned          | common shares | owned            | preferred shares
|Iberoleste Participacoes S.A            | 89,321,041,172 | 53.81%        | 15,699,537,789   | 5.01%           
|Brasilcel, N.V                          | 5,265,273,319  | 3.17%         | 10,934,219,376   | 3.49%           
|Tagilo Participacoes Ltda               | 2,389,494,491  | 1.44%         | 9,190,099,460    | 2.93%           
|Utilitivest II Delaware LLC             | 14,990,096,009 | 9.03%         | --               | 0.00%           
|BNDES Participacoes S.A                 | 1,252,230,576  | 0.75%         | 19,058,384,218   | 6.08%           
|All directors and executive officers as
|a group (12 persons)                    | 70,263         | 0.00%         | 800              | 0.00%           

We are not aware of any other
shareholder owning more than 5.0% of our common shares. None of these shareholders have
voting rights different from those of our other common shareholders.

Iberoleste and Brasilcel have the
ability to control the election of our board of directors and the direction of our future
operations. See also Item 4A. Our History and DevelopmentBrasilcel and
Iberoleste Tender Offer.

# B.  Related Party
Transactions

Each of our subsidiaries has entered
into a Consulting Service Agreement with Telefónica Móviles pursuant to
which it receives marketing, technical and business development advice. Under the
Consulting Services Agreements, the subsidiaries are obligated to make annual payments to
Telefónica Móviles of approximately 1% of net operating revenues.

We also carry on transactions with other companies controlled by Telefónica, such as network use
and long distance (roaming) cellular communication agreements.  The counterparties to these agreements are
Telerj Celular S.A., Telest Celular S.A., Telesp, Celular CRT S.A., Telesp Celular S.A., Global Telecom
S.A. and Telefónica Móviles de España S.A.  These companies became a related party on December 27, 2002,
as a result of the joint venture described in Item 4A. Our History and Development and in note 1 to our
consolidated financial statements.  The transactions relating to roaming agreements are based on contracts
entered into prior to the Break-up of Telebrás, between Telebrás and each relevant Predecessor Company.
The terms of these agreements and of the ones for network use are regulated by Anatel.

The following services are rendered
by companies controlled by Telefónica:

- corporate
services centralized at Telerj Celular S.A. and Telefonica Gestao de Servicos
Compartilhados do Brasil Ltda.,          transferred to other companies at costs
effectively incurred;
- call
center services rendered by Atento Brasil S.A. to users of telecommunications services of
subsidiaries;
- implementation
and maintenance of profitability and cost control system by Telefonica Mobile Solution;
and
- services
of implementation of facilities' security system rendered by Telefonica Engenharia.

We have engaged in a number of other
transactions with related parties. See note 26 to our consolidated financial
statements.

# C.  Interests of Experts
and Counsel

Not applicable.

# ITEM 8. FINANCIAL INFORMATION

# A.       Consolidated
Statements and Other Financial Information

SeeItem 3A.
Selected Financial Data and Item 18. Financial Statements.

# Legal Matters

Civil

Litigation Related to the
Breakup of Telebrás

The Breakup of Telebrás is the
subject of several lawsuits in which the plaintiffs are seeking injunctions. Some
preliminary injunctions were granted, but all were quashed by decisions of the relevant
federal court. These courts also decided that the court of the state of Minas Gerais has
original jurisdiction over the proceedings. Several decisions quashing preliminary
injunctions are on appeal, and, if any such appeals are successful, the shareholders of
Telebrás may have to reapprove the Breakup of Telebrás or legislative action
may be required.

The theories on which the lawsuits
regarding the Breakup of Telebrás are based include:

- that
the Brazilian constitution requires that the General Telecommunications Law specifically
authorize the creation of the                            12 New Holding Companies,
- that
the Telebras shareholders' meeting held on May 22, 1998 which approved the Breakup of
Telebras was not properly convened,
- that
national sovereignty will be threatened if Brazil's telecommunications companies are
controlled by foreign entities, and
- that
the General 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 of Telebrás either by an executive order of the President or
by an act of Congress.

If any of these lawsuits ultimately
succeeds, the Breakup of Telebrás will have to be reinitiated. This could require,
depending upon the prevailing plaintiffs theory, one or both of the following
actions:

- amending
the Telecommunications Law; and
- reconvening
the May 22, 1998 Telebras shareholders' meeting.

It is theoretically possible under
Brazilian law for a court to require that the Breakup of Telebrás be unwound,
although we believe that this would not be likely to occur. We believe that the ultimate
resolution of the proceedings will be favorable and will not have a material adverse
effect on our business or financial position. It is very difficult to quantify what the
potential impact to us would be if the Breakup of Telebrás were to be unwound. This
would require an assessment of the total amount of capital invested by controlling
shareholders in the 12 New Holding Companies and a prediction as to any possible
indemnification to which they may be entitled from the Brazilian government. The results
could be very far reaching and would affect all of the New Holding Companies.

Litigation Arising Out of
Events Prior to the Breakup of Telebrás

Telebrás and our
subsidiaries Predecessor Companies, our legal predecessors, and our subsidiaries,
respectively, are defendants in a number of legal proceedings and subject to certain other
claims and contingencies relating to events prior to the Breakup of Telebrás.
Liability for 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 Companies to our subsidiaries remains with the Predecessor Companies, except
for labor and tax claims (for which the Predecessor Companies and our subsidiaries are
jointly and severally liable, as the case may be, by operation of law) and those
liabilities with respect to which the Predecessor Companies had made specific accounting
provisions prior to the Breakup of Telebrás, assigning them to our subsidiaries.
Any claims against the Predecessor Companies, which are not satisfied by the Predecessor
Companies, could result in claims against our subsidiaries to the extent that our
subsidiaries have received assets that might have been used to settle those claims had
they not been spun off from the Predecessor Companies. However, under the
shareholders resolution pursuant to which the spin-off was effected, our
subsidiaries have contribution rights against their Predecessor Companies with respect to
the entire amount of any payments made by our subsidiaries in connection with any labor or
tax claims brought against our subsidiaries and relating to acts committed by the
Predecessor Companies prior to the effective date of the spin-off.

We believe that the likelihood that
claims of this kind will materialize and have a material adverse financial effect on us is
remote.

Litigation Related to Tax
Credits

Under certain conditions, Brazilian
law permits companies to benefit from tax credits related to the amortization of goodwill.
Despite this fact, an action was filed on December 16, 1999 against Anatel and the New
Holding Companies, including us, that have undergone a corporate restructuring in
connection with the Breakup of Telebrás and that recognized tax credits to offset
premiums paid by their controlling shareholders at the time of their acquisition. We filed
our answer in 2002. We do not think this action will succeed as we believe the
restructuring was done in compliance with Brazilian law; however, based on the opinion of
legal counsel, the chance of an unfavorable outcome is possible in this case.

The extent of any potential
liabilities in connection with this action will be determined in a separate but related
lawsuit known as the calculation of the award, which will only take place if
we are unsuccessful in its defense.

Litigation Related to the
Ownership of Caller ID

In July 2002, we, together with other
Brazilian mobile telecommunication operators, were named as defendants in an action filed
by Lune Projetos Especiais Telecomunicação Comércio Ind. Ltda., or
Lune, pursuant to which Lune claims to be the owner of patents relating to Equipamento
Controlador de Chamadas Entrantes e do Terminal Telefônico, or Caller ID, and
also that the mobile telecommunication operators are using the patent without proper
authorization. Therefore, Lune demands that the operators cease to provide Caller ID
services and that it should be indemnified for the unauthorized use of the Caller ID
system, upon payment of fees received by the operators in consideration to the use of the
system by their customers.

Based on the opinion of our legal
counsel, the chance of an unfavorable outcome is possible in this case. However the
indemnification that is allegedly due from the mobile operators cannot be accurately
calculated as of yet due to the fact that the cost of the caller ID service provided by
the companies has never been separately calculated.

Tax-Related

Litigation Related to the Application
to the ICMS

Certain Brazilian state governments
agreed to apply, effective July 1, 1998, the ICMS tax to certain service revenues, such as
activation fees, and to make the application to such activation fees retroactive for the
five years preceding June 30, 1998. We believe the extension of the ICMS tax to non-basic
telecommunications services such as cellular activation is unlawful because:

- the
state governments acted beyond the scope of their authority;
- their  interpretation
would subject certain services that are not telecommunications services to taxation; and
- new taxes
may not be applied retroactively.

On December 23, 1998, Telebahia
Celular was assessed by the tax authorities for lack of payment of the ICMS tax on
activation fees, retroactive to February 1998, at the amount of R$4.4 million. In the
opinion of our legal counsel, our subsidiaries may be successful in their defense. Also,
in a recent decision in an action filed by Teleamazon Celular, another wireless operating
company, the Higher Justice Court (Superior Tribunal de Justiça)determined that
the ICMS tax could not be assessed on activation fees.

We do not believe that the
retroactive application of the ICMS to activation fees is likely and, therefore, no
provision for loss with respect to such application has been made or is expected to be
made in our consolidated financial statements. However, if the ICMS were applied
retroactively, it would give rise to a maximum liability estimated at R$23.6 million,
R$20.1 million payable by Telebahia Celular and R$3.5 million payable by Telergipe
Celular. In addition, we do not believe that the application of the ICMS to activation
fees, applied on a prospective basis until January 1, 2000 when we stopped changing our
customers activation fees, would have a material impact on our financial condition or
results of operations.

In a recent decision in a lawsuit
filed by Teleamazon Celular, another wireless operating company, the Higher Justice Court
(Superior Tribunal de Justiça)determined that the ICMS tax could not be assessed
on activation fees.

In addition to the lawsuits above,
Telebahia Celular was also subject to tax assessments arising out of (a) the failure to
collect ICMS in connection with the provision of supplementary services; (b) the failure
to proportionally write-off ICMS tax credits relating to the acquisition of permanent
assets, electric power and telecommunication services, resulting from non-taxed
transactions (sale of goods and services); (c) the failure to write-off ICMS tax credits
relating to leases and loans for use. The amount involved is approximately R$7.9 million,
and it was not provisioned. In June 2001, Telergipe Celular was subject to a tax
assessment resulting from the failure to collect ICMS in connection with supplementary
services (exchange of handsets, detailed billing; change of ownership, etc.), which are not
considered telecommunication services. On December 31, 2002, the amount of the assessment
was approximately R$0.4 million and a negative outcome was considered possible.

Litigation Related to the Application
of the COFINS and PIS

On November 27, 1998, the method for
calculating the PIS and COFINS social contributions was modified by Law no. 9,718, which
increased the COFINS contribution rate from 2% to 3% and authorized the deduction of up to
1/3 of the amount due as COFINS from the amount due as CSLL. Since our subsidiaries had a
negative tax calculation basis, they could not benefit from this deduction. Also, Law no.
9,718 indirectly increased the amounts of COFINS and PIS due by the subsidiaries by
including finance revenues in their calculation basis.

Based on
our external counsels advice, we believe that this increase is unconstitutional
because: (i) article 195 of the Brazilian constitution, which was effective when Law no.
9,718 was enacted, provided that the PIS contribution would only be levied on
compensation of employees, revenues and profits; (ii) the Brazilian government resorted
to an inadequate legal doctrine in order to increase the COFINS and PIS contributions,
i.e., an ordinary statute was used instead of a supplementary one, which requires a
greater quorum in order to be enacted; and (iii) the law was made effective before the
expiration of the required 90-day waiting period.

Telebahia Celular and Telergipe
Celular obtained injunctions allowing them to continue paying the COFINS and PIS
contributions based on telecommunications services and sales revenues and to continue
paying the COFINS contribution at a 2% rate. However, the injunctions were partially
reversed and, as a result:

- Telebahia Celular resumed payment
of the COFINS contribution at a 3% rate, including finance revenues in the calculation
basis. The amounts provisioned while the injunction was effective were already paid;
- Telergipe Celular resumed payment
of the COFINS contribution at a 3% rate, but it was allowed to continue paying it based on
telecommunications services and sales revenues. With respect to the other revenues, the
respective amounts are being deposited with the court; and
- With respect to the exclusion of
the finance revenues from the PIS calculation basis, only the decision in favor of
Telebahia Celular remains effective, and for this reason this operating company has
provisioned these amounts. Telergipe Celular has already made the payment of the amounts
provisioned while the injunction was effective and the finance revenues are accordingly
being included in the PIS calculation basis.

Our subsidiaries continue to dispute
legally the COFINS and PIS increase, and, if they win favorable judicial decisions, may
recoup overpaid taxes.

Litigation Related to the Passing on
of the COFINS and PIS to Customers

We, together with other
telecommunication carriers, are defendants in a lawsuit brought by ANDEC, an association
for the protection of consumers rights, which challenges our policy of passing on
the COFINS and PIS costs to our customers by incorporating them into our charges.

We are contesting the lawsuit on the
basis that, according to our understanding, the COFINS and PIS are cost components of the
services provided to our customers and, as such, should be incorporated into the price of
these services, as is the practice throughout the telecommunications industry. We believe
that our probability of success in challenging this claim is very high.

Litigation Related to ISS

On several different occasions,
starting in August 1998, the municipality of Salvador, in the state of Bahia, filed
administrative proceedings against Telebahia Celular in order to collect amounts allegedly
past due as service tax (ISS). The municipality claims that the payments received in
consideration of the use of our network could be considered as remuneration under a
lease of a movable asset, and that therefore these payments should be subject to the
application of ISS. At December 2002, this claim amounted to R$29.5 million. Based on
external counsels opinion, which considers these activities as telecommunications
services subject to ICMS taxation, we believe that Telebahia Celular will be successful in
these proceedings and accordingly we did not create a provision for them.

Telebahia Celular was also assessed
for lack of retention of the Imposto Sobre Serviçoson outside services. The amounts
involved including interest total R$4.7 million. Based on the opinion of legal counsel,
that the chances of unfavorable outcomes are probable in this case, we recorded a partial
provision for losses at December 31, 2002.

Litigation Related to the Application
of ICMS on handset sales

Telergipe Celular was assessed for
the lack of full payment of the ICMS tax and the lack of reversal of ICMS credits
applicable to cellular equipment on lease. We did not agree with the calculation of the
total assessment and, therefore, requested court injunctions, on which decisions are
pending. Our legal counsel believes that we may be successful in obtaining these
injunctions. Therefore, no provision for loss with respect to such application has been
made. The current amount of these contingencies is approximately R$1.7 million.

Other Litigation

We are also party to certain legal
proceedings arising in the normal course of business. Our reserve amounts are sufficient
to cover our estimated losses due to adverse legal judgments. We believe that adverse
judgments arising from these other legal proceedings would not have a material adverse
effect on our business, financial condition or results of operations.

Dividend Policy and
Dividends

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. Preferred shares are entitled
to receive minimum noncumulative cash dividends of 10% higher than those attributed to
common shares, or noncumulative minimum annual preferred dividends of 6% of social capital
attributed to those shares, whichever is greater. The annual dividend distributed to our
holders of our preferred shares has priority in the allocation of adjusted net income.

Under Brazilian corporate law, a
company is permitted to suspend the payment of the mandatory dividend in respect of its
common and preferred shares if:

- its board of directors, independent
auditors and board of auditors report to the shareholders meeting that the
distribution would be incompatible with the financial conditions of that company; and
- the
shareholders ratify this conclusion at the shareholders' meeting.  In this case,
the board of executive officers
would forward to the CVM, within five days of the shareholders meeting, an
explanation for the suspension of the payment of the mandatory dividends; andthe amounts which were not
distributed are to be recorded as a special reserve, and, if not absorbed by losses in
subsequent fiscal years, they must be distributed as dividends as soon as the financial
condition of that company permits. Dividends may be distributed by us out of our retained
earnings or accumulated profits in any given fiscal year.
- the board of executive officers
would forward to the CVM, within five days of the shareholders meeting, an
explanation for the suspension of the payment of the mandatory dividends; and
- the amounts which were not
distributed are to be recorded as a special reserve, and, if not absorbed by losses in
subsequent fiscal years, they must be distributed as dividends as soon as the financial
condition of that company permits. Dividends may be distributed by us out of our retained
earnings or accumulated profits in any given fiscal year.

For the purposes of Brazilian
corporate law, accumulated profits are defined as net income after the provision of income
tax and social contribution for the relevant 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.

At each annual shareholders
meeting, the board of directors is required to determine how net profits for the preceding
fiscal year are to be allocated. Under Brazilian corporate law, we are required to
maintain a statutory reserve, to which we must allocate 5% of our net profits for each
fiscal year until the amount of such reserve equals 20% of our paid-in capital. Losses, if
any, may be charged against the statutory reserve.

Brazilian corporate law also provides
for two additional discretionary allocations of net profits that are subject to approval
by the shareholders at the annual shareholders meeting:

- first, a percentage of net profits
may be allocated to the contingency reserve for anticipated losses that may be charged 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; orwritten off in the event that the anticipated loss occurs;second, if the amount of unrealized
revenue exceeds the sum of (i) the statutory reserve and (ii) retained earnings, such
excess may be allocated to the unrealized profit reserve at the direction of the board of
directors.
- 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 amount of unrealized
revenue exceeds the sum of (i) the statutory reserve and (ii) retained earnings, such
excess may be allocated to the unrealized profit reserve at the direction of the board of
directors.

Allocations may not hinder the
payment of mandatory dividends. Unrealized revenue is defined under Brazilian corporate
law as the sum of:

- the share of
equity earnings of affiliated companies, which is not paid as cash dividends; and
- profits as a result of
income from operations after the end of the next succeeding fiscal year.

The amounts available for
distribution are determined on the basis of financial statements prepared in accordance
with Brazilian corporate law, which differs from other financial statements such as our
consolidated financial statements included in this annual report, which are prepared in
accordance with Brazilian GAAP.

Priority and Amount of
Preferred Dividends

Our by-laws provide for a minimum
yearly per share dividend to the holders of our preferred shares equal to the higher of 6%
of the amount obtained by dividing the total share capital by the total number of shares
or 10% above the amount distributed to the holders of our common shares. As a result of
such provision, holders of our preferred shares are entitled to receive, in any year,
distributions of cash dividends prior to the holders of our common 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 common
shares until the amount distributed in respect of each Preferred Share is 10% above the
amount distributed in respect of each common share, according to our by-laws; and
- thereafter, to the holders of
common shares and preferred shares, on the basis that the amount distributed in respect of
each preferred share is 10% above the amount distributed in respect of each common share,
according to our by-laws.

If the mandatory dividend in any year
is less than or equal to the dividend that must be paid to the holders of preferred shares
in that year, the holders of common shares will not be entitled to receive any cash
dividends from us in that year, unless the holders of common shares approve dividends in
excess of dividends that must be paid to preferred shares. In such circumstances, however,
holders of preferred shares will be entitled to the amount available for payment of
dividends up to an aggregate amount equal to:

- the minimum dividend
to be paid to the holders of preferred shares; plus,
- in the event the minimum dividend
to be paid to the holders of preferred shares is higher than the amount available for
payment of dividends for that year, any retained earnings from previous years, which may
be used to make up for such shortfall.

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.

As of December 31, 2002, we recorded
a provision for minimum dividends, attributable to preferred shareholders, based on 6% of
the capital stock attributable to these shares, as follows:

|Capital stock (in thousands of reais)               | 305,396    
|--------------------------------------------------- | -----------
|Capital stock (in thousands of shares)              | 479,445,039
|                                                    |            
|Preferred capital stock (in thousands of shares)    | 313,436,995
|                                                    |            
|Preferred capital stock (in thousands of reais)     | 199,653    
|Percentage rate                                     | 6%         
|                                                    |            
|Amount of minimum dividends (in thousands of reais) | 11,979     
|                                                    |            

Payment of Dividends

We are required by Brazilian 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 a decision of our
shareholders on the recommendation of our board of directors. The payment of annual
dividends in any given year is based on the financial statements prepared for the
preceding fiscal year ending December 31. Under Brazilian corporate law, dividends are
required to be paid within 60 days of the annual shareholders meeting, or on the
date determined at a shareholders meeting, but in any case 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
time unclaimed dividends revert back to us. Because our shares are issued in book-entry
form, dividends will be credited to the depositary, which is responsible for the delivery
of the dividends to their respective holders. We are not required to adjust the amount of
paid-in capital for inflation. Annual dividends may be paid to shareholders on a pro ratabasis 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 The Bank of New York, as depositary, which is the registered owner of our shares.

Payments of cash dividends and
distributions, if any, will be made in reais to the Custodian on behalf of The Bank of New
York, as depositary, which will then convert those proceeds into U.S. dollars and will
cause such U.S. 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 reais received
as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADRs may
be adversely affected by devaluations of the real 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.

Tele Leste recorded losses in 2002
and, therefore, no dividends or interest on equity were paid for that year.

B. Significant Changes

Other than as disclosed in this
annual report, no significant change has occurred since the date of our most recent
audited financial statements.

ITEM 9. THE OFFER AND LISTING

Our Preferred Shares commenced
trading on the Brazilian stock exchanges on September 21, 1998. At December 31, 2002, we
had approximately 1.6 million preferred shareholders. The following table sets forth the
reported high and low closing sale prices for the Preferred Shares on the São Paulo
Stock Exchange, or BOVESPA for the periods indicated.

|                           | Nominal reais per 1,000 Preferred Shares
|-------------------------- | ----------------------------------------
|                           |                                         
|                           | Low                                     
|                           |                                         
|1998                       |                                         
|Annual                     | 0.37                                    
|1999                       |                                         
|Annual                     | 0.56                                    
|2000                       |                                         
|Annual                     | 1.09                                    
|2001                       |                                         
|Annual                     | 0.55                                    
|First quarter              | 1.34                                    
|Second quarter             | 1.45                                    
|Third quarter              | 0.55                                    
|Fourth quarter             | 0.61                                    
|2002                       |                                         
|Annual                     | 0.35                                    
|First quarter              | 0.80                                    
|Second quarter             | 0.56                                    
|Third quarter              | 0.36                                    
|Fourth quarter             | 0.35                                    
|Last Six Months           
|December 2002              | 0.41                                    
|January 2003               | 0.42                                    
|February 2003              | 0.37                                    
|March 2003                 | 0.38                                    
|April 2003                 | 0.42                                    
|May 2003                   | 0.42                                    
|June (until June 18), 2003 | 0.44                                    

In the United States, our preferred
shares trade in the form of ADSs, each representing 50,000 Preferred Shares issued by The
Bank of New York, as depositary, pursuant to a Deposit Agreement among Tele Leste, the
depositary, and the registered holders and beneficial owners from time to time of ADRs.
The ADSs commenced trading on the New York Stock Exchange on November 16, 1998 under the
symbol TBE. At December 31, 2002, there were approximately 80 holders of
record of ADSs. The following table sets forth the reported low and high closing sales
prices for ADSs on the New York Stock Exchange for the dates and periods indicated.

|                          | U.S. dollars per ADS
|------------------------- | --------------------
|                          |                     
|                          | Low                 
|                          |                     
|1998                     
|Annual                    | 20.25               
|1999                     
|Annual                    | 17.63               
|2000                     
|Annual                    | 27.50               
|2001                     
|Annual                    | 10.50               
|First quarter             | 33.50               
|Second quarter            | 32.50               
|Third quarter             | 10.50               
|Fourth quarter            | 11.40               
|2002                     
|Annual                    | 4.50                
|First quarter             | 16.40               
|Second quarter            | 9.89                
|Third quarter             | 4.95                
|Fourth quarter            | 4.50                
|Last Six Months          
|December 2002             | 5.50                
|January 2003              | 5.71                
|February 2003             | 5.08                
|March 2003                | 5.05                
|April 2003                | 6.31                
|May 2003                  | 7.10                
|June (until June 18) 2003 | 7.66                

A. Plan of Distribution

Not applicable.

B. Markets

Trading on the São
Paulo Stock Exchange

The São Paulo Stock Exchange,
or Bovespa, is a non-profit entity owned by its member brokerage firms. Trading on this
exchange is limited to member brokerage firms and a limited number of authorized
nonmembers.

Since April 7, 2003, the São
Paulo Stock Exchange has open outcry trading sessions each day, from 10:00 a.m. to 1:00
p.m. and from 2:00 p.m. to 4:45 p.m. Trading is also conducted from 10:00 a.m. to 5:00
p.m. on an automated system on the São Paulo Stock Exchange. On September 20, 1999,
the São Paulo Stock Exchange launched the After-Market, with the objective of
expanding business opportunities and offering investors a more flexible trading schedule.
After-Market trading takes place from 5:45 p.m. to 7:00 p.m. All stocks traded during the
regular trading session of the day may be traded on the After-Market. However, only cash
market trading via the São Paulo Stock Exchanges electronic trading system is
allowed. The maximum variation allowed for stock prices, whether positive or negative,
corresponds to 2% in relation to the closing price at the regular trading session.

In order to better control
volatility, the São Paulo Stock Exchange has adopted a circuit breaker
system pursuant to which trading sessions may be suspended for a period of 30 minutes or
one hour whenever its indices fall below the limits of 10% in relation to the index
registered in the previous trading session.

There are no specialists or market
makers for our shares on the São Paulo Stock Exchange. Trading in securities listed
on the São Paulo Stock Exchange may be effected off the Exchange in certain
circumstances, although such trading is very limited.

Settlement of transactions is
effected three business days after the trade date without adjustment of the purchase price
for inflation. Payment for shares is made through the facilities of a separate
clearinghouse, which maintains accounts for member brokerage firms. The seller is
ordinarily required to deliver the shares to the exchange on the second business day
following the trade date. The clearinghouse for the São Paulo Stock Exchange is
Companhia Brasileira de Liquidação e Custódia S.A.CBLC, which
is wholly owned by that Exchange.

At December 31, 2002, the aggregate
market capitalization of the 399 companies listed on the São Paulo Stock Exchange
was approximately U.S.$124.0 billion. Although all the outstanding shares of an
exchange-listed company may trade on the São Paulo Stock Exchange, in most cases
less than half of the listed shares are actually available for trading by the public, the
remainder being held by small groups of controlling persons that rarely trade their
shares. For this reason, data showing the total market capitalization of the São
Paulo Stock Exchange tends to overstate the liquidity of the Brazilian equity securities
market.

The Brazilian equity market is
relatively small and illiquid compared to major world markets. In 2002, the combined
monthly trading volumes on the São Paulo Stock Exchange averaged approximately
U.S.$4.1 billion. In 2002, the 10 most actively traded issues represented approximately
56.51% of the total trading in the cash market on the São Paulo Stock Exchange.
Trading on the São Paulo Stock Exchange by nonresidents of Brazil is subject to
certain limitations under Brazilian foreign investment legislation.

Regulation of Brazilian
Securities Markets

The Brazilian securities markets are
regulated by the CVM, which has authority over stock exchanges and the securities markets
generally, by the Conselho Monetário Nacional, or CMN, the National Monetary
Counsel and by the Central Bank, which has, among other powers, licensing authority over
brokerage firms and regulates foreign investment and foreign exchange transactions. The
Brazilian securities market is governed by Law No. 6,385, as amended, known as the
Brazilian Securities Law, and by the Brazilian corporate law.

Law No. 10,303 of December 31, 2001
amended the Brazilian corporate law and the Brazilian Securities Law. Consequently, some
major modifications resulted for the businesses of the publicly traded companies.

Among the changes, Law No. 10,303,
along with Executive Order No. 8 and Decree No. 3.995, all dated October 31, 2001,
provided that the CVM was to have the scope of its authority altered and expanded.
Additionally, CVMs positioning in the regulatory hierarchy, as well as its autonomy,
was modified.

The modifications include changes in
the proportions of common and preferred shares, new rules for the issuance of debentures,
other parameters governing the exercise of the right of withdrawal, duties and powers of
the members of the board of auditors and the board of directors, and the ability of
publicly traded companies to make publications available over the Internet. Also provided
is the pooling agreement, the so-called block voting by which the shareholders agree
during a prior meeting on the direction of the votes that will be cast at the general
meetings. The purpose of this type of vote is to prevent any possible individual
dissidents or interests from harming corporate interests.

The period established for companies
to adapt their by-laws is one year from the publication of the law on November 1, 2001.
Our shareholders held a general shareholders meeting on December 27, 2002, where
they addressed these modifications in our by-laws.

The CVM, which is the agency in
charge of regulating the market, now handles some functions that were reserved to the
Banco Central, for example, the regulation and organization of the futures and commodities
markets.

Under the Brazilian corporate law, a
company is either public, a companhia aberta, such as our company, or private, a companhia
fechada. All public companies are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded either on
the São Paulo Stock Exchange or on the Brazilian over-the-counter market. The
shares of a public company may also be traded privately, subject to certain limitations.
In order to be listed on the Brazilian stock exchanges, a company must apply for
registration with the CVM and the stock exchange. Once the stock exchange lists a company
and the CVM accepts its registration as a public company, its securities may start to be
traded.

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

The Brazilian securities law, the
Brazilian corporate law and the regulations issued by the CVM, the CMN and the Central
Bank provide, among other things, disclosure requirements and restrictions on insider
trading, price manipulation and protection of minority shareholders. However, the
Brazilian securities markets are not as highly regulated and supervised as the U.S.
securities markets or markets in some other jurisdictions.

C. Selling Shareholders

Not applicable.

D. Dilution

Not applicable.

E. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and
Articles of Association

The following summarizes certain
material provisions of our by-laws and Brazilian law, the main bodies of regulation
governing us. Copies of our by-laws have been filed as exhibits to this annual report on
Form 20-F.

Register

Our by-laws were registered with the
Public Registry of the state of Bahia on April 28, 2003, under company number (NIRE)
29300023892.

Objectives and Purposes

Article 2 of our by-laws provides
that our corporate purpose is to:

- exercise the control of operating
companies which provide cellular mobile telecommunications services, personal mobile
services and other services in conformity with the concessions, authorizations and
permissions that have been granted to us;
- promote, through our subsidiaries
or controlled companies, the expansion and implementation of the telecommunications
services within our concessions, authorizations and permissions;
- promote, carry out and
direct the financing of capital from internal or external sources to be used by us or our
controlled companies;
- promote, carry out and
encourage study and research activities aimed at the development of the
telecommunications sector;
- perform, through our
subsidiaries and affiliated companies, specialized technical services related to the
telecommunications               sector;
- promote, encourage, carry out and
coordinate, through our subsidiaries or controlled companies, the development and training
of personnel necessary to perform activities in the telecommunications sector;
- carry out and promote
the import of goods and services for the operations of our subsidiaries and controlled
companies;
- execute other
activities connected or related to our objective;
- participate in the
equity capital of other companies; and
- trade equipment and
materials necessary or useful for providing telecommunications services.

Directors

Following is a description of some of
the provisions of our by-laws concerning the members of our board of directors:

- Pursuant to Article 17, the board
of directors has the power to approve investments and acquisition of assets, assume any
obligation and execute contracts not included in the budget for an amount exceeding R$300
million, the public issuance of promissory notes, and the acquisition of our shares for
cancellation or deposit with a custodian; and
- Pursuant to Article
13, 2nd paragraph, 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 Brazilian corporate law,
each member of the board of directors must have at least one share of our capital stock to
be elected as a Director. There are no provisions in our by-laws with respect to:

- age limits for
retirement of directors; and
- anti-takeover
mechanisms or other procedures designed to delay, defer or prevent changes in our control.

Although there are no
provisions in our by-laws with respect to the following, they are regulated by Brazilian
corporate law and CVM regulations:

- a Director's power to
vote on proposals in which the Director is materially interested;
- a Director's power to
vote compensation to him or herself in the absence of an independent quorum;
- borrowing powers
exercisable by the directors;
- required shareholding
for Director qualification; and
- disclosure of share
ownership.

Rights Attaching to Shares

Dividend Rights

See Item 8A. Consolidated
Statements and Other Financial InformationDividend Policy and Dividends, 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 discussed in our by-laws in Articles 7, 9 and 10. Holders of our preferred
shares are each entitled to attend or to address meetings of shareholders and to elect
members of our board of directors according to Article 141, fourth paragraph, II, and
Article 141, fifth paragraph, of Law No. 6,404/76, as amended by Article 8, fourth
paragraph of Law No. 10,303/01.

One of the members of our board of
auditors and his or her alternative are elected by majority vote of the holders of our
preferred shares present at the annual meeting of shareholders at which members of the
board of auditors are elected.

Brazilian corporate law provides that
certain non-voting shares, such as our preferred shares, acquire voting rights in the
event we fail for three consecutive fiscal years to pay the mandatory minimum dividend to
which such shares are entitled, until such payment is made.

Our preferred shares are entitled to
full voting rights in the event that we fail to pay the mandatory minimum dividends to
which they are entitled for three consecutive years, and with respect to:

- the approval of any long-term
contract between us and our controlled subsidiaries, on the one hand, and any controlling
shareholder or that shareholders affiliates and related parties, on the other hand;
and
- changes/eliminations
of certain rights and obligations as provided for in our by-laws.

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. Such a meeting would be called by
publication of a notice in the states official gazette and two other Brazilian
gazettes, as determined by the shareholders, 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 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 convocation must be published in the
states official gazette and two other gazettes, as determined by the shareholders,
at least 15 days prior to the meetings scheduled date. If the first meeting is not
installed for some reason, the second convocation must be published at least eight 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, whose objective is the amendment of the by-laws, may only be
installed on the first call with a minimum of two-thirds of the voting capital present. In
addition, some decisions require the approval of at least one-half of the holders of
voting shares (qualified quorum). 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.

In the event of a capital increase,
which would maintain or increase the proportion of capital represented by our preferred
shares, holders of ADSs, or of our preferred shares, would have preemptive rights to
subscribe only to our 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 ADSs, or of our preferred shares, would have preemptive rights to subscribe to our
preferred shares in proportion to their shareholdings and to our common shares only to the
extent necessary to prevent dilution of their interest.

Preemptive rights to purchase shares
may not be offered to U.S. holders of our ADSs unless a registration statement under the
Securities Act is effective with respect to the shares underlying those rights, or an
exemption from the registration requirements of the Securities Act 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

Brazilian corporate law provides for
the right of redemption to minority shareholders under certain circumstances.

The right of a dissenting shareholder
to seek redemption arises in case our shareholders representing more than 50% of the
voting shares, common shares or preferred shares, as applicable, decide to:

- change the preference
of our preferred shares or to create a class of shares having priority or preference over
our preferred shares, except if such actions are expressly permitted in the by-laws at
the time of their adoption by our shareholders;
- change the preference
of our preferred shares, any right they carry, their amortization or redemption rights,
or to create a class of shares having priority or preference over our preferred shares;
- reduce the mandatory
distribution of dividends;
- change our corporate
purposes;
- transfer all of our
shares to another company in order to make us a wholly owned subsidiary of that company;
- approve the
acquisition of another company, the price of which exceeds certain limits set forth in
Brazilian corporate law;
- participate in a group
of companies if certain liquidity standards are not met according to the Brazilian
corporate law as amended by Law No. 10,303/01;
- merge or consolidate
us with another company if certain liquidity standards are not met according to the
Brazilian corporate               law as amended by Law No. 10,303/01; and
- cisão, or
split-up, Tele Leste, according to the Brazilian corporate law, as amended by Law No.
10,303/01, in any of the following situations: (i) reduction of minimum dividends; (ii)
participation in a group of companies; or (iii) change of our corporate purposes, except
in case the company receiving our assets has a corporate purpose substantially identical
to ours.

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 redemption
rights within 10 days following the expiration of those rights if the redemption of shares
of dissenting shareholders would jeopardize our financial stability.

Unless otherwise provided in our
by-laws, which is not the case, 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 ABN-AMRO Real S.A., and the transfer of our
shares is made in accordance with the applicable provision of 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 ADSs are registered on the records of
BOVESPA in the name of The Bank of New York, as depositary of the ADSs.

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, through its
local agent, of the certificate of registration to reflect the new ownership.

BOVESPA operates 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 through 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 maintained by the relevant stock
exchange and will be treated in the same way as registered shareholders.

C. Material Contracts

On December 10, 2002, Telebahia
Celular entered into an authorization agreement with Anatel, acting as a representative of
the Brazilian government, which enables it to provide personal cellular services (SMP) in
the state of Bahia. The authorization replaces the concession agreement entered into with
Anatel on November 4, 1997, and authorizes Telebahia Celular to provide SMP services until
June 29, 2008. It may be renewed for an additional term of fifteen years upon payment of
2% of Telebahia Celulars net revenues from usage charges in its Region in the year
prior to the year when payment is due, and every two years during the extension period. In
consideration for the authorization, Telebahia Celular was required to pay R$9.0 thousand.
The authorization is a legal requirement for providing telecommunication services in the
region covered thereby.

On December 10, 2002, Telergipe
Celular entered into an authorization agreement with Anatel, acting as a representative of
the Brazilian government, which enables it to provide personal cellular services (SMP) in
the state of Sergipe. The authorization replaces the concession agreement entered into
with Anatel on November 4, 1997, and authorizes Telebahia Celular to provide SMP services
until December 15, 2008. It may be renewed for an additional term of fifteen years upon
payment of 2% of Telergipe Celulars net revenues from usage charges in its region in
the year prior to the year when payment is due, and every two years during the extension
period. In consideration for the authorization, Telergipe Celular was required to pay
R$9.0 thousand. The authorization is a legal requirement for providing telecommunication
services in the region covered thereby.

D. Exchange Controls

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

The right to convert dividend or
interest 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 and the CVM. Such restrictions on the
remittance of foreign capital abroad may hinder or prevent the custodian for the preferred
shares represented by ADSs or holders of preferred shares from converting dividends,
distributions or the proceeds from any sale of these preferred shares into U.S. dollars
and remitting the U.S. dollars abroad. Holders of ADSs could be adversely affected by
delays in, or refusal to grant any, required government approval to convert Brazilian
currency payments on the preferred shares underlying the ADSs and to remit the proceeds
abroad.

Resolution No. 1,927 of the National
Monetary Council provides for the issuance of depositary receipts in foreign markets in
respect of shares of Brazilian issuers. It restates and amends Annex V to Resolution No.
1,289 of the National Monetary Council, known as the Annex V Regulations. The ADS program
was approved under the Annex V Regulations by the Central Bank and the CVM prior to the
issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders
outside Brazil are free of Brazilian foreign investment controls, and holders of the ADSs
are entitled to favorable tax treatment. See TaxationBrazilian Tax
Considerations.

Under Resolution 2,689 of the CMN,
foreign investors registered with the CVM may buy and sell Brazilian securities, including
the preferred shares, on Brazilian stock exchanges without obtaining separate certificates
of registration for each transaction. Registration is available to 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. Resolution 2,689 also extends
favorable tax treatment to registered investors. See TaxationBrazilian
Tax Considerations.

Pursuant to the Resolution 2,689
foreign investors must: (i) appoint at least one representative in Brazil with the ability
to perform actions regarding the foreign investment; (ii) complete the appropriate foreign
investor registration form; (iii) obtain registration as a foreign investor with CVM; and
(iv) register the foreign investment with the Central Bank.

The securities and other financial
assets held by a foreign investor pursuant to Resolution 2,689 must be registered or
maintained in deposit accounts or under the custody of an entity duly licensed by the
Central Bank or by the CVM or be registered in register, clearing and custody systems
authorized by the Central Bank or by the CVM. In addition, the trading of securities is
restricted to transactions carried out on the stock exchanges or over-the-counter markets
licensed by the CVM.

Registered Capital

Amounts invested in preferred shares
by a non-Brazilian holder who qualifies under Resolution 2,689 and obtains registration
with the CVM, or by the depositary representing an ADS holder, are eligible for
registration with the Central Bank. This registration (the amount so registered is
referred to as registered capital) allows the remittance outside Brazil of foreign
currency, converted at the commercial market rate, acquired with the proceeds of
distributions on, and amounts realized through, dispositions of the preferred shares. The
registered capital per preferred share purchased in the form of an ADS, or purchased in
Brazil and deposited with the depositary in exchange for an ADS, will be equal to its
purchase price (stated in U.S. dollars). The registered capital per preferred share
withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the
average price of a preferred share on the Brazilian stock exchange on which the most
preferred shares were traded on the day of withdrawal or (ii) if no preferred shares were
traded on that day, the average price on the Brazilian stock exchange on which the most
preferred shares were traded in the fifteen trading sessions immediately preceding such
withdrawal. The U.S. dollar equivalent will be determined on the basis of the average
commercial market rates quoted by the Central Bank on these dates.

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

A certificate of registration has
been issued in the name of the depositary with respect to the ADSs and is maintained by
the custodian on behalf of the depositary. Pursuant to the certificate of registration,
the custodian and the depositary are able to convert dividends and other distributions
with respect to the preferred shares represented by ADSs into foreign currency and remit
the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for
preferred shares, such holder will be entitled to continue to rely on the
depositarys certificate of registration for five business days after such exchange,
following which such holder must seek to obtain its own certificate of registration with
the Central Bank. 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 the holder is a duly
qualified investor under Resolution 2,689 or obtains its own certificate of registration.
A holder that obtains a certificate of registration will be subject to less favorable
Brazilian tax treatment than a holder of ADSs. See TaxationBrazilian Tax
Considerations.

If the holder does not qualify under
Resolution 2,689 by registering with the CVM and the Central Bank and appointing a
representative in Brazil, the holder will be subject to less favorable Brazilian tax
treatment than a holder of ADSs. Regardless of qualification under Resolution 2,689,
residents in tax havens are subject to less favorable tax treatment than other foreign
investors. See TaxationBrazilian Tax Considerations.

Under current Brazilian legislation,
the federal government may impose temporary restrictions on remittances of foreign capital
abroad in the event of a serious imbalance or an anticipated serious imbalance of
Brazils balance of payments. For approximately six months in 1989 and early 1990,
the federal government froze all dividend and capital repatriations held by the Central
Bank that were owed to foreign equity investors, in order to conserve Brazils
foreign currency reserves. These amounts were subsequently released in accordance with
federal government directives. There can be no assurance that the federal government will
not impose similar restrictions on foreign repatriations in the future. See Item 3D.
Risk FactorsRisks Relating to Brazil.

E. Taxation

The following discussion contains a
description of the material Brazilian and United States federal income tax consequences of
the purchase, ownership and disposition of preferred shares or ADSs by a holder, also
called a U.S. holder, that is for U.S. federal income tax purposes a citizen or resident
of the United States of America, a corporation, or other entity taxable as a corporation,
created or organized in or under the laws of the United States of America or any state
thereof, an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or a trust, if a court within the United States of America is
able to exercise primary supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial decisions of the trust.

This description does not purport to
be a comprehensive description of all of the tax considerations that may be relevant to
any particular investor, including tax considerations that arise from rules of general
application to all taxpayers or to certain classes of investors or that are generally
assumed to be known by investors. In particular, this summary deals only with U.S. holders
that will hold preferred shares or ADSs as capital assets and does not apply to certain
classes of U.S. holders, such as holders of 10% or more of our voting shares, financial
institutions, tax-exempt organizations, insurance companies, dealers in securities or
currencies, securities traders who elect to account for their investment in preferred
shares or ADSs on a mark-to-market basis, persons holding preferred shares or ADSs as part
of a straddle, hedging transaction or conversion
transaction, and persons that have a functional currency other than the
U.S. dollar.

This summary is based upon tax laws
of Brazil and the United States as in effect on the date of this annual report, which are
subject to change, possibly with retroactive effect, and to differing interpretations. You
should consult your own tax advisors as to the Brazilian, United States or other tax
consequences of the purchase, ownership and disposition of preferred shares or ADSs,
including, in particular, the effect of any non-U.S., state or local tax laws.

Although there is presently 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 preferred shares or ADSs.

Brazilian Tax
Considerations

The following discussion mainly
summarizes the principal Brazilian tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs by a U.S. holder not deemed to be domiciled in
Brazil for Brazilian tax purposes (a U.S. 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 generated on or after January 1, 1996 (i) to the depositary in respect
of preferred shares underlying ADSs or (ii) to a U.S. holder or non-Brazilian holder in
respect of preferred shares will generally not be subject to Brazilian withholding tax. We
do not have any undistributed profits generated before January 1, 1996.

Distributions of Interest
on Capital

Brazilian corporations may make
payments to shareholders characterized as interest on capital as an alternative form of
making dividend distributions. The rate of interest may not be higher than the federal
governments long-term interest rate, or the TJLP, as determined by the Central Bank
from time to time (11% per annum for the three-month period beginning January 2003). The
total amount distributed as interest on capital may not exceed the greater of (i) 50% of
net income (before taking the distribution and any deductions for income taxes into
account) for the year in respect of which the payment is made or (ii) 50% of retained
earnings for the year prior to the year in respect of which the payment is made. Payments
of interest on capital are decided by the shareholders on the basis of recommendations of
the companys board of directors.

Distributions of interest on capital
paid to Brazilian and non-Brazilian holders of preferred shares, including payments to the
depositary in respect of preferred shares underlying ADSs, are deductible by us for
Brazilian corporate income tax purposes. These payments to U.S. holders or non-Brazilian
holders are subject to Brazilian withholding tax at the rate of 15%. If the recipient of
the payment is domiciled in a tax haven jurisdiction (i.e., a country that does not impose
any income tax or that imposes tax at a rate of less than 20%), the rate will be 25%.

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 withholding tax) may be treated as payments in respect of the dividends
we are obligated to distribute to our shareholders in accordance with our by-laws
(estatutos) and the Brazilian corporate law. Distributions of interest on capital in
respect of the preferred shares, including distributions to the depositary in respect of
preferred shares underlying ADSs, may be converted into U.S. dollars and remitted outside
of Brazil, subject to applicable exchange controls.

Taxation of Gains

Gains realized
 outside Brazil by a U.S.  holder or a non-Brazilian  holder on the disposition of ADSs
or preferred  shares to another U.S. holder or non-Brazilian holder are not subject to
Brazilian tax.

Gains realized by a U.S. holder or a
non-Brazilian holder on dispositions of preferred shares in Brazil or in transactions with
Brazilian residents may be free of Brazilian tax, taxed at a rate of 20% or taxed at a
rate of 15%, depending on the circumstances.

Gains on the disposition of preferred
shares obtained upon cancellation of ADSs are not taxed in Brazil if the disposition is
made and the proceeds are remitted abroad within five business days after cancellation,
unless the investor is a resident of a jurisdiction that, under Brazilian law, is deemed
to be a tax haven.

Gains realized through transactions
with Brazilian residents or through transactions in Brazil off of the Brazilian stock
exchanges are generally subject to tax at a rate of 15%.

Gains realized through transactions
on Brazilian stock exchanges are generally subject to tax at a rate of 20%, unless the
investor is entitled to tax-free treatment for the transaction under Resolution 2,689 of
the National Monetary Council Regulations, described immediately below.

Resolution 2,689, which as of March
31, 2000 superseded the Annex IV Regulations that previously provided tax benefits to
foreign investors, extends favorable tax treatment to a U.S. holder or non-Brazilian
holder of preferred shares who has (i) appointed a representative in Brazil with
power to take action relating to the investment in preferred shares, (ii) registered
as a foreign investor with the CVM and (iii) registered its investment in preferred
shares with the Central Bank. Under Resolution 2,689 securities held by foreign investors
must be maintained under the custody of, or in deposit accounts with, financial
institutions duly authorized by the Central Bank and the CVM. In addition, the trading of
securities is restricted under Resolution 2,689 to transactions on Brazilian stock
exchanges or qualified over-the-counter markets. Investors previously holding preferred
shares under the Annex IV Regulations were required to bring their investments into
conformity with Resolution 2,689 by June 30, 2000. The preferential treatment generally
afforded under Resolution 2,689 and afforded to investors in ADSs is not available to
residents of tax havens.

There can be no assurance that the
current preferential treatment for U.S. holders and non-Brazilian holders of ADSs and U.S.
holders 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Registered
Capital.

Under current law, the tax rate for
transactions on a Brazilian stock exchange is 20% for transactions occurring on or after
January 1, 2002. Brazils tax treaties do not grant relief from taxes on gains
realized on sales or exchanges of preferred shares.

Gains realized by a U.S. holder and
non-Brazilian holder upon the redemption of preferred shares will be treated as gains from
the disposition of such preferred shares to a Brazilian resident occurring off of a stock
exchange and will accordingly be subject to tax at a rate of 15%.

Any exercise of preemptive rights
relating to the preferred shares or ADSs will not be subject to Brazilian taxation. Gains
on the sale or assignment of preemptive rights relating to the preferred shares will be
treated differently for Brazilian tax purposes depending on (i) whether the sale or
assignment is made by the depositary or the investor and (ii) whether the transaction
takes place on a Brazilian stock exchange. Gains on sales or assignments made by the
depositary on a Brazilian stock exchange are not taxed in Brazil, but gains on other sales
or assignments may be subject to tax at rates up to 15%.

The deposit of preferred shares in
exchange for the ADSs is not subject to Brazilian income tax if the preferred shares we
registered under Resolution 2,689 and the respective holder is not in a tax haven
jurisdiction. If the preferred shares are not so registered or the holder is in a tax
haven jurisdiction, the deposit of preferred shares in exchange for ADSs may be subject to
Brazilian capital gains tax at a rate of 15%.

The withdrawal of preferred shares in
exchange for ADSs is not subject to Brazilian tax. On receipt of the underlying preferred
shares, a U.S. holder or 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, under Exchange ControlsRegistered Capital. If a
U.S. holder or non-Brazilian holder does not qualify under Resolution 2,689, he will be
subject to the less favorable tax treatment described above in respect of exchanges of
preferred shares.

Other Brazilian Taxes

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

A financial transaction tax, or the
IOF tax, may be imposed on a variety of transactions, including the conversion of
Brazilian currency into foreign currency (e.g., for purposes of paying dividends and
interest). The IOF tax rate on such conversions is currently 0%, but the minister of
finance has the legal power to increase the rate to a maximum of 25%. Any increase will be
applicable only prospectively.

The IOF may also be levied on
transactions involving bonds or securities, or IOF/Títulos, even if the
transactions are effected on Brazilian stock, futures or commodities exchanges. The rate
of the IOF/Títulos with respect to preferred shares and ADSs is currently 0%. The
minister of finance, however, has the legal power to increase the rate to a maximum of
1.5% of the amount of the taxed transaction per each day of the investors holding
period, but only to the extent of gain realized on the transaction and only on a
prospective basis.

In addition to the IOF tax, a second,
temporary tax that applies to the removal of funds from accounts at banks and other
financial institutions, or the CPMF tax, will be imposed on distributions in respect of
ADSs at the time these distributions are converted into U.S. dollars and remitted abroad
by the Custodian. The CPMF tax was to expire in June 2002, but was extended until December
31, 2004. It is currently imposed at a rate of 0.38%. This rate will continue until
December 31, 2003. After that date, the rate will be decreased to 0.08% beginning on
January 1, 2004. From July 13, 2002, transactions conducted through the Brazilian stock
exchanges in current accounts specified for stock exchange transactions are exempt from
the CPMF tax.

U.S. Federal Income Tax
Considerations

The following is a description of the
material United States federal income tax consequences of the ownership and disposition of
the preferred shares or ADSs by U.S. Holders, as defined below. This summary is based on
the Internal Revenue Code of 1986, as amended (referred to herein as the Code), final,
temporary and proposed Treasury regulations, administrative pronouncements and judicial
interpretations thereof, all of which are subject to change (possibly with retroactive
effect), and to different interpretations. It is also based in part on representations by
the depositary and assumes that each obligation under the Deposit Agreement and any
related agreement will be performed in accordance with its terms. This discussion deals
only with preferred shares and ADSs held as capital assets. It does not discuss all of the
tax consequences that may be relevant to a holder in light of the holders particular
circumstances or to holders subject to special rules, such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or foreign
currencies, partnerships and other pass-through entities, investors liable for the
alternative minimum tax, persons who hold preferred shares or ADSs as part of an
integrated investment (including a straddle) comprised of a preferred share or ADS and one
or more other positions for tax purposes, persons whose functional currency is not the
U.S. dollar or persons who actually or constructively own (directly or indirectly) 10% or
more of our voting stock. Holders of preferred shares or ADSs should consult their own tax
advisors with regard to the application of the United States federal income tax laws to
their particular situations as well as any tax consequences arising under the laws of any
states or local or foreign taxing jurisdiction.

As used herein, the term U.S.
Holder means a beneficial owner of preferred shares or ADSs that is, for United
States federal income tax purposes, (1) a citizen or resident of the United States, (2) a
corporation (or other entity treated as a corporation for United States federal income tax
purposes) organized under the laws of the United States or of any political subdivision
thereof, (3) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (4) a trust (i) if a United States court can
exercise primary supervision over the trusts administration and one or more United
States persons are authorized to control all substantial decisions of the trust or (ii)
the trust has a valid election in effect under applicable Treasury regulations to be
treated as a United States person.

In general, for United States federal
income tax purposes, holders of American depositary receipts evidencing ADSs will be
treated as the beneficial owners of the preferred shares represented by those ADSs.
Deposits and withdrawals of preferred shares in exchange for ADSs will not result in the
realization of gain or loss for United States federal income tax purposes.

Taxation of Dividends

Subject to the discussion under
Passive Foreign Investment Company Rules below, distributions (including
the amount of any Brazilian taxes withheld therefrom) paid in respect of the preferred
shares or ADSs, including distributions paid in the form of payments of interest on
capital for Brazilian tax purposes, will constitute foreign source dividends includible as
ordinary income for U.S. federal income tax purposes to the extent such distributions are
made from our current or accumulated earnings and profits, as determined in accordance
with U.S. federal income tax principles. To the extent, if any, that the amount of any
distribution exceeds our current and accumulated earnings and profits as so computed, it
will first reduce the U.S. Holders tax basis in its preferred shares or ADSs to the
extent thereof and, to the extent in excess of the U.S. Holders tax basis, will be
treated as capital gain.

The amount of a distribution paid in
reaiswill be measured by reference to the spot rate for converting reaisinto U.S.
dollars in effect on the date the distribution is received by the depositary, or by a U.S.
Holder, in the case of a holder of preferred shares. If the depositary (or U.S. Holder, in
the case of a holder of preferred shares) does not convert such reaisinto U.S. dollars at
the spot rate in effect on the date it receives them, it is possible that the U.S. Holder
will recognize foreign currency loss or gain, which would be ordinary loss or gain, when
the reaisare converted into U.S. dollars. The amount of any distribution of property
other than cash will be the fair market value of such property on the date of
distribution. Dividends paid by us will not be eligible for the dividends received
deduction allowed to corporations under the Code.

Subject to certain limitations and
restrictions, U.S. Holders will be entitled to a credit against its United States federal
income tax liability, or a deduction in computing its United States federal taxable
income, for Brazilian income taxes withheld by us. The limitation on foreign taxes
eligible for credit is determined separately with respect to specific classes of income.
For this purpose, dividends paid by us with respect to the preferred shares or ADSs will
generally constitute passive income or, in the case of certain U.S. Holders,
financial services income. The U.S. Treasury Department has expressed concerns
that parties to whom depositary shares such as the ADSs are released may be taking actions
that are inconsistent with the claiming of foreign tax credits by U.S. Holders of such
ADSs. Accordingly, the analysis of the creditability of Brazilian taxes described above
could be affected by future actions that may be taken by the U.S. Treasury.

Taxation of Capital Gains

Subject to the discussion under
Passive Foreign Investment Company Rules below, upon a sale or exchange
of preferred shares or ADSs, a U.S. Holder will recognize capital gain or loss for United
States federal income purposes equal to the difference, if any, between the amount
realized on the sale or exchange and the U.S. Holders adjusted tax basis in the
preferred shares or ADSs. This gain or loss will be long-term capital gain or loss if the
U.S. Holders holding period in the preferred shares or ADSs exceeds one year. The
deductibility of capital losses is subject to limitations under the Code. The gain or loss
generally will be treated as U.S. source income or loss. Consequently, if a Brazilian
withholding tax is imposed on the sale or disposition of preferred shares or ADSs, and a
U.S. Holder does not receive significant foreign source income from other sources, such
U.S. Holder may not be able to derive effective United States foreign tax credit benefits
in respect of such Brazilian withholding tax. If a Brazilian tax is withheld on the sale
or disposition of preferred shares or ADSs, a U.S. Holders amount realized will
include the gross amount of the proceeds of such sale or disposition before deduction of
the Brazilian tax. See Brazilian Tax ConsiderationsTaxation of
Gains for a description of when a disposition may be subject to taxation by Brazil.

Passive Foreign
Investment Company Rules

We believe that we will not be
considered a passive foreign investment company, or PFIC, for United States
federal income tax purposes. However, because the determination of whether the preferred
shares or ADSs constitute shares of a PFIC will be based upon the composition of our
income and assets, and entities in which we hold at least a 25% interest, from time to
time, there can be no assurance that the preferred shares or ADSs will not be considered
shares of a PFIC for any taxable year. If we were treated as a PFIC for any taxable year
during which a United States Holder held a preferred share or ADS, certain adverse
consequences could apply to the U.S. Holder, including the imposition of higher amounts of
tax than would otherwise apply to a U.S. Holder and additional tax form filing
requirements. U.S. Holders are urged to consult their tax advisors regarding the
consequences to them if we were considered to be a PFIC as well as the availability and
advisability of making an election to avoid the adverse United States federal income tax
consequences of PFIC status should we be classified as a PFIC for any taxable year.

Information Reporting and
Backup Withholding

Information returns may be filed with
the Internal Revenue Service in connection with distributions on the preferred shares or
ADSs and the proceeds from their sale or other disposition. A U.S. Holder may be subject
to United States backup withholding tax on these payments if such U.S. Holder fails to
provide its taxpayer identification number or comply with certain certification procedures
or otherwise establish an exemption from backup withholding. The amount of any backup
withholding from a payment to a U.S. Holder will be allowed as a credit against such U.S.
Holders United States federal income tax liability and may entitle such U.S. Holder
to a refund, provided that the required information is timely furnished to the Internal
Revenue Service.

F. Dividends and Paying
Agents

Not applicable.

G. Statement of Experts

Not applicable.

H. Documents on Display

We are subject to the information
requirements of the Exchange Act, except that, as a foreign issuer, we are not subject to
the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In
accordance with these statutory requirements, we file or furnish reports and other
information with the Commission. Reports and other information filed or furnished by us
with the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commissions Regional Offices at 233 Broadway, New York, New York 10279
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. You may also inspect these reports and other information at the offices of the New
York Stock Exchange, 11 Wall Street, New York, New York 10005, on which our ADSs are
listed.

In addition, the Commission maintains
a website that contains information filed electronically, which can be accessed over the
Internet at http://www.sec.gov.

We also file financial statements and
other periodic reports with the CVM. Copies of our annual report on Form 20-F and
documents referred to in this annual report and our by-laws will be available for
inspection upon request at our offices at Av. Silveira Martins 1036, Cabula, 41150-000
Salvador, BA, Brazil.

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from
changes in both foreign currency exchange rates and interest rates. We are exposed to
foreign currency exchange rate risk because certain of our costs (mostly interest on debt,
capital expenditures and purchase of handsets) are all or partially denominated in
currencies (primarily the U.S. dollar) other than those in which we earn revenues
(primarily the real). Similarly, we are subject to market risk deriving from changes in
interest rates, which may affect the cost of our financing.

We have entered into derivative
instruments, such as foreign currency forward contracts, foreign currency options,
interest rate swaps and forward rate agreements, to manage these market risks. We do not
hold or issue derivative or other financial instruments for trading purposes.

Exchange Rate Risk

The principal foreign exchange rate
risk faced by us arises from our U.S. dollar-denominated indebtedness. At December 31,
2002, our subsidiaries and we had U.S.$104.6 million of indebtedness and U.S.$6.8 million
of other liabilities (equivalent to R$369.6 million and R$23.9 million, respectively, at a
rate of U.S.$1 = R$3.5333, the closing rate on December 31, 2002). Our revenues are earned
almost entirely in reais. We have no material U.S. dollar-denominated assets. At December
31, 2002, all of our U.S. dollar indebtedness and other foreign exchange liabilities were
covered by long positions of derivative arrangements. Under those derivative arrangements,
our subsidiaries U.S. dollar-denominated obligations are swapped for
real-denominated obligations bearing interest at rates linked to the Certificado de
Depósito Interbancário(Interbank Deposit Certificate), or CDI. As such, at
December 31, 2002, all of our U.S. dollar fixed- and floating-rate loans are converted to
floating-rate loans through our derivative transactions. Also, 100% of our other U.S.
dollar liabilities were covered by derivative agreements. Additionally, at December 31,
2002, the notional amounts of our derivative contracts excluded our obligations by
U.S.$1.1 million due to the rollover of short term maturing positions. At December 31,
2002, we recorded financial income from foreign currency derivative transactions of
R$139.9 million against financial expenses from monetary and foreign exchange variations
of approximately R$157.3 million.

Taking into account the effects of
our derivative contracts and assuming that maturing positions are renewed, a hypothetical,
instantaneous and unfavorable 10% change continuing for more than one year in foreign
currency exchange rates as of December 31, 2002 would represent a foreign exchange gain of
approximately R$0.4 million.

Exchange rate sensitivity was
assessed by applying a 10% change to the Brazilian Central Bank exchange rate on December
31, 2002 of R$3.53 to U.S.$1.0, which would represent a devaluation of the real of
R$0.353. We then assumed that this unfavorable currency move would be sustained from
December 31, 2002 through December 31, 2003. The foreign exchange loss that affects
financial expenses was calculated by applying such devaluation to our indebtedness and
foreign exchange purchase commitments, net of gains and losses on derivative instruments.

Interest Rate Risk

We invest cash and cash equivalents
(R$81.3 million at December 31, 2002) mainly in short-term real-denominated instruments.

We are exposed to interest rate risk
as a consequence of our floating rate debt in U.S. dollars. At December 31, 2002,
approximately 75% of our indebtedness bore interest at floating rates and 25% bore
interest at fixed rates. We are also exposed to interest rate risk due to the nature of
our derivative contracts, whereby our U.S. dollar-denominated obligations are swapped into
real-denominated obligations bearing interest linked to the CDI. We have not entered into
derivative contracts or made other arrangements to hedge against this risk. Thus, if
market interest rates rise, then it is probable that our financing expenses will increase.
We continuously monitor interest rates with a view toward considering whether we should
enter into derivative arrangements to protect against the risk of interest rate
volatility.

The potential loss to us over one
year that would have resulted from a hypothetical, instantaneous and unfavorable change of
100 basis points in the interest rates applicable to our financial assets and liabilities
on December 31, 2002 would be approximately R$6.0 million. The above sensitivity analysis
is based on the assumption of an unfavorable 100 basis point movement of the interest
rates applicable to each homogeneous category of financial assets and liabilities and
sustained over a period of one year. A homogeneous category is defined according to the
currency in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogeneous category, for example U.S. dollars. As a
result, our interest rate risk sensitivity model may overstate the impact of interest rate
fluctuations for such financial instruments as consistently unfavorable movements of all
interest rates are unlikely.

Interest rate sensitivity was
calculated by applying a 1% increase to all floating-rate-denominated debt, assuming that
the different indexes (mainly CDI and LIBOR) would all rise by 1% instantaneously on
December 31, 2002 and that this unfavorable move would continue for one year.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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

Evaluation of disclosure controls and
procedures. Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and procedures within
90 days of the filing date of this annual report pursuant to Rules 13a-15 and 15d-15 under
the Securities Exchange Act of 1934 (the Exchange Act). Based on that
evaluation, our principal executive officer and principal financial officer have concluded
that these controls and procedures are effective in ensuring that all material information
required to be filed in this annual report has been made known to them in a timely
fashion.

Changes in internal controls. No
significant changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses, were made as a
result of the evaluation.

ITEM 16. [Reserved]

PART III

ITEM 17. FINANCIAL STATEMENTS

Not applicable.

ITEM 18.FINANCIAL STATEMENTS

See our consolidated financial
statements beginning at page F-1.

ITEM 19. EXHIBITS

Documents filed as exhibits to this
annual report:

|Exhibit |                                                                                                                                                   
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                       
|1.1     | Charter and By-Laws                                                                                                                               
|1.2     | Charter and By-Laws (English translation)                                                                                                         
|4.1     | Standard Authorization Agreement for Personal Cellular Service together with an English translation                                               
|8.1     | List of Subsidiaries                                                                                                                              
|12.1    | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|12.2    | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

There are omitted from the exhibits
filed with or incorporated by reference into this annual report, certain promissory notes
and other instruments and agreements with respect to our long-term debt, none of which
authorizes securities in a total amount that exceeds 10% of our total assets. We hereby
agree to furnish to the Securities and Exchange Commission copies of any such omitted
promissory notes or other instruments or agreements as the Commission requests.

ANNEX A

GLOSSARY OF
TELECOMMUNICATIONS TERMS

The following explanations are not
intended as technical definitions, but to assist the general reader to understand certain
terms as used in this annual report.

1xRTT (Single Carrier Radio
Transmission Technology): An advanced data transfer technology, which is a result of the
evolution of CDMA.

AMPS (Advanced Mobile
Phone System): A form of analog technology.

Analog: A mode of transmission or
switching that is not digital, e.g., the representation of voice, video or other modulated
electrical audio signals that are not in digital form.

ARPU: Average revenue per user.

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

A Band Service Provider: A former
Telebrás operating subsidiary that has been granted a concession or an
authorization to provide cellular telecommunications services in a particular area within
a radio spectrum frequency range referred to by Anatel as A Band.

B Band Service Provider: A cellular
service provider that has been granted a concession or an authorization to provide
cellular telecommunications services in a particular area within a radio spectrum
frequency range referred to by Anatel as B Band.

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

BTS: A digital base station.

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

CDI (Certificado de Depósito
Interbancário, or Brazilian Interbank Offered Rate): A benchmark Brazilian interest
rate that is disclosed daily. It is the rate used (a) when banks borrow money from other
banks and (b) in financial transactions between companies and banks.

CDMA (Code Division Multiple Access):
A digital technology that divides the frequency spectrum into multiple code ranges.

COFINS (Contribuição
para Financiamento de Seguridade Social): A social contribution tax imposed on gross
revenues.

CPMF (Contribuição
Provisória sobre Movimentacao Financeira): A contribution tax imposed on financial
transfers and withdrawals.

CSLL (Contribuição
Social sobre o Lucro Líquido): A social contribution tax imposed on income results.

Digital: A mode of representing a
physical variable such as speech using digits 0 and 1 only. The digits are transmitted in
binary form as a series of pulses. Digital networks allow for higher capacity and higher
flexibility through the use of computer-related technology for the transmission and
manipulation of calls. Digital systems offer lower noise interference and can incorporate
encryption as a protection from external interference.

Exchange: See Switch.

FGV (Fundação Getúlio
Vargas): A private economic research organization.

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

GPRS (General Packet Radio Service):
An advanced data transfer technology that is a result of the evolution of GSM.

GSM (Global System for
Mobile Communications): A form of digital technology.

ICMS (Imposto sobre
Circulação de Mercadorias e Serviços): The value-added tax that
Brazilian states impose on certain revenues from the sale of goods and services, including
telecommunication, intermunicipal and interstate commerce.

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

IGP-DI (Índice Geral de
Preços  Disponibilidade Interna or General Price Index  Internal
Availability): An inflation index calculated by the FGV.

IGP-M (Índice Geral de
Preços  Mercado or General Price Index  Market): An inflation index
calculated by the FGV.

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

IOF (Imposto sobre
Operações Financeiras): A tax that may be imposed on a variety of financial transactions.

IP (Internet protocol): An
interconnection protocol for sub-networks, in particular for those with different physical
characteristics. It is used by the Internet.

ISS (Imposto sobre Serviços):
The value-added tax that Brazilian municipalities impose on revenues from any services
that are not subject to the ICMS.

MOU: Minutes of use
per customer.

Network: An interconnected collection
of elements. In a telecommunication network, these consist of switches connected to each
other and to customer equipment. The transmission equipment may be based on fiber optic or
metallic cable or point-to-point radio connections.

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

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

PBX (Private Branch Exchange):
Telecommunication switchboard for private use, but linked to the national
telecommunication network.

PIS (Programa de
Integração Social): A social contribution tax imposed on gross revenues.

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

QoS: a quality of service indicator
that considers such variables as quality of coverage, noise level and dropped calls, and
which permits quality comparisons between networks.

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

SMC (Serviço Movél
Celular or Mobile Cellular Service): A system under which Anatel granted concessions to
provide mobile service in a specific frequency range.

SMP (Serviço Movél
Pessoal or Personal Mobile Service): A service rendered pursuant to a new legislation for
wireless companies by which Anatel has authorized wireless companies to provide mobile
communication services.

SMS: A short message
service provided by wireless communications.

Switch: These are
used to set up and route calls either to the number called or to the next switch along
the path. They may also record information for billing and control purposes.

TDMA (Time Division Multiple Access):
A digital technology that divides the frequency spectrum into multiple time ranges.

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

WAP: Wireless
Applications Protocol.



EXHIBIT 1.2

TELE LESTE CELULAR
PARTICIPAÇÕES S/A

CNPJ 02.558.
144/0001-93  NIRE 29300023892Publicly-held Company

BY-LAWS

CHAPTER I  FEATURES OF
THE COMPANY

LEGALFORM

Art. 1  Tele Leste
Celular Participações S.A.is a joint stock corporation governed by Law No.
6.404/76, as amended, by these By-Laws and by other applicable legal provisions,
established for an indefinite period of time.

BUSINESS PURPOSE

Art. 2  The Companys
business purpose is:

I  to control
cellular mobile service companies,  personal  communication  services and other kinds of
 telecommunication  services in general, pursuant to concessions, authorizations and
permits granted  to it;

II  to promote,
through controlled companies or subsidiaries,  the expansion and implementation of
telecommunication  services, in the respective concession, authorization and permit areas
granted to it;

III  to promote,
 carry out or guide the raising of  external  or  internal  funds to be invested by the
Company or by its  controlled companies;

IV  to promote and
stimulate study and research activities for the development of the telecommunications
sector;

V  to perform,
 through its controlled  companies or subsidiaries,  specialized  technical services
 concerning the  telecommunication area;

VI  to promote,
 stimulate,  perform and coordinate,  through its controlled companies or subsidiaries,
 the formation and training of the staff necessary for the telecommunications sector;

VII  to perform or
promote the importation of goods and services for its controlled companies and
subsidiaries;

VIII  to perform
other activities related to its business purpose;

IX  to participate in
the capital stock of other companies; and

X - to trade equipment
and material required for or useful to the operation of telecommunication services.

HEAD OFFICE

Art. 3 - The Company
has its head office in the City of  Salvador,  State of Bahia and may, by decision of the
 Executive  Board,  open and close branches,  agencies and branch offices,  offices,
 departments and  representation in any part of the Brazilian  territory or abroad.

CHAPTER II - CAPITAL
STOCK

AUTHORIZED CAPITAL

Art. 4  The Company
may increase  its capital  stock up to the limit of one  trillion  and four  hundred
 billion  (1,400,000,000,000) shares,  both common and  preferred,  irrespective  of
 amendments to the By-laws,  with the Board of Directors  being the body that is
competent to resolve as to the increase and the resulting issue of new shares, within
said limit.

Paragraph One There
is no  requirement  of  maintaining  the  proportion  between the number of shares of
each class,  and the maximum proportion of two thirds (2/3) in the number of preferred
 shares,  with no voting rights or with restricted  voting rights in relation to the
total of shares issued may be maintained

Paragraph Two  The
shareholders  shall have the right of first refusal for the  subscription of increase in
capital,  in proportion to the number of shares that they hold.

Paragraph  Three - By
resolution of the Board of Directors,  (i) the right of first refusal may be eliminated
 for the issue of shares, convertible  debentures and subscription  bonuses placed for
sale on the Stock Exchange or by public  subscription,  exchange of shares in a public
offer for  acquisition  of control,  on the terms of the Articles  257 and 263 of the Law
of  Corporations,  as well as for benefiting from tax incentives,  on the terms of
specific  legislation,  as permitted by Article 172 of Law No. 6404/76;  and (ii) upon
issuance of common shares in compliance with the provisions of article 15,  paragraph 2
of Law No. 6404/76,  the right of first refusal set forth in article 171,  paragraph 1
(b) of the Law of  Corporations  regarding the  subscription of shares of kinds and
classes that are  different  from the ones held by the  shareholders  may not be extended
to the holders of  preferred  shares,  as provided  for in article 8, paragraph 2 of Law
No. 10.330/01.

SUBSCRIBED CAPITAL

Art. 5  The
subscribed capital stock, which is fully paid-in, is three hundred and five
million, three hundred and ninety-five thousand, seven hundred and sixty-six Reaisand
forty-four cents (R$ 305,395,766.44 ) represented by four hundred and seventy-nine
billion, four hundred and forty-five million, thirty-eight thousand, five hundred
and eighty-three (479,445,038,583) registered shares, of which one hundred and
sixty-six billion, eight million, forty-four thousand, fifty-one) (166,008,044,051)
are common shares and three hundred and thirteen billion, four hundred and thirty-six
million, nine hundred and ninety-four thousand, five hundred and thirty-two
(313,436,994,532) are preferred shares, all of them book-entry shares without par value.

Sole  Paragraph   The
 shares  shall  be  maintained  in a  depositary  account  with a  financial  institution
 in the  name of their titleholders,  without  issuance of  certificates,  and the
institution may charge from the  shareholders the cost of transfer of their respective
shares.

CHAPTER III  SHARES

COMMON SHARES

Art. 6  Each common
share corresponds to one vote in the Shareholders Meetings.

PREFERRED SHARES

Art. 7   Preferred
 shares  have no voting  rights,  except in the cases  provided  for in  Articles 9 and
10 below,  and are  assured priority:  i) for  reimbursement  of capital,  with no
premium,  and ii) for the payment of  non-cumulative,  minimum  dividends of six percent
 (6%) per annum on the amount  resulting  of the  division  of the  subscribed  capital
 for the total  number of shares of the Company or for receipt of dividends ten percent
(10%) greater than those allotted to each common share, whichever is greater.

Sole Paragraph  Preferred
 shares will be granted full voting rights in the event that the Company fails to pay the
minimum  dividends to which they are entitled for three (3) consecutive fiscal years,
which right they shall retain until such dividends are paid.

CHAPTER IV GENERAL
SHAREHOLDERS MEETING

Art.  8  General
 Shareholders  Meetings  shall be held:  (i) on a regular  basis,  once a year,  within
 the first  four (4)  months following the closing of each fiscal year,  for resolution
of the matters  mentioned in Article 132 of Law No.  6.404/76 and, (ii) on a special
 basis,  whenever  necessary,  be it as a function of  corporate  interests,  or due to a
provision in these  By-Laws,  or when applicable legislation should so require.

Sole Paragraph  General
Shareholders  Meetings shall be called by the Board of Directors,  it being incumbent
upon the Chairperson of the mentioned body to provide support to the relevant act.

Art. 9  Subject to
prior  approval by the General  Shareholders  Meetings are the execution of any
long-term  agreements  between the Company or its controlled subsidiaries, on the one
part, and the controlling shareholder or controlled companies,  affiliates,  subject to
common control or that control the latter,  or that in any other way constitute  related
parties of the Company,  on the other part, except when the agreements are subject to
uniform clauses.

Art. 10  Without
 impairment to the provisions of Paragraph One of Article 115 of Law No.  6.404/76,  the
holders of preferred  shares shall have voting  rights in the general  meetings
 resolution  referred to in Article 9, as well as to those  relative to amendment or
revocation of the following By-Laws provisions:

I -    Article 9;

II -  Sole Paragraph
of Article 11; and

III - Article 30.

Art.  11  The General
 Shareholders  Meetings  shall be chaired by the  Chairperson  the Board of  Directors,
 who shall  appoint the Secretary  from among those  present.  In the event of absence of
the  Chairperson of the Board of Directors,  the  shareholders  shall choose the
Chairperson and the Secretary.

Sole Paragraph  In
the cases provided for in Article 136 of Law No. 6.404/76,  the first calling notice for
the General  ShareholdersMeetings shall be published at least thirty (30) days in
advance and at least ten (10) days in advance for the second calling notice.

Art. 12  Only
 shareholders  whose shares are  registered in their name up to  seventy-two  (72) hours
prior to the date scheduled for the relevant Meeting, may participate and vote in the
General Shareholders Meetings.

Paragraph  One - The
calling  notice may require that the presence of the  shareholder  in the Meeting be
contingent  upon deposit,  in the Companys head office, of proof of his/her/its
 qualifications as a shareholder,  issued by the Company itself or by the depositary
institutions of the Companys shares, up to seventy-two (72) hours prior to the scheduled
date for the General Shareholders Meeting.

Paragraph Two  The
calling notice may also require that  representation  of the shareholder by a proxy in a
Meeting be contingent upon deposit of the relevant  instrument of power of attorney at
the Companys  head office,  at least  seventy-two  (72) hours prior to the date
scheduled for the General Shareholders Meeting.

CHAPTER V  MANAGEMENT
OF THE COMPANY

Art. 13  The Company
shall be managed by the Board of Directors and by the Executive  Board,  with the duties
conferred to them by law and by these By-Laws.  The relevant  members shall be elected
for a term of office of three (3) years, to which they may be re-elected, and they are
released from posting bond for the performance of their functions.

Paragraph  One - All
 members  of the Board of  Directors  and of the  Executive  Board  shall  take  office
by  signing  the  relevant instruments, remaining in their respective offices up to when
their successors effectively take office.

Paragraph Two  The
General Shareholders  Meeting shall set the overall remuneration of the Companys
officers,  including benefits of any kind and  entertainment  allowances,  while the
Board of Directors  shall be competent to  distribute  the  remuneration  among its
members and the members of the Executive Board.

Paragraph  Three  The
 General  Shareholders  Meeting  may ascribe  profit  sharing to the  officers  of the
 Company,  provided  the provisions of Article 152,  Paragraph One and Paragraph  Two of
Law No.  6.404/76 are observed,  following a proposal  presented by the Companys
administration.

BOARD OF DIRECTORS

COMPOSITION

Art. 14  The Board of
Directors  shall be made up of at least three (3) and at most twelve (12) members,  all
of them  shareholders of the Company, who may be elected to and removed from the body by
a General  Shareholders  Meeting,  included in such number the members of the Board
 elected by the minority  shareholders,  if any, with due regard,  concerning  the number
of members  established  in this article, for the provisions of paragraph 7 of article
141 of the Law of Corporations.

Sole Paragraph  The
Board of Directors shall appoint, from among its members, the Chairperson and the
Vice-Chairperson of the Board .

SUBSTITUTION

Art. 15  In the event
of  impediment  or absence of the  Chairperson  of the Board of Directors,  he/she shall
be  substituted  by the Vice-Chairperson.  In the  absence of the  Vice-Chairperson,  the
 Chairperson  shall be  substituted  by  another  member of the Board indicated by said
Board.

Paragraph One  In the
event of  impediment or absence of any other member of the Board of Directors,  the
impeded or absent member may indicate his/her substitute,  in writing,  from among the
other members of the Board of Directors,  to represent him/her and resolve in the meeting
to which  he/she  will not be able to attend,  on the terms of the  provisions  of
 Paragraph  Three of Article 19 of these By-Laws.

Paragraph Two  Members
of the Board of Directors may participate in a meeting of said Board by conference  call,
 video  conference or any other means  permitting  that all of the Directors may see and
hear each other and, in such case,  they shall be considered to have attended the same
and shall  confirm their vote by a written  statement  sent to the  Chairperson  of the
Board by mail or fax promptly after the  meeting.  The  resolutions  taken in said
 meetings  shall be  confirmed  at the  first  following  meeting  of the Board of
Directors, which is physically attended by its members.

Art. 16  In the event
of vacancy in the offices of director,  the  substitute  shall be appointed by the
 remaining  directors for the remaining  term of office of the  substituted  member or
until a general  meeting for the election of the  substitute  is held.  In the event of
vacancy in most offices of the members of the Board of Directors,  provided for in
Article 14 above,  a General  ShareholdersMeeting shall be called to elect the
substitutes.

INCUMBENCIES

Art.  17  It is
 incumbent  upon the  Board of  Directors,  in  addition  to the  duties  provided  for
in  article  142 of the Law of Corporations, to:

I -        approve and
amend the internal rulings of the Board of Directors;

II -       resolve as
to the issuance of shares by the Company,  involving increase in capital, within the
limit of authorized capital, defining the terms and conditions of such issuance;

III - resolve as
to the issuance of subscription bonuses and to the issuance of simple and not
convertible into shares debentures and with no in remguarantee;

IV -       resolve, as
delegated by the General  Shareholders  Meeting, as to the issuance of debentures by the
Company: (i) timing of the issuance,  (ii) time and conditions for maturity,
 amortization  or redemption,  (iii) time and conditions for payment of interest, for
profit sharing and for reimbursement premium, if any, (iv) form of subscription or
placement, and (v) type of debentures;

V - resolve as
to the issuance of promissory notes for public distribution (Commercial Papers) and
as to the submission of the Companys shares to a system of deposit for trading of the
respective certificates (Depositary Receipts);

VI -       authorize
the acquisition of shares issued by the Company, for cancellation or custody in Treasury
for subsequent sale;

VII - authorize
the sale of fixed assets, the creation of in rem guarantees and the giving of
guarantees of third parties obligations, in an amount greater than three hundred
million Reais(R$ 300,000,000.00);

VIII - approve the
assumption of any obligation not provided for in the Companys budget for an amount
greater than three hundred million Reais(R$ 300,000,000.00)

IX - authorize the
execution of agreements not provided for in the Companys budget, for an amount
greater than three hundred million Reais(R$ 300,000,000.00);

X - approve
investments and acquisition of assets not provided for in the Companys budget, for
an amount greater than three hundred million Reais(R$ 300,000,000.00);

XI - authorize
the acquisition of equity interest on a permanent basis in other companies in an
amount greater than three hundred million Reais(R$ 300,000,000.00), not provided for in
the Companys budget and the encumbrance or sale of equity interest;

XII -      approve the
distribution of interim dividends;

XIII -     choose or
remove  the  independent  auditors,  with due regard  for the  provisions  of  paragraph
 2 of article  142 of the Corporations Law; and

XIV -      indicate or
remove the internal auditors, the Secretary General and the General Counsel;

Art. 18  The specific
 duties of the Chairperson of the Board of Directors are: (a) call for the General
 Shareholders  Meetings when deemed  necessary or pursuant to the law; (b) chair the
General  Shareholders  Meetings and choose the Secretary  among those present; (c) call
for and chair the meetings of the Board of Directors  whenever deemed necessary or when
requested by any director;  (d) assure that the resolutions taken at the general
shareholders meetings and at the meetings of the Board of Directors are duly implemented.

MEETINGS

Art. 19  The Board of
Directors shall meet, (i) on a regular basis,  once every three months,  and (ii) on a
special basis, by calling notice from its Chairperson, who shall designate the matters to
be discussed, with minutes being drawn up on its resolutions.

Paragraph One  The
meetings of the Board shall be called for in writing,  at least  seventy-two  (72) hours
in advance and the calling notice shall indicate the agenda and the matters to be
discussed in the relevant meeting.

Paragraph Two  The
Board of Directors shall resolve by majority vote, provided the majority of its members
in office are present.

Paragraph  Three  Any
Member of the Board may be  represented  by another  Member at meetings  to which  he/she
is not able to attend, provided the instrument of delegation of representation is drawn
up in writing and signed.

EXECUTIVE BOARD

COMPOSITION

Art. 20  The
 Executive  Board shall be made up of eight (8)  members,  who may or not be
 shareholders,  who are  resident in Brazil, elected by the Board of Directors, to take
the following offices:

a) Chief Executive
Officer;

b) Executive
Vice-President for Operations;

c) Executive
Vice-President for Finance, Planning and Control;

d) Executive
Vice-President for Marketing and Innovation;

e) Vice-President for
Technology and Networks;

f) Vice-President for
Regulation and Institutional Relations;

g) Vice-President for
Information Technology and Products and Services Engineering; and

h) Vice-President for
Customers.

Sole Paragraph - One
same Executive  Officer may be elected to accumulate  duties of more than one office on
the Executive  Board,  and the members of the Executive Board shall not make up the Board
of Directors.

Art. 21  In the event
of absences or temporary  impediments,  the Chief  Executive  Officer  shall be
 substituted  for the  Executive Vice-President for Finance,  Planning and Control.  In
the event of a vacancy in an Executive Board office,  the relevant  substitution shall be
resolved by the Board of Directors;  in case of impediment,  the Chief Executive Officer
shall designate the substitute of the impeded Executive Officer from among the other
Executive Officers.

COLLEGIATE AUTHORITY OF
THE EXECUTIVE BOARD ANDREPRESENTATION OF THE COMPANY

Art.  22  The
 Executive  Board is the body for  active and  passive  representation  of the  Company,
 with the body and its  members performing  all the acts that are  necessary  and
 convenient  for the  management  of corporate  business.  It is  incumbent  upon the
Executive Board to collectively, including, but not limited to the following acts:

|I.   | propose to the Board of
Directors the Companys general plans and programs, specifying the investment plans for expansion of the operating plant;                                                                                                                                                                    
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|II.  | authorize, within the limits
established in these By-Laws, the sale or encumbrance of other fixed assets, the creation of in
remguarantees and the giving of guarantees of third parties obligations;                                                                                                                
|    
|III. | prepare the financial statements,
the results for the fiscal year and the dividend distribution proposal, including interim dividends, as
well as the application of excess funds, to be submitted for examination by the Audit Committee, by the
Independent Auditors and by the Board of Directors;                
|    
|IV.  | whenever applicable, perform the
following acts, within the limits set in these By-Laws: (a) ratify the purchase of materials
and equipment and the contracting of assets, construction and services; (b) ratify the sale
of current assets; and (c) authorize the contracting by the Company of financing and loans;
|    
|V.   | approve the execution of other agreements not mentioned above, within the limits of its duties.                                                                                                                                                                                                                      

Paragraph  One  The
 resolutions  of the  Executive  Board shall be taken by majority  vote,  provided the
majority of its members are present.

Paragraph  Two  With
due regard for the  provisions of these  By-Laws,  in order to bind the Company it is
necessary to obtain (i) the joint signature of two (2) Executive  Officers,  except in
emergencies,  when the individual  signature of the Chief Executive  Officer or, in his
absence or temporary impediment,  the Executive  Vice-President for Finances,  Planning
and Control, in any event subject to approval by the Executive Board;  (ii) the signature
of one (1) Executive Officer jointly with one (1)  Attorney-in-Fact;  or (iii) the
signature of two (2) Attorneys-in-Fact jointly, provided they are vested with specific
powers.

Paragraph  Three  Powers
of attorney  granted in the name of the Company  shall always be executed by two (2)
 Executive  Officers and must specify the powers granted and,  except for those granted
for legal  purposes,  must have a maximum term of  effectiveness  of one (1) year.

INCUMBENCIES OF THE
EXECUTIVE OFFICERS

Art. 23  The
following are the specific incumbencies of each member of the Executive Board:

I- Chief Executive
Officer:

a) to follow up on and
supervise the  implementation  of the  resolutions of the General  Shareholders  Meetings
and the Board of      Directors;

b) to follow up on and
supervise the implementation of the Companys strategic policy;

c) to  coordinate  and
supervise  the duties of the other  Statutory  Officers,  representing  the Executive
 Board at the General      Shareholders Meeting and the Board of Directors;

d) to coordinate  the
legal matters and ordinary  relations with  government  authorities,  through the
Secretary  General and the      General Counsel;

e) to coordinate and
follow up on human resources issues, through the Human Resources Department;

to coordinate and
follow up on corporate communication issues, through the Institutional Communication
Department;

f) to coordinate and
follow up on internal audit issues, through the Audit Department;

g) to coordinate and
follow up funds issues, through the General Funds Department.

II  Executive
Vice-President for Operations:

a) to identify the
needs of customers segments;

b) to carry out the
sale of goods and services;

c) to manage and
develop sale channels (ex.: own stores, resale, reload and retail networks);

d) to develop and
deploy merchandising actions and cooperative advertising;

e) to manage
relationships with customers;

f) to identify the
needs of the customers segments;

g) to negotiate
specific proposals and solutions for Companies;

h) to identify
 opportunities and classify  solutions to be developed together with the Engineering of
Goods and Services for corporate customers;

i) to coordinate
interfaces in the development and implementation of the solutions proposed for Companies;

j) to define sale
targets by segment, product, channel, region, seller;

k) to monitor the
sales performance by segment, product, channel, region, seller;

l) to support the
marketing department in the definition of portfolio of phone sets;

m) to prepare and
manage commercial agreements; and

n) to train and
support the sales team.

III - Executive
Vice-President for Finance, Planning and Control:

a) to identify
political, economic, social and technological scenarios and monitor the share market;

b) to define
macro-guidelines for the strategic plan and indicators to be controlled;

c) to support the
executive boards in the preparation of the strategic plan, consolidate it and submit it
to the Executive Board;

d) to carry out market
and/or economic feasibility studies requested by other departments;

e) to identify and
evaluate business opportunities, evaluate purchase and partnership opportunities;

f) to implement
approved projects (project management);

g) to develop a
relationship  strategy and interact with market entities and shareholders  performing
 Investor  Relations  duties,  to give  information to the investing  public,  to the CVM
(Securities  Commission) and the entities with which the company shall have its
securities listed and keep the companys registration updated;

h) to define and
manage the companys financial structure;

i) to structure
investments, make investments and raise funds;

j) to manage credit
and financial risk (hedging);

k) to coordinate the
daily management of cash flow (accounts payable and receivable);

l) to define
accounting policies and criteria and prepare management accounting reports and reports
for the market;

m) to define and
manage the chart of accounts and maintain the database;

n) to analyze,
conciliate and close the accounts;

o) to define and
follow up on financial-economic indicators;

p) to prepare
financial analysis for decision taking;

q) to monitor revenue
assurance;

r) to prepare,
conciliate and follow up on the budget.

IV - Vice-President
for Technology and Network:

a) to coordinate the
strategy for network technological evolution, development and growth;

b) to plan, size and
develop the cellular radio network, switching, interconnection and service platforms;

c) to program and
coordinate the projects;

d) to deploy the
service platform-related projects;

to guarantee the
implementation in accordance with the project specifications;

e) to monitor network
management centers, platforms and information systems;

f) to monitor the
global performance of the network;

g) to manage CGRs and
service platforms;

h) to manage the
traffic;

i) to monitor
signaling and roaming systems;

j) physical and
logical security of the network;

k) to deploy network
projects;

l) to manage the
network performance and service platforms;

m) to provide for
preventive and corrective maintenance of the network elements and platform;

n) to manage the
quality of the service suppliers; and

o) to carry out
projects for the optimization of the network.

V - Executive
Vice-President for Marketing and Innovation

a) to define a
marketing strategy and plan for all market segments;

b) to give support to
the company in collecting information on customers, bidding, products and offers;

c) to harmonize offers
in the transactions;

d) to manage the life
cycle of goods and services;

e) to identify
opportunities/needs for innovation and classify the development of new goods and services;

f) to classify new
sale networks (in coordination with sales);

g) to manage the
segments, develop and implement a strategy to promote customer acquisition, loyalty and
retention;

h) to develop and
 implement  offers,  goods and  services  based on the needs of each  segment so as to
comply with the demands of its internal customers;

i) to harmonize the
form of the local Marketing activity;

to plan the needs,
kinds and types of terminals and accessories (together with the Sales);

j) to develop and
implement national and regional promotions;

k) to develop and
implement advertising strategy and trademark management;

l) to develop and
implement national and regional advertising campaigns;

m) to coordinate the
participation and organization of the Companys marketing events.

VI - Vice-President
for Regulation and Institutional Relations:

a) to monitor the
regulation environment;

b) to implement
relationship and negotiation with the regulating agencies;

c) to prepare the
documentation concerning regulating issues;

d) to officialize and
publish indicators with Anatel;

e) to internally
disclose substantial regulating issues;

f) to have
relationships with outside entities;

g) to make
contributions to public consultations;

h) to review
advertising material;

i) to negotiate
agreements and interconnection and interlink tariffs;

j) to manage
interconnection agreements;

k) to plan the network
optimization, analysis and proposals of cost optimization;

l) to make interface
with the Network to make the optimization of the network and performance of improvements
feasible; and

m) to define
guidelines for the control of interconnection traffic performed by Billings.

VII - Vice-President
for Information Technology and Products and Services Engineering:

a) to develop/foment
the data business;

b) to develop
technical design and test voice and/or data goods and services to be launched in the
market;

c) to coordinate the
implementation of voice and/or data goods and services with the technical and commercial
areas;

d) to specify and make
interface with platforms of goods and services in IS;

e) to identify and
control technical options and suppliers available for terminals and accessories;

f) to coordinate
implementation activities and test of new terminals and accessories;

g) to establish the
strategy for information system and the respective systems plan;

h) to give support to
the respective  procedure  damages in the  preparation and  implementation  of projects
of business and corporate systems development;

i) to manage the
operationalization of systems and infra-structure and coordinate the integration of
systems and platforms;

j) to manage
production environments;

k) to give corrective
and preventive maintenance of the systems, applications, platforms and equipment;

l) to coordinate the
supervision of service providers;

m) to supply help desk
service;

n) to guarantee the
implementation, maintenance and improvement of procedures; and

o) to manage total
quality programs.

VIII - Vice-President
for Customers:

a) to perform customer
acknowledgment management;

b) to develop pricing
and customer profitability analyses and guidelines;

c) to define criterion
and tools for the development of CRM and billing systems;

d) to undertake and
develop functional ownership of database and data care;

e) to be in charge of
individual or corporate call center and data and wireless services;

f) to operationalize
the call center for retention, loyalty, acquisition and recovery of customers;

g) to be in charge of
back office and resale call center;

h) to control the call
center traffic and collect information for the database;

i) to plan alternative
channels (hot line, URA, fax, SMS, self-service, Internet);

j) to manage the
billings and fraud control;

k) to define managing
ruler of the collection procedure and coordination of credit limit.

CHAPTER VI  AUDIT
COMMITTEE

Art. 24  The Audit
 Committee,  operating  on a permanent  basis,  shall be made up of at least three (3)
and at most five (5) regular members and an equal number of deputy members.

Paragraph  One  The
 remuneration  of the  members of the Audit  Committee,  in addition  to the
 reimbursement  of travel and lodging expenses for  performance  of the function,  shall
be set by the General  Shareholders  Meeting that elects the members and may not be less
than, for each member in office, ten percent of that attributed on average to each
Executive  Officer,  without computing benefits of any nature, entertainment allowances
or profit sharing.

Paragraph Two  In the
event of a vacancy for an office on the Audit  Committee,  the  substitute  shall be the
respective  deputy.  If there is vacancy in the majority of the offices, a general
shareholders meeting shall be called in order to elect the substitutes.

Paragraph  Three  The
Audit  Committee  shall meet (i) on a regular basis,  once every quarter,  and (ii) on a
special basis,  by call notice from the  Chairperson  of the Board of Directors,  or from
two (2) members of the Audit  Committee,  with minutes being drawn up for its resolutions.

Paragraph Four  The
meetings of the Audit Committee shall be called for in writing at least  forty-eight
 (48) hours in advance,  with the call notice showing the agenda and a list of the
matters to be discussed during the relevant meeting.

CHAPTER VII  FISCAL
YEAR AND FINANCIAL STATEMENTS

FISCAL YEAR

Art. 25  The fiscal
year shall  coincide with the calendar  year,  and the balance  sheets shall  prepared
 annually,  six-monthly  or quarterly.

ALLOCATION OF PROFITS

Art. 26 Together with
the financial  statements,  the Board of Directors shall submit to the General
 Shareholders Meeting a proposal on (i) profit sharing by the employees and officers and
(ii) full allocation of net income.

Paragraph One  From
the net income for the fiscal year:  (i) five percent (5%) shall be allocated to the
legal  reserve,  with the aim of ensuring the  integrity of the capital  stock,  limited
to twenty  percent  (20%) of paid-in  capital  stock;  and (ii)  twenty-five percent
 (25%) of net  income,  adjusted  according  to  chapters  II and III of  Article  202 of
Law No.  6404/76,  to be  mandatorily distributed  as a minimum  compulsory  dividend  to
all  shareholders;  and (iii)  the  remaining  balance,  after  complying  with all
provisions  contained  in the  previous  items  of  this  article,  shall  be  allocated
 according  to a  resolution  by  the  General Shareholders  Meeting,  based on a
proposal  from the Board of Directors as shown in the financial  statements.  In the
event that the profit reserves  exceed the capital stock,  the General  Shareholders  Meeting
shall resolve as to application of the excess in paying in or increasing capital stock or
in paying additional dividends to the shareholders.

Paragraph  Two  Dividends
 that remain  unclaimed  over a period of three (3) years,  counting  from the date of
 resolution  of their distribution, shall revert in favor of the Company.

Art.  27  The
 Company  may,  by  resolution  of the Board of  Directors,  declare  dividends:  (i) on
account of profit  assessed  in six-monthly balance sheets,  (ii) on account of profit
assessed in quarterly balance sheets,  provided the total dividends paid in each half of
the fiscal year does not exceed the amount of capital  reserves  addressed in the
 Paragraph One of Article 182 of Law 6404/76, or (iii) on account of retained earnings or
profit reserves shown in the last annual or six-monthly balance sheet.

Sole Paragraph  Interim
dividends distributed on the terms of this article shall be ascribed to the minimum
compulsory dividend.

Art. 28  By
resolution of the Board of Directors,  and with due regard for legal  provisions,  the
Company may pay to its shareholders interest  on equity,  which may be  ascribed  to the
minimum  compulsory  dividend,  subject to  approval by the General  ShareholdersMeeting.

CHAPTER VIII  GENERAL
PROVISIONS

Art. 29  The Company
shall go into  liquidation  in the cases provided for by law, it being  incumbent upon
the General  Shareholders Meeting to determine the form of liquidation and to appoint the
liquidator.

Art. 30  Approval by
the Company,  through its  representatives,  of amalgamation,  spin-off,  merger or
dissolution of its controlled subsidiaries  shall be preceded by an economic and
financial  analysis by an independent  Company,  which is renowned  internationally,
confirming that equitable  treatment is being given to all the interested  companies,
 the shareholders of which shall have full access to the report on such analysis.

Art. 31  For all
contingencies that are not covered by these By-Laws, the Company shall be governed by
applicable law.



EXHIBIT 4.1

# AUTHORIZATION TERM
PVCP/SPV N.° 018/2002-ANATEL
AUTHORIZATION TERM OF THE PERSONAL MOBILE SERVICE ENTERED
BY AGÊNCIA NACIONAL DE TELECOMUNICAÇÃO (NATIONAL
TELECOMMUNICATION AGENCY)- ANATEL AND 
TELEBAHIA Celular S.A.

Hereby, on the one part, the
AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES (NATIONAL TELECOMMUNICATION
AGENCY) ANATEL, hereinafter referred to as ANATEL, an entity that is a part
of the UNION,as per Federal Act n.° 9.472, of the 16th of July of 1997, Lei
Geral de Telecomunicações  LGT( General Telecommunications Act 
LGT) , registered at the General Registry of Income Tax Payers of the Ministry of Finance
 CGC/MF under n.° 02.030.715/0001-12, here represented by the President of the
Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRAtogether with the Counselor
LUIZ TITO CERASOLI, and on the other part, TELEBAHIA Celular S.A.,
registered at the General Registry of Income Tax Payers of the Ministry of Finance -CNPJ
under n° 02.331.879/0001-80, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID card 
RG n° 301.540.175-9 SSP/RSand by the Vice-President for Planning and
Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer,
National Registration of Foreigners  RNE n° V271593-8, hereinafter referred
to as AUTHORIZED, enter into the present AUTHORIZATION TERM, Anatel Case
n.° 53500.001479/2001, that shall be governed by the following sections:

# Chapter I

# Subject Matter, Area and
term of the Authorization

Section 1.1 The
subject-matter of this Term is the issuance of Authorization for the exploitation of the
Personal Mobile Service- SMP, rendered under private regime, in the
geographic area formed by the territories of the State of Bahia, in the Region III of
the PGA-SMP.

§1o The
subject-matter hereofinclude thePersonal Mobile Service,rendered under
private regime, according to the Anatel Regulation, and in special, as per the provisions
in Regulation of the SMP and in the General Plan of Authorizations of the SMP.

§2o The current
Authorization is issued based on section 214, paragraph V, of the LGT General
Telecommunications Act ) and in the Rule for the Adjustment of Grant Instruments and
Authorization of the Mobile Personal Service- SMC for the Personal Mobile Service 
SMP, approved by the Resolution ANATEL n.° 318, of the 27th of September
of 2002, and amended by the Resolution ANATEL n.° 326, of the 28th of
November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANT
AGREEMENT N° 027/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U
of the 5th of November of 1997, hereinafter referred to as SUBSTITUTED
INSTRUMENT.

SECTION 1.2 Personal
Mobile Service is the land mobile telecommunication service of collective interest that
enables the communication between the mobile stations and from a mobile station to other
stations, once acknowledged the provisions of the regulation.

SECTION 1.3 The
AUTHORIZED is entitled to the industrial exploitation of the means related to services
rendering, once observed the provisions in the regulations as well as those in sections
154 and 155 of the LGT.

SECTION 1.4 The term of
this Authorization for the exploitation of the SMP is not determined.

SECTION 1.5 The
serviceshall be exploited with the use, by the AUTHORIZED , of the sub-band of
radio frequencies foreseen in the SUBSTITUTED INSTRUMENT, indicated below :

Transmission from the Mobile Station
: 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station
: 869,0 to 880,0 MHz / 890,0 to 891,5 MHz

SECTION 1.6 The right
to use the radio frequencies mentioned in the previous SECTION shall remain in force until
the 29th of July of 2008 that corresponds to the remaining term extended a
single time for 15 years, being such extension against payment.

§1o The use of
theradio frequency shall occur in primarily and restricted to the Services
Rendering Area.

§2o The right touse the radio frequency depends on its efficient and proper use.

§3o Radio
frequency sharing, when it does not imply harmful interference or impose limits to the
rendering of the SMP, may be authorized by Anatel.

SECTION 1.7 The
AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto,
shall pay, every two years, during the extension term, encumbrance corresponding to 2%
(two per cent ) of the annual income of the year prior to the payment, of the SMP, free
from taxes and social security taxes.

§1°In the
calculation of theamountreferred to in the caputof this SECTION,
shall be considered the net income derived from the Alternative and Basic Service Plan,
subject matter hereof.

§2°The calculation
of the percentage referred to in the caputof this SECTION shall always be based on
the net income of deduction of taxes and social taxes, determined between January and
December of the previous year and obtained in the financial statements elaborated
according to the fundamental accounting principles approved by the Management of the
AUTHORIZED and audited by independent auditors, and maturity date shall be the 30 (thirty)
of April of the subsequent year after the encumbrance is ascertained.

§3°The firstinstallment of the encumbrance shall be due on the 30th (thirtieth ) of
April of 2010, calculated based on the net income ascertained from the 1st of
January to the 31st of December of 2009, and the subsequent installments shall
be due at each twenty four months, having as the base date the calculation of the income
of the previous year.

§4°Thedelay
in paymentof the encumbrance foreseen in this SECTION will imply charge of arrears
fee of 0,33% (zero point thirty three per cent ) a day, up to the limit of 10% (ten per
cent), added of the referential SELIC tax for federal bonds, to be applied over the value
of the debt, considering all days of delay in payment.

SECTION 1.8 The
petition for the extension of the right to use radio frequencies shall be forwarded to
Anatel in up to thirty months, prior to the due date of the original term.

Single Paragraph .Dismissal
will only occur if the involved party is not making proper and rational use of the radio
frequencies, if it has repeatedly incurred in violations in the performance of its
activities, or if it is necessary to change the destination of the use of the radio
frequency .

SECTION 1.9 Anatel is
AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP,
in case an extension petition of up to 24 (twenty four) months prior to the original
maturity date is not suddenly formulated.

# Chapter II

# Replacement Value

SECTION 2.1 The value
of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand
reais).

Single Paragraph. Non payment
ofthe outstanding installments, derived from past commitments, related to the
values owed by the Grant or Authorization of the Cellular Mobile Service  SMC, shall
imply forfeiture hereof, regardless the application of other foreseen penalties.

# Chapter III

# Form and Conditions for
the Rendering of Service

SECTION 3.1 The
AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully
fulfill the obligations inherent to the service rendered under private regime, once
observed the criteria , formulae and parameters herein defined.

Single Paragraph.The
non-fulfillment of the obligations related to the subject-matter hereof, shall afford the
application of the sanctions foreseen herein, shall allow for the temporary suspension, on
the part of Anatel and, according to the case, forfeiture hereof shall be adjudicated, as
per section 37 of the LGT.

SECTION 3.2 THE
AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the
regime of broad and fair competition set forth in LGT, being compensated by the prices
charged, as per provisions herein.

§1°THE AUTHORIZED
shall not be entitled to any type of exclusivity, any possibility of financial economical
balance guarantee, and may not claim rights as to the admission of new providers of the
same service.

§2°THE AUTHORIZED
will not have acquired rights to the permanence of the conditions in force with the
issuance hereof, or of the star of the activities, and shall observe the new conditions
imposed by the law and by regulation.

§3oThe norms shall grant
enough time for the adjustment to the new conditions.

SECTION 3.3 THE
AUTHORIZED shall keep free access to emergency public services according to what was set
forth in the regulation.

SECTION 3.4 THE
AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long
distance calls, as per the regulation of SMP, especially in the ADJUSTMENT RULE.

SECTION 3.5 Changes in
theshareholder control of the Authorized are subject to control on the part of
Anatel for purposes of verification of the conditions that are essential for the
forwarding and maintenance of the Authorization, as per the regulation.

Single Paragraph.These are
essential for the forwarding and maintenance of the Authorization, among others, those
foreseen in the SMP General Authorization Plan, section 10, § 2° of the PGO and
in article 133 of the LGT.

SECTION 3.6 The
conveyance of the Authorization Plan is subject to the approval on the part of Anatel,
once observed the requirements of the §2o of section 136 of the LGT.

Single ParagraphFor thepurposes of the paragraph I of section 98 of LGT, shall be considered the operation
time of the Cellular Mobile Service during the enforcement of the SUBSTITUTED INSTRUMENT.

SECTION 3.7 The
AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP,
defining the Services Plan with structures, forms, criteria and values that shall be
reasonable and non discriminatory, and that may vary due to technical characteristics, of
specific costs and use offered to the users, as per definition of the SMP regulation,
specially in the ADJUSTMENT RULE.

# Chapter IV

# Coverage Commitments

SECTION 4.1 Coverage
commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the
coverage and service obligations.

SECTION 4.2 The
non-compliance of the commitments causes the Authorized to be subject to sanctions
foreseen herein, and in the regulation, and as a result, the termination of the
Authorization may occur.

# Chapter V

# Quality of Service

SECTION 5.1 It is an
assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being
as such considered, the service that satisfies the conditions of regularity, efficiency,
safety, updating, generality and courtesy.

§1°
Regularity will be characterized by the continuous exploitation of the service with strict
compliance with what is set forth in the Anatel rules.

§2°
Efficiency will be characterized by the attainment and maintenance of the parameters
contained herein and by the service to the user , rendered within the term foreseen
herein.

§3° Safety in
the e4xploitationof the service shall be characterized by the confidentiality pf the data
related to the use of the service by the users, as well as by the full maintenance of the
confidentiality regarding the conveyed information in the scope of its exploitation.

§4° Update
will be characterized by the modernity of the equipment, of the premises and techniques of
exploitation of the service, with the use of technological advances that definitely will
benefit the users, once respected the provisions hereof.

§5°
Generality will be characterized by the non discriminatory rendering of services to any
and all users, with the commitment on the part of the Authorized to render the service to
whoever requests it as per the regulation.

§6° Courtesy
will be characterized by the respectful and immediate service rendered to all users of the
authorized service, as well as by the compliance with the obligations to inform and
provide immediate and polite services to all, users or non users that may request from the
AUTHORIZED, information, provisions or any kind of request as per the determinations
hereof.

SECTION 5.2 THE
AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de
Qualidade  PGNQ ( General Target Plan of Quality- PGMQ) for the SMP.

Single Paragraph.For the
purposes of the provisions in the §5° of section 1st of the PGMQ
 SMP, it shall be considered as the starting point of the commercial operation of
the SMP in a place where there already exists SMC services rendering, the publishing date
of the extract hereof.

SECTION 5.3 The
exploitation of the authorized service may only be interrupted according to the Regulation
of the SMP, published by Anatel.

# Chapter VI

# Numbering Plan

SECTION 6.1 THE
AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall
ensure to the user of the service, the portability of the access codes as per regulation.

# Chapter VII

# Users Charges

SECTION 7.1 The amount,
measuring form and the criteria for charging for the services rendered, shall be set forth
by the Authorized, based on the determinations of the SMP Regulation, once observed the
content of section 3.7 hereof.

# Chapter VIII

# Users Rights and Duties

SECTION 8.1 Users
Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the
rights foreseen in Law no 8.078, of the 11th of November of 1990 in the cases
regulated by it, nor of those included in the SMP rendering agreement.

# Chapter IX

# Authorized Rights and
Duties

SECTION 9.1 The rights
and duties of theAuthorized are those set forth in the LGT and in the regulation.

SECTION 9.2 In services
hiring and equipment and material acquisition in relation herewith, the Authorized obliges
to consider offers from independent suppliers, including the national ones, and to base
its decisions, in respect to the several offers presented, in the compliance of the
objective price criteria, delivery conditions and technical specifications in the
appropriate regulation.

Single Paragraph.Regarding
the mentioned hiring process, the procedures of the Regulation on the Services Hiring
Procedures and Material and Equipment Acquisition by the Telecommunication Services
Providers, approved by the Resolution n.° 155 of Anatel, of the 5th of
August of 1999.

# Chapter X

# Anatel Obligations and
Prerogatives

SECTION 10.1 Aside from
other prerogatives inherent to its regulatory organ function and from the other
obligations derived hereof, Anatel will :

I follow up and inspect
the exploitation of the service,in order to comply with the regulation;II regulate the exploitation of the authorized service;III apply thepunishment foreseen in the service regulation, specially herein;IV to watch over thegood quality of the service, to receive, select
and solve complaints and claims of the users, making them aware, within a 90 days period
of time, of the actions taken to avoid them to be deprived of their rights;V to declareterminated the Authorization in the events foreseen in the LGT;VI towatch over theguarantee of interconnection, annulling
eventual issues arisen between the AUTHORIZED and the other providers;VII to constantly follow up the relationship between the Authorized and the other
providers, solving conflicts that may arise;VIII torestrain
behaviors of the Authorized that are against the free competition regime, observed in the
competences of the CADE, the regulation and specially the content of sections 10.2. and
10.3. hereof;IX to perform theactivity of inspecting the service,
as per provisions herein; and X collect taxes related to FISTEL, adopting
the provisions foreseen in law.

SECTION 10.2 Anatel
might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered
towards ascertaining untruthfulness or non-substance of the conditions stated by the
AUTHORIZED , related to the non-participation in the control of the other companies or to
other economical concentration preventive bars, whenever there are signs of relevant
influence of such , of its associated companies, controlled or controllers over the legal
entity of the SMP provider, in the terms of the Regulation for the Control and Transfer
Verification in Companies Providers of Telecommunication Services, approved by the
Resolution n.° 101 of Anatel, of the 04th of February of 1999.

Single Paragraph.Theevidence, after theprocedure foreseen in this sectionof the existence
of any situation that characterizes untruthfulness or lack of substance of the conditions
stated by the Authorized shall configure the disfranchisement hereof, according to section
139 of the LGT.

SECTION 10.3 Anatel may
still file an administrative procedure veered towards ascertaining any misdemeanor against
the economical order foreseen in Law n.° 8.884/94.

# Chapter XI

# Inspection regime

SECTION 11.1 Anatel
shall perform the inspection of the services so as to ensure the compliance with the
commitments herein.

§1°
Inspection to be performed by Anatel will cover the inspection and the follow up of the
activities, equipment and premises of the AUTHORIZED , implying broad access to all data
and information of the Authorized or of third parties.

§2°
Information gathered during inspection activities will be published in the Library, except
for those, that by request of the AUTHORIZED , are considered as confidential by Anatel.

§3°
Information that are considered as confidential , as per the previous paragraph, shall
only be used in the procedures related hereto, responding to Anatel and to those indicated
by Anatel, for any disclosure, broad or restricted, of such information outside the usage
scope.

SECTION 11.2 The
AUTHORIZED , by means of an appointed representative, may follow all and every activity of
Anatel inspection, not being entitled to oppose or prevent the inspection, under risk of
incurring in the punishment foreseen in the regulation.

# Chapter XII

# Telecommunication Nets
and Access to Visiting Users

SECTION 12.1 THE
AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered
towards providing support to SMP, shall observe the provisions in the regulation,
specially in the Telecommunication Services Regulation n.° 73, of the 25th
of November of 1998; in the General Regulation of Interconnection, approved by the
Resolution no 40, of the 23rd of July of 1998; and in the regulation of the
SMP.

Single Paragraph.The change
in technology standards, promoted by the AUTHORIZED , may not burden unilateral and
arbitrarily the user, including with respect to the existing conditions of services to the
visiting users.

SECTION 12.2
Compensation by the use of nets between the Authorized and the other providers of
telecommunication services, shall comply with the provision in section 152 of the LGT and
in the SMP regulation, especially in the ADJUSTMENT RULE.

Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I  hereto.

# Chapter XIII

# Sanctions

SECTION 13.1 THE
AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and
related regulations, and shall, whenever required to do so, be accountable for as per
regulations of the SMP, allowing free access to its technical resources and accounting
records.

SECTION 13.2
non-compliance with conditions or commitments associated to the Authorization, shall
subject the Authorized to caveat sanctions, fines, temporary probation or forfeiture, as
per provision of the SMP.

# Chapter XIV

# Termination of the
Authorization

SECTION 14.1
Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay,
waive or annulment, as per sections 138 to 144 of the LGT and according to the proceedings
in the regulation.

Single Paragraph. The termination statement shall not elide the application of the adequate punishments,  as per provisions hereof, by
the wrongdoings performed by the AUTHORIZED .

# Chapter XV

# Legal Regime and
Applicable documents

SECTION 15.1 This
Authorization is governed, without detracting the other integrant rules of the Brazilian
Legal Order, by the LGT, and the regulations derived thereof.

SECTION 15.2 In the
exploitation of the services authorized hereby, the regulations of Anatel shall be
complied, as part hereof, specially the documents related with the SMP Regulation.

SECTION 15.4 In the
interpretation of the norms and provisions hereof, shall be taken into consideration,
aside from the documents referred to in this Chapter, the general hermeneutic rules and
the norms and principles contained in the LGT.

# Chapter XVI

# Transitory Provisions

SECTION 16.1 Until the
Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be
maintained both the value of the Net Compensation , and the criteria for the processing
and values conveyance between the providers of Cellular Mobile Services and the Fixed
Commuted Telephone Service.

# Chapter XVII

# Venue

SECTION 17.1 The Court
of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby
elected to settle any conflicts arising herefrom or relating hereto, to the exclusion of
any other, however privileged.

# Chapter XVIII

# Final Provisions

SECTION 18.1 ThisAuthorization Term shall become in force after the disclosure of its extract in the
Federal Official Gazette.

SECTION 18.2 Except for
theprovisions herein entrusted,any other provisions of the Substituted
Instrument become null, as per §2° of section 1.1.

IN WITNESS WHEREOF, the
parties sign this document in 03 ( three) counterparts of equal tenor and form, in the
presence of witnesses who also sign below, so that it will produce the due legal effects.

Brasília, the
10th of December of 2002.

On behalf of ANATEL:

________________________________________
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
President of the Board

________________________________________
LUIZ TITO CERASOLI
Counselor

On behalf of the AUTHORIZED :

________________________________________
PAULO CESAR PEREIRA TEIXEIRA
Executive Vice-President

________________________________________
JOSE CARLOS DE LA ROSA GUARDIOLA
Vice-President for Planning and Cordination

Witnesses:

________________________________________
JARBAS JOSE VALENTE
4.346/D CREA-DF

________________________________________
BRUNO DE CARVALHO RAMOS
5.060.107.391/D CREA-SP

# ATTACHMENT I 
STATEMENT OF OPTION

According to what is provided in item
7 of the ADJUSTMENT RULE, TELEBAHIA Celular S.A., General Taxpayers register
 CNPJ N.° 02.331.879/0001-80, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID Card
 RG n° 301.540.175-9 SSP/RS,opts for the submission to item 5 and its
sub-items of the Norms of Compensation Criteria by the Use of the Nets of the Providers of
Personal Mobile Service  SMP, approved by the Resolution n° 319, of the
27th of September of 2002, requesting the approval of the TU-M whose maximum
value shall be the maximum value of the initial VU-M of its Service Area.

Brasília, the 10th
of December of 2002.

________________________________________
PAULO CESAR PEREIRA TEIXEIRA
Executive Vice-President



# AUTHORIZATION TERM
PVCP/SPV N.o 018/2002-ANATEL AUTHORIZATION TERM OF
THE PERSONAL MOBILE SERVICE ENTERED BY AGÊNCIA NACIONAL DE
TELECOMUNICAÇÃO (NATIONAL TELECOMMUNICATION AGENCY)-
ANATEL AND TELERGIPE Celular S.A.

Hereby, on the one part, the
AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES (NATIONAL TELECOMMUNICATION
AGENCY) ANATEL, hereinafter referred to as ANATEL, an entity that is a part
of the UNION,as per Federal Act n.o 9.472, of the 16th of July of 1997, Lei
Geral de Telecomunicaç&otidle;es  LGT( General Telecommunications Act 
LGT) , registered at the General Registry of Income Tax Payers of the Ministry of Finance
 CGC/MF under n.o 02.030.715/0001-12, here represented by the President of the
Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRAtogether with the Counselor
LUIZ TITO CERASOLI, and on the other part, TELERGIPE Celular S.A.,
registered at the General Registry of Income Tax Payers of the Ministry of Finance -CNPJ
under no 02.349.167/0001-98, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID card 
RG no 301.540.175-9 SSP/RSand by the Vice-President for Planning and
Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer,
National Registration of Foreigners  RNE no V271593-8, hereinafter referred
to as AUTHORIZED, enter into the present AUTHORIZATION TERM, Anatel Case
n.o 53500.001479/2001, that shall be governed by the following sections:

# Chapter I

# Subject Matter, Area and
term of the Authorization

Section 1.1 The
subject-matter of this Term is the issuance of Authorization for the exploitation of the
Personal Mobile Service-SMP, SMP, rendered under private regime, in the
geographic area formed by the territories of the State of Sergipe, in the Region III of
the PGA-SMP.

§1o The
subject-matter hereofinclude thePersonal Mobile Service,rendered under
private regime, according to the Anatel Regulation, and in special, as per the provisions
in Regulation of the SMP and in the General Plan of Authorizations of the SMP.

§2o The current
Authorization is issued based on section 214, paragraph V, of the LGT General
Telecommunications Act ) and in the Rule for the Adjustment of Grant Instruments and
Authorization of the Mobile Personal Service- SMC for the Personal Mobile Service 
SMP, approved by the Resolution ANATEL n.o 318, of the 27th of September
of 2002, and amended by the Resolution ANATEL n.o 326, of the 28th of
November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANT
AGREEMENT No 034/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U
of the 5th of November of 1997, hereinafter referred to as SUBSTITUTED
INSTRUMENT.

SECTION 1.2 Personal
Mobile Service is the land mobile telecommunication service of collective interest that
enables the communication between the mobile stations and from a mobile station to other
stations, once acknowledged the provisions of the regulation.

SECTION 1.3 The
AUTHORIZED is entitled to the industrial exploitation of the means related to services
rendering, once observed the provisions in the regulations as well as those in sections
154 and 155 of the LGT.

SECTION 1.4 The term of
this Authorization for the exploitation of the SMP is not determined.

SECTION 1.5 The
serviceshall be exploited with the use, by the AUTHORIZED , of the sub-band of
radio frequencies foreseen in the SUBSTITUTED INSTRUMENT, indicated below :

Transmission from the Mobile Station
: 824,0 to 835,0 MHz / 845,0 to 846,5 MHzTransmission from the Radio base Station
: 869,0 to 880,0 MHz / 890,0 to 891,5 MHz

SECTION 1.6 The right
to use the radio frequencies mentioned in the previous SECTION shall remain in force until
the 15th of Dicember of 2008, that corresponds to the remaining term extended a
single time for 15 years, being such extension against payment.

§1o The use of
theradio frequency shall occur in primarily and restricted to the Services
Rendering Area.

§2o The right touse the radio frequency depends on its efficient and proper use.

§3o  Radio
frequency sharing, when it does not imply harmful interference or impose limits to the
rendering of the SMP, may be authorized by Anatel.

SECTION 1.7 The
AUTHORIZED , in order to extend the right to use the radio-frequencies related hereto,
shall pay, every two years, during the extension term, encumbrance corresponding to 2%
(two per cent ) of the annual income of the year prior to the payment, of the SMP, free
from taxes and social security taxes.

§1oIn the
calculation of theamountreferred to in the caputof this SECTION,
shall be considered the net income derived from the Alternative and Basic Service Plan,
subject matter hereof.

§2oThe calculation
of the percentage referred to in the caputof this SECTION shall always be based on
the net income of deduction of taxes and social taxes, determined between January and
December of the previous year and obtained in the financial statements elaborated
according to the fundamental accounting principles approved by the Management of the
AUTHORIZED and audited by independent auditors, and maturity date shall be the 30 (thirty)
of April of the subsequent year after the encumbrance is ascertained.

§3oThe firstinstallment of the encumbrance shall be due on the 30th (thirtieth ) of
April of 2010, calculated based on the net income ascertained from the 1st of
January to the 31st of December of 2009, and the subsequent installments shall
be due at each twenty four months, having as the base date the calculation of the income
of the previous year.

§4oThedelay
in paymentof the encumbrance foreseen in this SECTION will imply charge of arrears
fee of 0,33% (zero point thirty three per cent ) a day, up to the limit of 10% (ten per
cent), added of the referential SELIC tax for federal bonds, to be applied over the value
of the debt, considering all days of delay in payment.

SECTION 1.8 The
petition for the extension of the right to use radio frequencies shall be forwarded to
Anatel in up to thirty months, prior to the due date of the original term.

Single Paragraph .Dismissal
will only occur if the involved party is not making proper and rational use of the radio
frequencies, if it has repeatedly incurred in violations in the performance of its
activities, or if it is necessary to change the destination of the use of the radio
frequency .

SECTION 1.9 Anatel is
AUTHORIZED to bring a new action of Authorization Grant for the exploitation of the SMP,
in case an extension petition of up to 24 (twenty four) months prior to the original
maturity date is not suddenly formulated.

# Chapter II

# Replacement Value

SECTION 2.1 The value
of replacement of the SUBSTITUTED INSTRUMENT hereby, is R$ 9.000,00 (nine thousand
reais).

Single Paragraph. Non payment
of the outstanding installments, derived from past commitments, related to the
values owed by the Grant or Authorization of the Cellular Mobile Service  SMC, shall
imply forfeiture hereof, regardless the application of other foreseen penalties.

# Chapter III

# Form and Conditions for
the Rendering of Service

SECTION 3.1 The
AUTHORIZED promises to render the service, subject-matter hereof, in a way as to fully
fulfill the obligations inherent to the service rendered under private regime, once
observed the criteria , formulae and parameters herein defined.

Single Paragraph.The
non-fulfillment of the obligations related to the subject-matter hereof, shall afford the
application of the sanctions foreseen herein, shall allow for the temporary suspension, on
the part of Anatel and, according to the case, forfeiture hereof shall be adjudicated, as
per section 37 of the LGT.

SECTION 3.2 THE
AUTHORIZED shall exploit the service, subject-matter hereof at its own risks, within the
regime of broad and fair competition set forth in LGT, being compensated by the prices
charged, as per provisions herein.

§1oTHE AUTHORIZED
shall not be entitled to any type of exclusivity, any possibility of financial economical
balance guarantee, and may not claim rights as to the admission of new providers of the
same service.

§2oTHE AUTHORIZED
will not have acquired rights to the permanence of the conditions in force with the
issuance hereof, or of the star of the activities, and shall observe the new conditions
imposed by the law and by regulation.

§3oThe norms shall grant
enough time for the adjustment to the new conditions.

SECTION 3.3 THE
AUTHORIZED shall keep free access to emergency public services according to what was set
forth in the regulation.

SECTION 3.4 THE
AUTHORIZED shall ensure to its user the free exercise of choice of STFC provider for long
distance calls, as per the regulation of SMP, especially in the ADJUSTMENT RULE.

SECTION 3.5 Changes in
theshareholder control of the Authorized are subject to control on the part of
Anatel for purposes of verification of the conditions that are essential for the
forwarding and maintenance of the Authorization, as per the regulation.

Single Paragraph.These are
essential for the forwarding and maintenance of the Authorization, among others, those
foreseen in the SMP General Authorization Plan, section 10, § 2o of the PGO and
in article 133 of the LGT.

SECTION 3.6 The
conveyance of the Authorization Plan is subject to the approval on the part of Anatel,
once observed the requirements of the §2o of section 136 of the LGT.

Single ParagraphFor thepurposes of the paragraph I of section 98 of LGT, shall be considered the operation
time of the Cellular Mobile Service during the enforcement of the SUBSTITUTED INSTRUMENT.

SECTION 3.7 The
AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP,
defining the Services Plan with structures, forms, criteria and values that shall be
reasonable and non discriminatory, and that may vary due to technical characteristics, of
specific costs and use offered to the users, as per definition of the SMP regulation,
specially in the ADJUSTMENT RULE.

# Chapter IV

# Coverage Commitments

SECTION 4.1 Coverage
commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the
coverage and service obligations.

SECTION 4.2 The
non-compliance of the commitments causes the Authorized to be subject to sanctions
foreseen herein, and in the regulation, and as a result, the termination of the
Authorization may occur.

# Chapter V

# Quality of Service

SECTION 5.1 It is an
assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being
as such considered, the service that satisfies the conditions of regularity, efficiency,
safety, updating, generality and courtesy.

§1o
Regularity will be characterized by the continuous exploitation of the service with strict
compliance with what is set forth in the Anatel rules.

§2o
Efficiency will be characterized by the attainment and maintenance of the parameters
contained herein and by the service to the user , rendered within the term foreseen
herein.

§3o Safety in
the e4xploitationof the service shall be characterized by the confidentiality pf the data
related to the use of the service by the users, as well as by the full maintenance of the
confidentiality regarding the conveyed information in the scope of its exploitation.

§4o Update
will be characterized by the modernity of the equipment, of the premises and techniques of
exploitation of the service, with the use of technological advances that definitely will
benefit the users, once respected the provisions hereof.

§5o
Generality will be characterized by the non discriminatory rendering of services to any
and all users, with the commitment on the part of the Authorized to render the service to
whoever requests it as per the regulation.

§6o Courtesy
will be characterized by the respectful and immediate service rendered to all users of the
authorized service, as well as by the compliance with the obligations to inform and
provide immediate and polite services to all, users or non users that may request from the
AUTHORIZED, information, provisions or any kind of request as per the determinations
hereof.

SECTION 5.2 THE
AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de
Qualidade  PGNQ ( General Target Plan of Quality- PGMQ) for the SMP.

Single Paragraph.For the
purposes of the provisions in the §5o of section 1st of the PGMQ
 SMP, it shall be considered as the starting point of the commercial operation of
the SMP in a place where there already exists SMC services rendering, the publishing date
of the extract hereof.

SECTION 5.3 The
exploitation of the authorized service may only be interrupted according to the Regulation
of the SMP, published by Anatel.

# Chapter VI

# Numbering Plan

SECTION 6.1 THE
AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall
ensure to the user of the service, the portability of the access codes as per regulation.

# Chapter VII

# Users Charges

SECTION 7.1 The amount,
measuring form and the criteria for charging for the services rendered, shall be set forth
by the Authorized, based on the determinations of the SMP Regulation, once observed the
content of section 3.7 hereof.

# Chapter VIII

# Users Rights and Duties

SECTION 8.1 Users
Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the
rights foreseen in Law no 8.078, of the 11th of November of 1990 in the cases
regulated by it, nor of those included in the SMP rendering agreement.

# Chapter IX

# Authorized Rights and
Duties

SECTION 9.1 The rights
and duties of theAuthorized are those set forth in the LGT and in the regulation.

SECTION 9.2 In services
hiring and equipment and material acquisition in relation herewith, the Authorized obliges
to consider offers from independent suppliers, including the national ones, and to base
its decisions, in respect to the several offers presented, in the compliance of the
objective price criteria, delivery conditions and technical specifications in the
appropriate regulation.

Single Paragraph.Regarding
the mentioned hiring process, the procedures of the Regulation on the Services Hiring
Procedures and Material and Equipment Acquisition by the Telecommunication Services
Providers, approved by the Resolution n.o 155 of Anatel, of the 5th of
August of 1999.

# Chapter X

# Anatel Obligations and
Prerogatives

SECTION 10.1 Aside from
other prerogatives inherent to its regulatory organ function and from the other
obligations derived hereof, Anatel will :

I follow up and inspect
the exploitation of the service,in order to comply with the regulation;
II regulate the exploitation of the authorized service; III apply thepunishment foreseen in the service regulation, specially herein;
IV to watch over thegood quality of the service, to receive, select
and solve complaints and claims of the users, making them aware, within a 90 days period
of time, of the actions taken to avoid them to be deprived of their rights; V to declareterminated the Authorization in the events foreseen in the LGT;
VI towatch over theguarantee of interconnection, annulling
eventual issues arisen between the AUTHORIZED and the other providers; VII to constantly follow up the relationship between the Authorized and the other
providers, solving conflicts that may arise;VIII torestrain
behaviors of the Authorized that are against the free competition regime, observed in the
competences of the CADE, the regulation and specially the content of sections 10.2. and
10.3. hereof;IX to perform theactivity of inspecting the service,
as per provisions herein; andX collect taxes related to FISTEL, adopting
the provisions foreseen in law.

SECTION 10.2 Anatel
might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered
towards ascertaining untruthfulness or non-substance of the conditions stated by the
AUTHORIZED , related to the non-participation in the control of the other companies or to
other economical concentration preventive bars, whenever there are signs of relevant
influence of such , of its associated companies, controlled or controllers over the legal
entity of the SMP provider, in the terms of the Regulation for the Control and Transfer
Verification in Companies Providers of Telecommunication Services, approved by the
Resolution n.o 101 of Anatel, of the 04th of February of 1999.

Single Paragraph.Theevidence, after theprocedure foreseen in this sectionof the existence
of any situation that characterizes untruthfulness or lack of substance of the conditions
stated by the Authorized shall configure the disfranchisement hereof, according to section
139 of the LGT.

SECTION 10.3 Anatel may
still file an administrative procedure veered towards ascertaining any misdemeanor against
the economical order foreseen in Law n.o 8.884/94.

# Chapter XI

# Inspection regime

SECTION 11.1 Anatel
shall perform the inspection of the services so as to ensure the compliance with the
commitments herein.

§1o Inspection to be performed by Anatel will
cover the inspection and the follow up of the activities, equipment and premises of the
AUTHORIZED , implying broad access to all data and information of the Authorized or of
third parties.

§2o
Information gathered during inspection activities will be published in the Library, except
for those, that by request of the AUTHORIZED , are considered as confidential by Anatel.

§3o
Information that are considered as confidential , as per the previous paragraph, shall
only be used in the procedures related hereto, responding to Anatel and to those indicated
by Anatel, for any disclosure, broad or restricted, of such information outside the usage
scope.

SECTION 11.2 The
AUTHORIZED , by means of an appointed representative, may follow all and every activity of
Anatel inspection, not being entitled to oppose or prevent the inspection, under risk of
incurring in the punishment foreseen in the regulation.

# Chapter XII

# Telecommunication Nets
and Access to Visiting Users

SECTION 12.1 THE
AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered
towards providing support to SMP, shall observe the provisions in the regulation,
specially in the Telecommunication Services Regulation n.o 73, of the 25th
of November of 1998; in the General Regulation of Interconnection, approved by the
Resolution no 40, of the 23rd of July of 1998; and in the regulation of the
SMP.

Single Paragraph.The change
in technology standards, promoted by the AUTHORIZED , may not burden unilateral and
arbitrarily the user, including with respect to the existing conditions of services to the
visiting users.

SECTION 12.2
Compensation by the use of nets between the Authorized and the other providers of
telecommunication services, shall comply with the provision in section 152 of the LGT and
in the SMP regulation, especially in the ADJUSTMENT RULE.

Single Paragraph. The
document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I
hereto.

# Chapter XIII

# Sanctions

SECTION 13.1 THE
AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and
related regulations, and shall, whenever required to do so, be accountable for as per
regulations of the SMP, allowing free access to its technical resources and accounting
records.

SECTION 13.2
non-compliance with conditions or commitments associated to the Authorization, shall
subject the Authorized to caveat sanctions, fines, temporary probation or forfeiture, as
per provision of the SMP.

# Chapter XIV

# Termination of the
Authorization

SECTION 14.1
Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay,
waive or annulment, as per sections 138 to 144 of the LGT and according to the proceedings
in the regulation.

Single Paragraph. The termination statement shall not elide the application of the adequate punishments, as per provisions hereof, by
the wrongdoings performed by the AUTHORIZED .

# Chapter XV

# Legal Regime and
Applicable documents

SECTION 15.1 This
Authorization is governed, without detracting the other integrant rules of the Brazilian
Legal Order, by the LGT, and the regulations derived thereof.

SECTION 15.2 In the
exploitation of the services authorized hereby, the regulations of Anatel shall be
complied, as part hereof, specially the documents related with the SMP Regulation.

SECTION 15.4 In the
interpretation of the norms and provisions hereof, shall be taken into consideration,
aside from the documents referred to in this Chapter, the general hermeneutic rules and
the norms and principles contained in the LGT.

# Chapter XVI

# Transitory Provisions

SECTION 16.1 Until the
Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be
maintained both the value of the Net Compensation , and the criteria for the processing
and values conveyance between the providers of Cellular Mobile Services and the Fixed
Commuted Telephone Service.

# Chapter XVII

# Venue

SECTION 17.1 The Court
of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby
elected to settle any conflicts arising herefrom or relating hereto, to the exclusion of
any other, however privileged.

# Chapter XVIII

# Final Provisions

SECTION 18.1 ThisAuthorization Term shall become in force after the disclosure of its extract in the
Federal Official Gazette.

SECTION 18.2 Except for
theprovisions herein entrusted,any other provisions of the Substituted
Instrument become null, as per §2o of section 1.1.

IN WITNESS WHEREOF, the
parties sign this document in 03 ( three) counterparts of equal tenor and form, in the
presence of witnesses who also sign below, so that it will produce the due legal effects.

Brasília, the
10th of December of 2002.

# On behalf of ANATEL:



_________________ LUIZ GUILHERME
SCHYMURA DE OLIVEIRAPresident of the board

_________________ LUIZ TITO CERASOLI
Counselor

# On behalf of the
AUTHORIZED :

_________________ PAULO CESAR PEREIRA
TEIXEIRAExecutive Vice-President

_________________ JOSÉ CARLOS DE LA ROSA
GUARDIOLAVice-President for Planning and Cordination

Witnesses:

_________________ JARBAS JOSÉ VALENTE
4.346/D CREA-DF

_________________ BRUNO DE CARVALHO
RAMOS5.060107.391/D CREA-SP

# ATTACHMENT I

# STATEMENT OF OPTION

According to what is provided in item
7 of the ADJUSTMENT RULE, TELEST Celular S.A., General Taxpayers register
 CNPJ N.o 02.325.945/0001-09, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID Card
 RG no 301.540.175-9 SSP/RS,opts for the submission to item 5 and its
sub-items of the Norms of Compensation Criteria by the Use of the Nets of the Providers of
Personal Mobile Service  SMP, approved by the Resolution no 319, of the
27th of September of 2002, requesting the approval of the TU-M whose maximum
value shall be the maximum value of the initial VU-M of its Service Area.

Brasília, the 10th
of December of 2002.

_________________ PAULO CESAR PEREIRA
TEIXEIRAExecutive Vice-President



EXHIBIT 8.1

LIST OF SUBSIDIARIES AS
OF DECEMBER 31, 2002

1) Direct
interest

|Name of the Company    | Place of Incorporation | Country
|---------------------- | ---------------------- | -------
|Telebahia Celular S.A. | Salvador  BA          | Brazil 
|Telergipe Celular S.A. | Aracajú  SE           | Brazil 



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 LESTE CELULAR
PARTICIPAçÕES S.A.           
| | ------------------------------------------------
| | By:/s/    Francisco José Azevedo Padinha        
| | Name: Francisco José Azevedo Padinha            
| | Title: Acting Chief Executive Officer           
| |                                                 
| | By:/s/    Fernando Abella Garcia                
| | Name: Fernando Abella Garcia                    
| | Title: Chief Financial Officer and interim Chief
| | Executive Officer                               

Date: June 24, 2003



CERTIFICATION

I, Francisco José Azevedo Padinha, certify that:

|1. | I have reviewed this annual report on Form 20-F of TELE LESTE CELULAR 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:                                                                                                                             

|
|
|
|
|
|
|

|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):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|

|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 24, 2003

By:/s/    Francisco José Azevedo Padinha
    Name:  Francisco José Azevedo Padinha        Title: Acting Chief Executive Officer



CERTIFICATION

I, Fernando Abella Garcia, certify that:

|1. | I have reviewed this annual report on Form 20-F of TELE LESTE CELULAR 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:                                                                                                          

|
|
|
|
|
|
|

|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):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|

|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 24, 2003

By:/s/    Fernando Abella Garcia
    Name: Fernando Abella Garcia        Title: Chief Financial Officer and interim Chief Executive Officer



EXHIBIT 12.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                           AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TELE LESTE CELULAR PARTICIPAÇÕES S.A. (the Company) on
Form 20-F for the fiscal year ended December 31, 2002, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the Report), I, Francisco José Azevedo Padinha, acting Chief Executive
Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the U.S.
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

|(i)  | the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange
Act of 1934; and                          
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.

Date:  June 24, 2003

By:/s/    Francisco José Azevedo Padinha
    Name: Francisco José Azevedo Padinha        Title: Acting Chief Executive Officer



EXHIBIT 12.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                           AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TELE LESTE CELULAR PARTICIPAÇÕES S.A. (the Company) on
Form 20-F for the fiscal year ended December 31, 2002, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the Report), I, Fernando Abella Garcia, Chief Financial Officer and
interim Chief Executive Officer, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

|(i)  | the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities
                           Exchange Act of 1934; and                          
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | the information contained in the Report fairly presents, in all material respects, the financial
                           condition and results of operations of the Company.

Date:  June 24, 2003

By:/s/    Fernando Abella Garcia
    Name: Fernando Abella Garcia
    Title: Chief Financial Officer and interim Chief Executive Officer



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
December 31, 2002, 2001 and 2000

# CONTENTS

|Independent Auditors'Report                                | F-2        
|---------------------------------------------------------- | -----------
|Consolidated Balance Sheets                                | F-3        
|Consolidated Statements of Operations                      | F-4        
|Consolidated Statements of Changes in Financial Position   | F-5        
|Consolidated Statements of Changes in Shareholders' Equity | F-6        
|Consolidated Statements of Cash Flows                      | F-7        
|Notes to the Consolidated Financial Statements             | F-8 to F-49



# Independent
AuditorsReport

To the Board of Directors and
Shareholders of
Tele Leste Celular Participações S.A.
Salvador, Brazil:

|1. | We have audited the accompanying consolidated balance sheets of Tele Leste
          Celular Participações S.A. and subsidiaries (the
          Company) as of December 31, 2002 and 2001, and the related consolidated
          statements of operations, changes in financial position and shareholders
          equity for each of the three years in the period ended December 31, 2002. These
          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.                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | We conducted our audits in accordance with generally accepted auditing standards
          in the United States of America. Those standards require that we plan and
          perform the audit to obtain reasonable assurance about whether the financial
          statements are free of material misstatement. An audit includes examining, on a
          test basis, evidence supporting the amounts and disclosures in the financial
          statements. An audit also includes assessing the accounting principles used and
          significant estimates made by management, as well as evaluating the overall
          financial statement presentation. We believe that our audits provide a
          reasonable basis for our opinion.
|  
|3. | In our opinion, the financial statements referred to above present fairly, in
          all material respects, the consolidated financial position of Tele Leste Celular
          Participações S.A. and subsidiaries as of December 31, 2002 and
          2001, and the results of their operations, the changes in their financial
          position and the changes in shareholders equity for each of the three
          years in the period ended December 31, 2002, in conformity with accounting
          practices adopted in Brazil.                                                                                                                                                                                                      
|  
|4. | Accounting practices adopted in Brazil vary in certain significant respects from
          accounting principles generally accepted in the United States of America (US
          GAAP). Application of US GAAP would have affected the financial position and
          shareholders equity at December 31, 2002 and 2001, and the results of
          operations for each of the three years in the period ended December 31, 2002, to
          the extent summarized in Note 32 to the consolidated financial statements.                                                                                                                                                                                                                          
|  
|5. | Our audit was conducted for the purpose of forming an opinion on the basic
          financial statements taken as a whole. The consolidated statement of cash flows
          for each of the three years in the period ended December 31, 2002 is presented
          for purposes of additional analysis and is not a required part of the basic
          financial statements under accounting practices adopted in Brazil. Such
          information has been subjected to the auditing procedures applied in the audit
          of the basic financial statements and, in our opinion, is fairly stated in all
          material respects in relation to the basic financial statements taken as a
          whole.                            

Salvador, BrazilJune 17,
2003

/s:/ Deloitte Touche Tohmatsu



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.CONSOLIDATED BALANCE SHEETS
As at December 31, 2002
and 2001(In thousands of Brazilian reais)

|                                           | Note | 2002      | 2001   
|------------------------------------------ | ---- | --------- | -------
|                                           |      |           |        
|Current assets:                           
|Cash and cash equivalents                  | 12   | 81,259    | 28,975 
|Trade accounts receivable, net             | 13   | 80,204    | 75,245 
|Deferred and recoverable taxes             | 14   | 30,426    | 45,862 
|Inventories                                | 15   | 17,784    | 14,845 
|Derivative contracts                       | 22   | 7,751     | 3,364  
|Other assets                               | 16   | 9,259     | 8,254  
|                                           |      |           |        
|Total current assets                       |      | 226,683   | 176,545
|                                           |      |           |        
|Noncurrent assets:                        
|Deferred and recoverable taxes             | 14   | 198,036   | 179,658
|Derivative contracts                       | 22   | 64,582    | 4,753  
|Other assets                               | 16   | 4,167     | 3,616  
|                                           |      |           |        
|Total noncurrent assets                    |      | 266,785   | 188,027
|                                           |      |           |        
|Permanent assets:                         
|Property, plant and equipment              | 17   | 547,798   | 610,957
|                                           |      |           |        
|Total permanent assets                     |      | 547,798   | 610,957
|                                           |      |           |        
|Total assets                               |      | 1,041,266 | 975,529
|                                           |      |           |        
|Current liabilities:                      
|Payroll and related accruals               | 18   | 2,902     | 2,790  
|Accounts payable and accrued expenses      | 19   | 106,521   | 79,020 
|Taxes other than taxes on income           | 20   | 17,630    | 13,340 
|Dividends payable                          | 25d  | -         | 11,979 
|Deferred income taxes                      | 10   | 4,698     | 4,933  
|Loans and financing                        | 22   | 99,665    | 54,331 
|Derivative contracts                       | 22   | -         | 1,746  
|Other liabilities                          | 21   | 12,675    | 11,728 
|                                           |      |           |        
|Total current liabilities                  |      | 244,091   | 179,867
|                                           |      |           |        
|Noncurrent liabilities:                   
|Deferred income taxes                      | 10   | 23,831    | 33,847 
|Loans and financing                        | 22   | 269,891   | 231,922
|Derivative contracts                       | 22   | -         | 3,576  
|Provision for pensions                     | 24   | 401       | 680    
|Reserve for contingencies                  | 23   | 5,058     | 4,802  
|                                           |      |           |        
|Total noncurrent liabilities               |      | 299,181   | 274,827
|                                           |      |           |        
|Shareholders equity:                     
|Share capital                              | 25a  | 368,033   | 368,033
|Capital reserves                           | 25b  | 125,891   | 125,891
|Income reserves                            | 25c  | 16,850    | 19,358 
|Retained earnings (accumulated deficit)    |      | (12,828)  | 7,505  
|                                           |      |           |        
|Total shareholders equity                 |      | 497,946   | 520,787
|                                           |      |           |        
|Funds for capitalization                   |      | 48        | 48     
|                                           |      |           |        
|Total liabilities and shareholders equity |      | 1,041,266 | 975,529
|                                           |      |           |        

The accompanying
notes are an integral part of these consolidated financial statements.



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002,
2001 and 2000
(In thousands of Brazilian reais, except loss per thousand shares)

|                                                     |      | Years ended December 31,
|---------------------------------------------------- | ---- | ------------------------
|                                                     |      |                         
|                                                     | Note | 2002                    
|                                                     |      |                         
|Net operating revenue                                | 4    | 431,395                 
|Cost of services and goods                           | 5    | (264,011)               
|                                                     |      |                         
|Gross profit                                         |      | 167,384                 
|Operating (expenses) income:                        
|Selling expense                                      | 6a   | (120,916)               
|General and administrative expense                   | 6b   | (53,193)                
|Other operating income (expense), net                | 7    | (733)                   
|                                                     |      |                         
|                                                     |      | (174,842)               
|Operating income (loss) before financial expense     |      | (7,458)                 
|Financial expense, net                               | 8    | (27,124)                
|                                                     |      |                         
|Operating loss                                       |      | (34,582)                
|Net nonoperating expenses                            | 9    | (1,656)                 
|                                                     |      |                         
|Loss before minority interests and taxes             |      | (36,238)                
|Income and social contribution
tax benefit (expense) | 10   | 10,798                  
|Minority interests                                   |      | -                       
|                                                     |      |                         
|Net loss for the year                                |      | (25,440)                
|                                                     |      |                         
|Shares outstanding at the balance sheet date        
|(thousands)                                          |      | 479,445,039             
|                                                     |      |                         
|Loss per thousand shares outstanding at the         
|balance sheet date (Brazilian reais)                 |      | (0.05)                  
|                                                     |      |                         

The accompanying notes are an
integral part of these consolidated financial statements.



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL
POSITION
Years ended December 31,
2002, 2001 and 2000(In thousands of Brazilian reais)

|                                                      | Years ended December 31,
|----------------------------------------------------- | ------------------------
|                                                      |                         
|                                                      | 2002                    
|                                                      |                         
|SOURCES OF FUNDS:                                    
|From operations (see below)                           | 160,339                 
|From shareholders-                                   
|Capital increase                                      | -                       
|Goodwill special reserve                              | -                       
|Unclaimed Dividends                                   | 2,183                   
|From third parties-                                  
|Transfer from noncurrent assets to current assets     | 11,691                  
|Transfer from permanent assets to current assets      | 461                     
|Increase in noncurrent liabilities                    | -                       
|Proceeds from sale of property, plant and equipment   | 370                     
|Minorities capitalization                             | -                       
|Donations for investments                             | 416                     
|                                                      |                         
|Total sources                                         | 175,460                 
|                                                      |                         
|APPLICATIONS OF FUNDS:                               
|Proposed dividends                                    | -                       
|Transfers from noncurrent to current liabilities      | 87,239                  
|Increase in noncurrent assets                         | 25,225                  
|                                                      |                         
|Additions to permanent assets                         | 77,082                  
|                                                      |                         
|Total applications                                    | 189,546                 
|INCREASE (DECREASE) IN WORKING CAPITAL                | (14,086)                
|                                                      |                         
|REPRESENTED BY:                                      
|CURRENT ASSETS AT YEAR END                            | 226,683                 
|CURRENT LIABILITIES AT YEAR END                       | (244,091)               
|                                                      |                         
|Working capital at year end                           | (17,408)                
|Working capital at the beginning of the year          | (3,322)                 
|                                                      |                         
|INCREASE (DECREASE) IN WORKING CAPITAL                | (14,086)                
|                                                      |                         
|FUNDS PROVIDED FROM OPERATIONS:                      
|Net loss                                              | (25,440)                
|Items not affecting working capital-                 
|Depreciation                                          | 139,207                 
|Losses on permanent asset disposals                   | 203                     
|Monetary and exchange variations on noncurrent items  | 46,568                  
|Minority interest                                     | -                       
|Losses from changes in equity holding in subsidiaries | -                       
|Provision for losses on tax incentives                | 1,447                   
|Reserve for contingencies                             | 1,166                   
|Deferred income taxes                                 | (2,627)                 
|Pension and other postretirement plans                | (185)                   
|                                                      |                         
|Total from operations                                 | 160,339                 
|                                                      |                         

The accompanying notes are an
integral part of these consolidated financial statements.



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY
Years ended December 31,
2002, 2001 and 2000(In thousands of Brazilian reais)

| |              | Capital reserves | Income reserves |               |             
| | ------------ | ---------------- | --------------- | ------------- | ------------
| |              |                  | Special Reserve
| |              |                  | Goodwill        |               |             
| | CapitalStock | FiscalIncentives | Company         | Subsi-diaries | LegalReserve
| |              |                  |                 |               |             

|Balance as of December 31, 1999             | 174,491 | 396 | -         | -       | 8,571 | 6,898   | 20,695  | 42,878   | 253,929 
|------------------------------------------- | ------- | --- | --------- | ------- | ----- | ------- | ------- | -------- | --------
|Capital increase:                           |         |     |           |         |       |         |         |          |         
|Extraordinary board meeting                |         |     |           |         |       |         |         |          |         
|February 21, 2000                           | 148,004 | -   | -         | -       | -     | -       | -       | -        | 148,004 
|Extraordinary shareholders meeting         |         |     |           |         |       |         |         |          |         
|November 29, 2000                           | 45,739  | -   | -         | -       | -     | -       | -       | -        | 45,739  
|Capital reduction                           | (201)   | -   | -         | -       | -     | -       | -       | -        | (201)   
|Formation of special reserve for goodwill   | -       | -   | 125,495   | -       | -     | -       | -       | -        | 125,495 
|Partial spin-offspecial reserve for        |         |     |           |         |       |         |         |          |         
|goodwill                                    | -       | -   | (123,086) | 123,086 | -     | -       | -       | -        | -       
|Deferred tax on full indexation             | -       | -   | -         | -       | -     | -       | -       | (9,858)  | (9,858) 
|Net loss                                    | -       |     | -         | -       | -     | -       | -       | (16,302) | (16,302)
|Reversal of income reserves                 | -       | -   | -         | -       | -     | (6,898) | (3,501) | 10,399   | -       
|Balance as of December 31, 2000             | 368,033 | 396 | 2,409     | 123,086 | 8,571 | -       | 17,194  | 27,117   | 546,806 
|Pension and other postretirement benefits.. | -       | -   | -         | -       | -     | -       | -       | (448)    | (448)   
|Net loss                                    | -       | -   | -         | -       | -     | -       | -       | (13,592) | (13,592)
|Legal Reserve                               | -       | -   | -         | -       | 301   | -       | -       | (301)    | -       
|Reversal of reserves                        | -       | -   | -         | -       | -     | -       | (6,708) | 6,708    | -       
|Proposed dividends                          | -       | -   | -         | -       | -     | -       | -       | (11,979) | (11,979)
|Balance as of December 31, 2001             | 368,033 | 396 | 2,409     | 123,086 | 8,872 | -       | 10,486  | 7,505    | 520,787 
|Unclaimed dividends at holding Company      | -       | -   | -         | -       | -     | -       | -       | 1,695    | 1,695   
|Net loss                                    | -       | -   | -         | -       | -     | -       | -       | (25,440) | (25,440)
|Reversal of reserves                        | -       | -   | -         | -       | -     | -       | (2,508) | 2,508    | -       
|Consolidation adjustments:                  |         |     |           |         |       |         |         |          |         
|Donations for investments                   | -       | -   | -         | -       | -     | -       | -       | 416      | 416     
|Unclaimed dividends at subsidiaries         | -       | -   | -         | -       | -     | -       | -       | 488      | 488     
|Balance as of December 31, 2002             | 368,033 | 396 | 2,409     | 123,086 | 8,872 | -       | 7,978   | (12,828) | 497,946 
|                                            |         |     |           |         |       |         |         |          |         

The accompanying notes are an
integral part of these consolidated financial statements.



# TELE LESTE CELULAR
PARTICIPAÇÕES S.A.CONSOLIDATED STATEMENTS OF CASH FLOWS 
Years ended December 31,
2002, 2001 and 2000(In thousands of Brazilian reais)

|                                                                | Years ended December 31,
|--------------------------------------------------------------- | ------------------------
|                                                                | 2002                    
|Cash flows provided by operations:                              |                         
|Net loss                                                        | (25,440)                
|Adjustments to reconcile to cash provided by (used in) perating |                         
|activities:                                                     |                         
|Depreciation                                                    | 139,207                 
|Minority interests                                              |                         
|Losses from changes in equity holding in subsidiaries           | -                       
|Monetary and exchange variations on loans and financing         | 141,085                 
|Net inflationary gains on full indexation                       | -                       
|Loss on permanent asset disposals                               | 203                     
|Allowance for doubtful accounts                                 | 13,311                  
|Decrease (increase) in customer accounts receivable, gross      | (18,270)                
|Increase in deferred and recoverable taxes                      | (2,942)                 
|(Increase) decrease in other current assets and inventories     | (3,483)                 
|(Increase) decrease in other noncurrent assets                  | (551)                   
|(Increase) decrease in derivative contracts - assets            | (64,216)                
|Increase (decrease) in payroll and related accruals             | 112                     
|Increase (decrease) in accounts payable and accrued expenses    | 27,501                  
|Increase (decrease) in taxes other than income taxes            | 4,290                   
|Increase (decrease) in other current liabilities                | 3.287                   
|Increase (decrease) in accrued interest                         | (318)                   
|Increase (decrease) in income taxes                             | (10,251)                
|Increase in reserve for contingencies                           | 256                     
|Increase (decrease) in provision for pension fund               | (279)                   
|Increase in derivative contracts - liabilities                  | 1,279                   
|Total net cash provided by operations                           | 204,781                 
|                                                                |                         
|Cash flows used in investing activities:                        |                         
|Additions to property, plant and equipment                      | (76,666)                
|Proceeds from asset disposals                                   | 370                     
|Net cash used in investing activities                           | (76,296)                
|                                                                |                         
|Cash flows provided by (used in) financing activities:          |                         
|Loans repaid                                                    | (78,766)                
|New loans obtained                                              | 14,779                  
|Capital increase                                                | -                       
|Capital issued by subsidiaries                                  | -                       
|Dividends paid                                                  | (12,214)                
|Net cash provided by (used in) financing activities             | (76,201)                
|                                                                |                         
|Increase (decrease) in cash and cash equivalents                | 52,284                  
|                                                                |                         
|Cash and cash equivalents at beginning of year                  | 28,975                  
|                                                                |                         
|Cash and cash equivalents at end of year                        | 81,259                  

The accompanying notes are an
integral part of these consolidated financial statements.



TELE LESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(Amounts expressed in thousands of reais, unless otherwise
indicated)

# 1. Operations and
background

Tele Leste Celular
Participações S.A. was formed on May 22, 1998, through the spin-off of
certain assets and liabilities of Telebrás, including 89.1% and 73.6% of the share
capital of Telebahia Celular S.A. and Telergipe Celular S.A., respectively. Until August
4, 1998, the Companies were controlled by the Federal Government. On July 29, 1998, the
Federal Government separated Telebrás into twelve newly formed holding companies
(the New Holding Companies) and sold to buyers (the New Controlling
Shareholders) its rights to receive shares of the twelve New Holding Companies. In
connection with this sale, the Federal Government assigned to the New Controlling
Shareholders substantially all its economic and voting rights with respect to the New
Holding Companies and, as a consequence, effective August 4, 1998 the New Controlling
Shareholders controlled the New Holding Companies.

Telebahia Celular S.A. and Telergipe
Celular S.A. (the Subsidiaries) were formed on January 5, 1998 and
subsequently received on January 30, 1998 from Telecomunicações da Bahia
S.A. and Telecomunicações de Sergipe S.A. the assets and liabilities
comprising their respective cellular telecommunications services.

On December 31, 2002, Tele Leste
Celular Participações S.A (the Holding Company) holds 100% of
the capital of Telebahia Celular S.A. (Telebahia) and Telergipe Celular S.A
(Telergipe) [(collectively, the Subsidiaries)], who are providers of
cellular telecommunications services in the States of Bahia and Sergipe, respectively, and
are also engaged in related activities required or useful for the performance of these
services, in conformity with the concessions and authorizations granted to them.

The Subsidiaries activities,
including services that they may provide, are regulated by Agência Nacional de
Telecomunicações  ANATEL, the regulatory authority for the Brazilian
telecommunications industry, pursuant to Law No. 9,472, of July 16, 1997, and related
regulations, decrees, decisions and plans.

The Holding Company and the
Subsidiaries are hereinafter referred to as the Company.

Migration from SMC to SMP

On December 10, 2002 ANATEL,
Telebahia Celular and Telergipe Celular signed the Authorization Term for Personal
Cellular Service (SMP), which became effective as of the publication in the
Official Government Daily Newspaper, which occurred on December 12, 2002.

Under the above-mentioned document,
Mobile Cellular Service (SMC), provided under concession, was replaced by Personal
Cellular Service (SMP), provided under authorization, both granted by the Federal
Government.

The authorizations granted to
Telebahia Celular and Telergipe Celular are effective for the remaining period of the
original respective concessions being June 29, 2008 and December 15, 2008, respectively,
renewable for an additional 15-year term. Any such renewal is subject to a renewal fee.

The main alterations occurring from
the migration of the SMC to SMP are:

|a. | The consolidation of the joint venture process between Telefónica
          Móviles and Portugal Telecom, in Brazil;                                                                                                                              
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | The SMP user will have the right to choose the long distance service provider
          through the provider selection code (CSP  código de
          seleção de prestadora) as of July 6, 2003 for calls outside
          their access areas;
|  
|c. | Stricter quality targets;                                                                                                                                                                                                                         
|  
|d. | Free negotiation of interconnection tariffs beginning June 2004.                                                                                                                                                                                  

Joint Venture

On December 27, 2002 the assets held
by the shareholders PT Móveis  Serviços de
Telecomunicações, SGPS (PT), and Telefónica
Móviles S.A. (TEM) in the Brazilian mobile telephony market, for the
direct and indirect equity interests in Telesp Celular Participações S.A.,
Tele Sudeste Celular Participações S.A., Tele Leste Celular
Participações S.A., CRT Celular Participações S.A. and Global
Telecom S.A., were transferred to BRASILCEL N.V., to form a joint venture based in the
Netherlands, 50% owned by PT and 50% owned by TEM.

Consequently, as of December 31,
2002, Tele Leste Celular Participações S.A., a publicly-traded company is
owned by Iberoleste Participações S.A. (21.90% of the total capital),
Brasilcel N.V. (3.38% of the total capital) and Tagilo Participações Ltda.
(2.42% of the total capital). Iberoleste Participações S.A. and Tagilo
Participações Ltda. are controlled by BRASILCEL N.V. (100.00% of the total
capital). Brasilcel N.V. has participation of Telefónica Móviles S.A.
(50.00% of the total capital), and PT Móveis, Serviços de
Telecomunicações, SGPS S.A. (50.00% of the total capital).

The Senior Management of the companies involved understand that the mentioned process will result in
significant gains for all the corporations, mainly due to the synergies achieved with the operations
increase volume and unification of operative processes, which may case systemic adjustments.

# 2. Presentation of
financial statements

a.
          Presentation of consolidated financial statements as of and for the periods
          ended December 31, 2002, 2001 and 2000

The accompanying consolidated
financial statements present the consolidated balance sheets and results of operations in
cellular telecommunication businesses of the Companies. The portion of net income
attributable to shareholders other than the Company as of and for the year ended December
31, 2000 is reflected as minority interests. On November 29, 2000, as part of
the corporate restructuring of the Holding Company and its Subsidiaries, the Holding
Company incorporated 100% of the share capital of Telebahia and Telergipe, which were
converted into wholly owned subsidiaries of the Holding Company. Prior to the corporate
restructuring, the minority shareholders owned 2.73% and 19.85% of share capital of
Telebahia and Telergipe, respectively.

The presentation of the consolidated
financial statements is consistent with the presentation of the published financial
statements of the Company, from which the financial information was extracted, except for
certain reclassifications and changes in terminology within the consolidated balance
sheets and the consolidated statements of operations which have been made to conform the
previously published financial statements to the 2002 presentation and for the effects of
inflation, as discussed in Note 2(b) and 2(c).

# b. Full indexation to
December 31, 2000

As a result of legislation mandating
the discontinuation of the indexation system for Brazilian corporate law accounting and
most fiscal purposes, together with the option granted by the Brazilian Securities
Commission (Comissão de Valores Mobiliários  CVM), the consolidated
financial statements of the Company as of December 31, 2002, 2001 and 2000 and for the
years then ended, as published in Brazil, do not recognize the effects of changes in the
purchasing power of the Brazilian currency that would have been otherwise required under
the comprehensive indexation system, which was applied through December 31, 1995.
Nevertheless, as permitted under accounting practices adopted in Brazil (Brazilian
GAAP), the accompanying financial statements have been fully indexed through
December 31, 2000.

In July 1997, the three-year
cumulative inflation rate for Brazil fell below 100%. However, as permitted for Brazilian
GAAP purposes, the constant currency method continued to be applied through December 31,
2000. Thus, the financial statements of the Company for the year ended December 31, 2000
were prepared using the integral restatement method, in order to express the balances of
the Company in the currency of constant purchasing power of December 31, 2000.

Accordingly, all relevant non
monetary assets and liabilities, shareholders equity accounts, and all components of
the statements of operations, changes in shareholders equity and changes in
financial position and notes were updated to reflect the changes in the inflation index to
December 31, 2000. Also, the gains and losses on monetary assets and liabilities
attributable to changes in the index, calculated on a monthly basis, were allocated to the
corresponding income or expense items in the statements of income.

The price-level adjustment to reflect
the current purchasing power of the currency do not purport to change the prior-period
financial statements in any way, but only to update the amounts to a constant currency
measurement unit.

For official purposes, such as
providing reports to Brazilian shareholders, filing financial statements with the CVM, and
determining dividend payments and other distributions and tax liabilities in Brazil, the
Company has published, and will continue to publish, its consolidated financial statements
as of and for the years ended December 31, 2002, 2001 and 2000 prepared in accordance with
the Law 6,404 of December 15, 1976, as amended, or the Brazilian corporate law method
(BR CL), which no longer recognize the effects of inflation beginning
January 1, 1996.

The principal criteria adopted to
prepare the fully indexed consolidated financial statements for the year ended December
31, 2000, maintained in accordance with the practices described in Note 3, were as
follows:

i.
          Inflation restatement index

The consolidated financial statements
of 2000 were indexed and expressed in the currency of constant purchasing power of
December 31, 2000 by using the monthly average values of the Índice Geral de
Preços-Mercado (the General Prices Index-Market or the IGP-M, published
by the Fundação Getúlio Vargas) for the year ended December 31, 2000,
which was 9.95%.

ii.
          Consolidated statements of operations for 2000

Items in the consolidated statements
of operations are adjusted by:

|a. | allocating inflationary holding gains or losses on interest bearing monetary
          assets and liabilities to their corresponding interest income and expense
          captions; and                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | allocating inflationary holding gains and losses from other monetary items to
          their corresponding income or expense captions. Amounts without a corresponding
          income or expense caption were allocated to Other net operating
          income.

iii.Deferred income tax
effects of indexation adjustments in 2000

As a result of legislation mandating
the discontinuation of the indexation system for Brazilian corporate law purposes and most
fiscal purposes beginning January 1, 1996, the indexation of assets and liabilities for
financial reporting purposes herein is not permitted for tax purposes. Accordingly, a
deferred tax liability arises for the excess of net assets shown for financial reporting
purposes over the tax basis of these net assets. The resulting additional deferred tax
liability of R$9,858 in 2000, was recorded as a charge to retained earnings in 2000.

c.
          Financial statements as of and for the years ended December 31, 2002 and 2001

As mentioned above, companies which
prepare their financial statements in accordance with accounting practices adopted in
Brazil (including financial statements prepared using the constant currency method) should
cease to recognize inflationary effects beginning January 1, 2001, as the disclosure
indexation of inflationary effects subsequent to that date is mandatory only in cases when
the accumulated inflation rate measured by the IGP-M in the previous three
years reaches 100% or more. Accounting differences between the financial statements
prepared using the constant currency method and those in accordance with BR CL as of
December 31, 2000 shall remain registered in the financial statements and shall diminish
as a result of the realization (e.g., depreciation, amortization or write-offs) of the
related assets and liabilities that gave rise to the differences.

Considering that the annual inflation
for 2002 and 2001 was 25.31% and 10.37%, respectively, and the three-year cumulative
inflation for the period ended December 31, 2002 and 2001 were 52.07% and 45.73%,
respectively, the effects of inflation for the years 2002 and 2001 have not been
recognized. However, the effects of inflation recorded under Brazilian GAAP accounting
from January 1, 1996 through December 31, 2000, not recorded under BR CL, generated the
following effects on net income(loss) and shareholders equity as of December 31,
2002 and 2001 and for the three years in the period ended December 31, 2002 as follows:

|                                                                      | 2002     | 2001     | 2000    
|--------------------------------------------------------------------- | -------- | -------- | --------
|Net income(loss) according to the BR CL                               | (5,107)  | 6,020    | (9,458) 
|(-) realization of assets (depreciation, amortization and write-offs) | (30,807) | (29,715) | (20,635)
|(+)inflationary gains on monetary items, net                          | -        | -        | 10,897  
|(+) reversal of deferred taxes                                        | 10,474   | 10,103   | 2,586   
|(+) minority interest on above adjustments                            | -        | -        | 308     
|(=) Net loss according to Brazilian GAAP                              | (25,440) | (13,592) | (16,302)

|                                                                       |          |         
|---------------------------------------------------------------------- | -------- | --------
|                                                                       | 2002     | 2001    
|Shareholders equity as of December 31, according to BR                |          |         
|CL                                                                     | 443,011  | 445,519 
|(+) balance remaining from the constant currency appreciation          |          |         
|until December 31, 2000                                                | 83,241   | 114,048 
|(-) deferred taxes on above balance                                    | (28,306) | (38,780)
|(=) Shareholders equity as of December 31 according to Brazilian GAAP | 497,946  | 520,787 

# d. Principles of
consolidation

These consolidated financial
statements include the financial records of the Holding Company and the Subsidiaries. All
material intercompany accounts and transactions have been eliminated.

# 3. Summary of
significant accounting practices

# a. Cash and cash
equivalents

Cash equivalents are considered to be
all highly liquid temporary cash investments with original maturity dates of three months
or less. These investments will be maintained until maturity and are stated at cost plus
accrued interest to the balance sheet date.

# b. Trade accounts
receivable

Trade accounts receivable from
telecommunication services are stated at the tariffs prevailing on the date the services
are rendered. They also include accounts receivable for services rendered but not yet
billed at the balance sheet date. Additionally, this caption includes balances from the
sale of cellular handsets and accessories.

# c. Allowance for
doubtful accounts

Provision is recognized for trade
accounts receivable for which recoverability is considered improbable.

# d. Foreign currency
transactions

Transactions denominated in foreign
currency are recorded based on the prevailing exchange rate at the date of the related
transactions and the corresponding balances are updated to the balance sheet date.
Resulting exchange gains and losses are recorded in the statement of operations. Foreign
currency gains and losses (both realized and unrealized) and premiums on derivatives
contracts are accrued monthly.

# e. Inventories

Inventories are represented by
cellular handsets and accessories stated at average acquisition cost. An allowance is
recognized to reduce inventories to net realizable value for products considered obsolete
or whose quantities are higher than those usually sold by the Subsidiaries over a
reasonable period.

# f. Prepaid expenses

Prepaid expenses represent
disbursements for expenses not yet incurred.

# g. Property, plant and
equipment

Property, plant and equipment are
stated at acquisition or construction cost less accumulated depreciation, restated for
inflation until December 31, 2000. Costs for improvements and maintenance that increase
installed capacity or useful life to existing property are capitalized while other
maintenance and repair costs are charged to expense as incurred. Materials allocated to
specific projects are added to construction-in-progress. Depreciation is provided using
the straight-line method based on the estimated useful lives of the underlying assets.
Depreciation rates are shown in Note 17 (b).

Through 1998, interest calculated
monthly at a rate of 12% per annum on construction-in-progress was capitalized as part of
property, plant and equipment, until the asset was placed in service. For the three-year
period ended December 31, 2002, the Company capitalized interest attributable to
construction-in-progress using the actual effective interest related to
construction-in-progress. An aggregate amount of R$4,211, R$7,392 and R$7,129, was
capitalized in 2002, 2001 and 2000, respectively.

# h. Vacation pay accrual

Cumulative vacation pay due to
employees is accrued as earned.

i.
          Accrual for rewards program

An accrual is recorded for future
costs under rewards programs based on points earned as of the balance sheet date,
considering the cost of the cellular handsets and the expected utilization based on the
registered customers consumption profile.

# j. Income and social
contribution taxes

Taxes on income are calculated and
recorded at the effective tax rates prevailing on the balance sheet date on the accrual
basis. Deferred taxes attributable to temporary differences and income and social
contribution tax loss carryforwards are recorded as deferred assets on the assumption of
future realization.

# k. Loans and financing

Loans and financing include exchange
variation and interest accrued to the balance sheet date.

# l. Fistel fees

Fistel (Telecommunication Inspection Fund)
fees paid on the activation of subscribers is deferred and amortized over the
customers estimated retention period, equivalent to 24 months.

# m. Reserve for
contingencies

Reserves for loss contingencies are
established based on legal counsel and managements opinion as to the probable result
of pending litigation and updated to the balance sheet date in an amount considered
sufficient to cover probable losses, based on the nature of each contingency.

# n. Pension and
postretirement benefits

The subsidiaries participate together
with other companies, participants of the Telecommunications System, sponsor a private
pension entity (SISTEL) to manage the pension funds (defined benefit and defined
contribution) and other postretirement benefits to their employees. The contributions are
recognized on the accrual basis of accounting. The subsidiaries elected to adopt CVM
Instruction no. 371, as of December 31, 2001, recognizing the amounts directly to
shareholders equity, net of tax effects. (See note 24).

# o. Revenue recognition

Revenue from services is recognized
when the services are rendered. Billing is on a monthly basis. Unbilled revenue from the
billing date through the end of the month is estimated and recognized as revenue in the
month in which the service is rendered. Revenues from sales of prepaid cellular handsets
cards are deferred and recognized in income when such cards are used, based on minute
usage. Revenue from the sale of handsets and accessories is recorded at the moment of the
sale to the customer.

# p. Financial expense, net

Financial income (expenses) is
represented by interest, monetary restatement and exchange variations on cash and other
investments and loans and financing. Gains and losses on derivative contracts are also
included as a component of financial expense, net.

# q. Derivatives

The Company enters into certain
derivative contracts to manage the exposure of its cash flows denominated in foreign
currencies to interest and exchange rate fluctuations in relation to the Brazilian real.
These derivative contracts are recorded based on their contractual terms and interest and
exchange rates in effect at the balance sheet date. Premiums received or prepaid are
deferred and amortized over the life of the respective contracts. Gains and losses,
realized and unrealized, are recorded as part Financial expense, net.

# r. Research and
development

Research and development costs are
charged to expense as incurred (See Note 7).

# s. Advertising expense

Advertising costs are charged to
expense as incurred.

# t. Employees
profit sharing

Accruals are made to recognize the
expenses for employees profit sharing, for which payment is subject to approval at
the annual shareholders meeting.

# u. Loss per thousand
shares

Loss per thousand shares is computed
based on the number of shares outstanding at the balance sheet date.

# v. Segment information

The Company operates in one segment
for local and regional cellular telecommunications. All revenues are generated in relation
to services provided in or routed through the states of Bahia and Sergipe.

# w. Minority interests

Minority interests reflected in the
consolidated statements of operations relate to the interests of shareholders other than
the Company in Telebahia Celular and Telergipe Celular. On November 29, 2000, as a result
of the restructuring process, Telebahia Celular and Telergipe Celular became wholly owned
subsidiaries of the Company.

# x. Use of estimates

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

# y. Reclassifications

Certain reclassifications have been
made to the prior periods to conform to the 2002 presentation.

# 4. Net operating revenue

|                                     | 2002      | 2001      | 2000     
|------------------------------------ | --------- | --------- | ---------
|                                     |           |           |          
|Monthly subscription charges         | 48,563    | 44,123    | 39,435   
|Usage charges                        | 275,345   | 242,485   | 227,372  
|Network usage charges                | 179,849   | 169,325   | 130,934  
|Goods sold (handsets and others)     | 86,477    | 47,115    | 40,716   
|Other                                | 12,253    | 10,969    | 8,693    
|                                     |           |           |          
|Gross revenue                        | 602,487   | 514,017   | 447,150  
|Value-added and other indirect taxes | (171,092) | (127,718) | (106,415)
|                                     |           |           |          
|Net operating revenue                | 431,395   | 386,299   | 340,735  
|                                     |           |           |          

There are no customers who
contributed more than 1% of gross operating revenues of the Company in 2002, 2001 and
2000, except for Telecomunicações da Bahia S.A.  Telemar, the fixed
service provider for the area that contributed approximately 22.4% of 2002 total gross
operating revenues (21% in 2001 and 16% in 2000), mainly in relation to network usage
charges.

# 5. Cost of services and
goods

|                                 | 2002      | 2001      | 2000     
|-------------------------------- | --------- | --------- | ---------
|                                 |           |           |          
|Depreciation                     | (102,276) | (93,073)  | (80,812) 
|Goods sold (handsets and others) | (48,506)  | (29,811)  | (37,910) 
|Personnel                        | (3,512)   | (3,293)   | (2,935)  
|Materials and services           | (13,360)  | (7,810)   | (6,366)  
|Rental and insurance             | (17,550)  | (17,181)  | (16,789) 
|Fixed-line network expenses      | (19,540)  | (18,269)  | (17,649) 
|Network usage charges            | (42,593)  | (37,390)  | (32,551) 
|Taxes                            | (16,674)  | (17,869)  | (16,358) 
|                                 |           |           |          
|                                 | (264,011) | (224,696) | (211,370)
|                                 |           |           |          

# 6. Operating expenses

# a. Selling expenses:

|                                | 2002      | 2001      | 2000    
|------------------------------- | --------- | --------- | --------
|                                |           |           |         
|Personnel                       | (17,293)  | (11,644)  | (8,627) 
|Outsourced services(i)          | (56,729)  | (51,600)  | (52,183)
|Materials, rental and insurance | (2,874)   | (3,322)   | (3,316) 
|Depreciation                    | (29,233)  | (20,762)  | (10,296)
|Allowance for doubtful accounts | (13,311)  | (13,186)  | (16,125)
|Others                          | (1,476)   | (2,158)   | (4,481) 
|                                |           |           |         
|                                | (120,916) | (102,672) | (95,028)
|                                |           |           |         

(i)
          Outsourced services include advertising expenses amounting to R$11,486, R$9,668
          and R$12,368 for 2002, 2001 and 2000, respectively.

# b. General and
administrative:

|                                | 2002     | 2001     | 2000    
|------------------------------- | -------- | -------- | --------
|                                |          |          |         
|Personnel                       | (13,171) | (16,858) | (15,359)
|Outsourced services             | (27,160) | (28,587) | (21,613)
|Materials, rental and insurance | (859)    | (1,533)  | (2,226) 
|Depreciation                    | (7,698)  | (6,723)  | (6,509) 
|Others                          | (4,305)  | (3,500)  | (1,321) 
|                                |          |          |         
|                                | (53,193) | (57,201) | (47,028)
|                                |          |          |         

# 7. Other operating
income (expense), net

|                                                                           | 2002    | 2001    | 2000   
|-------------------------------------------------------------------------- | ------- | ------- | -------
|                                                                           |         |         |        
|Donations and sponsorships                                                 | (206)   | (1)     | (3)    
|Fines and expenses recovered                                               | 6,740   | 8,551   | 12,475 
|Network connections - common use                                           | 1,709   | 1,223   | 2,990  
|Taxes other than income taxes                                              | (7,472) | (4,792) | (2,316)
|Provision for contingencies.                                               | (1,419) | (2,635) | (1,496)
|Research and development                                                   | -       | (354)   | (410)  
|Net inflationary gains (losses) on non-interest-bearing assets/liabilities | -       | -       | (560)  
|Others                                                                     | (85)    | (243)   | 2,530  
|                                                                           |         |         |        
|                                                                           | (733)   | 1,749   | 13,210 
|                                                                           |         |         |        

# 8. Financial expense, net

|                                                              | 2002      | 2001     | 2000    
|------------------------------------------------------------- | --------- | -------- | --------
|                                                              |           |          |         
|Interest income                                               | 13,032    | 11,529   | 25,090  
|Interest expense                                              | (22,763)  | (27,721) | (42,805)
|Monetary/exchange variation                                   | (157,319) | (64,587) | (34,918)
|Derivative gains                                              | 139,926   | 56,668   | 12,570  
|Net inflationary gains on interest-bearing assets/liabilities | -         | -        | 24,262  
|                                                              |           |          |         
|                                                              | (27,124)  | (24,111) | (15,801)
|                                                              |           |          |         

In 2002, 2001 and 2000 financial
expense is presented net of capitized interest in the amount of R$4,211, R$7,392 and
R$7,129, respectively.

# 9. Net nonoperating
expenses

|                                                   | 2002    | 2001  | 2000   
|-------------------------------------------------- | ------- | ----- | -------
|                                                   |         |       |        
|Losses on disposals of permanent assets            | (203)   | (658) | (1,932)
|Write-off of fiscal incentives (noncurrent assets) | (1,447) | -     | (370)  
|Others                                             | (6)     | 82    | (451)  
|                                                   |         |       |        
|                                                   | (1,656) | (576) | (2,753)
|                                                   |         |       |        

# 10. Deferred and accrued
taxes on income

Brazilian income taxes comprise
federal income tax and the social contribution tax. For the three-year period ended
December 2002 the income tax rate was 25%, and for social contribution tax rates were 12%
from May 1999 to January 2000, and 9% from February 2000 to December 2002. The tax expense
and taxes on temporary differences, income tax, and social contribution tax loss
carryforwards were calculated at the rate of 34%.

The composition of the income tax
benefit (expense) is as follows:

|                                        | 2002   | 2001  | 2000   
|--------------------------------------- | ------ | ----- | -------
|                                        |        |       |        
|Current taxes:                          |        |       |        
|Income tax expense                      | (985)  | (47)  | (1,504)
|Social contribution tax expense         | (472)  | 45    | (542)  
|Deferred taxes                          | 12,255 | 7,618 | 371    
|Effect of rate change on deferred taxes | -      | -     | 1,078  
|                                        |        |       |        
|Total income tax benefit (expense)      | 10,798 | 7,616 | (597)  
|                                        |        |       |        

Supplementary information regarding
taxes posted directly to shareholders equity:

|                                  | 2002 | 2001 | 2000   
|--------------------------------- | ---- | ---- | -------
|                                  |      |      |        
|Deferred taxes on full indexation | -    | -    | (9,858)
|                                  |      |      |        
|                                  | -    | -    | (9,858)
|                                  |      |      |        

The following is a reconciliation of
the reported income tax benefit (expense) and the amounts computed by applying the
combined statutory tax rate of 34%:

|                                                  | 2002     | 2001     | 2000    
|------------------------------------------------- | -------- | -------- | --------
|                                                  |          |          |         
|Loss before taxes as reported in the accompanying |          |          |         
|Financial statements                              | (36,238) | (21,208) | (18,035)
|Tax benefit at the combined statutory rate        | 12,321   | 7,211    | 6,132   
|Permanent additions:                             
|Nondeductible expenses                            | (683)    | (455)    | (1,338) 
|Loss on temporary difference exposed to inflation | -        | -        | (6,796) 
|Loss on investments                               | (492)    | -        | (216)   
|Permanent exclusions:                            
|Nontaxable income                                 | -        | -        | 978     
|Other                                             | 68       | 860      | 654     
|Other items                                       | (416)    | -        | (11)    
|                                                  |          |          |         
|Total tax benefit (expense)                       | 10,798   | 7,616    | (597)   
|                                                  |          |          |         

The main components of deferred
income and social contribution taxes are as follows:

|                                                                      | 2002    | 2001   
|--------------------------------------------------------------------- | ------- | -------
|                                                                      |         |        
|Deferred tax assets:                                                 
|Tax loss carryforwards                                                | 87,875  | 79,534 
|Tax credits from corporate restructuring                              | 82,032  | 92,969 
|Reserve for contingencies                                             | 1,719   | 1,632  
|Allowance for doubtful accounts and reserve for inventory adjustments | 4,979   | 3,945  
|Provision for pension and other postretirement benefit plans          | 136     | 232    
|Accrual for rewards program                                           | 1,237   | 599    
|Provision for obsolescence                                            | 335     | 480    
|Accelerated depreciation                                              | 4,684   | 2,398  
|Other                                                                 | 1,156   | 351    
|                                                                      |         |        
|Total (Note 14)                                                       | 184,153 | 182,140
|                                                                      |         |        
|Current                                                               | 1,829   | 8,841  
|Noncurrent                                                            | 182,324 | 173,299
|                                                                      |         |        

The composition of tax liabilities is
as follows:

|                                | 2002   | 2001  
|------------------------------- | ------ | ------
|                                |        |       
|Deferred tax liabilities:       |        |       
|Deferred tax on full indexation | 28,306 | 38,780
|Other                           | 223    | -     
|                                | 28,529 | 38,780
|                                |        |       
|Current                         | 4,698  | 4,933 
|Noncurrent                      | 23,831 | 33,847
|                                |        |       

Deferred taxes are provided for
income and social contribution tax loss carryforwards and temporary differences. The
deferred taxes have been recorded based on the assumption of their future realization, as
follows:

|a. | Tax loss carryforwards will be offset up to a limit of 30% per year of future
          taxable income.. The Subsidiaries, based on projections of future taxable
          income, estimate that its tax loss carryforwards will be fully utilized in 10
          years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | The tax credit recorded on corporate restructuring consists of the net balance
          of goodwill and the reserve for maintenance of integrity of shareholders
          equity (Note 29) and is realized as goodwill is amortized, over a period of ten
          years. Outside consultants studies used in the corporate restructuring
          process supported initially the tax credit recovery within the period of five
          and ten years for Telebahia and Telergipe, respectively. Considering the
          economic and operating results from the date of the restructuring, technical
          studies have subsequently been performed which extended the goodwill
          amortization period for Telebahia to ten years.
|  
|c. | Temporary differences will be realized upon payment of the accruals, effective
          losses on bad debts and realization of inventories.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Based on managements estimates
of future taxable income that were approved by the Board of Directors, the Company
believes that it is more likely than not that the amounts recorded as of December 31, 2002
will be realized by the Company.

11. Cash flow
information

|                          | 2002   | 2001   | 2000  
|------------------------- | ------ | ------ | ------
|Interest paid             | 20,046 | 40,963 | 43,032
|                         
|Non-cash transactions:   
|Donations for investments | 416    | -      | -     

12. Cash and cash
equivalents

|                       | 2002   | 2001  
|---------------------- | ------ | ------
|Banks                  | 2,286  | 2,276 
|Short-term investments | 78,973 | 26,699
|                       |        |       
|                       | 81,259 | 28,975
|                       |        |       

All
cash and cash equivalents are denominated in Brazilian reais. Short-term investments are
represented principally by fixed-income (Bank Deposit Certificates), which have
maturities of ninety days or less. Of the total amount disclosed, R$432 is restricted to
collateralize judicial cases as discussed in note 23.

13. Trade
accounts receivable, net

|                                | 2002     | 2001    
|------------------------------- | -------- | --------
|Unbilled services               | 16,263   | 15,188  
|Billed services                 | 37,579   | 37,816  
|Interconnection                 | 22,202   | 21,576  
|Receivables from goods sold     | 18,804   | 12,271  
|Allowance for doubtful accounts | (14,644) | (11,606)
|                                |          |         
|                                | 80,204   | 75,245  
|                                |          |         

As
of December 31, 2002, R$13,158 (R$12,960 as of December 31, 2001) of the total
interconnection receivable  is due from Telecomunicações da Bahia S.A.  Telemar, which
is in the process of settlement negotiation.  The amount recognized in these financial
statements represents managements estimate of the amount that will be received from
Telemar.

Changes
in the allowance for doubtful accounts are as follows:

|                                     | 2002     | 2001     | 2000    
|------------------------------------ | -------- | -------- | --------
|Beginning balance                    | 11,606   | 11,394   | 19,019  
|Provision charged to selling expense | 13,311   | 13,186   | 16,125  
|Write-offs                           | (10,273) | (12,974) | (23,750)
|                                     |          |          |         
|Ending balance                       | 14,644   | 11,606   | 11,394  
|                                     |          |          |         

14. Deferred and
recoverable taxes

|                                  | 2002    | 2001   
|--------------------------------- | ------- | -------
|Federal income tax                | 10,753  | 7,893  
|Social contribution tax           | 834     | 1,671  
|                                 
|Deferred tax assets (Note 10)     | 184,153 | 182,140
|Recoverable state value-added tax | 15,994  | 13,512 
|Withholding income tax            | 16,266  | 19,555 
|Other                             | 462     | 749    
|                                  | 228,462 | 225,520
|                                  |         |        
|Current                           | 30,426  | 45,862 
|                                  |         |        
|Noncurrent                        | 198,036 | 179,658
|                                  |         |        

15. Inventories

|                           | 2002   | 2001   
|-------------------------- | ------ | -------
|Cellular handsets          | 18,565 | 15,948 
|Materials                  | 204    | 307    
|Provision for obsolescence | (985)  | (1,410)
|                           |        |        
|                           | 17,784 | 14,845 
|                           |        |        

16. Other assets

|                           | 2002   | 2001  
|-------------------------- | ------ | ------
|Prepaid expenses          
|Fistel fee                 | 4,007  | 5,565 
|ICMS (state VAT)           | 2,318  | 1,512 
|Financial charges          | 821    | 1,307 
|Prepaid bonus card         | 1,277  | 815   
|Other                      | 1,645  | 301   
|                           |        |       
|                           | 10,068 | 9,500 
|                          
|Other assets              
|Recoverable advances       | 844    | 798   
|Judicial deposit (Note 20) | 1,873  | -     
|Tax incentives  FINOR     | -      | 1,447 
|Other                      | 641    | 125   
|                           |        |       
|                           | 3,358  | 2,370 
|                           |        |       
|                           | 13,426 | 11,870
|                           |        |       
|Current                    | 9,259  | 8,254 
|Noncurrent                 | 4,167  | 3,616 
|                           |        |       

17. Property,
plant and equipment

a. Composition

|                              |           |          
|----------------------------- | --------- | ---------
|
|                              |           |          
|
|                              |           |          
|Construction-in-progress      | 48,991    | -        
|Automatic switching equipment | 142,616   | (72,309) 
|Transmission                  | 534,288   | (327,067)
|Terminal equipment            | 61,272    | (32,341) 
|Buildings                     | 33,857    | (4,072)  
|Infrastructure                | 134,314   | (43,548) 
|Intangible assets             | 66,105    | (20,973) 
|Other assets                  | 51,007    | (24,342) 
|                              |           |          
|Total                         | 1,072,450 | (524,652)
|                              |           |          

Intangible assets are
comprised mainly of a billing and SAP systems.

b. Depreciation
rates

The
annual depreciation rates applied to property, plant and equipment are as follows:

|                              | %            
|----------------------------- | -------------
|Automatic switching equipment | 14.29        
|Transmission equipment        | 14.29        
|Terminal equipment            | 33.00        
|Buildings                     | 4.00         
|Infrastructure                | 4.00 - 14.29 
|Intangible assets             | 20.00        
|Other assets (excluding land) | 10.00 - 20.00

c. Rentals

The
subsidiaries rent equipment and real estate through a number of rental agreements that
expire on different dates.  Total annual rent expenses under these agreements was
R$18,483 in 2002, R$17,193 in 2001 and R$22,526 in 2000.

As
of December 31, 2002, rental commitments primarily related to buildings.  The future
minimum rental payments under non-cancelable leases are as follows:

|2003                   | 2,496
|---------------------- | -----
|2004                   | 1,874
|2005                   | 1,137
|2006                   | 509  
|2007 and thereafter    | 62   
|                       |      
|Total minimum payments | 6,078
|                       |      

18. Payroll and
related charges

|                                               | 2002  | 2001 
|---------------------------------------------- | ----- | -----
|Accrued salaries and social securities charges | 2,629 | 1,988
|Accrued benefits                               | 250   | 687  
|Income tax withheld                            | 23    | 115  
|                                               |       |      
|                                               | 2,902 | 2,790
|                                               |       |      

19. Accounts
payable and accrued expenses

|                             | 2002    | 2001  
|---------------------------- | ------- | ------
|Amounts payable to suppliers | 100,707 | 73,950
|Interconnection              | 5,578   | 4,950 
|Other                        | 236     | 120   
|                             |         |       
|                             | 106,521 | 79,020
|                             |         |       

20. Taxes other
than taxes on income

|                                            | 2002   | 2001  
|------------------------------------------- | ------ | ------
|Value-added taxes (ICMS)                    | 10,353 | 9,681 
|Other indirect taxes on operating revenues:
|COFINS (tax on gross revenue)               | 3,310  | 1,551 
|PIS (tax on gross revenue)                  | 3,051  | 1,130 
|FISTEL (regulatory charge)                  | 646    | 735   
|FUST and FUNTEL (regulatory charges)        | 270    | 243   
|                                            |        |       
|                                            | 17,630 | 13,340
|                                            |        |       

In
January 2000, the Subsidiaries filed a lawsuit challenging the constitutionality and
legality of Law No. 9,718/98, and claiming the suspension of the mandatory difference
arising from the widening of COFINS and PIS calculation basis. Based on formal court
decisions, some payments are suspended and others are being judicially deposited until a
final court decision is made.  Of the accrued amounts for PIS, R$2,752 (R$748 as of
December 31, 2001) refer to amounts that are suspended by Telebahia.  Of the accrued
amounts for COFINS, R$1,873, are being judicially deposited by Telergipe. (See Notes 16
and 23).

21. Other
liabilities

|                                                | 2002   | 2001  
|----------------------------------------------- | ------ | ------
|Salary premiums                                 | 2,108  | 2,938 
|Advances from customers  prepaid calling cards | 3,836  | 2,752 
|Accrual for rewards program                     | 3,639  | 1,760 
|Prior years dividends not claimed               | 526    | 2,114 
|Other                                           | 2,566  | 2,164 
|                                                |        |       
|                                                | 12,675 | 11,728
|                                                |        |       

In
August 2001, the Subsidiaries implemented a rewards program that enables users to
accumulate points based on cellular phone calls completed that may be exchanged for
cellular handsets. An accrual is recorded based on points earned as of the balance sheet
date, considering the cost of the cellular handsets and the expected utilization based on
the registered customers profile and actual redemption history.

22. Loans and
financing

a. Composition of Debt
at December 31:

|                            | Currency | Interest rate  | 2002    | 2001   
|--------------------------- | -------- | -------------- | ------- | -------
|                            |          |                |         |        
|                            | (1)     
|Financial institutions:    
|Citibank  OPIC             | US$      | 3.0% + LIBOR   | 88,332  | 87,015 
|Several  Resolution No. 63 | US$      | 3.5% - 14.35%  | 82,943  | 61,186 
|NEC do Brasil S.A.          | US$      | 0.6875% - 2.5%
|                            |          | +             
|                            |          | LIBOR and 7.3% | 8,215   | 8,333  
|European Investment Bank    | US$      | 0.15% + LIBOR  | 185,428 | 121,775
|ABN Amro Bank Real          | US$      | 0.4% + LIBOR   | 509     | 4,849  
|Accrued interest            |          |                | 4,129   | 3,095  
|                            |          |                |         |        
|                            |          |                | 369,556 | 286,253
|                            |          |                |         |        
|Current                     |          |                | 99,665  | 54,331 
|Noncurrent                  |          |                | 269,891 | 231,922
|                            |          |                |         |        

|(1) | At December 31,        2002 and 2001 1(one) US dollar is equivalent to R$3.5333 and R$2.3204, respectively.
|--- | -----------------------------------------------------------------------------------------------------------

Loans
 from the  European  Investment  Bank  BEI,  Citibank  and  Resolution  63 refer  to
 financing  for the expansion and  modernization  of the cellular  network.  The balances
with NEC do Brasil S.A. and ABN Amro Bank Real refer to financing of fixed asset items.

b.
Maturities

The
long-term portion as of December 31, 2002 matures as follows:

|        | December 31, 2002
|------- | -----------------
|2004  . | 81,981           
|2005    | 2,482            
|2006    | -                
|2007    | -                
|2008    | 185,428          
|        |                  
|Total   | 269,891          
|        |                  

c.
Covenants, guarantees and derivatives

The
financing from Citibank  OPIC, European Investment Bank (BEI) and Bank Boston have
restrictive covenants, which the main restrictions related to the indebtedness level,
EBITDA and financial expenses. These covenants were fully complied with at December 31,
2002 and have not restricted Companys ability to conduct its normal business or incur
additional debt to fund its working capital or capital expenditures needs as of the date
of this annual report.

|Banks                          | Guarantees                                    
|------------------------------ | ----------------------------------------------
|Citibank                       | Overseas Private Investment Corporation (OPIC)
|                               | guarantee  only for political risk           
|                              
|European Investment Bank  BEI
|Telebahia Celular S.A.         | Commercial risk guaranteed by                 
|                               | Banque Sudameris                             
|                               | Banca Commerciale Italiana                    
|Telergipe Celular S.A.         | Commercial risk guaranteed by                 
|                               | Banque Sudameris                             
|                               | Banca Commerciale Italiana and aval           

On
December 31, 2002, the Company has outstanding currency swap contracts with notional
amounts of US$112,470 thousand, to cover liabilities denominated in foreign currency.
During the year ended December 31, 2002, the Company recorded a net gain of R$139,926
(R$56,668 during the year ended December 31, 2001) related to its outstanding derivative
contracts. On December 31, 2002 the Company recorded total assets of R$72,333, of which
R$7,751 (R$3,364 on December 31, 2001) is recorded in current assets and R$64,582
(R$4,753 on December 31, 2001) recorded in noncurrent assets, relating to its outstanding
derivative contracts, representing unrealized gains. Also, on December 31, 2001, the
Company had recorded liabilities amounting to R$5,322 (R$1,746 in current and R$3,576 in
noncurrent), representing unrealized losses.

Under
the terms of the swap contracts, the Company is required to pay the counterparties the
amounts, if any, that the variation of the CDI (Brazilian bank certificates of deposit
rate) on the notional value exceeds the variation of the U.S. dollar exchange rate. If
the inverse occurs, the companies are entitled to receive the differences from the
counterparties. The gains and losses attributable to these instruments are calculated as
if the contract were settled on the balance sheet date and accrued and recognized as an
adjustment to financial income or expense in the period in which the change occurs.

23. Reserve for
contingencies

The
Holding Company and the Subsidiaries are party to certain legal proceedings arising in
the normal course of business, including civil, tax and labor proceedings. The Company
has provided for the estimated losses for those cases which, in the opinion of management
based on the advise of legal counsel, an unfavorable outcome is probable.

Reserves
for contingent liabilities were as follows:

|      | 2002  | 2001 
|----- | ----- | -----
|Labor | 1,653 | 1,232
|Tax   | 1,662 | 2,468
|Civil | 1,743 | 1,102
|      |       |      
|      | 5,058 | 4,802
|      |       |      

Labor
and Civil Claims

The
provisions for labor and civil claims are managements estimates of the most probable
losses in relation to various suits including claims for compensation of damages and
several other labor claims.  On December 31, 2002, the total amounts involved in such
labor and civil claims were R$3,430 and R$7,753 respectively.

Management,
based on the opinion of its legal counsel, has recognized reserves for losses in those
cases in which an unfavorable outcome to the Company is considered probable.

Taxes
PIS and COFINS Litigation

In
January 2000, the Subsidiaries filed litigation arguing the constitutionality and
legality of Law No. 9,718/98, which modified the basis for computing PIS and COFINS, and
increased the COFINS rate.  The lawsuits seek to suspend the payment of the additional
taxes.

The
Subsidiaries were partially successful in obtaining preliminary injunctions to suspend
payments until a final decision is issued by the courts.  Unpaid amounts, however, have
been accrued by the Company (see Note 20).

Taxes
ICMS on activation fees and other services

On
June 19, 1998 the secretaries of the treasury of the individual Brazilian states approved
an agreement to interpret existing Brazilian tax law to broaden the application of the
ICMS (state VAT), to cover not only telecommunications services but also other services,
including cellular activation, which had not been previously subject to such tax.
 Pursuant to this new interpretation of tax law, the ICMS tax may be applied
retroactively for such services rendered during the last five years, prior to June 30,
1998.

The
Company believes that the attempt by the state treasury secretaries to extend the scope
of 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.

On
December 23, 1998 Telebahia Celular S.A. was assessed for the lack of payment of ICMS tax
on activation fees retroactive to February 1998.  The amount involved is R$4,413.  For
Telergipe Celular S.A., the amount involved is approximately R$1,190, but this subsidiary
has not been assessed by the tax authorities to date.  In the opinion of legal counsel,
the likelihood of loss is remote; therefore, no reserve for losses was recognized as of
December 31, 2002.

Application
of the ICMS to cellular activation for the full year ended December 31, 1999, would have
a maximum negative impact estimated at R$390 (on the results of operations for 1999).
 During 2001 and 2002 this activation fee was not charged to the clients.  There can be
no assurance that the Company will prevail in its position that the new interpretation by
the state treasury secretaries is unlawful.

Additionally,
Telebahia and Telergipe were assessed due to the nonpayment of ICMS on supplementary
services.  The amounts involved are R$4,210 and R$401, respectively.  Telergipe was also
assessed due to the untimely underpayment of ICMS on telecommunication services in the
total amount of R$840.

Management,
based upon the opinion of its legal counsel, believes that an unfavorable outcome
relating to these claims is possible and consequently, no provision has been recorded.

ICMS
on handset sales and fixed assets

Telebahia
Celular S. A. and Telergipe Celular S. A. were assessed due to the lack of reversal of
ICMS credit related to the acquisition of permanent assets, electric energy and
communication services arising from the provision of non-taxed communication services and
lack of reversal of ICMS credit related to the rentals and goods without fiscal records.
 The amounts involved are R$3,660 and R$1,662, respectively.

Management,
based upon the opinion of its legal counsel, believes that an unfavorable outcome
relating to these claims is possible and consequently, no provision has been recorded.

ISS
Notice of Infringement

Telebahia
Celular S.A. was assessed for ISS (Municipal Services Tax) on network usage charges.  The
amount involved including interest is R$29,467.  In the opinion of legal counsel, an
unfavorable outcome relating to these claims is possible; therefore, no reserve for
losses was recognized as of December 31, 2002.  Telebahia Celular S.A. was assessed for
lack of retention of ISS on outside services.  The amounts involved including interest
total R$4,671.  Based on the opinion of legal counsel that unfavorable outcomes related
to some of these cases are probable, the Company has recorded a provision amounting to
R$1,655.

Potential
Litigation

Telebrás,
Telecomunicações da Bahia S.A. - Telemar and Telecomunicações de Sergipe S.A. - Telemar,
the legal predecessors of the Holding Company, Telebahia Celular S.A. and Telergipe
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 Telecomunicações da Bahia S.A. - Telemar and Telecomunicações de Sergipe
S.A. - Telemar prior to the effective date of the spin-off of Telecomunicações da Bahia
S.A. - Telemars and Telecomunicações de Sergipe S.A. - Telemars cellular assets and
liabilities to Telebahia Celular S.A. and Telergipe Celular S.A. remains with Telecomunicações
da Bahia S.A. - Telemar and Telecomunicações de Sergipe S.A. - Telemar, except for those
liabilities for which specific accounting provisions have been assigned to Telebahia
Celular S.A. and Telergipe Celular S.A.  Any claims against Telecomunicações da Bahia
S.A. - Telemar and Telecomunicações de Sergipe S.A. - Telemar which are not met by
Telecomunicações da Bahia S.A. - Telemar and Telecomunicações de Sergipe S.A. - Telemar
could result in claims against Telebahia Celular S.A. and Telergipe Celular S.A. to the
extent that Telebahia Celular S.A. and Telergipe Celular S.A. have received assets which
might have been used to settle those claims had they not been spun off from Telecomunicações
da Bahia S.A. - Telemar and Telecomunicações de Sergipe S.A. - Telemar.  Under the terms
of the breakup of Telebrás, 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 (in which case Telebrás and the new Holding Company are jointly and
severally liable) and any liability for which specific accounting provisions have been
assigned to the Holding 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 Subsidiaires and/or the Holding Company are remote and,
therefore, no provision was recorded.

In
guarantee of some of the cases discussed above, the Company has pledged fixed assets in
the total amounts of R$10,860.  Additionally, plaintives have obtained judicial orders to
restrict funds at banks in the amount of R$432.

Litigation
Related to Tax Credits

Under
certain conditions, Brazilian law permits companies to benefit from tax credits related
to the amortization of goodwill.  Despite this fact, an action was filed on December 16,
1999 against Anatel and the New Holding Companies, including Tele Leste, that have
undergone a corporate restructuring in connection with the Breakup of Telebrás and that
recognized tax credits to offset premiums paid by their controlling shareholders at the
time of their acquisition.  The Company filed the answer in 2002.  Management do not
think this action will succeed, as the Company believes the restructuring was done in
compliance with Brazilian law, however, based on the opinion of legal counsel, the
chances of unfavorable outcomes are possible in this case.

The
extent of any potential liabilities in connection with this action will be determined in
a separate but related lawsuit known as the calculation of the award, which will only
take place if we are unsuccessful in its defense.

Litigation
Related to the Ownership of the Caller ID

In
July 2002, Tele Leste, Telebahia and Telergipe, together with other Brazilian mobile
telecommunication operators, were summoned to defend in a legal action filed by Lune
Projetos Especiais Telecomunicação Comércio Ind. Ltda., or Lune, pursuant to which Lune
claims to be the owner of patents relating to Equipamento Controlador de Chamadas
Entrantes e do Terminal Telefônico, or Caller ID, and also that the mobile
telecommunication operators are using the patent without proper authorization.
Therefore, Lune demands that the operators cease to provide Caller ID services and that
it should be indemnified for the unauthorized use of the Caller ID system, upon payment
of fees received by the operators in consideration to the use of the system by their
customers. Based on the opinion of legal counsel, the chances of unfavorable outcomes are
possible in this case.

The
indemnification allegedly due by the mobile operators could not be accurately calculated
as of yet, due to the fact that the cost of the caller ID service provided by the
companies has never before been calculated separately.

24. Pension and
other postretirement benefit plans

The
Subsidiaries, together with other companies of the former Telebrás System, participate in
a multi-employer defined benefit pension plan and other post retirement benefit plans
administered by the Fundação Telebrás de Seguridade Social(Sistel).

Until
December 1999, all sponsors of the plans managed by Sistel were joint and severally
liable participants in relation to all plans then existent.  On December 28, 1999, a
single-employer sponsored pension plan for active employees was created (PBS-Tele Leste
Celular Plan).  Retired employees (PBS-A) and post-retirement health care benefits (PAMA)
remained as multiemployer plans.  The implementation of the restructuring was approved by
the Secretaria de Previdência Complementar (Secretary for Social Security and
Supplementary Benefits) on January 13, 2000.

Due
to the withdrawal of active participants in December 1999, the Subsidiaries individually
sponsor a single-employer defined benefit plan (PBS Tele Leste Celular Plan), which
covers approximately 1% of the Companys employees.  In addition to the supplementary
pension benefit, a multi-employer health care plan (PAMA) is provided to retired
employees and their dependents, at shared costs.  Contributions to PBS Tele Leste Celular
Plan are determined based on actuarial valuations prepared by independent actuaries, in
accordance with the standards applicable in Brazil.  The method used for cost
determination is the capitalization method and the sponsors contribution represents
13.5% of the participating employeespayroll, 12% of which is earmarked for PBS Tele
Leste Celular Plan and 1.5 % for PAMA Plan.

For
94% of the subsidiaries employees, there is an individual defined contribution plan - Visão
Celular Benefit Plan, established by SISTEL in August 2000. Visão Celular Plan is
supported by contributions made by the participants (employees) and by the sponsor, which
are credited to participants individual accounts. The subsidiaries are responsible for
the costing of all administrative and maintenance expenses, including risks of death and
disability of participants.  The employees participating in the defined benefit plan (PBS
Tele Leste Celular) were granted the option of migrating to Visão Celular Plan.  This
option was extended to employees who did not participate in the PBS Tele Leste Celular
Plan, as well as to all new hires.  The Companys contributions to Visão Celular Plan are
similar to those of the participants, varying from 2% to 9% of the contribution salary,
according to the percentage opted for by the participant.

During
2002, the subsidiaries contributed R$3 (R$4 in 2001) to PBS Tele Leste Celular Plan and
R$692 (R$584 in 2001) to Visão Celular Plan.

As
permitted by CVM Instruction No. 371, of December 13, 2000, the Company elected to
recognize the accrued pension and postretirement benefit cost of its defined benefit
plans directly in shareholders equity as of December 31, 2001, net of the related tax
effects. During the year ended December 31, 2002, the Company elected to record in income
all actuarial gains and losses generated during the year on its defined benefit plans.
The Company used the projected unit credit method to estimate the plans liabilities, as
well as plan assets, as of November 30, 2002 and 2001.  For multi-employer plans (PAMA
and PBS-A), the apportionment of the plans assets was made in accordance with the Companys
Accumulated Benefit Obligation  ABO and Projected Benefit Obligation - PBO,
respectively, proportionally to the total plans ABO and PBO.

As
of December 31, 2002 and 2001, the composition of the accrued pension and postretirement
benefit cost for the defined benefit plans, and the retirees health care plans, as well
as further information required by CVM on these plans, are shown below:

|Plan                            | December31, 2002 | December31, 2001
|------------------------------- | ---------------- | ----------------
|                                |                  |                 
|PBS Visão Telebahia / Telergipe | 140              | 254             
|PAMA Telebahia / Telergipe      | 261              | 426             
|                                |                  |                 
|                                | 401              | 680             
|                                |                  |                 

a)
Reconciliation between assets and liabilities

|                               | December 31, 2002               
|------------------------------ | --------------------------------
|                               | PBS/Visão (i)Telebahia/Telergipe
|                               |                                 
|Projected benefit obligation   | 1,767                           
|Fair value of plan assets      | 1,627                           
|                               |                                 
|Accrued (prepaid) pension cost | 140                             
|                               |                                 

|                              
|------------------------------
|                              
|                              
|Projected benefit obligation  
|Fair value of plan assets     
|                              
|Accrued (prepaid) pension cost
|                              

(i) Even though the Visão
 Telebahia  and Telergipe  plans are defined  contribution  plans,  there is an
      actuarial  risk of death and  disability of  participants,  which is beared by the
sponsor,  requiring an       actuarial estimate of those risks.

(ii) Refers to
 proportional  participation  of Telebahia and Telergipe in assets and  liabilities of
the       multi-sponsored plan  PAMA and PBS-A.

(iii) Even though PBS
- A has a surplus as of December 31, 2002 and 2001,  no assets were  recognized  by
      the sponsor,  due to the legal  impossibility of  reimbursement of this surplus,
 in addition to the fact       that the plan is  non-contributory,  which precludes a
reduction of  contributions  by the sponsor in the       future.

b)
Total expenses recognized on the statement of income.

|                         
|-------------------------
|                         
|                         
|Cost of service          
|Cost of interest         
|Expected return on assets
|Employees contributions 
|                         
|                         
|                         

c)
Changes in the accrued pension cost

|                                            
|--------------------------------------------
|                                            
|                                            
|Accrued pension cost as of December 31, 2001
|Expenses in 2002                            
|Employers contributions in 2002            
|Actuarial (gains) losses during the year    
|                                            
|Accrued pension cost as of December 31, 2002
|                                            

d)
Changes on projected benefit obligation - PBO

|                                    
|------------------------------------
|                                    
|                                    
|PBO as of December 31, 2001         
|Cost of service                     
|Cost of interest                    
|Benefits paid in the year           
|Actuarial (Gains) losses of the year
|                                    
|PBO as of December 31, 2002         
|                                    

e)
Changes on plan assets

|                                                 
|-------------------------------------------------
|                                                 
|                                                 
|Fair value of plan assets as of December 31, 2001
|Benefits paid in the year                        
|Sponsors contribution in the year               
|Return on plan assets in the year                
|                                                 
|Fair value of plan assets as of December 31, 2002
|                                                 

f)
Actuarial Assumptions

|                                       
|---------------------------------------
|                                       
|                                       
|Discount rate for determining projected
|benefit obligation                     
|Plan assets expected return rate       
|Salary increase rate                   
|Long term inflation rate               
|Medical costs increase rate            
|Benefits increase rate                 

|                                       
|---------------------------------------
|                                       
|                                       
|Discount rate for determining projected
|benefit obligation                     
|Plan assets expected return rate       
|Salary increase rate                   
|Medical cost increase rate             
|Benefits increase rate                 

|(*) | In 2002 was used nominal rate, while 2001 was adopted real rate.
|--- | ----------------------------------------------------------------

25. Shareholders equity

a. Share capital

The
Companys authorized capital at December 31, 2002 was 1,400 billion shares (700 billion
shares as of December 31, 2001).  Capital subscribed and paid-in at December 31, 2002 was
represented by the following shares, without par value:

|                                                | Common incirculation | Preferred incirculation | Totaloutstanding
|----------------------------------------------- | -------------------- | ----------------------- | ----------------
|                                                |                      |                         |                 
|As at December 31, 2002 (in thousands)          | 166,008,044          | 313,436,995             | 479,445,039     
|In Brazilian reais  12.31.02  corporate law   | 105,743              | 199,653                 | 305,396         
|In Brazilian reais  12.31.02  full indexation | 127,432              | 240,601                 | 368,033         

The
capital may be increased only by a decision taken at a shareholders meeting or by the
Board of Directors in connection with the capitalization of profits or reserves
previously allocated to capital increases at a shareholders meeting.

Preferred
 shares are  entitled  to receive  cash  dividends  10% higher than those  attributed  to
common shares,  or non  cumulative  minimum  annual  preferred  dividends of 6% of their
nominal  capital value social capital  attributed  to those  shares,  whichever  is
 greater.  In the case of the  payment of minimum  annual preferred  dividends of 6% of
social capital  attributable to preferred  shares,  after the minimum dividend is paid to
 preferred  shareholders,  holders of common  shares may receive the same amount of
 dividends as those paid on  preferred  shares,  as long as there is an available
 balance.  Additional  dividends  declared by the Company will be ratably divided between
common and preferred shareholders.

The
preferred shares are non-voting except under limited circumstances and have priority over
the common shares in the case of liquidation of the Company.

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

b. Capital
reserves

Special
reserve  Goodwill

This
reserve represents the formation of a special reserve for goodwill as a result of the
Corporate restructuring (see Note 29).  According to CVM Instruction No. 319, of December
3, 1999, this reserve shall be used in future capital increases on behalf of the
controlling shareholder (Iberoleste Participações S.A.) whenever the amortization of the
goodwill paid in the acquisition of the Company results in a reduction of income tax and
social contribution liabilities.

Fiscal
Incentive

Comprised
of income tax reduction incentives, which are converted into investment certificates.

c. Income
reserves

Legal
reserve

Brazilian
corporations are required to appropriate 5% of annual net income to a legal reserve until
that reserve equals 20% of paid-in share capital, or that reserve plus capital reserves
equals 30% of nominal paid-in share capital; thereafter, appropriations to this reserve
are not compulsory.  This reserve can be used only to increase share capital or offset
accumulated losses.

Special
reserve for dividends

This
reserve was recorded in 1999 based on remaining earnings not distributed that would be
paid as dividends under the provisions of Article 202 of Brazilian corporate law.  Under
the provisions of Article 202, paragraph 5 of corporate law, all of this reserve was
offset against the net loss in 2000.

Special
reserve for expansion and modernization

This
reserve was recognized to cover expansion and modernization of the installations and
services of the subsidiaries.  Formation of this reserve was approved on March 9, 2000.
 Under the terms of Article 189 of Brazilian corporate law, a portion (R$3,501) of this
reserve was offset against the net loss in 2000.  In December 2001, another portion
(R$6,708) of this reserve was offset against retained earnings to be distributed as part
of dividends and to offset prior year adjustments generated by the recognition of
liabilities related to the pension plan.

d. Dividends

Pursuant
to its by-laws, the Company is required to distribute as dividends in respect of each
fiscal year ending on December 31, to the extent amounts are available for distribution,
an aggregate amount equal to at least 25% of Adjusted Net Income (as defined below) on
such date.  The annual dividend distributed to holders of preferred shares (the Preferred
Dividend) has priority in the allocation of Adjusted Net Income.  Remaining amounts to
be distributed are allocated first to the payment of a dividend to holders of common
shares in an amount equal to the Preferred Dividend and the remainder is distributed
equally among holders of preferred shares and common shares.

For
the purposes of the Brazilian Corporation Law, and in accordance with the Companys
by-laws, the Adjusted Net Income is an amount equal to the Companys net profits
adjusted to reflect allocations to or from (i) the legal reserve, (ii) the statutory
reserve, (iii) a contingency reserve for anticipated losses, if any, and (iv) an
unrealized income reserve, if any.

As
of December 31, 2001, the Company accrued minimum dividends, attributable to preferred
shareholders, based on 6% of the capital stock attributable to these shares, as follows:

|Total capital (Corporate law)    | 305,396    
|-------------------------------- | -----------
|Total shares (thousand)          | 479,445,039
|                                 |            
|Capital per thousand shares - R$ | 0.636978   
|Preferred shares (thousand)      | 313,436,995
|                                 |            
|Preferred capital stock          | 199,653    
|Percentage                       | 6%         
|                                 |            
|Amount of minimum dividends      | 11,979     
|                                 |            

At
Shareholders Meeting held on April 1, 2002 was approved payment of minimum dividends,
regarding to the year of 2001, to the preferred shareholders, in the amount of R$11,979,
equivalent to R$0.03822 per thousand of shares, which the effective payment was made in
September 06, 2002.

Pursuant
to its  by-laws,  management  did not propose any  dividends  to be approved at the
 ShareholdersMeeting for the year ended December 31, 2002.

26. Transactions
with related parties

The
principal transactions with unconsolidated related parties are as follows:

(a) Use of Network and
Long-distance (Roaming) Cellular Communication - These transactions involve companies
owned by same group: Telerj Celular S.A., Telest Celular S.A., Telecomunicações de São
Paulo S.A. - Telesp, Telesp Celular S.A, Global Telecom S.A, Celular CRT S.A, and Telefónica
Móviles de España. This group became a related party on December 27, 2002 as a result of
the joint venture described in note 1. The table presented below includes balances and
transactions with these companies for all periods presented. These transactions were
established based on contracts between Telebrás and the operating concessionaires before
privatization. The terms of these transactions are regulated by ANATEL.

(b) Technical
Assistance - The subsidiaries due to Telefónica Móviles S.A. technical assistance by new
services.

(c) Rendering of
Services - The following services are rendered by companies owned by the same group:

- Corporate
  services   centralized  at  Telerj   Celular  S.A.  and  Telefônica   Gestão  de  Serviços
              Compartilhados do Brasil Ltda., transferred to other subsidiaries at costs
effectively incurred.
- Call center
 services  rendered  by Atento  Brasil  S.A.  to users of  telecommunications  services
of               subsidiaries.
- Implementation
 and  maintenance  of  profitability  and cost  control  system  by  Telefónica  Mobile
              Solution.
- Services of
implementation of facilities security system rendered by Telefónica Engenharia.

A
summary of the balances and transactions with unconsolidated related parties, made under
usual market conditions for these types of operations, is as follows:

|                                      | 2002   | 2001  
|------------------------------------- | ------ | ------
|                                      |        |       
|Current assets:                      
|Accounts receivable                   | 1,134  | 398   
|Current liabilities:                 
|Technical assistance                  | 23,865 | 11,318
|Accounts payable and accrued expenses | 3,868  | 4,437 

|                                    | 2002   | 2001   | 2000  
|----------------------------------- | ------ | ------ | ------
|                                    |        |        |       
|Net operating revenue from services | 20,109 | 14,905 | 15,385
|Cost of services                    | 5,882  | 5,618  | 6,192 
|Operating expenses:                
|Services rendered                   | 8,945  | 7,427  | 4,515 
|General and administrative expenses | 10,265 | 12,526 | 8,283 

27. Commitments

a. Capital
expenditures

The
Subsidiaries have capital expenditure commitments related to the technical development
and continuing expansion of telecommunication services.  These commitments amount to
approximately R$8,019 as of December 31, 2002, which are expected to be spent during the
year 2003.

b. Commitments
to Anatel Goals

The
Company is subject to obligations concerning quality of services, network expansion and
modernization.  Failure to meet these obligations may result in fines and penalties until
the Company complies with its obligations, as well as potential revocation of the
concession.

Commitments
with ANATEL are being monitored by the subsidiaries.  The Company believes that it is
currently in compliance with its quality of service and expansion obligations.

28. Management
compensation

During
2002, management compensation in the amount of R$576 was recorded as expenses.

29. Corporate
restructuring

On
November 29, 2000, a corporate  restructuring  process was completed to transfer the
goodwill paid as a result of the  privatization  process of the Company to the
 Subsidiaries,  to ensure  their  realization.  The restructuring  was in  essence a
 transfer  of the tax  benefits  associated  with the  goodwill  amortization; however,
for local tax purposes it involved a series of spin-offs and mergers.

For
the  Companys  corporate and tax  purposes,  the tax benefit is recorded in two separate
 components, comprised of the related  goodwill  transferred  and the related  reserve
for the  maintenance and integrity of the merged  companys  equity.  These  amounts are
recorded  net in the balance  sheet as a deferred tax asset, presented as part of
deferred and recoverable taxes as follows:

TELE LESTE CELULAR
PARTICIPAÇÕES S.A.                                   NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS                        (Amounts expressed in thousands of reais, unless
otherwise indicated)

|                                        | Balances as of |                  |           |           |          
|--------------------------------------- | -------------- | ---------------- | --------- | --------- | ---------
|                                        | Spin-off       | Partial spin-off | December  | December 
|                                        | Date           | Telebahia        | Telergipe | 31,2002   | 31,2001  
|Balance sheet:                         
|Goodwill - spun-off                     | 379,798        | (358,133)        | (14,376)  | 251,869   | 284,038  
|Reserves - spun-off                     | (254,303)      | 239,791          | 9,632     | (169,837) | (191,069)
|Net effect equivalent to               
|Tax credit from corporate restructuring | 125,495        | 118,342          | 4,744     | 82,032    | 92,969   
|Statements of income:                  
|Goodwill amortization                   |                |                  |           | 32,169    | 73,823   
|Reversal of reserve                     |                |                  |           | (21,232)  | (48,723) 
|Tax credit                              |                |                  |           | (10,937)  | (25,100) 
|Net effect on income                    |                |                  |           | -         | -        

As
shown above,  the  amortization  of goodwill,  net of the reversal of the reserve and of
the  corresponding tax credit,  does not affect net income and,  consequently,  has no
effect on the basis for calculating the minimum mandatory  dividend.  The net amount of
R$82,032 as of December 31, 2002 (R$92,969 as of December 31, 2001),  which represents
the tax credit from the partial  spin-off,  was classified in the balance sheet as a
non-current asset - deferred taxes (see Note 10).

The
capital  reserve  amounting  to  R$124,344  under  Corporate  Law at December  31, 2002
will result in the issuance of shares in future years as the related tax benefits are
 realized.  The number of shares  issued will be determined  at each  issuance  date
based on the market  value of the shares.  All of Companys  shareholders  have
preemptive  rights to subscribe for additional  shares at the then current market price.
 On December 31, 2002, the Company was waiting for the approval of the  Management
 Council to  capitalize  the amount of R$980.  Additionally R$28,854  and  R$10,387  was
 recorded as income and social  contribution  tax loss credit  forwards  credit on tax
losses and  negative  basis of social  contribution  as of  December  31,  2002 and 2001,
 respectively,  since the amortization of goodwill exceeded taxable income.

30.      Insurance

The
Holding Company and Subsidiaries have established policies to monitor inherent risks in
its operations. As of December 31, 2002, the Holding Company and Subsidiaries had
contracted  insurance to cover operational risks, loss of income, civil liabilities,
health etc. Management believes that insurance coverage is enough to cover potential
contingent losses related to these insured risks. Following is information on the Companys
insurance coverage:

|Classification  | Coverage      
|--------------- | --------------
|Operating risks | US$568 million
|General civil   | R$7,325       
|liabilities    
|Vehicle fleet   | R$34,100      

31.      Financial
instruments and management risk

a.
Risks considerations

Tele
Leste is the Holding Company of Telebahia and Telergipe, which provide cellular
communications services in the States of Bahia and Sergipe, respectively, under
concessions from the Federal Government.  Both of them are also engaged in activities of
purchasing and distribution of cellular handsets through their own distribution network
in order to increase their business operations.

The
main market risks that Telebahia and Telergipe are exposed to in their activities are:

- Credit Risk:originates from the difficulties in which the Subsidiaries have in collecting the
service charges for services rendered to their clients, including the sales of
cellular handsets to the distribution networks.
- Interest Rate
Risk:originates from a portion of the debt and derivatives contracted with
floating rates, and involves the risk of increased financial risk as a result of
unfavorable movement in interest rates (principally Libor and CDI).
- Exchange Rate
Risk:originates from debt and derivatives denominated in foreign currencies and
involves the risk of potential losses as a result of unfavorable movements in foreign
exchange rates.

Since
inception,  Telebahia and Telergipe have established  policies and procedures to
proactively  manage the above risks.

Credit
Risk

The
credit risk related to telecommunications services rendered is minimized by the controls
performed on customers balances and proactive management of indebtedness through clear
policies relating to the granting of billed services. Tele Leste has 69% of its client
base participating in prepaid plans, which requires prepaid handset cards and does not
represent a credit risk. Customers indebtedness represented 2.3% of gross revenue in
2002 and 2001.

The
credit risk related to cellular handsets sales is managed by maintaining conservative
credit policies and  through updated management methods, which include the use of credit
scoring, technical application, balance analysis and consultation with commercial data
bases as well as the automatic control for sales authorization integrated within our
 distribution system software. Network distributions indebtedness represented about 1.8%
of cellular handsets sales during the year of 2002 (4.8% in 2001).

Interest
Rates Risk

The
Company has not entered into any derivative agreements to protect itself against interest
rate risk. However, the Company actively monitors market interest rates, aiming at
 evaluating the possible need for a derivative contract, so as to protect itself against
 the risk of volatility in these rates.

Exchange
Rate Risk

Telebahia
and Telergipe have entered into derivative financial contracts to protect themselves
against exchange variations on loans denominated in foreign currencies.  The contracts
generally used by the Subsidiaries are swap contracts.

As
of December 31, 2002 and 2001, the Companys net exposure to exchange rate risk, at book
value, is as follows:

|                                      | 2002               | 2001              
|------------------------------------- | ------------------ | ------------------
|                                      | (Thousands of US$) | (Thousands of US$)
|Loans and financing                  
|Other liabilities in foreign currency | 104,593            | 123,364           
|Derivative positions (swaps)          | 6,754              | 4,878             
|Net                                   | (112,470)          | (123,399)         
|exposure                              | (1,123)            | 4,843             

b.
Derivative operations

Telebahia
 and  Telergipe  have  recorded  gain and  losses  on  derivative  contracts  as  Financial
 income (expenses), net.

The
table below shows the book value and estimated  market value of loans and  financing and
foreign  currency liabilities, as well as derivative contracts as of December 31, 2002
and 2001:

|                                          | 2002       |          
|----------------------------------------- | ---------- | ---------
|                                          |            |          
|                                          | Book value | Market   
|                                          |            | value    
|Loans and financing                       | (369,556)  | (277,853)
|Other liabilities                         | (23,865)   | (23,865) 
|Derivative asset positions(exchange swap) | 397,390    | 350,647  
|Total                                     | 3,969      | 48,929   

|                                     | 2001       |          
|------------------------------------ | ---------- | ---------
|                                     |            |          
|                                     | Book value | Market   
|                                     |            | value    
|Loans and financing                  | (286,253)  | (297,544)
|Hedge asset position (exchange swap) | 286,335    | 309,725  
|Total                                | 82         | 12,181   

The
market value of loans and financing,  as well as swaps were  estimated,  based on
discounted cash flows, using available interest rate and foreign currency projections.

The
market values are calculated at a specific moment in time, based on available information
and using internal valuation methodologies; therefore, the indicated market values do not
necessarily represent the values at which the transactions may be able to be settled in a
current market transaction. The use of different assumptions or methodologies could have
a significant effect on the estimated market values.

Where
no comparison of book versus fair value is presented for a financial asset or liability
line item in the schedule above, no significant difference in value is believed to exist.

c.
Fair value of other financial instruments

The
book values of cash and cash equivalents, trade accounts receivable, other current
assets,  accounts payable and accrued expenses approximates their fair values.

32.      Summary of
the differences between Brazilian and US GAAP

The
Companies accounting policies comply with generally accepted accounting principles in
Brazil (Brazilian GAAP).  Accounting policies that differ significantly from generally
accepted accounting principles in the United States of America (US GAAP) are described
below:

a.       Different
criteria for capitalizing and amortizing capitalized interest

Until
December 31, 1993 capitalized interest was not added to the individual assets in
property, plant and equipment; instead it was capitalized separately and amortized over a
time period different from the useful lives of the related assets.  Under US GAAP,
capitalized interest is added to the individual assets and is amortized over their useful
lives.

Also,
until December 31, 1998, under Brazilian GAAP as applied to companies in the
telecommunications industry, interest attributable to construction-in-progress was
computed at the rate of 12% per annum of the balance of construction-in-progress and that
part which relates to interest on third-party loans was credited to interest expense
based on actual interest costs, with the balance relating to the Companies own capital
being credited to capital reserves.  For the three-year period ended December 31, 2002,
the Company did not capitalize interest attributable to construction-in-progress at the
rate of 12%; rather the actual effective interest related to construction-in-progress was
used to determine capitalized interest.

Under
US GAAP, in accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 34, Capitalization of Interest Costs, interest incurred on borrowings is
capitalized to the extent that borrowings do not exceed construction-in-progress.  The
credit is a reduction of interest expense.  Under US GAAP, the amount of interest
capitalized excludes the monetary gain associated with local currency borrowings and any
foreign exchange gains and losses on foreign currency borrowings.  The effects of these
different criteria for capitalizing and amortizing capitalized interest are presented
below:

|                                                | 2002    | 2001    | 2000   
|----------------------------------------------- | ------- | ------- | -------
|Capitalized interest difference                
|US GAAP capitalized interest:                  
|Interest capitalized during the period          | 5,392   | 7,842   | 8,892  
|Capitalized interest on disposals               | (323)   | (11)    | (171)  
|                                                | 5,069   | 7,831   | 8,721  
|Less Brazilian GAAP capitalized interest:      
|Interest capitalized during the period          | (4,211) | (7,391) | (7,129)
|Capitalized interest on disposals               | 326     | 12      | 193    
|                                                | (3,885) | (7,379) | (6,936)
|US GAAP difference                              | 1,184   | 452     | 1,785  
|                                               
|Amortization of capitalized interest difference
|Amortization under Brazilian GAAP               | 6,048   | 4,923   | 2,991  
|Capitalized interest on disposals               | (301)   | (8)     | (12)   
|                                                | 5,747   | 4,915   | 2,979  
|Less amortization under US GAAP                 | (6,043) | (4,819) | (2,735)
|Capitalized interest on disposals               | 298     | 4       | 11     
|                                                | (5,745) | (4,815) | (2,724)
|US GAAP difference                              | 2       | 100     | 255    

b.       Proposed
dividends

Under
Brazilian GAAP proposed dividends are accrued for in the financial statements in
anticipation of their approval at the shareholders' meeting.  Under US GAAP, dividends
are not accrued until they are formally declared.

The
interest on shareholders equity is a legal liability from the date it is declared,
therefore, these amounts must be included as dividends in the year they are proposed for
US GAAP purposes.

c.       Pension
and other postretirement benefits

The
Companies participate in two multiemployer benefit plans (PBS-A and PAMA) that are
operated and administrated by Sistel and provide for the costs of pension and other
postretirement benefits based on a fixed percentage of remuneration, as recommended
annually by independent actuaries.  For purposes of US GAAP, the Company is considered to
contribute to multiemployer plans and consequently is required to disclose its annual
contributions and funded status of those plans.  The Companies also sponsor a
single-employer defined pension benefit plan (PBS-Tele Leste).  The provisions of SFAS
No. 87, Employees Accounting for Pensions, for the purposes of calculating the funded
status, were applied with effect from January 1, 1992, because it was not feasible to
apply them from the effective date specified in the standard (See Note 32).

On
December 13, 2000, CVM issued Instruction No. 371, which provisions are very similar to
SFAS No. 87 and SFAS No. 106, except for the following major aspects:

- A company that
participates in a multiemployer defined benefit pension or postretirement benefit plan
     has to recognize any assets or liabilities in respect to its participation in such
plans, while US GAAP      requires only the disclosure of funded status of those plans.
- The unrecognized
net obligation existing at the date of initial application of this standard shall be
     amortized over five years or remaining service period or remaining life expectancy,
whichever is lower.      Alternatively, companies were granted the option to amortize
such initial transition obligation as of      December 31, 2001, directly to shareholders ́ equity.
 Such option has been adopted by the Company (See Note      24).  Under SFAS No. 87, the
unrecognized net obligation existing at the date of its initial application is      being
amortized over the remaining service period.

The
effects of these different criteria for recognition of pension and other postretirement
benefits on accrued pension (postretirement) benefit as of December 31, 2002 and 2001,
are presented below:

|                                         | 2002 | 2001
|---------------------------------------- | ---- | ----
|Description                              | US   | BR  
|                                         | GAAP | GAAP
|Active employees defined                
|pension - PBS Tele Leste                 | 467  | 140 
|Multiemployer health care plan - PAMA    | -    | 261 
|Accrued pension (postretirement) benefit | 467  | 401 

d.       Interest
income (expense)

Brazilian
GAAP requires interest to be shown as part of operating income.  Under US GAAP interest
income (expense) would be shown after operating income.

e.       Permanent
assets

Brazilian
GAAP has a class of assets called permanent assets.  This is the collective name for all
assets on which indexation adjustments were calculated until December 31, 1995 in the
corporate and tax law accounts of Brazilian companies.  Under US GAAP the assets in this
classification would be noncurrent assets.

f.
      Price-level adjustments and US GAAP presentation

The
effects of price-level adjustments until 2000 have not been eliminated in the
reconciliation to US GAAP nor are the monetary gains or losses associated with the
various US GAAP adjustments separately identified, because the application of inflation
restatement as measured by the IGP-M represents a comprehensive measure of the effects of
price level changes in the Brazilian economy.  For information regarding the 2001 and
2002 presentation of financial statements see Note 2(c).

g.       Items
posted directly to shareholders equity

Under
Brazilian GAAP various items are posted directly to shareholders equity, which under US
GAAP would be posted to the consolidated statements of operations.  The posting of such
items to shareholders equity gives rise to adjustments in the consolidated statements of
changes in shareholders equity.  Since the original postings to the equity accounts
would, under US GAAP, are made directly to the consolidated statements of operations, the
adjustment is included in the reconciliation of the income differences between US and
Brazilian GAAP.  Deferred income tax effects of indexation adjustments and fiscal
incentives are adjusted in Companys financial statements for US GAAP purposes.

h.        Taxes on
income

The
Company records deferred income taxes on temporary differences between tax and accounting
bases.  The existing policies for providing for deferred taxes are materially in
accordance with SFAS 109, Accounting for Income Taxes (SFAS 109), except for the
deferred income tax effects of indexation adjustments of  R$9,858 in 2000 (see Note
2(b)(iii)) that were recorded directly against shareholders equity, respectively, and
for the social contribution tax rate, as explained below:

1. Under US GAAP the
deferred tax effect of the 2000 indexation for financial reporting
                  purposes would be charged to income and social contribution taxes in
the consolidated                   statement of income.  Additionally, for US GAAP
purposes, the deferred tax assets and                   liabilities are classified as
current or non-current based on the classification of the                   asset or
liability generating the temporary difference.
2. Under Brazilian
GAAP, at December 31, 1999 the Company recognized a change in the combined tax rate from
                  33% to 34% based on a provisional measure for an increase in the social
contribution                   rate from 8% to 9% effective January 1, 2000.  Provisional
measures are temporary and                   must be reapproved every 30 days or they
lapse.  Under SFAS 109, the provisional                   measures discussed are not
considered to be enacted law.  Therefore, for 2000 and 2001                   the
combined deferred tax effect calculated on temporary differences would be 33%, not
                  34%. For 2002 no difference between GAAPs related to the social
contribution tax rate                   was considered as the provisional measure was
approved in Law 10.637 as of December 30,                   2002.

i.        Earnings
per share

Under
Brazilian GAAP, net income per share is calculated based on the number of shares
outstanding at the balance sheet date.  In these consolidated financial statements,
information is disclosed per lot of one thousand shares, because this is the minimum
number of shares that can be traded on the Brazilian stock exchanges.  Each American
Depositary Share (''ADS'') is equivalent to fifty thousand shares.

In
February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings
per Share. This statement became effective December 15, 1997, and provides computation,
presentation and disclosure requirements for earnings per share.

Since
the preferred and common stockholders have different dividend, voting and liquidation
rights, basic and diluted earnings per share have 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 stock according to the dividends to be paid
as required by the Company's by-laws and participation rights in undistributed earnings.

Basic
earnings per common share is computed by reducing net income by distributable and
undistributable net income available to preferred shareholders and dividing net income
available to common shareholders by the number of common shares outstanding.  Net income
available to preferred shareholders is the sum of the preferred stock dividends (a
minimum of 6% of preferred capital or 10% higher than those attributed to common shares,
whichever is higher, as defined in the Company's by-laws) and the preferred shareholders'
portion of undistributed net income.  Undistributed net income is computed by deducting
total dividends (the sum of preferred and common stock dividends) from net income.
 Undistributed net income is allocated to preferred shares 10% higher than that
attributed to common shares on a pro rata basis. Total dividends are calculated as
described in Note 25. On December 31, 2001 and 2002, the Company was obligated to issue
shares to the controlling shareholder for the amount of the tax benefit realized on the
amortization of the intangible related to concession transferred in the merger (See Note
25b).  The number of shares issuable are considered dilutive as defined in SFAS No. 128
and have been included in the weighted average common shares - diluted presented below.
 The number of shares issuable was computed considering the balance of the goodwill
reserve (R$124,344 in 2002, 2001 and 2000 by corporate law) by the average price of
common shares traded on the São Paulo Stock Exchange (Bovespa) on the last 20 trading
days of each year.  However, these potentially dilutive shares were not used in the
calculation of diluted earnings per share for 2002 and 2000 as their effects would have
been anti-dilutive.

The
weighted-average number of common and preferred shares used in computing basic and
diluted earnings per share for 2002, 2001 and 2000 was as follows:

|                                                               | 2002        | 2001        | 2000       
|-------------------------------------------------------------- | ----------- | ----------- | -----------
|Weighted average (thousand) common shares - basic              | 166,008,044 | 166,008,044 | 146,939,973
|Weighted average (thousand) common shares - diluted            | 359,088,789 | 253,574,241 | 232,107,096
|Weighted average (thousand) preferred shares basic and diluted | 313,436,995 | 313,436,995 | 251,047,912

The
Company's preferred shares are non-voting, except under certain limited circumstances,
and are entitled to a preferential, noncumulative dividend and to priority over the
common shares in the event of liquidation of the Company.  No dividends were paid in 2002.

j.       Retained
earnings

For
Brazilian GAAP, a company formed as a result of a spin-off may have retained earnings in
its balance sheet if the parent company shareholders resolution adopting the spin-off
allocates retained earnings from the parent company to the new company.  Under US GAAP, retained
earnings allocated in the spin-off would not be considered historical retained earnings
as such amount would represent capital allocated from the parent company and would be
described as distributable capital.  As a result of the May 22, 1998 spin off, the
Company had US GAAP distributable capital of R$122,327 on that date.

k.        Revenue
recognition

Under
Brazilian GAAP, revenues and costs from sales of handsets, including applicable
value-added and other sales taxes, are recognized at the moment of sale to the customer.
 Under US GAAP, in accordance with Staff Accounting Bulletin no. 101 (SAB 101), revenues
from sales of handsets along with the related costs, including applicable value-added and
other sales taxes, are deferred and amortized over 24 months, the handsets expected life.
 As substantially all of the Companys handsets are sold below cost, this difference in
accounting policy had no impact on net income or in shareholders equity.  The amount of
unamortized deferred revenue and the related amounts of unamortized deferred costs was
R$48,418, R$32,207 and R$23,562  at December 31, 2002, 2001 and  2000, respectively.  The
impact of this difference under US GAAP was to decrease both net revenues and cost of
services and goods by R$16,211, R$8,645 and R$23,562 in 2002, 2001 and 2000, respectively.

Under
Brazilian GAAP, revenues from activation fees are recognized upon activation of a customers
services. Under US GAAP, net revenues from activation fees are deferred and amortized
over 12 months, the estimated effective contract life.  Since January 1, 2000, the
Company no longer charges activation fees.

l.       Negative
margins on sale of prepaid handsets

Until
December 31, 1999, under Brazilian GAAP negative margins on sale of prepaid handsets were
deferred for amortization over the estimated minimum period of the subscriber contract.
 As of January 2000, the Company no longer defers the negative margin on the sale of
handsets.  For US GAAP purposes, the Companys policy is to charge these costs directly
to the statement of operations.  Therefore, the net amount unamortized at December 31,
2000 is being adjusted in the reconciliation of the income differences between US GAAP
and Brazilian GAAP.

m.  Value-added and
other sales taxes

Under
Brazilian GAAP, these taxes are recorded as a reduction to revenues.  Under US GAAP,
these taxes are recorded gross as revenue and related costs of services and goods.
 Accordingly, this difference in accounting policy has no impact in net income (loss) nor
in shareholders equity.  The impact of this difference under US GAAP was to increase
both revenues and costs of services and goods by and R$112,259, R$90,922 and R$86,699 for
2002, 2001 and 2000, respectively.

n.        Fistel fee

Beginning
in 1999, the Fistel (Telecommunication Inspection Fund) fee, assessed on each
activation of a new cellular line, is being deferred and  amortizated over the customers estimated
subscription period for Brazilian GAAP.  For US GAAP purposes, this tax would be charged
directly to the consolidated statement of operations.  Therefore, deferred Fistel taxes
on activation fees at December 31, 2002, 2001 and 2000 is being adjusted in the
reconciliation of the income differences between US and Brazilian GAAP.

o.       Computer
software developed for internal use

Under
Brazilian GAAP, the costs incurred during the computer software preliminary project stage
are capitalized and amortized on a straight-line basis over a period of five to ten
years.  Under US GAAP, the costs incurred with computer software preliminary project
stage must meet specific characteristics to be capitalized. The effect of these different
criteria for capitalizing computer software is adjusted in the reconciliation of the
income differences between US and Brazilian GAAP.

p.       Derivative
instruments

As
mentioned in Note 22, the Subsidiaries have entered into foreign currency swap and option
contracts for long-term agreements at various exchange rates, in the amount of US$112,470
thousands (US$123,399 thousands at December 31, 2001).  Under Brazilian GAAP, foreign
currency swap contracts are recorded at the notional amount multiplied by the terms of
the contract as if they had been settled at the balance sheet date.  Premiums paid or
received from option contracts are recorded at cost, less allowance for losses as
necessary.

In
1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, which was subsequently amended by
SFAS Nos. 137 and 138.  SFAS No. 133 must be applied to all derivative instruments and
certain derivative instruments embedded in hybrid instruments and requires that such
instruments be recorded in the balance sheet either as an asset or liability measured at
its fair value. Changes in the derivatives fair value are recognized currently in
earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133
on January 1, 2000, did not have a material effect on the Companys financial statements.

If
the derivative is designated as a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives that are considered to be effective, as defined, will
either offset the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or will be recorded in other comprehensive income until the
hedged item is recorded in earnings. Any portion of a change in a derivatives fair value
that is considered to be ineffective, as defined, must be immediately recorded in
earnings. Any portion of a change in a derivatives fair value that the Company has
elected to exclude from its measurement of effectiveness, such as the change in time
value of option contracts, will also be recorded in earnings.

For
US GAAP purposes, these swap contracts do not qualify for hedge accounting, as defined by
SFAS No. 133. US GAAP requires that financial instruments of this nature be recorded at
fair value with resulting changes in fair value recorded through earnings.

r.       Purchase
Accounting

As
described in Note 28, on November 29, 2000, the Holding Company acquired the minority
interests in its Subsidiaries in a transaction involving the exchange of shares.  Under
Brazilian GAAP, this transaction was recorded at the book value of the minority interests
acquired.  Under US GAAP, the acquisition of minority interests was recorded using the
purchase method of accounting pursuant to APB 16, Business Combinations, and the
related interpretations.  Under US GAAP, the purchase price was determined based on the
market price of the Holding Companys shares for a reasonable period before and after the
date the terms of the acquisition were agreed to and announced publicly.  The excess
purchase price over the book value of the minority interests acquired was recorded based
on managements estimate of the fair values of the underlying assets and liabilities as
follows:

|Fixed assets                        | (7,003)
|----------------------------------- | -------
|                                   
|Subscriber base intangible asset    | 2,382  
|Concession                          | 32,721 
|Deferred income tax effects         | (9,273)
|Excess purchase price under US GAAP | 18,827 

The
subscriber base intangible asset is being amortized over the estimated contractual
relationship with subscribers, representing a period of 48 months.

The
concession in being amortized based on the remaining  concession period of the operating
 companies (until June 2008 for Telebahia Celular S.A. and December 2008 for Telergipe
Celular S.A.).

Reconciliation
of the income differences between US and Brazilian GAAP

|                                                      | 2002     | 2001     | 2000    
|----------------------------------------------------- | -------- | -------- | --------
|Consolidated net loss under Brazilian GAAP            | (25,440) | (13,592) | (16,302)
|Add (deduct):                                        
|Different accounting criteria for:                   
|Pension plan                                          | (322)    | (14)     | 12,360  
|Fistel fee                                            | 1,558    | 3,629    | 129     
|Capitalized interest                                  | 1,184    | 452      | 1,785   
|Amortization of capitalized interest                  | 2        | 100      | 255     
|Purchase accounting:                                 
|Depreciation of fixed assets adjustment               | 1,539    | 1,539    | 113     
|Amortization of intangible assets                     | (4,910)  | (4,910)  | (410)   
|Negative margins on sale of prepaid handsets          | -        | -        | 451     
|Computer software developed for internal use          | (154)    | (877)    | (36)    
|Derivative instruments                                | (70,133) | 17,018   | 6,372   
|Deferred revenues on activation fees                  | -        | -        | 242     
|                                                     
|Items posted directly to shareholders equity:       
|Deferred income tax effects of indexation adjustments | -        | -        | (9,858) 
|Deferred tax effect on GAAP adjustments               | 23,942   | (5,591)  | (7,017) 
|Difference in social contribution tax rate            | 1,488    | 2,507    | (3,460) 
|Effect of minority interests on GAAP adjustments      | -        | -        | (100)   
|US GAAP net income (loss)                             | (71,246) | 261      | (15,476)

Net
income (loss) per thousand shares in accordance with US GAAP (in thousands)

|                                                    | 2002        | 2001        | 2000       
|--------------------------------------------------- | ----------- | ----------- | -----------
|Loss per share - Common shares (basic and diluted)  | (0.15)      | -           | (0.04)     
|Weighted average (thousand) common shares - basic   | 166,008,044 | 166,008,044 | 146,939,973
|Weighted average (thousand) common shares - diluted | 359,088,789 | 253,574,241 | 232,107,096

|                                                               | 2002        | 2001        | 2000       
|-------------------------------------------------------------- | ----------- | ----------- | -----------
|Loss per share - Preferred shares (basic and diluted)          | (0.15)      | -           | (0.04)     
|Weighted average (thousand) preferred shares basic and diluted | 313,436,995 | 313,436,995 | 251,047,912

Reconciliation
of the shareholders equity differences between US and Brazilian GAAP

|                                             | 2002     | 2001    
|-------------------------------------------- | -------- | --------
|Total shareholders equity under Brazilian   | 497,946  | 520,787 
|GAAP                                        
|Add (deduct):                               
|Different accounting criteria for:          
|Pension plan                                 | (66)     | 256     
|Fistel fee                                   | (4,007)  | (5,565) 
|Capitalized interest                         | 853      | (331)   
|Amortization of capitalized interest         | 982      | 980     
|Purchase accounting:                        
|Fixed assets adjustment                      | (7,003)  | (7,003) 
|Accumulated depreciation                     | 3,191    | 1,652   
|Intangible assets                            | 35,103   | 35,103  
|Accumulated amortization                     | (10,230) | (5,320) 
|Computer software developed for internal use | (1,326)  | (1,172) 
|Donations and subsidies for investments      | (416)    | -       
|Derivative instruments                       | (46,743) | 23,390  
|Reversal of proposed dividends               | -        | 11,979  
|Deferred tax effects of GAAP adjustments     | 10,085   | (13,857)
|Difference in social contribution tax rate   | -        | (1,488) 
|Total shareholders equity under US GAAP     | 478,369  | 559,411 

Changes in
shareholders equity in accordance with US GAAP

|                                                                       | Shareholders
|---------------------------------------------------------------------- | -------------
|                                                                       | Equity       
|Balances at December 31, 1999                                          | 239,246      
|                                                                      
|Capital increase - acquisition of minority interest, November 29, 2000 | 148,004      
|Minority capital increase                                              | 62,082       
|Capital decrease - November 29, 2000                                   | (201)        
|Contribution of deferred tax benefit                                   | 125,495      
|Loss for the year                                                      | (15,476)     
|                                                                      
|Balances at December 31, 2000                                          | 559,150      
|                                                                      
|Net income for the year                                                | 261          
|                                                                       |              
|Balances at December 31, 2001                                          | 559,411      
|                                                                      
|Unclaimed dividends                                                    | 2,183        
|Dividends approved during the year                                     | (11,979)     
|Net income for the year                                                | (71,246)     
|                                                                       |              
|Balances at December 31, 2002                                          | 478,369      

US GAAP
supplementary information

Reconciliation of
operating income (loss) under Brazilian GAAP           to operating income (loss) under
US GAAP

|                                              | 2002     | 2001     | 2000    
|--------------------------------------------- | -------- | -------- | --------
|Brazilian GAAP operating income (loss)        | (34,582) | (20,632) | (15,282)
|Reversal of financial expense, net            | 27,124   | 24,111   | 15,801  
|US GAAP adjustments-                         
|Amortization of capitalized                   | 2        | 100      | 255     
|interest                                     
|Deferred Fistel tax on activation fee         | 1,558    | 3,629    | 129     
|Recognition of activation fee revenue         | -        | -        | 242     
|Deferred negative margins on sale of handsets | -        | -        | 451     
|Pension and other postretirement benefits     | (322)    | (14)     | 12,360  
|Computer software developed for internal use  | (154)    | (877)    | (36)    
|Depreciation of fixed assets adjustment       | 1,539    | 1,539    | 113     
|Amortization of intangible assets             | (4,910)  | (4,910)  | (410)   
|US GAAP operating income                      | (9,745)  | 2,946    | 13,623  

Reconciliation of net
revenues and costs under Brazilian GAAP      to net revenues and costs under US GAAP-

|                                                        | 2002     | 2001    | 2000    
|------------------------------------------------------- | -------- | ------- | --------
|Brazilian GAAP net revenues                             | 431,395  | 386,299 | 340,735 
|Reclassification to cost of services and goods         
|Taxes on sales                                          | 112,259  | 90,922  | 86,699  
|US GAAP adjustments-                                   
|Recognition of activation fee revenue                   | -        | -       | 242     
|Deferred negative margins on sale of handsets           | -        | -       | 451     
|Deferred revenues on handset sales, net of amortization | (16,211) | (8,645) | (23,562)
|                                                        |          |         |         
|US GAAP net revenues                                    | 527,443  | 468,576 | 404,565 

|                                                 | 2002      | 2001      | 2000     
|------------------------------------------------ | --------- | --------- | ---------
|Brazilian GAAP cost of services and goods        | (264,011) | (224,696) | (211,370)
|Reclassification from net revenues              
|Taxes on sales                                   | (112,259) | (90,922)  | (86,699) 
|Reclassification from sales expense             
|Rewards program expense                          | (1,878)   | (1,761)   | -        
|US GAAP adjustments-                            
|Amortization of capitalized interest             | 2         | 100       | 255      
|Depreciation of fixed assets adjustment          | 1,539     | 1,539     | 113      
|Deferred Fistel tax on activation fee            | 1,558     | 3,629     | 129      
|Deferred negative margins on sale of handsets    | -         | -         | 451      
|Deferred costs on handset sales, including taxes
|On sales, net of amortizations during the year   | 16,211    | 8,645     | 23,562   
|US GAAP cost of services                         | (358,838) | (303,466) | (273,559)
|                                                 |           |           |          
|US GAAP gross profit                             | 168,605   | 165,110   | 131,006  

|                                  | 2002      | 2001     
|--------------------------------- | --------- | ---------
|Total assets                      | 1,022,171 | 1,027,182
|Property, plant and equipment     | 931,915   | 994,377  
|Accumulated depreciation          | (387,420) | (389,292)
|Net property, plant and equipment | 544,495   | 605,085  

33.      Additional
disclosures required by US GAAP

a.       Pension
and postretirement benefits

A
summary of the  liability  as of  December  31, 2002 and 2001 for the  Companies  active
 employees  defined      benefit pension plan (PBS- Tele Leste) is as follows:

Reconciliation of
Funded Status

|PBS - Tele Leste                         | 2002    | 2001   
|---------------------------------------- | ------- | -------
|Accumulated benefit obligation:         
|Vested                                   | 806     | 503    
|Nonvested                                | 677     | 576    
|Total                                    | 1,483   | 1,079  
|                                        
|Projected benefit obligation             | 1,767   | 1,498  
|Fair value of plan assets                | (1,627) | (1,245)
|Projected obligation in excess of assets | 140     | 253    
|Unrecognized gains                       | 384     | 236    
|Unrecognized net transition obligation   | (57)    | (65)   
|Accrued pension cost                     | 467     | 424    

Disclosure of net
periodic pension cost

|                                              | 2002  | 2001
|--------------------------------------------- | ----- | ----
|Service cost (net of employee contributions)  | 117   | 162 
|Interest cost on PBO                          | 143   | 64  
|Expected return on assets                     | (124) | (95)
|Amortization of initial transition obligation | 8     | 8   
|Amortization of gains                         | (5)   | (22)
|Net periodic pension cost                     | 139   | 117 

Change in accrued
pension cost

|                                          | 2002 | 2001 
|----------------------------------------- | ---- | -----
|Accrued pension cost at beginning of year | 424  | 412  
|Net periodic pension cost                 | 139  | 117  
|Actual contributions                      | (96) | (146)
|Adjustments (i)                           | -    | 41   
|Accrued pension cost at end of year       | 467  | 424  

(i)
Change in functional currency from UMC (Constant Purchase Power Index) to real.

Change in benefit
obligation

|                                        | PBO   | Unrec. G/(L) | Unrec. ITO
|--------------------------------------- | ----- | ------------ | ----------
|Benefit obligation at December 31, 2000 | 724   | 415          | (67)      
|Visão Plan (i)                          | 358   | -            | -         
|Service cost                            | 165   | -            | -         
|Interest cost                           | 64    | -            | -         
|Amortization                            | -     | (22)         | 8         
|Benefits payments and expenses          | (69)  | -            | -         
|Liability experience loss (gain)        | 131   | (131)        | -         
|Asset experience                        | -     | (59)         | -         
|Adjustments (ii)                        | 125   | 33           | (6)       
|                                        |       |              |           
|Benefit obligation at December 31, 2001 | 1,498 | 236          | (65)      
|Service cost                            | 118   | -            | -         
|Interest cost                           | 143   | -            | -         
|Amortization                            | -     | (5)          | 8         
|Benefits payments and expenses          | (43)  | -            | -         
|Liability experience loss (gain)        | 51    | (51)         | -         
|Asset experience                        | -     | 204          | -         
|Benefit obligation at December 31, 2002 | 1,767 | 384          | (57)      

(i)
inclusion of risks of death and disability of  participants  in the defined contribution
plan (Visão Plan). 

       (ii) Change in functional  currency from UMC (Constant Purchase Power Index) to
real.

Change in plan
assets

|                                  | 2002  | 2001 
|--------------------------------- | ----- | -----
|Plan assets at beginning of year  | 1,245 | 660  
|Visão Plan (i)                    | -     | 358  
|Actual contributions              | 101   | 147  
|Actual distributions and expenses | (43)  | (69) 
|Actual return on plan assets      | 324   | 38   
|Adjustments (ii)                  | -     | 111  
|Plan assets at end of year        | 1,627 | 1,245

(i)
inclusion of risks of death and disability of  participants  in the defined contribution
plan (Visão Plan).          (ii) Change in functional  currency from UMC (Constant Purchase Power Index) to
real.

The actuarial
assumptions used in 2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|Discount rate for determining projected benefit obligations | 10.24% | 10.24%
|Rate of increase in compensation levels                     | 6.08%  | 6.08% 
|Benefit adjustments                                         | 4.00%  | 4.00% 
|Expected long-term rate of return on plan assets            | 10.24% | 10.24%
|Inflation                                                   | 4.00%  | 4.00% 
|Number of active participants - PBS - Tele Leste            | 4      | 5     
|Number of retirees and beneficiaries - PBS - Tele Leste     | 7      | 7     

A
 summary  of the  Sistel  pension  plan as of  December  31,  2002 and 2001  for the
 multiemployer  portion (inactive employees pension plan) - PBS-A, is as follows:

Pension benefit
plan - PBS-A

|                               | 2002      | 2001     
|------------------------------ | --------- | ---------
|Funded status:                
|Accumulated benefit obligation
|Vested                         | 2,922,542 | 2,809,643
|Projected benefit obligation   | 2,922,542 | 2,809,643
|Fair value of plan assets      | 3,650,789 | 3,214,439
|Funded status                  | (728,247) | (404,796)

Change in benefit
obligation

|                                        | 2002      | 2001     
|--------------------------------------- | --------- | ---------
|Benefit obligation at beginning of year | 2,809,643 | 2,377,565
|Interest cost                           | 305,036   | 268,665  
|Benefits payments and expenses          | (253,628) | (231,996)
|Liability experience loss (gain)        | 61,491    | 395,409  
|Benefit obligation at end of year       | 2,922,542 | 2,809,643

Change in plan
assets

|                                  | 2002      | 2001     
|--------------------------------- | --------- | ---------
|Plan assets at beginning of year  | 3,214,439 | 3,012,773
|Actual distributions and expenses | (253,628) | (231,996)
|Actual return on plan assets      | 689,978   | 433,662  
|Plan assets at end of year        | 3,650,789 | 3,214,439

The
actuarial assumptions used in 2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|Discount rate for determining projected benefit obligations | 11.30% | 11.30%
|Rate of increase in compensation levels                     | 8.15%  | 8.15% 
|Benefit adjustments                                         | 5.00%  | 5.00% 
|Expected long-term rate of return on plan assets            | 14.45% | 14.45%
|Inflation                                                   | 5.00%  | 5.00% 
|Number of retirees and beneficiaries                        | 25,224 | 25,270

A
summary of the postretirement benefits plan (health care plan - PAMA), which remains as
multiemployer plan, is as follows:

Health Care Plan - PAMA

|                                               | 2002    | 2001   
|---------------------------------------------- | ------- | -------
|Funded Status:                                
|Accumulated postretirement benefit obligation:
|Active participants                            | 46,107  | 69,212 
|Inactive participants                          | 867,041 | 812,148
|                                               | 913,148 | 881,360
|Fair value of plan assets                      | 405,732 | 358,619
|Obligations in excess of plan assets           | 507,416 | 522,741

Change in benefit
obligation

|                                        | 2002     | 2001    
|--------------------------------------- | -------- | --------
|Benefit obligation at beginning of year | 881,360  | 859,342 
|Service cost                            | 3,852    | 5,322   
|Interest cost                           | 97,985   | 96,478  
|Benefits payments and expenses          | (32,881) | (25,143)
|Actuarial (gain) loss                   | (37,168) | (54,639)
|Curtailment of the plan                 | -        | -       
|Benefit obligation at end of year       | 913,148  | 881,360 

Change in plan
assets

|                                     | 2002     | 2001    
|------------------------------------ | -------- | --------
|Plan assets at beginning of year     | 358,619  | 352,373 
|Employer contributions               | 1,071    | 10,101  
|Actual distributions and expenses    | (32,881) | (25,143)
|Transfer of assets from another fund | -        | -       
|Actual return on plan assets         | 78,923   | 21,288  
|Plan assets at end of year           | 405,732  | 358,619 

The
actuarial assumptions used in 2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|Discount rate for determining projected benefit obligations | 11.30% | 11.30%
|Rate of increase in compensation levels                     | 8.15%  | 8.15% 
|Expected long-Term rate of return on plan assets            | 14.45% | 14.45%
|Increase in utilization                                     | 10.62% | 9.20% 
|Inflation                                                   | 5.00%  | 5.00% 
|Number of active participants                               | 2,614  | 3,676 
|Number of retirees and beneficiaries                        | 27,125 | 23,607

Health
care trend rates of increase were projected at annual rates including inflation ranging
from 10.62% in 2002 decreasing to 7.8% after 45 years (5.0% inflation).  The effect of a
one percent annual increase in the assumed health care cost trend rates would increase
 the accumulated postretirement benefits obligation at December 31, 2002 by R$148,571
 (R$128,414 in 2001). The effect of a one percent annual decrease in the assumed health
care cost trend rates would decrease  the accumulated postretirement benefits obligation
at December 31, 2002 by R$119,485 (R$104,970 in 2001).

b.       Intangible
assets subject to amortization

Following
is a summary of the Companys intangible assets subject to amortization under US GAAP:

|                         | 2002     | 2001      
|------------------------ | -------- | ----------
|                         |          |           
|                         | Software | Concession
|Gross                    | 63,999   | 32,721    
|Accumulated amortization | (20,193) | (8,988)   
|Net                      | 43,806   | 23,733    

Aggregate
amortization expense for the above intangible assets amounted to R$14,141, R$11,679 and
R$4,904 for the years ended December 31, 2002, 2001 and 2000, respectively.

The
estimated aggregate amortization expense for the next five years is as follows:

|     | Amount
|---- | ------
|2003 | 17,710
|2004 | 17,658
|2005 | 12,532
|2006 | 10,343
|2007 | 7,973 

c.
      Concentration of risks

The
credit risk with respect to trade accounts receivable is diversified.  The Companies
continually monitor the level of trade accounts receivable and limit the exposure to bad
debts by cutting access to the telephone network if any invoice is 20 days or more past
due.  Exceptions comprise telephone services that must be maintained for reasons of
safety or national security.

In
conducting its businesses, Telebahia Celular S.A. and Telergipe Celular S.A. are fully
dependent upon the cellular telecommunications concession [authorization] as granted by
the Federal Government.

Approximately
16% of all employees are members of state labor unions associated with either the Federação
Nacional dos Trabalhadores em Telecomunicações(Fenattel), or with the Federação
Interestadual dos Trabalhadores em Telecomunicações(Fittel). The Companies negotiate
new collective labor agreements every year with the local union. The collective
agreements currently in force expire on November 30, 2003.

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

d.   Telefónica Móviles
Stock  Plan

In
May, 2001, Telefónica Móviles, S.A. ("Telefónica Móviles") launched a stock option plan
based on Telefónica Móviles stock (the "Plan") that covered the employees of the
Company.  Pursuant to the Plan, between May 20 and July 20, 2002, Telefónica Móviles
granted a total of 231,016 stock options to the Company's employees, vesting over a
four-year period. The options were granted in Series A, B and C, with exercise prices of
11.00 Euros, 16.50 Euros and 7.23 Euros, respectively.  The total options granted to each
employee consisted of 25% Series A options, 25% Series B options, and 50% Series C
options. The market price of Telefónica Móviles stock as traded at the Madrid Stock
Exchange was 6.20 Euros on December 31, 2002.  The Plan also gives the Company's
employees the option to receive in cash, the appreciation in the market price of Telefónica
Móviles stock over the respective exercise price.

Under
Brazilian GAAP, the Company does not account for the effect of the Plan.  Under US GAAP,
equity instruments granted to an employee by a principal stockholder are considered
stock-based employee compensation. Since the Plan gives the Company's employees the
option to settle in cash, compensation expense, if any, is recorded based on the market
price of Telefónica Móviles stock compared to the respective exercise prices at period
end.  Since the market price of Telefónica Móviles stock at December 31, 2002 did not
exceed the exercise prices of the options, no compensation expense was recognized under
US GAAP during the year ended December 31, 2002.

e.       New
accounting pronouncements

SFAS
No. 141 - Business Combinations

In
June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 141 (SFAS 141), Business Combinations. SFAS 141 addresses
financial accounting and reporting for business combinations and supersedes APB Opinion
No. 16 (Opinion 16), Business Combinations and FASB Statement No. 38, Accounting for
 Preacquisition Contingencies of Purchased Enterprises. All business combinations in the
scope of SFAS No. 141 are to be accounted for using the purchase method.  In addition,
SFAS No. 141 requires that intangible assets be recognized as assets apart from goodwill
if they meet two criteria:  the contractual-legal criteria or the separability criteria.
 To assist in identifying acquired intangible assets, SFAS No. 141 also provides a list
of intangible assets that meet either one of those criteria.  In addition to the
disclosure requirements prescribed in Opinion No. 16, SFAS No. 141 requires disclosure of
the primary reasons for a business combination and the allocation of the purchase price
paid to the assets acquired and liabilities assumed by major balance sheet caption.  SFAS
No. 141 also requires that when the amounts of goodwill and intangible assets acquired
are significant to the purchase price paid, disclosure of other information about those
assets is required, such as the amount of goodwill by reportable segment and the amount
of the purchase price assigned to each major intangible asset class.  The provisions of
SFAS No. 141 apply to all business combinations initiated after June 30, 2001.  SFAS No.
141 also applies to all business combinations accounted for using the purchase method for
which the date of acquisition is July 1, 2001, or later.  The adoption of SFAS No. 141 on
January 1, 2002, did not have any impact on the Companys financial position, cash flows
or results of operations.

SFAS
No. 142 - Goodwill and Other Intangible Assets

In
June 2001, FASB issue SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion 17, Intangible Assets.  SFAS No. 142 also amends SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for long-lived Assets to
Be Disposed Of, to exclude from its scope goodwill and intangible assets that are not
amortized.  SFAS No. 142 addresses how intangible assets that are acquired individually
or with a group of other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition.  This Statement also
addresses how goodwill and other intangible assets should be accounted for after they
have been initially recognized in the financial statements.  The provision of SFAS No.
142 is required to be applied starting with fiscal years beginning after December 15,
2001.  Early application is permitted for entities with fiscal years beginning after
March 15, 2001, provided that the first interim financial statements have not been
issued.  An exception to SFAS No. 142 application date is for goodwill and intangible
assets acquired after June 30, 2001, which will be immediately subject of the
non-amortization and amortization provisions of this statement.  The adoption of SFAS No.
142 on January 1, 2002, did not have any impact on the Companys financial position, cash
flows or results of operations.

SFAS
No. 143 - Accounting for Asset Retirement Obligations

In
June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 143 (SFAS No. 143), Accounting for Asset Retirement Obligations.  SFAS
No. 143 basically requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable estimate
of fair value can be made.  The associated asset retirement cost are capitalized as part
of the carrying amount of the long-lived asset.  Under SFAS No. 143 the liability for an
asset retirement obligation is discounted and accretion expense is recognized using the
credit-adjusted risk-free interest rate in effect when the liability was initially
recognized.  In addition, disclosure requirements contained in SFAS No.  143 will provide
more information about asset retirement obligations.  SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002 with earlier
application encouraged.  Based on an initial assessment of the provisions and
requirements of SFAS No. 143, management believes that the implementation of this
statement will not have any impact on the Companys financial position, cash flows or
results of operations.

SFAS
No. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets

In
August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS
No. 144), Accounting for the Impairment or Disposal of Long-Lived Assets supersedes
Statement of Financial Accounting Standards No. 121 (SFAS No. 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of but retains
SFAS No. 121 fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. SFAS No. 144 also supersedes the accounting and reporting provisions
of APB Opinion No. 30 (APB No. 30),Reporting the Results of Operations for segments of
a business to be disposed of but retains APB No. 30s requirement to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of or is classified as held for
sale.  SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those years, with early application encouraged.  The adoption of
 SFAS No. 144 on January 1, 2002, did not have any impact on the Companys financial
position, cash flows or results of operations. SFAS No. 145 - Rescission of SFAS Nos. 4,
44 and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002 of SFAS 145

In
April 2002, the FASB issued Statements of Accounting Standards No. 145, Rescission of
SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections as of April
2002 (SFAS 145).  SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and
SFAS No. 64, Extinguishments of Debt made to satisfy Sinking-Fund requirements.  As a
result, gains and losses from extinguishment of debt will no longer be classified as
extraordinary items unless they meet the criteria of unusual or infrequent as described
in Accounting Principles Boards Opinion No. 30, Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions.  In addition, SFAS No. 145 amends SFAS
No. 13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback transactions.
 SFAS No. 145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings or describe their applicability under changed
conditions.  SFAS No. 145 is effective for fiscal years beginning after 15 May 2002.  We
are currently evaluating the impact that the adoption of SFAS No. 145 will have on our
results of operations and financial position.  However, the Companys Management does not
believe that the adoption of SFAS No. 145 will not have any impact on the Companys
financial position, cash flows or results of operations.

SFAS
No. 146 - Accounting for Costs Associated with Exit or Disposal Activities

In
June 2002, the FASB issued Statement of Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities.  This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force 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)  (EITF 94-3).  SFAS No. 146 eliminates the
definition and requirements for recognition of exit costs in EITF No. 94-3.  SFAS No. 146
requires that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred.  Under EITF No. 94-3, a liability for an exit
cost as defined in EITF No. 94-3 was recognized at the date of an entitys commitment to
an exit plan.  SFAS No. 146 also concluded that an entitys commitment to a plan, by
itself, does not create a present obligation to others that meets the definition of a
liability.  SFAS No. 146 also establishes that fair value is the objective for initial
measurement of the liability. The requirements of SFAS No. 146 apply prospectively to
activities that are initiated after December 31, 2002, and as such, the Company cannot
reasonably estimate the impact of adopting these new rules until and unless it undertakes
relevant activities in future periods.

FIN
No. 45 - Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others

In
November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN No. 45).  This interpretation requires certain disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under
certain guarantees that it has issued.  It also requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for
interim and annual periods ending after December 15, 2002.  The initial recognition and
initial measurement requirements of FIN No. 45 are effective prospectively for guarantees
issued or modified after December 31, 2002.  Based on an initial assessment of the
provisions and requirements of FIN No. 45, the Companys management believes that the
implementation of this statement will not have any impact on the Companys financial
position, cash flows or results of operations.

EITF
00-21 Revenue Arrangements with Multiple Deliverables

At
the September and October 2002 meetings of the Emerging Issues Task Force (EITF), the
Task Force reached a tentative conclusion on Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, which outlines an approach to be used to determine when a revenue
arrangement for multiple deliverables should be divided into separate units of accounting
and, if separation is appropriate, how the arrangement consideration should be allocated
to the identified accounting units.  Specifically, in an arrangement with multiple
deliverables, the delivered item(s) should be considered a separate unit of accounting if
 (1) the delivered item(s) has value to the customer on a standalone basis,  (2) there is
objective and reliable evidence of the fair value of the undelivered item(s) and (3) if
the arrangement includes a general right of return, delivery or performance of the
undelivered item(s) is considered probable and substantially in the control of the vendor.

The
arrangement consideration allocable to a delivered item(s) that does not qualify as a
separate unit of accounting within the arrangement should be combined with the amount
allocable to the other applicable undelivered item(s) within the arrangement.  The
appropriate recognition of revenue should then be determined for those combined
deliverables as a single unit of accounting.

The
guidance in EITF 00-21 is effective prospectively for revenue arrangements entered into
fiscal years beginning after December 15, 2002.  Alternatively, entities may elect to
report the change in accounting as a cumulative-effect adjustment in accordance with
Accounting Principles Board Opinion 20, Accounting Changes.  The Company is currently
evaluating the impact of EITF 00-21 on the Companys financial statements, specifically
including our treatment of revenue from handset sales under US GAAP.   The Company
currently cannot reasonably estimate the impact of adopting the new rule.