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As filed with the Securities and Exchange  Commission on April 15, 2005


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UNITED STATES  SECURITIES AND EXCHANGE COMMISSION


Washington,  D.C. 20549





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FORM 20-F





|(Mark One)                         |                                                                                                  
|---------------------------------- | -------------------------------------------------------------------------------------------------
|                                   | 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, 2004                                                      
|                                   |                                                                                                  
|                                   | OR                                                                                               
|                                   |                                                                                                  
|                                   | TRANSITION REPORT PURSUANT TO    SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|                                   | For the transition period from ________________ to ________________                              
|                                   |                                                                                                  
|Commission file number:  001-14489




TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.


(Exact name of Registrant as  specified in its charter)





Tele Centro Oeste  Cellular Holding Company(Translation of Registrants  name into English)





The Federative Republic of Brazil


(Jurisdiction of incorporation or  organization)





SCS, Quadra 2, Bloco C, 226, 7° andar  70302-916 Brasília, DF, Brazil


(Address of principal executive  offices)





Securities registered or to be registered pursuant to Section  12(b) of the Act:





|Title of    each class                                                                                                    |  | Name of    each exchange on which registered
|------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------
|                                                                                                                          |  |                                             
|Preferred    Shares, without par value                                                                                    |  | New York    Stock Exchange*                 
|American    Depositary Shares (as evidenced by American Depositary Receipts), each    representing 3,000 preferred shares |  | New York    Stock Exchange                  




| 
|-
|*




Securities registered or to be registered pursuant to Section  12(g) of the Act:


None





Securities for which there is a reporting obligation pursuant  to Section 15(d) of the Act:


None





Indicate the number  of outstanding shares of each of the issuers classes of capital or common  stock as of the close of the period covered by the annual report.  The number of outstanding shares as of  December 31, 2004 was:





|Title of Class  |  | Number of    Shares Outstanding
|--------------- |  | -------------------------------
|                |  |                                
|Common Stock    |  | 129,458,666,783                
|Preferred Stock |  | 257,206,308,185                




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





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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                                                   | 11  
|ITEM    5.   | OPERATING    AND FINANCIAL REVIEW AND PROSPECTS                                 | 28  
|ITEM    6.   | DIRECTORS,    SENIOR MANAGEMENT AND EMPLOYEES                                   | 41  
|ITEM    7.   | MAJOR    SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            | 47  
|ITEM    8    | FINANCIAL    INFORMATION                                                        | 48  
|ITEM    9.   | THE    OFFER AND LISTING                                                        | 54  
|ITEM    10.  | ADDITIONAL    INFORMATION                                                       | 59  
|ITEM    11.  | QUANTITATIVE    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 74  
|ITEM    12.  | DESCRIPTION    OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 75  
|             |                                                                                 |     
|             | PART II                                                                         |     
|             |                                                                                 |     
|ITEM    13.  | DEFAULTS,    DIVIDEND ARREARAGES AND DELINQUENCIES                              | 76  
|ITEM    14.  | MATERIAL    MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 76  
|ITEM    15.  | CONTROLS    AND PROCEDURES                                                      | 76  
|ITEM    16.  | [RESERVED]                                                                      | 76  
|ITEM    16A. | AUDIT    COMMITTEE FINANCIAL EXPERT                                             | 76  
|ITEM    16B. | CODE    OF ETHICS                                                               | 76  
|ITEM    16C. | PRINCIPAL    ACCOUNTANT FEES AND SERVICES                                       | 77  
|ITEM    16D. | EXEMPTIONS    FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   | 78  
|ITEM    16E. | PURCHASES    OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       | 78  
|             |                                                                                 |     
|             | PART III                                                                        |     
|             |                                                                                 |     
|ITEM    17.  | FINANCIAL    STATEMENTS                                                         | 78  
|ITEM    18.  | FINANCIAL    STATEMENTS                                                         | 78  
|ITEM    19.  | EXHIBITS                                                                        | 79  




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INTRODUCTION





All references in this annual  report to:





| | 1xRTT are    to 1x Radio Transmission Technology, the CDMA 2000 1x technology, which    pursuant to the ITU (International Telecommunication Union) and in accordance    with the IMT-2000 rules, is the 3G (third generation) technology;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ADRs are    to the American Depositary Receipts evidencing our ADSs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ADSs are    to our American Depositary Shares, each representing 3,000 shares of our    non-voting preferred shares. On March 31, 2005, TCO approved a reverse    stock split to occur at the ratio of three thousand (3,000) shares to one (1)    share of each respective class. There will be no reverse split of ADRs in the    United States of America. Only the ratio of shares to each ADR will be    changed from the current ratio of three thousand (3,000) preferred shares per    ADR to one (1) preferred share per ADR.     Thus, there will be no fractional ADRs resulting from the reverse    split, contrary to the effect of the transaction on the Brazilian shares. As    of May 4, 2005 each ADR will represent one (1) preferred share;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | AMPS are to    Advanced Mobile Phone System, a radio interface technology for cellular    networks based on spectral spreading of the radio signal and channel division    in the frequency domain;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Anatel are    to Agência    Nacional de Telecomunicações  ANATEL, the Brazilian    telecommunication regulatory agency;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Brazilian    Central Bank, BACEN, Central Bank of Brazil or Central Bank are to the    Banco Central do Brasil, the Brazilian central bank;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Brazilian    Corporate Law is to Law No. 6,404 of December 1976, as amended by Law No.    9,457 of May 1997 and by Law No. 10,303 of October 2001;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Brazilian    government are to the federal government of the Federative Republic of    Brazil;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | CDMA are    to Code Division Multiple Access, an aerial interface technology for cellular    networks based on spectral spreading of the radio signal and channel division    in the code domain;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Commission    are to the U.S. Securities and Exchange Commission;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Customers    are to number of wireless lines in service;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | CVM are to    the Comissão    de Valores Mobiliários, the Brazilian securities commission;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | EV-DO are    to Evolution Data Optimized, a 3G technology, which provides data    transmission at a speed up to 2.4 mbps in laptops or PDAs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | General    Telecommunications Law are to Lei Geral de Telecomunicações, as    amended, which regulates the telecommunications industry in Brazil;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Net    additions are to the total number of new customers acquired in the period    minus the reduction in the number of customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Real,    reais    or R$ are to Brazilian reais, the official currency of Brazil;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | SMC are to    Serviço    Movél Celular (Mobile Cellular Service), a service rendered    pursuant to a concession granted by Anatel to provide mobile service in a    specific frequency range;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | SMP are to    Serviço    Móvel Pessoal (Personal Cellular Service), a service rendered    pursuant to an authorization granted by Anatel to provide mobile service in a    specific frequency range;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           




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| | SMS are to    text messaging services for cellular handsets, which allow customers to send    and receive alphanumerical messages;                                                                                                              
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                   
| | TDMA are    to Time Division Multiple Access, a radio interface technology for cellular    networks based on spectral spreading of the radio signal and channel division    in the time domain;                                                 
|  |                                                                                                                                                                                                                                                   
| | Telebrás    are to Telecomunicações    Brasileiras S.A.  TELEBRAS;                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                   
| | Tele Centro    Oeste Celular Participações S.A., TCO, the Company, our, we and us    are to Tele Centro Oeste Celular Participações S.A. and its consolidated    subsidiaries (unless the context otherwise requires);                
|  |                                                                                                                                                                                                                                                   
| | U.S.$,    dollars or U.S. dollars are to United States dollars;                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                   
| | Vivo are    to the brand used in Brazil in the operations of the companies that together    constitute the assets of the joint venture between Portugal Telecom and    Telefónica Móviles; and                                                  
|  |                                                                                                                                                                                                                                                   
| | WAP are to    Wireless Application Protocol, an open and standardized protocol started in    1997, which allows access to Internet servers through specific equipment, a    WAP Gateway at the carrier, and WAP browsers in customers handsets.




TCOs  subsidiaries are: Telegoiás Celular S.A., or Telegoiás; Telemat Celular S.A.,  or Telemat; Telems Celular S.A., or Telems; Teleron Celular S.A., or Teleron;  Teleacre Celular S.A, or Teleacre; Norte Brasil Telecom S.A., or NBT; and TCO  IP. TCO IP S.A. is an unlisted company created to deliver general  telecommunications services both nationally and internationally, such as  multimedia telecommunications and information services.  TCO IP was classified as a service provider  by Anatel.  On June 30, 2004  TCO and TCO Operators approved the merger of  shares of TCO Operators into TCO, and therefore their conversion into  wholly-owned subsidiaries of TCO.





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





PRESENTATION OF  FINANCIAL INFORMATION





Our  consolidated financial statements as of and for the years ended December 31,  2004, 2003 and 2002 have been prepared in accordance with the accounting  practices adopted in Brazil, as prescribed by Brazilian Corporate Law, the  Brazilian Corporate Law Method, which differs in certain significant respects  from generally accepted accounting principles in the United States, or U.S.  GAAP.  Note 37 to our financial  statements appearing elsewhere in this annual report describes the principal  differences between Brazilian Corporate Law Method and U.S. GAAP as they relate  to us, and provides a reconciliation to U.S. GAAP of net income and  shareholders equity.  The consolidated  financial statements have been audited by Deloitte Touche Tohmatsu Auditores  Independentes as of and for the years ended December 31, 2004 and 2003 and by  Ernst & Young Auditores Independentes S.C. as
of and for the year ended  December 31, 2002.





In  previous years, we presented financial information in our annual report on Form  20-F using the price-level accounting methodology prescribed by the Brazilian  Federal Accountancy Council . Beginning with the fiscal year ended December 31,  2003, we changed to the Brazilian Corporate Law Method because we do not  primarily rely on price-level accounting in reporting to investors and authorities  in Brazil. For consistency, we have presented all our financial information in  this annual report in accordance with the Brazilian Corporate Law Method.  As a result, the financial information  included in this annual report as of and for the year ended December 31, 2002  or for previous years is different from the information we presented in our  annual report for the year ended December 31, 2002 or for previous years.  See note 2 to our consolidated financial  statements included
herein.





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FORWARD-LOOKING  STATEMENTS





Certain  sections in this annual report, principally in Item 3.D. Key InformationRisk  Factors, Item 4Information on the Company and Item 5Operating and  Financial Review and Prospects, contain 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;                                                                                                  
|  |                                                                                                                                                                            
| | quantitative    and qualitative disclosures about market risks;                                                                                                            
|  |                                                                                                                                                                            
| | other    statements of managements expectations, beliefs, future plans and    strategies, anticipated developments and other matters that are not    historical facts; and
|  |                                                                                                                                                                            
| | other    factors identified or discussed under Item 3.D. Key InformationRisk    Factors.                                                                                




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,    interest rate 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.





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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 and for the years ended December 31, 2004 and  2003, included in this annual report have been derived from, 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 and for the year ended December 31, 2002, included in this annual  report has 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 Ernst & Young Auditores Independentes  S.C.  The selected financial data as of  and for the years ended December 31, 2001 and 2000 included in this annual  report have been derived from our audited financial statements and notes  thereto audited by Ernst & Young Auditores
Independentes S.C., which are  not included in this annual report. See Presentation of Financial Information  above for additional information.





Our  consolidated financial statements are prepared in accordance with the Brazilian  Corporate Law Method, which differs in certain material respects from U.S.  GAAP.  See note 37 to our consolidated  financial statements for a summary of the differences between the Brazilian  Corporate Law Method and U.S. GAAP as they relate to us and a reconciliation to  U.S. GAAP of shareholders equity as of December 31, 2004 and 2003, and net  income for the years ended December 31, 2004, 2003 and 2002.





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.





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|                                                                                              |  | Year ended    December 31,                           |            
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | -----------
|                                                                                              |  |                                                      |            
|                                                                                              |  | 2004                                                 |            
|                                                                                              |  |                                                      |            
|                                                                                              |  | (in    thousands of reais, except per    share data) |            
|Income Statement Data:                                                                        |  |                                                      |            
|Brazilian Corporate Law Method                                                                |  |                                                      |            
|Net    operating revenue                                                                      |  |                                                      | 2,210,426  
|Cost of    services and goods sold                                                            |  |                                                      | (910,409   
|Gross profit                                                                                  |  |                                                      | 1,300,017  
|Operating    income (expenses):                                                               |  |                                                      |            
|Selling expenses                                                                              |  |                                                      | (472,710   
|General and administrative expenses                                                           |  |                                                      | (149,102   
|Other net operating expenses                                                                  |  |                                                      | 3,090      
|Operating    income before net financial result                                               |  |                                                      | 681,295    
|Net    financial income (expenses)                                                            |  |                                                      | 62,208     
|Operating    income                                                                           |  |                                                      | 743,503    
|Net    nonoperating income (expenses)                                                         |  |                                                      | (9,066     
|Income    before income taxes and minority interest                                           |  |                                                      | 734,437    
|Income and    social contribution taxes                                                       |  |                                                      | (224,175   
|Minority    interest                                                                          |  |                                                      | (3,211     
|Net income                                                                                    |  |                                                      | 507,051    
|Earnings per    thousand shares                                                               |  |                                                      | 1.33       
|Dividends    per thousand preferred shares (R$)                                               |  |                                                      | 0.32       
|Dividends    per thousand common shares (R$)                                                  |  |                                                      | 0.32       
|Dividends    per thousand preferred shares (US$)(1)                                           |  |                                                      | 0.12       
|Dividends    per thousand common shares (US$)(1)                                              |  |                                                      | 0.12       
|U.S. GAAP                                                                                     |  |                                                      |            
|Net revenue                                                                                   |  |                                                      | 3,043,788  
|Operating    income                                                                           |  |                                                      | 619,132    
|                                                                                              |  |                                                      |            
|Net income                                                                                    |  |                                                      | 467,993    
|                                                                                              |  |                                                      |            
|Net income    per thousand shares:                                                            |  |                                                      |            
|Common shares  basic                                                                         |  |                                                      | 1.24       
|Common shares  diluted                                                                       |  |                                                      | 1.09       
|Weighted average number of common shares outstanding  basic    (thousands)                   |  |                                                      | 122,717,982
|Weighted average number of common shares outstanding  diluted    (thousands)                 |  |                                                      | 163,580,768
|Preferred    shares  basic                                                                   |  |                                                      | 1.24       
|Preferred    shares  diluted                                                                 |  |                                                      | 1.13       
|Weighted    average number of preferred shares outstanding  basic and diluted    (thousands) |  |                                                      | 254,985,981




|   
|---
|(1)




|                                                    |  |                            | Year ended    December 31, |     
|--------------------------------------------------- |  | -------------------------- | -------------------------- | ----
|                                                    |  |                            |                            |     
|                                                    |  | 2004                       |                            | 2003
|                                                    |  |                            |                            |     
|                                                    |  | (in    thousands of reais) |                           
|Cash Flow Data:                                     |  |                            |                            |     
|Brazilian Corporate Law Method                      |  |                            |                            |     
|Net cash provided by operating activities           |  |                            | 674,559                    |     
|Net cash provided by (used in) investing activities |  |                            | (419,590                   | )   
|Net cash provided by (used in) financing activities |  |                            | (275,837                   | )   
|Increase    (decrease) in cash and cash equivalents |  |                            | (20,868                    | )   
|Cash and    cash equivalents at beginning of year   |  |                            | 972,054                    |     
|                                                    |  |                            |                            |     
|Cash and    cash equivalents at end of year         |  |                            | 951,186                    |     
|                                                    |  |                            |                            |     




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|                                                                          |  | At    December 31,         |            
|------------------------------------------------------------------------- |  | -------------------------- | -----------
|                                                                          |  |                            |            
|                                                                          |  | 2004                       |            
|                                                                          |  |                            |            
|                                                                          |  | (in    thousands of reais) |            
|Balance Sheet Data:                                                       |  |                            |            
|Brazilian Corporate Law Method                                            |  |                            |            
|Property,    plant and equipment, net                                     |  |                            | 1,104,290  
|Total assets                                                              |  |                            | 3,595,655  
|Loans and    financing  current portion                                  |  |                            | 102,727    
|Loans and    financing  noncurrent portion                               |  |                            | 123,557    
|Shareholders    equity                                                   |  |                            | 2,441,502  
|Share    capital                                                          |  |                            | 792,966    
|Number of    outstanding shares as adjusted to reflect changes in capital |  |                            | 380,877,925
|                                                                          |  |                            |            
|U.S. GAAP                                                                 |  |                            |            
|Property,    plant and equipment, net                                     |  |                            | 906,181    
|Total assets                                                              |  |                            | 3,614,669  
|Loans and    financing  current portion                                  |  |                            | 102,727    
|Loans and    financing  noncurrent portion                               |  |                            | 123,557    
|Shareholders    equity                                                   |  |                            | 2,493,288  
|Capital    stock                                                          |  |                            | 792,966    
|Number of    outstanding shares as adjusted to reflect changes in capital |  |                            | 380,877,925




Exchange  Rates





| | Before March    14, 2005, there were two principal foreign exchange markets in Brazil:
| | --------------------------------------------------------------------------------------
| |                                                                                       
| |                                                                                      
| |                                                                                       
| |                                                                                      




Most  trade and financial foreign-exchange transactions were carried out on the  commercial rate exchange market. The floating market rate generally applied to  transactions to which the commercial market rate did not apply. Prior to  February 1999, the exchange rate in each market was established independently,  resulting in different rates during some periods. Since February 1, 1999, the  Central Bank placed the commercial rate exchange market and the floating rate  exchange market under identical operational limits, and financial institutions  operating in the commercial market were authorized to unify their positions in  the two different markets, which led to a convergence in the pricing and  liquidity of both markets and a reduction in the difference between their  respective rates.





With  the enactment of Resolution No. 3,265 dated March 4, 2005 by the National  Monetary Council both markets were consolidated in to one single foreign  exchange market, effective as of March 14, 2005. All foreign exchange  transactions are now carried out in this single consolidated market, through  institutions authorized to operate in such market.  The Brazilian government has yet to enact in its entirety the  regulations applicable to the new foreign exchange market.





Foreign  exchange rates continue to be freely negotiated, but may be influenced by  Central Bank intervention. From March 1995 through January 1999, the Central  Bank allowed the gradual devaluation of the real against the U.S. dollar. In January  1999, the Central Bank allowed the real/U.S. dollar exchange rate to float  freely. Since then, the real/U.S. dollar exchange rate has been established  mainly by the Brazilian interbank market and has fluctuated considerably. In  the past, the Central Bank has intervened occasionally to control unstable  movements in foreign exchange rates. We cannot predict whether the Central Bank  or the Brazilian government will continue to let the real float freely or will  intervene in the exchange rate market through a currency band system or  otherwise, or that the exchange market will not be volatile as a result of  political instability or other
factors. In light of these factors, we cannot  predict that the real will not depreciate or appreciate in value in relation  to the U.S. dollar substantially in the future. In addition, exchange rate  fluctuations may also affect our financial condition. For more information on  these risks, see Risk FactorsRisks Relating to Brazil.





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The  following tables set forth the commercial selling rate, expressed in reais  per U.S. dollar for the periods indicated, as reported by the Central Bank.





|                        |  | Exchange    Rate of R$ per U.S.$ |      
|----------------------- |  | -------------------------------- | -----
|                        |  |                                  |      
|                        |  | Low                              |      
|                        |  |                                  |      
|Year ended December 31, |  |                                  |      
|2000                    |  |                                  | 1.723
|2001                    |  |                                  | 1.936
|2002                    |  |                                  | 2.271
|2003                    |  |                                  | 2.822
|2004                    |  |                                  | 2.654




|                                         
|-----------------------------------------
|Source:  Central    Bank of Brazil, PTAX.
|(1)                                      




|                                            |  | Exchange    Rate of R$ per U.S.$ |      
|------------------------------------------- |  | -------------------------------- | -----
|                                            |  |                                  |      
|                                            |  | Low                              |      
|                                            |  |                                  |      
|Month Ended                                 |  |                                  |      
|October 31,    2004                         |  |                                  | 2.824
|November 30,    2004                        |  |                                  | 2.731
|December 31,    2004                        |  |                                  | 2.654
|January 31,    2005                         |  |                                  | 2.625
|February 28,    2005                        |  |                                  | 2.562
|March 31,    2005                           |  |                                  | 2.629
|April
      30, 2005 (until April 13, 2005) |  |                                  | 2.562




|                                          
|------------------------------------------
|Source:   Central    Bank of Brazil, PTAX.




|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 affect 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;    
|- | -----------------------------
|  |                              
| | exchange    control policies;




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| | internal    economic growth;                                                                 
|- | ---------------------------------------------------------------------------------------------
|  |                                                                                              
| | inflation;                                                                                   
|  |                                                                                              
| | price    instability;                                                                        
|  |                                                                                              
| | energy    policy;                                                                            
|  |                                                                                              
| | interest    rates;                                                                           
|  |                                                                                              
| | liquidity of    domestic capital and lending markets;                                        
|  |                                                                                              
| | tax policies    (including reforms currently under discussion in the Brazilian Congress); and
|  |                                                                                              
| | other    political, diplomatic, social and economic developments in or affecting    Brazil.  




Inflation  and certain government measures to curb inflation may have adverse effects on  the Brazilian economy, the Brazilian securities 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
2004, the general price index, or the IGP-DI (the ĺndice Geral de
Preços  Disponibilidade Interna), an inflation index developed by
the Fundação Getúlio Vargas, a private Brazilian
foundation, reflected inflation of 12.13%, compared to 7.7% in 2003 and 26.4% in
2002.  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.  In addition, high inflation generally leads to higher domestic
interest rates and, as a result, the cost of servicing our real-denominated debt
may increase.  Inflation and its effect on domestic interest rates can, in
addition, lead to reduced liquidity in the domestic capital and lending markets,
which could adversely affect our ability to refinance our indebtedness in those
markets.





Fluctuations in the value of therealagainst 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 real devalued against the U.S. dollar 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 real devalued against the U.S. dollar by 52.3%.  However, the economic policies initiated by  the Brazilian government in 2003 have helped to restore confidence in the  Brazilian market.  This, coupled with  the U.S. dollar devaluation in the international market, has resulted in an  appreciation of the real against the U.S. dollar of 18.2% in 2003 and 8% in  2004.  However, there is no guarantee  that this trend will continue or that the exchange rate will remain at current  levels.  Devaluations of the real would  reduce the U.S. dollar value of

distributions and dividends on preferred shares  and the ADSs and may also reduce the market value of the preferred shares and  the ADSs.  See Selected Financial  DataExchange Rates for more information on exchange rates.





As  of December 31, 2004, we had R$226.3 million in total debt, of which R$71.2  million was denominated in U.S. dollars.   As of December 31, 2004, we had foreign 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 real  decreases 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.





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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, as well as limited access to  international capital markets, which may adversely affect our ability to borrow  funds at an acceptable interest rate or to raise equity capital when and if  there should be a need for us to do so. 
Adverse developments in other emerging market countries could also 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.  Under the SMP regime, we no  longer receive payment from our customers for outbound long-distance traffic,  but we receive payment for the use of our network, in accordance with the  network usage remuneration plan.   Although the new regime has not had a significant impact on our  operations to date, we cannot assure that in the future 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.





Until  June 30, 2004, SMP service providers could choose to establish a price cap or  freely negotiate their interconnection charge. Under the new regulatory  framework, which is expected to be in effect as of 2005, free negotiation will  be the rule.





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In  addition, under the SMP regime, an SMP cellular operator will pay for the use  of another SMP cellular operators network in the same registration area only  if the traffic carried from the first operator to the second exceeds 55% of the  total traffic exchanged between them. In that case, only those calls that have  surpassed the 55% level will be subject to payment for network usage. This rule  will remain in effect until June 30, 2005, after which no payments will be due  for network usage between SMP networks, regardless of the amount of traffic. As  a result, if the traffic we terminate for other SMP cellular operators exceeds  the traffic they terminate for our company, our revenues and results of  operations may be adversely affected.





Anatel  submitted to public comment new regulations on interconnection rules. The  public comment period ended on October 18, 2004, and we have presented our  arguments against some of the proposals that may have adverse effect on our  results. Anatel will decide whether to issue a new regulation and on its  content. If these regulations take effect, they may negatively affect 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 compete not only with companies that  provide wireless services and trunking, but also with companies that provide  fixed-line telecommunications and Internet access services, because of the  trend toward the convergence and substitution of mobile services for these  other 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 forcing us  to decrease tariff rates and increase 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 negatively 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 rate of 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 a material 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.





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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 the upgrading may depend on our ability to  obtain additional financing.





Our
controlling shareholder has a great deal of influence over our
business.





Our  controlling shareholder is Telesp Celular Participações S.A. (TCP), which, in  turn, is controlled by PT Móveis, SGPS, S.A. and Telefónica Móviles, S.A.  through Brasilcel. See Item 4.   Information on the Company.  PT  Móveis SGPS, S.A. is 100% controlled by Portugal Telecom, SGPS, S.A.  TCP owns 90.22% of TCOs voting capital  excluding treasury shares. See Item 7. Major Shareholders and Related Party  TransactionsMajor Shareholders.   Because of its share ownership, TCP has the power to control us and our  subsidiaries, including the power to elect our directors and officers and to  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, as Portugal Telecom and
Telefónica  Móviles share their participation in TCP in equal percentages, any disagreement  or dispute between them, as controlling shareholders of TCP, may have an impact  on the decision-making capabilities of TCP management and, consequently, 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, financial

condition and results of operation.  The expansion of our network may be affected  by these perceived risks if we experience problems in finding new sites, which  in turn may delay the expansion and may affect the quality of our services. On  July 2, 2002 Anatel published Resolution No. 303 that limits emission and  exposure for fields with frequencies between 9 kHz and 300 GHz. In addition,  the Brazilian government is developing specific legislation for deployment of  radio frequency transmission stations that will supersede the existing state  and municipal laws.  The new laws may  create additional transmission regulations which, in turn, could have an  adverse effect on our business.





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.B.Additional  InformationMemorandum and Articles of Association.





Holders
of the ADSs may find it difficult to exercise even their limited voting rights
at our shareholders meetings.





Holders  of our ADSs may exercise the limited voting rights with respect to our  preferred shares represented by the ADSs only in accordance with the deposit  agreement relating to the ADSs. There are practical limitations upon the  ability of ADS holders to exercise their voting rights due to the additional  steps involved in communicating with ADS holders. For example, we are required  to publish a notice of our shareholders meetings in certain newspapers in  Brazil. To the extent that holders of our preferred shares are entitled to vote  at a shareholders meeting, they will be able to exercise their voting rights  by attending the meeting in person or voting by proxy. By contrast, holders of  the ADSs will receive notice of a shareholders meeting by mail from the  depositary following our notice to the





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ADR depositary requesting the  ADR depositary to do so. To exercise their voting rights, ADS holders must  instruct the depositary on a timely basis. This noticed voting process will  take longer for ADS holders than for holders of preferred shares. If it fails  to receive timely voting instructions for all or part of the ADSs, the  depositary will assume that the holders of those ADSs are instructing it to  give a discretionary proxy to a person designated by us to vote their ADSs,  except in limited circumstances.





In  the limited circumstances in which holders of the ADSs have voting rights, they  may not receive the voting materials in time to instruct the depositary to vote  our preferred shares underlying their ADSs. In addition, the depositary and its  agents are not responsible for failing to carry out voting instructions of the  holders of the ADSs or for the manner of carrying out those voting  instructions. Accordingly, holders of the ADSs may not be able to exercise  voting rights, and they will have no recourse if the preferred shares  underlying their ADSs are not voted as requested.





You
might be unable to exercise preemptive rights with respect to our preferred
shares unless there is a current registration 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 issued by BACEN, 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.





Holders
of the ADSs may face difficulties in protecting their interests because we are
subject to different corporate rules and regulations as a Brazilian company and
our shareholders may have fewer and less well-defined
rights.





Holders  of the ADSs are not direct shareholders of our company and are unable to  enforce the rights of shareholders under our by-laws and Brazilian Corporate  Law.





Our  corporate affiliates are governed by our by-laws and the Brazilian Corporate  Law, which differ from the legal principles that would apply if we were  incorporated in a jurisdiction in the United States, such as the State of  Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs  surrenders its ADSs and becomes a direct shareholder, its rights as a holder of  our preferred shares underlying the ADSs under the Brazilian Corporation Law to  protect its interests relative to actions by our board of directors may be  fewer and less well-defined than under the laws of those other jurisdictions.





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Although  insider trading and price manipulation are crimes under Brazilian law, the  Brazilian securities markets are not as highly regulated and supervised as the  U.S. securities markets or the markets in some other jurisdictions. In  addition, rules and policies against self-dealing or for preserving shareholder  interests may be less well-defined and enforced in Brazil than in the United  States and certain other countries, which may put holders of our preferred  shares and the ADSs at a potential disadvantage.





Exchange  controls and restrictions on remittances abroad may adversely affect holders of  the ADSs and the underlying preferred shares.





Brazilian  law provides that whenever there is a significant imbalance in Brazils balance  of payments or a significant possibility that such imbalance will exist, the  Brazilian government may impose temporary restrictions on the remittance to  foreign investors of the proceeds of their investment in Brazil (as it did for  approximately six months in 1989 and early 1990) and on the conversion of  Brazilian currency into foreign currencies. These restrictions could hinder or  prevent the Brazilian custodian of the preferred shares underlying the ADSs or  holders who have exchanged the ADSs for the underlying preferred shares from  converting dividends, distributions or the proceeds from any sale of such  shares into U.S. dollars and remitting such U.S. dollars abroad. In such an event,  the Brazilian custodian for our preferred shares will hold the reais  that it cannot convert for the
account of holders of the ADSs who have not been  paid. Neither the custodian nor the depositary will be required to invest the reais  or be liable for any interest.





Holders
of the ADSs may face difficulties in protecting their interests because we are
subject to different corporate rules and regulations as a Brazilian company and
our shareholders may have fewer and less well-defined
rights.





Holders  of the ADSs are not direct shareholders of our company and are unable to  enforce the rights of shareholders under our by-laws and the Brazilian  Corporation Law.  Our corporate affairs  are governed by our by-laws and the Brazilian Corporation Law, which differ  from the legal principles that would apply if we were incorporated in a  jurisdiction in the United States, such as the State of Delaware or New York,  or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and  becomes a direct shareholder, its rights as a holder of our preferred shares  underlying the ADSs under the Brazilian Corporation Law to protect its  interests relative to actions by our board of directors may be fewer and less  well-defined than under the laws of those other jurisdictions.





Although  insider trading and price manipulation are crimes under Brazilian law, the  Brazilian securities markets are not as highly regulated and supervised as the  U.S. securities markets or the markets in some other jurisdictions. In  addition, rules and policies against self-dealing or for preserving shareholder  interests may be less well-defined and enforced in Brazil than in the United  States and certain other countries, which may put holders of our preferred  shares and the ADSs at a potential disadvantage. Corporate disclosures also may  be less complete or informative than for a public company in the United States  or in certain other countries.





Holders
of the ADSs may face difficulties in serving process on or enforcing judgments
against us and other persons.





We  are organized under the laws of Brazil, and most of our directors and executive  officers and our independent public accountants reside or are based in  Brazil.  Substantially all of our assets  and those of these other persons are located in Brazil. As a result, it may not  be possible for holders of the ADSs to effect service of process upon us or  these other persons within the United States or other jurisdictions outside  Brazil or to enforce against us or these other persons judgments obtained in  the United States or other jurisdictions outside Brazil. Because judgments of  U.S. courts for civil liabilities based upon the U.S. federal securities laws  may only be enforced in Brazil if certain conditions are met, holders may face  greater difficulties in protecting their interests in the case of actions by us  or our directors or executive officers than would shareholders of a U.S.
corporation.





Actual
or anticipated sales of a substantial number of preferred shares could decrease
the market prices of our preferred shares and the ADSs.





Sales  of a substantial number of our preferred shares could negatively affect the  market prices of our preferred shares and the ADSs. If, in the future, existing  or future holders of preferred shares make substantial sales of shares, the  market price of our preferred shares and, by extension, the ADSs may decrease  significantly. As a result, holders of the ADSs may not be able to sell the  ADSs at or above the price they paid for them.





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Holders
of the ADSs could be subject to Brazilian income tax on capital gains from sales
of ADSs.





Historically,  any capital gain realized on a sale or other disposition of ADSs between  non-Brazilian holders outside Brazil was not subject to Brazilian income tax.  However, a new Brazilian law provides that, commencing on February 1, 2004,  the acquiror, individual or legal entity resident or domiciled in Brazil, or  the acquirors attorney-in-fact, when such acquirer is resident or domiciled  abroad, shall be responsible for the retention and payment of the income tax  applicable to capital gains earned by the individual or legal entity resident  or domiciled abroad who disposes of property located in Brazil. The Brazilian  tax authorities have recently issued a normative instruction confirming that  they intend to assess income tax on capital gains earned by non-Brazilian  residents whose assets are located in Brazil. It is unclear whether ADSs  representing preferred shares,
which are issued by the depositary outside  Brazil, will be deemed to be property located in Brazil for purposes of this  law. Accordingly, we cannot determine whether Brazilian tax authorities will  attempt to tax any capital gains arising from the sale or other disposition of  ADSs, even when the transaction is consummated outside Brazil between  non-Brazilian residents.





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. There is also significantly  greater concentration in the Brazilian securities market than in 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.





|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 Centro Oeste Celular Participações S.A.  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 SCS, Quadra 2,  Bloco C, 226, 7° andar, 70302-916 Brasília, DF, Brazil.  Our telephone number is 55-61-3962-7717, our  facsimile number is 55-61-323-7250, and our website is www.vivo.com.br.  The information on our website is not part  of this annual report.  Our agent for  service of process in the United States is CT Corporation System, located at  111 Eighth Avenue, New York, New York 10011.





According  to market share data published by Anatel, we are a leading provider of cellular  telecommunications services in our area.   We are controlled by Telesp Celular Participações S.A.





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The chart below shows the major  companies in our ownership structure as of December 31, 2004.











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Telebrás  and the Privatization





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





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.  TCO was one of the

new holding companies.  TCO was allocated all the share capital held  by Telebrás in the operating subsidiaries of the Telebrás System that provided  cellular telecommunications service in Area 7.   In July 1998, the Brazilian government sold substantially all of its shares  of the new holding companies, including TCO, to private sector buyers.  The Brazilian governments shares of TCO  were purchased by Splice do Brasil Telecomunicações e Eletrônica S.A., or  Splice through BID S.A., its subsidiary at that time.





Norte  Brasil Telcom





On  October 19, 1998, Tele Centro Oeste/Inepar, a consortium consisting of (i)  Inepar S.A. Indústria e Construções (50%) and (ii) TCO (50%), was awarded a  license to provide cellular telecommunications services in Area 8.  On May 21, 1999, we acquired 45% of the  shares of Tele Centro Oeste/Inepar from Inepar for R$26.5 million, increasing  our holding in the consortium to 95%.   Upon acquiring control, we renamed Tele Centro Oeste/Inepar Norte Brasil  Telecom S.A. and registered it as a non-publicly held company.  NBT provides cellular telecommunications  service in the Brazilian States of Amapá, Amazonas, Maranhão, Pará and Roraima,  known as Area 8, under concessions from the Brazilian government (the B Band  Concessions).  The A Band Concessions  and the B Band Concessions are collectively referred to as our
concessions.





TCO  IP





On  November 21, 2000, SPLICE IP S.A. was formed as a closed corporation.  TCO held 100% of its preferred shares and  Splice do Brasil Telecomunicações e Eletrônica S.A., or Splice, held 99.99% of  its common shares.  As of March 5, 2001,  the control of SPLICE IP S.A. changed to TCO, when TCO bought 99.99% of the  common shares from Splice for R$0.05 million, and the name of the subsidiary  changed to TCO IP S.A.





Transfer  to Fixcel





On  December 31, 2001, Splice do Brasil Telecomunicações e Eletrônica S.A., or  Splice transferred all of its shares in BID S.A., TCOs parent company, to  Fixcel S.A. for R$860 million.





Merger  of Telebrasília





On  April 26, 2002, the management of TCO and its subsidiary, Telebrasília Celular  S.A., concluded all the legal and corporate acts necessary for the merger of  Telebrasília into TCO. The reasons for the merger were: (1) the concentration  of the liquidity of the stocks of TCO groups public companies into one single  company, in order to decrease the capital costs, (2) the reduction of  administrative, operational and financial costs incurred in connection with  managing two publicly held companies, and (3) the economies resulting from  administrative and commercial synergies existing between the companies. The  costs of the merger were approximately R$315,000.00, mainly related to the  engagement of specialized companies for the preparation of valuation reports, legal  assistance as well as expenses with the publication of corporate acts. Each  share of Telebrasília Celular was

substituted for 62,311,958,619 shares of TCO.





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Transfer  to Telesp Celular Participações S.A.





On  April 25, 2003, TCP acquired 64.03%, of the outstanding voting capital stock of  TCO from Fixcel S.A. for approximately R$ 1,505.6 million, corresponding to R$  19.48719845 per each lot of 1,000 shares acquired.  As of December 31, 2003, we have paid R$ 1,355.7 million of the  total amount and the remaining will be paid in installments.  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.  The agreement also  included the acquisition of TCOs B Band subsidiary NBT, which provides  cellular telecommunications service in the Brazilian states of Amapá, Amazonas,  Maranhão, Pará and Roraima.





On  May 25, 2003, after acquiring 64.03% of our voting capital, TCP launched a  tender offer for our remaining common shares in compliance with Brazilian  legislation.  The acceptance period  concluded on November 18, 2003, and TCP acquired 74.2% of the outstanding  available common shares at the price of R$16.73 per 1,000 common shares.  The total purchase price for the new shares  amounted to R$538.8 million.  At December  31, 2003 TCP held 90.22% of our common shares, representing a 29.31% interest in  us, excluding treasury shares.  TCP also  announced the intention to launch an exchange offer for our remaining shares  through which TCP would have become our sole shareholder. This would have been  followed by a merger of TCO into TCP. After the launch of the exchange offer,  the CVM raised questions regarding the compliance of the exchange offer with  Brazilian law. Although
TCP and TCO believed, and believe, that the exchange  offer complied with applicable law, TCP and TCO decided to terminate the exchange  offer in January 2004.





Brasilcel





TCO  is controlled by TCP, which in turn is controlled by Brasilcel N.V., or  Brasicel.  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, has 40.5%  of the total market in Brazil, with 26.5 million users at December 31, 2004,  according to market share data published by Anatel.  Its operations cover an area of approximately 130 million  inhabitants, or 73% of the Brazilian population, and approximately 83% 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:





| |  | Telesp    Celular Participações S.A., which controls an A Band operator in the state of    São Paulo and Global Telecom, a B Band operator in the states of Paraná and    Santa Catarina and Tele Centro Oeste Celular Participações S.A.;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                           
| |  | Tele Leste    Celular Participações S.A., which controls A Band operations in the states of    Bahia and Sergipe;                                                                                                                         
| |   |                                                                                                                                                                                                                                           
| |  | Tele Sudeste    Celular Participações S.A., which controls A Band operators in the states of    Rio de Janeiro and Espírito Santo; and                                                                                                    
| |   |                                                                                                                                                                                                                                           
| |  | Celular CRT    Participações S.A., which controls an A Band operator in the state of Rio    Grande do Sul.                                                                                                                                




Vivo





All  of the operating companies participating in the joint venture between Portugal  Telecom and Telefónica Móviles, named Brasilcel, have been operating under the  brand name Vivo since April 2003.  The  consolidation of a unified commercial model for the whole country centered on  the Vivo brand, substituting the different brands under which the different  companies offered their services in their respective states.  The commercial strategy of Vivo is to  increase their customer base as well as revenues by retaining customers as well  as maintaining their distribution channels. The launching of the Vivo brand was  accompanied by loyalty programs and other measures designed to contribute to  the success of the commercial strategy.





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TCOs  Corporate Restructuring





On  June 30, 2004, the management of TCP and TCO approved the corporate  restructuring of TCO and its subsidiaries Telegoiás Celular S.A., Telems  Celular S.A., Telemat Celular S.A., Teleacre Celular S.A. and Teleron Celular  S.A. The reasons for the restructuring were: (i) to effectuate an improvement  in TCOs and its subsidiaries cash flow, resulting from the transfer of TCPs  R$511 million tax benefit to TCO, generated by the amortization of a goodwill  in the amount of R$1,503 million, originally paid upon the acquisition of TCO  and its subsidiaries by TCP in 2003 and (ii) to effectuate a simplification of  the corporate structure of TCOs subsidiaries, improving TCOs capitalization,  benefiting the minority shareholders of TCO subsidiaries.





VTO   Voluntary Public Tender Offer





On  October 8, 2004, Telesp Celular Participações concluded its public tender after  (VTO) for up to 84,252,534,000 preferred shares of TCO by TCP was  concluded.  The number of preferred  shares tendered in the auction for the VTO exceeded the maximum number to be  acquired by the company.  Therefore,  each shareholder that tendered shares in the VTO received a pro rata allocation  of 0.5547 preferred shares of TCP for each TCO share tendered.  After the VTO, the number of preferred  shares of capital stock of TCO held by TCP represents 32.76% of the total  preferred shares, representing an increase from 28.86% to 50.65% of the  ownership interest of the company in the total capital stock of TCO.





Capital  Expenditures





The  primary focus of our capital expenditure program has been, and continues to be,  the improvement of the capacity of the services we currently offer, the  offering of new services and the development of information systems, including  the increase of our network capacity, the overlay of 1xRTT technology in our  TDMA network, the improvement of our overall quality, and the increase of the  digitalization level of our network.





The  following table sets forth our capital expenditures for the periods presented.





|                              |  | Year ended    December 31, |      
|----------------------------- |  | -------------------------- | -----
|                              |  |                            |      
|                              |  | 2004                       |      
|                              |  |                            |      
|                              |  | (in    millions of reais)  |      
|Switching    equipment        |  |                            | 156.7
|Transmission    equipment     |  |                            | 153.4
|Information    technology     |  |                            | 18.6 
|Others(1)                     |  |                            | 89.7 
|                              |  |                            |      
|Total    capital expenditures |  |                            | 418.4
|                              |  |                            |      




|   
|---
|(1)




We
    anticipate that our capital expenditures for 2005 will be approximately R$390.5
    million. We intend to fund these capital expenditures mostly with cash generated
    from operations. See Item 5.B. Liquidity and Capital Resources.





|B. | Business Overview
|-- | -----------------




Overview





We  are a leading provider of cellular telecommunications services in Brazils  Federal District and in 11 Brazilian states: Acre, Amazonas, Amapá, Goiás,  Maranhão, Mato Grosso, Mato Grosso do Sul, Pará, Rondônia Roraima and  Tocantins, an area encompassing 5.8 million square kilometers and 31.8 million  people.  We are the leading cellular  operator in our region, according to market share data published by  Anatel.  The table below sets forth the  net operating revenues for our subsidiaries for the periods presented.





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|                             |  | Year ended    December 31, |          
|---------------------------- |  | -------------------------- | ---------
|                             |  |                            |          
|                             |  | 2004                       |          
|                             |  |                            |          
|                             |  | (in    thousands of reais) |          
|Telebrasília    Celular/TCO  |  |                            | 503,818  
|Telegoiás    Celular         |  |                            | 546,295  
|Telemat    Celular           |  |                            | 335,175  
|Telems    Celular            |  |                            | 278,558  
|Teleron    Celular           |  |                            | 92,313   
|Teleacre    Celular          |  |                            | 47,387   
|NBT                          |  |                            | 439,141  
|Others                       |  |                            | 192      
|Intercompany    eliminations |  |                            | (32,453  
|                             |  |                            |          
|Total                        |  |                            | 2,210,426
|                             |  |                            |          




Our  Operations





We  are the leading cellular operator, by number of customers, in our area. We use  a frequency range known as A Band that covers 50% of the municipalities in the  states of Acre, Distrito Federal, Goiás, Mato Grosso, Mato Grosso do Sul,  Rondônia and Tocantins, and 89% of the population of those states. We also use  a frequency range known as B Band that covers 28% of the municipalities in the  states of Amazonas, Amapá, Maranhão, Pará and Roraima, and 65% of the  population of those states. At December 31, 2004, we had 5.8 million cellular  lines in service, which represented a 41.5% net increase from December 31,  2003, and a market share of approximately 51.5% in those states.





The  following tables set forth information on TCO and NBTs cellular  telecommunication base, coverage and related matters at the dates and for the  periods indicated.





TCO  Area 7




|                                                             |  | Year ended    December 31,
|------------------------------------------------------------ |  | --------------------------
|                                                             |  |                           
|                                                             |  | 2004                      
|                                                             |  |                           
|Cellular    lines in service at year-end (in thousands)      |  |                           
|Contract    customers                                        |  |                           
|Prepaid    customers                                         |  |                           
|Customer    growth during the year                           |  |                           
|Churn (1)                                                    |  |                           
|Estimated    population of concession areas (in millions)(2) |  |                           
|Estimated    covered population (in millions)(3)             |  |                           
|Percentage    of population covered(4)                       |  |                           
|Penetration    at year-end - TCO(5)                          |  |                           
|Percentage    of municipalities covered                      |  |                           
|Average    monthly minutes of use per customer(6)            |  |                           
|Estimated    market share(7)                                 |  |                           




NBT  Area  8




|                                                              |  | Year ended    December 31, |      
|------------------------------------------------------------- |  | -------------------------- | -----
|                                                              |  |                            |      
|                                                              |  | 2004                       |      
|                                                              |  |                            |      
|Cellular    lines in service at year-end (in thousands)       |  |                            | 1,329
|Contract    customers                                         |  |                            | 158  
|Prepaid    customers                                          |  |                            | 1,171
|Customer    growth during the year                            |  |                            | 65.8 
|Churn (1)                                                     |  |                            | 28.4 
|Estimated    population of concession areas (in millions) (2) |  |                            | 17.2 
|Estimated    covered population (in millions) (3)             |  |                            | 11.2 
|Percentage    of population covered (4)                       |  |                            | 64.9 
|Penetration    at year-end - NBT (5)                          |  |                            | 22.5 
|Percentage    of municipalities covered                       |  |                            | 28.6 
|Average    monthly minutes of use per customer(6)             |  |                            | 76   
|Estimated    market share(7)                                  |  |                            | 35.5 




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|   
|---
|(1)
|   
|(2)
|   
|(3)
|   
|(4)
|   
|(5)
|   
|(6)
|   
|(7)




Our  Services





We  provide cellular telecommunications services using both digital and analog  technologies.  Our network provides both  CDMA digital service and AMPS, or analog services. At TCO we provide cellular  telecommunications services in the frequency of 850 MHz using digital  technology CDMA/TDMA and analog technology AMPS.  All our services are provided in the frequency of 850 MHz.





We  provide voice and ancillary services, including voicemail and voice-mail  notification, call forwarding, three-way calling, caller identification, short  text messaging, limitation on the number of used minutes, cellular chat room,  and data service such as wireless application protocol service through which  clients can access WAP sites and portals. We offer direct access to the  Internet through either PCMCIA Cards (Personal Computer Memory Card  International Association, an organization consisting of some 500 companies  that has developed standardized small, credit card-sized devices, called PC  Cards) designed to connect compatible PDAs (Personal Digital Assistant, a  handheld device that combines computing, telephone/fax, Internet and networking  features) and laptops or cellular phones by cable connection that offers to  corporate subscribers secure access to their intranet and
office resources. We  also offer some new services like Multimedia Message Service, MExE (Mobile  Execution Environment) that enable the handset to download applications and  execute them at the mobile and a user interface with icons at the handset to  identify the main services, such as Voice Mail, Downloads a text messaging  (SMS), etc., for a friendlier access to our services.





In  addition, in 2004 we launched:





| | Vivo    Direto service  this service allows users to make individual and group    calls;                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                      
| | Vivo    Encontra (LBS)  a group of Location Based Services, including Vivo    Localiza, using gpsOne as a location technology service that allows users to    locate each other;
|  |                                                                                                                                                                                      
| | Vivo Aqui    Perto  a city-guide application;                                                                                                                                     
|  |                                                                                                                                                                                      
| | Vivo    Agenda (Synchronized Agenda)  this service allows users to back up their    contact lists and to recover any information lost in case of robbery or loss;                 




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|  |                                                                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Vivo em    Ação  an alternative-reality game that encourages the client to use    different ancillary services;                                                                                                                                             
|  |                                                                                                                                                                                                                                                                
| | Vivo Avisa    makes the client aware of calls missed when their phone is unavailable;                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                
| | Olho Vivo    (video monitoring)  (launched in March 2004), this was the first monitoring    application in Brazil.  Subscribers    can see real-time images of a webcam connected to a PC through their personal    mobile at a rate of 4 frames per second;
|  |                                                                                                                                                                                                                                                                
| | TV no    Celular (video streaming)  (launched in October 2004), this was the first    application of streaming in Brazil.     Subscribers can see real-time audio and television images through    their personal mobiles.                                  




We  offer roaming services, through agreements with local cellular service  providers throughout Brazil and other countries that allow our subscribers to  make and receive calls while out of our concession areas. We also provide  reciprocal roaming services to subscribers of those cellular service providers  while they are in our concession areas.





Our  Region





The  region in which TCOs subsidiaries operate consists of Area 7 and Area 8, which  we refer to as the Region, and covers an aggregate area of approximately 5.8  million square kilometers and 31.8 million people, representing approximately  68% of the total area of Brazil and 18% of Brazils population. In our areas,  34 municipalities have populations in excess of 100,000 people.  Area 7, which is serviced by Telegoiás,  Telemat, Telems, Teleron and Teleacre (and formerly Telebrasília), includes the  Federal District and Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul,  Rondônia and Acre.  Area 8, which is  serviced by NBT, includes the states of Amapá, Amazonas, Maranhão, Pará and  Roraima.





The  following tables set forth population, gross domestic product (GDP) and per  capita income statistics for each state in our regions at the dates and for the  year indicated.





|Area                |  | At    December 31, 2004 |  | Year ended    December 31, 2004    |     
|------------------- |  | ----------------------- |  | ---------------------------------- | ----
|                    |  |                         |  |                                    |     
|Subsidiary          |  | State                   |  | Population    (in    millions) (1) |     
|                    |  |                         |  |                                    |     
|Telebrasília        |  | Federal District        |  |                                    | 2.3 
|Telegoiás           |  | Goiás                   |  |                                    | 5.6 
|Telegoiás           |  | Tocantins               |  |                                    | 1.3 
|Telemat             |  | Mato Grosso             |  |                                    | 2.8 
|Telems              |  | Mato Grosso    do Sul   |  |                                    | 2.2 
|Teleron             |  | Rondônia                |  |                                    | 1.5 
|Teleacre            |  | Acre                    |  |                                    | 0.6 
|NBT                 |  | Amapá                   |  |                                    | 0.6 
|NBT                 |  | Amazonas                |  |                                    | 3.2 
|NBT                 |  | Maranhão                |  |                                    | 6.1 
|NBT                 |  | Pará                    |  |                                    | 6.9 
|NBT                 |  | Roraima                 |  |                                    | 0.4 
|                    |  |                         |  |                                    |     
|Total for    Region |  |                         |  |                                    | 33.5




|       
|-------
|Source:




|(1) | Estimates    from  IBGE for year-end 2004.                                          
|--- | ------------------------------------------------------------------------------------
|    |                                                                                     
|(2) | Our    estimates are expressed in nominal reais.                                    
|    |                                                                                     
|(3) | Nominal    Brazilian GDP was R$1,769 billion as of December 2004 calculated by IBGE.




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





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Marketing  and Sales





We  closely follow the developments in the markets where we operate and constantly  launch new promotion and advertising campaigns.





A  strong customer acquisition policy has been implemented across all the  companys operators through aggressive mass sales promotions and segmented  actions.  Efforts to acquire new  customers for prepaid and postpaid services have mostly been made through joint  promotions designed to increase intranet traffic and stimulate the use of data  services.





With  the premise of keeping a sustainable customer base, the acquisition promotions  have also been open to current customers who wished to change their cell  phones.  We are actively involved in a  high-value customer loyalty program by offering aggressive discounts on cell  phones through direct-marketing actions.





TCO  currently has 67 shops and kiosks in addition to an independent authorized  service network consisting of both exclusive and nonexclusive dealers, with  1,785 service points capable of selling services and cell phones. The credit  recharges are available for customers in more than 51,849 sites.





Customer  Service





As  part of the strategy for standardizing service provided by TCO operators to  their customers, we have outsourced 100% of the customer services while keeping  full management control. These services are available on a 24-hour basis from  our call center and our website.





Satisfaction  evaluation





Customer  satisfaction is evaluated by regular satisfaction surveys. In 2004, 10,000  customers of Vivo operating companies, among them 1,666 of TCO customers, were  interviewed all over the country about customer assistance, technical  assistance, and our products and services. The overall satisfaction mark was  8.3 on a range from 1 to 10. Several actions have since been taken in order to  increase our customer satisfaction.





Assistance to  customer claims





TCOs  staff is trained to assist and provide information to customers with respect to  the services we provide.





Vivo  operating companies customer service, including TCO, was ranked first in 2003  and 2004 in a survey entitled Companies that Most Respect Consumers, carried  out by the IBRC (Brazilian Institute of Customer Relations) for the Consumidor  Moderno (Modern Consumer).





In  2004, VIVO operating companies customer service, including TCO, received the  following awards for customer service:





| | Prêmio    Consumidor Moderno de Excelência em Serviços ao Cliente (Revista Consumidor    Moderno, em 2004)  Excellence in Customer Services  awarded by Consumidor    Moderno Modern Consumer issue  
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                             
| | Guilherme    Portela, VIVO operating companies Customer Vice-President was awarded as B2B    Executive of The Year 2004 by the B2B magazine;                                                              
|  |                                                                                                                                                                                                             
| | Melhor    Sistema com Internet pela ABT  Best Internet System awarded by    Telemarketing Brazilian Association  ABT; and                                                                             
|  |                                                                                                                                                                                                             
| | Melhor    Operação de Relacionamento em Call Center Próprio ou Terceirizado -    Ativo/Receptivo  pela ABT  Best Call Center Service Operation awarded by    Telemarketing Brazilian Association - ABT




Our  Network





Before  November 1998, our network used only AMPS analog technology.  After the privatization, we began to use  TDMA digital 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.





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Our  network includes cellular switches, base stations and other network elements,  such as voice mail, prepaid service, Short Message Service, Home Location  Registers, Signalling Transfer Point, PDSN and gateways.  We continue to increase network capacity and  coverage to improve service quality and to meet consumer demand.





As  of December 31, 2004, TCO provided CDMA Digital, TDMA digital and AMPS analog  services covering 40.37% of the municipalities, or 76.51% of the population, in  its Region. Our network is connected primarily through a fiber-optic  transmission system leased from incumbent wire line companies, consisting of  cellular switches, base-stations, and other network elements, such as voice  mail, prepaid service, text messaging, home location registers, signalling  transfer point and gateways.





Nortel  Networks  Northern Telecom do Brasil, Motorola do Brasil Ltda. (presently  Motorola Industrial Ltda. and Motorola Services Ltda.) and Ericsson  Telecomunicações S.A. are our principal suppliers.





Our  advanced network management technology ensures global management and supervision  of all our network processes and network performance.  The network management center monitors the critical network  operational parameters of TCO and NBT.   This center is able to identify abnormalities in both our network and in  third-parties networks, using the failure and signaling monitoring  systems.  In addition, quality and  service standards are constantly monitored.   The network management center is integrated with the maintenance and  operation teams that maintain and operate the cellular network elements, as  well as cellular infrastructure and transmission, in addition to the radio  network elements and computing bases, service platforms and communications  backbone.





Our  network is prepared to provide continuity of service for our customers in the  event of network interruptions.  We have  developed contingency plans for potential catastrophes in our switching  centers, power supply interruptions and security breaches.





Under  our authorizations, we are obligated to meet certain requirements for service  quality and annual network expansion.   See Regulation of the Brazilian Telecommunications  IndustryObligations of Telecommunications Companies.  We have already achieved all of our required  network expansion obligations.





Sources  of Revenue





We  generate revenue from:





| | usage    charges, which include measured service charges for calls and other similar    charges;                                                                                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                     
| | interconnection    charges (or network usage charges), which are amounts we charge other    cellular and fixed-line service providers for the use of our network;                                                                                                   
|  |                                                                                                                                                                                                                                                                     
| | monthly    subscription charges, which are not charged to our prepaid customers;                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                     
| | the sale of    cellular handsets and accessories; and                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                     
| | other    charges, including charges for text messaging (SMS),  call forwarding, call waiting, voice mail,    call blocking and data services, such as downloads and MMS services which are    charged only when the customers plan does not include these services.




Our  rates are subject to approval by Anatel.   See Item 4Information on the CompanyBusiness OverviewRegulation of  the Brazilian Telecommunications Industry.





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The  table below sets forth our net operating revenues by category of activity for  the periods presented:





|                                                                 |  | Year ended    December 31, |          
|---------------------------------------------------------------- |  | -------------------------- | ---------
|                                                                 |  |                            |          
|                                                                 |  | 2004                       |          
|                                                                 |  |                            |          
|                                                                 |  | (in    thousands of reais) |          
|Monthly    subscription charges                                  |  |                            | 149,526  
|Usage    charges                                                 |  |                            | 1,283,269
|Interconnection    charges                                       |  |                            | 872,095  
|Sale of    handsets and accessories                              |  |                            | 486,778  
|Other    services                                                |  |                            | 158,017  
|Gross    operating revenue                                       |  |                            | 2,949,685
|Taxes on    gross revenue, discounts granted and return of goods |  |                            | (739,259 
|                                                                 |  |                            |          
|Total net    operating revenue                                   |  |                            | 2,210,426
|                                                                 |  |                            |          




Contract  Customers





Since  October 1994, cellular telecommunications service in Brazil has been offered on  a calling party pays basis, under which customers pay only for calls that  they originate.  In addition, customers  pay roaming charges on calls made or received outside their home registration  area.





Customer  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 18 areas, called registration areas, designated for payment  purposes.





Interconnection Charges





We  earn revenues from any call that originates from 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 that our  network is used in connection with the call.   See Item 4Information on the CompanyBusiness OverviewOperating  AgreementsInterconnection Agreements.   Tariff increases are subject to Anatels review and approval.





Bill and Keep





Anatel  adopted Bill & Keep rules for interconnection charges in July 2003. The  rules provide that companies under the SMP regime are not required to pay  tariffs for the use of the local network of another SMP provider as long as  customers use local service (i.e., make calls in the same registration area)  and as long as there is a traffic balance between the providers. However, when  traffic from the SMP provider that originates the call to the SMP provider that  terminates the call represents more than 55% of the total local traffic between  the two providers, the SMP provider who originates the higher traffic through  the other providers network must pay to such other provider the local usage  tariff for the portion of the traffic that exceeds 55%.  This rule is in effect through June 30,  2005.  Thereafter, SMP operators may  adopt full Bill & 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 customer of another  cellular service provider makes a call within our Region, that service provider  pays us for the call at the applicable rate.   Conversely, when one of our customers makes a cellular call outside of  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 (800 MHz CDMA-1xRTT/AMPS and 800 MHz CDMA/AMPS) and tri-mode  (1900 MHz CDMA and 800 MHz CDMA/AMPs) cellular handsets and PCMCIA cards  through our own stores and dealers.  We  also sell dual-mode TDMA (800 MHz TDMA/AMPS and 800 MHz AMPS) for the current  TDMA operation where we are implementing a CDMA overlay. Although we still have  some customers using analog service (approximately 0.4% of our total customer  base at December 31, 2004), we have implemented a series of actions, such as  providing discounts on digital handsets, discounts on monthly fees for digital  services, digital handset rentals and free digital handsets to our high-value  customers, to encourage analog customers to transfer to digital service.  Our current suppliers are, among others,  Motorola, LG, Samsung and Nokia.





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Operating  Agreements





We  have an agreement with Brasil Telecom to lease physical space, real estate,  air-conditioning, energy, security and cleaning services. We also lease from  Brasil Telecom transmission capacity necessary to complete the construction of  our network infrastructure.





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.





We  believe that our subsidiaries have adequate interconnection agreements with all  the fixed-line operators they need to provide their services. We also believe  that our subsidiaries have all the necessary interconnection agreements with  local distance carriers.





Roaming  Agreements





We  are a member of the Brazilian roaming committee, a group comprising 21  companies providing cellular services in Brazil through either A and B bands.  The committee was created to standardize roaming services in Brazil and elsewhere.





The  roaming agreements require us and the other cellular service providers to  provide service to roaming customers on the same basis that each member  provides service to its own customers, and to carry out a monthly  reconciliation of roaming customer usage charges.





We  offer automatic international roaming in Argentina, Uruguay, Chile, Dominican  Republic and South Korea. Currently the markets of the United States, Mexico  and Canada are offered to our customers through third-party partners, as well  as Japan. Since 2000, we have provided international GSM services through the  use of GSM handsets in most parts of Europe, Africa, Asia and Oceania.





Taxes  on Telecommunications Services and Handset Sales





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





| | ICMS. Imposto sobre Circulação de Mercadorias e Serviços, or    ICMS, is a state tax imposed at varying rates from 7% to 35% on certain    revenues from the sale of goods and services, including telecommunications    services.                                                                                                                                                                                                                                                                                   
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | COFINS.     Contribuição    para Financiamento da Seguridade Social, or COFINS, is federal    social contribution tax imposed on the gross operating revenue less discounts    and returns. In December 2003, Law No. 10,833 was enacted, making such    contribution noncumulative and increasing the rate from 3.0% to 7.60%, except    in connection with telecommunication services, where the rate continues to be    3.0%.                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | PIS.     Programa    de Integração Social, or PIS, is a federal social contribution tax    which corresponds to 1.65% of the gross operating revenue less discounts and    returns, except in connection with telecommunication services, where the rate    is 0.65%.                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | FUST.     Fundo    de Universalização dos Serviços de Telecomunicações, or FUST, is a    federal social contribution which corresponds to 1% of the net revenue    generated by telecommunications services (other than interconnection    charges).  The purpose of the FUST is    to fund a portion of the costs incurred by telecommunication service    providers to meet the universal service targets required by Anatel, in case    the service providers are unable to fund, in whole or in part, such costs.




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| | FUNTTEL. Fundo para Desenvolvimento Tecnológico das Telecomunicações,    or FUNTTEL, is a federal social contribution which corresponds to 0.5% of the    net revenue generated by telecommunications services (other than    interconnection charges).  The purpose    of FUNTTEL is to promote the development of telecommunications technology in    Brazil and to improve competition.                                                                                                                                                                                                                                                                                                                   
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | FISTEL.     Fundo    de Fiscalização das Telecomunicações, or FISTEL, is a federal 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. This tax is divided in two parts: Taxa de Fiscalização    de Funcionamento and Taxa de Fiscalização de Instalação. Taxa de Fiscalização    de Funcionamento is based on the total number of customers at the end of the    previous fiscal year.  Taxa de    Fiscalização de Instalação is based on (i) the net monthly additions (new    customers less churn) and (ii) the total number of radio base stations.




Billing  and Collection





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  to pay overdue accounts before suspending outgoing service for nonpayment.  Customers may choose from a number of  billing options, including traditional paper bills, direct withdrawal from the  customers bank account and some deferred payment options.  We have also introduced a new billing service  through which customers can receive and pay bills via the Internet.  In 2004, we estimate that approximately 60%  of our invoices were paid in full on a timely basis.





We  have established a uniform policy for dealing with delinquent customer  accounts.  If a subscribers payment is more  than 15 days past due, outgoing service may be suspended and if payment is more  than 30 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.  After 105 days  delinquency, the debts are referred to independent collection agencies.





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 that are more  than 90 days past due.  We provision for  customer accounts over 90 days past due and write off customer accounts that  are over 180 days past due.  Our  provisions for doubtful accounts were 3.1%, 1.9% and 1.6% of our gross  operating revenues in 2004, 2003, and 2002, respectively. These figures are  calculated as dividing the total amount of provisions for the allowance for  doubtful by gross operating revenues.   See  Item  5  Operating  and  Financial  Review   and  Prospects  Operating Results  for the
Years Ended December 31, 2003, 2002  and 2001  Operating Expenses.  We  offer an installment payment plan for those with overdue amounts.





We  receive roaming fees from other cellular service providers when their  subscribers make cellular calls while within our Region, and pay roaming fees  to other cellular service providers when our subscribers make cellular calls  while outside of our Region.  See Item  4  Information on the Company  Business Overview  Sources of Revenue   Roaming Fees.  We receive network usage  fees from other service providers when their subscribers make calls that  terminate on a cellular telephone within our Region, and we pay network usage  fees when our subscribers make calls that terminate on the network of another  service provider.  See Item 4  Information  on the Company  Business Overview  Sources of Revenue  Interconnection  Charges.  At the end of each month, our  company and the other service providers
reconcile the amounts owed between them  and settle on a net basis.  For  international and domestic long-distance calls made by its subscribers, our  company forwards the amount registered on account of such calls to a  clearinghouse operated by Embratel  Empresa Brasileira de Telecomunicações S.A  and charges the carriers a fee for the use of its cellular telecommunications  network.





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.





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The  two most prevalent types of fraud are cloning fraud and subscription  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.





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.





Nevertheless,  it is difficult for us to control this type of fraud because of Anatels  application of Rule 05/78, which prohibits the suspension of service prior to  an account being 15 days past due.  We  may, however, suspend service when the subscription is under subscription and  fraud has been confirmed by means of specific procedures.  In such cases, the rules imposed by Anatel  do not prevent the suspension of service.





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 detection and prevention measures to reduce fraud  related losses, including the automatic review of call detail records in the  states of Goiás, Mato Grosso, Mato Grosso do Sul, Rondônia, Acre, Amazonas,  Amapá, Roraima, Pará, Maranhão and Tocantins, to identify abnormal calling  patterns.  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 telecommunication usage by our customers  even when they are located outside of our areas.





Competition





We  face intense competition in all the areas in which we operate, principally from  other cellular service providers and also from fixed-line operators. Many of  these competitors are part of large, national or multinational groups and  therefore have access to financing, new technologies and other benefits that  derives from being owned by such a group. Fixed-line operators generally charge  much lower tariffs than cellular service providers.





Our  principal cellular competitors are: Claro (Americel S.A.), in the region  encompassing the states of Mato Grosso do Sul, Mato Grosso, Goiás, Tocantins,  Rondônia and Acre and the Federal District, and Amazônia Celular S.A., in the  region encompassing the states of Amazonas, Roraima, Pará, Amapá and Maranhão.  The main fixed-line operators in its area are: Brasil Telecom S.A., in the  region encompassing the states of Mato Grosso do Sul, Mato Grosso, Goiás,  Tocantins, Rondônia and Acre and the Federal District, and Telemar Norte Leste  S.A. - Telemar, in the region encompassing the states of Amazonas, Roraima,  Pará, Amapá and Maranhão. Other competitors are Oi (Telemar mobile operator)  and TIM.





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-operated  services, which provide nationwide coverage, are also available in Brazil.  Although these services have the advantage  of covering much larger areas than those covered by the cellular  telecommunications services, they are considerably more expensive than the  cellular telecommunications services we offer and do not provide competitive  coverage inside buildings.  Currently,  our company does not plan to offer satellite-operated mobile services (other  than those included in the roaming contracts entered into with providers of  satellite services), though we may offer such services in the future.





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There  can be no assurance that the entry of new competitors will not have significantly  adverse effects on our business, financial condition, or the results of our  operations or prospects.  Any adverse  effects on our market share, which results from pressures originating from  competition, will depend on several factors which cannot be assessed with  precision and which are therefore beyond our control.  Among such factors are the identity of the competitors, their  strategy and ability to conduct business, market conditions prevailing at the  time, rules applicable to the new market participants and to us, as well as the  effectiveness of our efforts to prepare for and to face the strong  competition.  There may also be  competitors with higher technical capacity and more resources than ours.





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 and  administratively independent of the Brazilian government.  However, 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 a public hearing.  Anatels actions can 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 ten franchise areas under A Band and B Band.  A Band and B Band mobile service providers were granted  concessions pursuant to the Lei Mínima, or the Minimum Law.  Each concession is a specific grant of  authority to provide 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 under the concession agreement to be able to the  government authority upon termination of the concession.  Another distinctive feature is the right of  the concessionaire 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 an  authorization, the government does not guarantee to the authorized company the  economic-financial equilibrium, as is the case under 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





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regions covering the same  geographic area 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, at the end of 2002 and  in September of 2004.





Under  these new licenses:





| | services are    to be provided using the 1,800 MHz frequency;                                                                                                                                                                                                                                                                                                                                
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                              
| | 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    licenses.  However, fixed-line    operators, their controlling shareholders and affiliated cellular providers    can only bid for D Band and E Band licenses;
|  |                                                                                                                                                                                                                                                                                                                                                                                              
| | a cellular    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.





On
     February 3, 2003, TCO chose to replace its SMC Concession Contracts for
    Personal Mobile Service
Agreements (Termos de Autorização do Serviço Móvel  Pessoal,
or SMP) in Regions I
(subrange of B frequencies) and II (subrange of  A frequencies)
of the General Granting Plan (Plano Geral de Outorgas, or Pao). 
In addition, Tele Centro Oeste Celular Participações, Telegóias,

Telemat, Telems, Teleron, Teleacre and Norte Brasil Telecom hold a national
and international authorization for Multimedia  Communication Services (Serviços
de Comunicação Multimídia, or SCM).





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 could opt to establish  a price cap or freely negotiate their interconnection charges. The conditions  of the network usage fee negotiation are regulated by Anatel.  Thereafter, the terms and conditions of the  interconnection have been freely negotiated between wireless and fixed-line  operators, effective as of 2005, subject to compliance with regulations  established by Anatel.  Anatel submitted  to public comment new regulations on interconnection rules. The public comment  period ended on October 18, 2004 and we presented our arguments against some of  the proposals that may have adverse effect on our results. Anatel will decide
whether to publish a new regulation and on its content. If these regulations  take effect, they may negatively affect our revenues and results of operations.





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 wire-line  long-distance services in the state of São Paulo and was awarded a license to  provide these services nationwide, Anatel will not award a wire-line  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 wire-line-long-distance operators because of 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.





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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.





TCOs  new authorizations impose obligations to meet higher quality of service  standards, such 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 non-discriminatory 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





With  respect to our Basic Plan and certain roaming charges incurred in connection  with alternative service plans 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 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.





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 was subject to a price cap  stipulated by Anatel. This price cap was valid until June 30, 2004 and,  thereafter, the terms and conditions of the interconnection are freely  negotiated among the operators, effective as of 2005, subject to Anatel  regulations. Anatel submitted to public consultation new regulations on  interconnection rules. The public consultation period ended on October 18, 2004  and we presented our arguments against some of the proposals that may have an  adverse effect on our results. Anatel will decide whether to publish a new  regulation and on its content. If these regulations take
effect, they may  negatively affect our revenues and results of operations.





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




Our  controlling shareholder is TCP, which, in turn, is controlled by PT Móveis  SGPS, S.A. and Telefónica Móviles, S.A.   PT Móveis SGPS, S.A. is 100% controlled by Portugal Telecom SGPS, S.A.  As of December 31, 2004, TCP owned 90.22% of TCOs common shares, excluding  treasury shares.  Due to its share  ownership, TCP has the power to control TCO, including the power to elect TCOs  Board of Directors and officers and to determine the direction and future  operations of TCO. In addition, PT Móveis SGPS S.A. and Telefónica Móviles S.A.  share their participation in TCP in equal percentages.





Our  wholly-owned subsidiaries are: Telegoiás,
    Telemat, Telems, Teleron, Teleacre, NBT and TCO IP. TCO IP is an unlisted
    company created to deliver general telecommunications services both nationally
and internationally, such as information services.





Substantially  all of TCOs assets consist of shares in its subsidiaries and the assets  transferred to TCO as a result of the merger with Telebrasília.  TCO relies very substantially on dividends  from its subsidiaries to meet its needs for cash, including cash to pay dividends  to its shareholders.  See Item  5Operating and Financial Review and ProspectsLiquidity and Capital  Resources.





For  a more detailed description of our ownership structure, see Our History and  Development.





|D. | Property, Plant and Equipment
|-- | -----------------------------




Our  principal physical assets consist of transmission equipment, switching  equipment, base stations and other communication devices, such as voice mail,  prepaid service, text messaging (SMS), Home Location Registers, Signalling  Transfer Point and gateways. All switches, cell sites, administrative  buildings, administrative facilities, warehouses and stores are insured against  damages for policy operation risks.





At  December 31, 2004, TCO had 21 cellular switches and other equipment installed  in 16 owned spaces and one leased space.   TCO leases almost all of the sites in which its cellular  telecommunications network equipment is installed.  Its 1,241  base stations  were installed in 813 cell sites, administrative buildings, administrative  facilities and warehouses, and the average term of these leases is five  years.  In addition, TCO owns  administrative buildings (approximately 33,929 square meters), 4 retail stores  and 4 wholesale stores (approximately 1,315 square meters), and also leases  administrative facilities (approximately 4,079 square meters), warehouse space  (approximately 2,534 square meters), three kiosks and 39 retail stores  throughout our Region.





At  December 31, 2004, NBT had 13  cellular  switches and other equipment installed in 12 owned spaces.  NBT leases almost all of the sites in which  its cellular telecommunications network equipment is installed.  Its 346 base stations were installed in 242  cell sites, administrative buildings, administrative facilities and warehouses,  and the average term of these leases is 5 years.  In addition, NBT owns administrative buildings (approximately 60  square meters) and also leases administrative facilities (approximately 4,351  square meters), warehouse space (approximately 3,255 square meters), five  kiosks and 16 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 3.A. Selected Financial Data.





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Critical  Accounting Policies





In  preparing our consolidated financial statements, we have relied on estimates  and assumptions derived from historical experience and various other factors  that we deemed reasonable and relevant.   Critical accounting policies are those that are
important to the  portrayal of our financial condition and results and utilize managements most  difficult, subjective or complex judgments, estimates and assumptions.  The 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 the
Brazilian  Corporate Law Method are described in note 3 to our consolidated financial  statements.  A description of the  differences in accounting policies between the Brazilian Corporate Law Method  and U.S. GAAP is included in note 37 to our consolidated financial
statements.  The application of these  critical accounting policies often requires judgments made by our management  regarding the effects of matters that are inherently uncertain on the carrying  value of our assets and liabilities and the results of our operations.  Our results of operation and financial  condition may differ from those set forth in our consolidated financial  statements, if our actual experience differs from managements assumptions and  estimates.  The following is a  discussion of our critical accounting policies, including some of the  variables, assumptions and sensitivities underlying the estimates relating to:





| |  | goodwill    impairment;                          
| | - | -------------------------------------------------
| |   |                                                  
| |  | revenue    recognition;                          
| |   |                                                  
| |  | depreciation    of property, plant and equipment;
| |   |                                                  
| |  | valuation of    property, plant and equipment;   
| |   |                                                  
| |  | provisions    for contingencies;                 
| |   |                                                  
| |  | deferred    income taxes; and                    
| |   |                                                  
| |  | financial    instruments.                        




Goodwill  impairment





Under  Brazilian Corporate Law Method, the amount of goodwill and other intangible  asset impairment, if any, is measured based on projected undiscounted future  operating cash flows. Under U.S. GAAP, pursuant to SFAS 142, Goodwill and  Other Intangible Assets, goodwill is no longer amortized and is subject to a  yearly impairment test. In performing the yearly impairment test, we identify  our reporting units and determine the carrying value of each reporting unit by  assigning the assets and liabilities, including the existing goodwill and  intangible assets. We then determine the fair value of each reporting unit and  compare it to the carrying amount of the reporting unit. If the carrying amount  of a reporting unit exceeds the fair value of the reporting unit, we would be  required to perform the second step of the impairment test which involves the  determination of the implicit
fair value of the reporting unit by performing a  hypothetical purchase accounting calculation. If the implicit value of the  goodwill exceeds the book value, an impairment is recognized.





A  determination of the fair value and the undiscounted future operating cash  flows of our cellular business require management to make certain assumptions  and estimates with respect to projected cash inflows and outflows related to  future revenues and expenditures and expenses.   These assumptions and estimates can be influenced by different external  and internal factors, such as economic tendencies, industry trends, and  interest rates, changes in our business strategies and changes in the type of  services we offer to the market.  The  use of different assumptions and estimates could significantly change our  financial statements.  If assumptions  and estimates about the expected future net cash flows change in the future, we  may have to recognize impairment charges on goodwill, which would decrease our  results of operations and shareholders equity.





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Revenue recognition





Under  the Brazilian Corporate Law Method and U.S. GAAP, we recognize revenues as the  services are provided.  Prepaid service  revenue is deferred and amortized based on subscriber airtime usage.  Sales of handsets along with the related  cost of the handsets are deferred and amortized over their estimated useful  life.  The excess of the cost over the  amount of deferred revenue related to handset sales is recognized on the date  of sale. Under U.S. GAAP, as from January 1, 2004, we began to segregate free  minutes given in connection with sales of handsets and recharges on prepaid  phone plans. These minutes are recognized as used based on their respective  estimated fair values.





We  consider revenue recognition to be a critical accounting policy, because of the  uncertainties caused by different factors such as the complex information  technology required, high volume of transactions, fraud and piracy, accounting  regulations, managements determination of collectibility and uncertainties  regarding our right to receive certain revenues (mainly revenues for usage of  our network) and the estimation of fair value for certain transactions.  Significant changes in these factors could  cause us to fail to recognize revenues or to recognize revenues that we may not  be able to realize in the future, despite our internal controls and procedures.





Depreciation of  property, plant and equipment





Depreciation  of 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. The sensitivity  of 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, 2004. This  hypothetical change would result in an incremental increase in the annual  depreciation expense of R$17.1 million in the year of the change.





Valuation of  long-lived assets





Under  Brazilian Corporate Law Method, an impairment is recognized on long-lived  assets such as property, plant and equipment and concession intangibles if the  expected net cash flows generated the respective asset is not sufficient to  cover its book value. Under U.S. GAAP, in accordance with SFAS No. 144,  long-lived assets are reviewed for impairment whenever events or changes in  circumstances indicate that the carrying amount of an asset may not be  recoverable.  Recoverability of assets  to be held and used is measured by a comparison of the carrying amount of an  asset to the estimated undiscounted future cash flows expected to be generated  by the asset. If the carrying amount of an asset exceeds its estimated future  cash flows, an impairment charge is recognized in the amount by which the  carrying amount of the asset exceeds the fair value of the asset.





A  determination of the fair value of an asset requires management to make certain  assumptions and estimates with respect to projected cash inflows and outflows  related to future revenues and expenditures and expenses.  These assumption and estimates can be  influenced by different external and internal factors, such as economic  tendencies, industry trends, interest rates and changes in the marketplace. A  change in the assumptions and estimates that we use could change our estimate  of the expected future net cash flows and lead to the recognition of an  impairment charge on our property, plant and equipment or concession  intangibles, which would decrease our results of operations and shareholders  equity.





Provisions for  contingencies





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 owing 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.





Deferred income  taxes





We compute and pay income taxes  based on results of operations under Brazilian Corporate Law Method. Under U.S.  GAAP, we recognize deferred tax assets and liabilities based on the differences  between the financial statement carrying amounts and the tax bases of assets  and liabilities. We regularly review the deferred tax assets for





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recoverability and establish a  valuation allowance if it is more likely than not that the deferred tax assets  will not be realized, based on historical taxable income, projected future  taxable income, and the expected timing of the reversals of existing temporary  differences.  When performing such  reviews, we are required to make significant estimates and assumptions about  future taxable income.  In order to  determine future taxable income, we need to estimate future taxable revenues  and deductible expenses, which are subject to different external and internal  factors, such as economic tendencies, industry trends, interest rates, changes  in our business strategies and changes in the type of services we offer to the  market.  The use of different  assumptions and estimates could significantly change our financial  statements.  A change in the assumptions  and estimates with respect to our expected future taxable income, we
would  be required   to recognize valuation allowance charges on deferred income tax assets,  which would decrease our results of operations and shareholders equity.  If we operate at a loss or are unable to  generate sufficient future taxable income could result in the recognition of a  valuation, or if there is a material change in the actual effective tax rates,  the time period within which the underlying temporary differences become  taxable or deductible, or any change in our future projections, we could be  required to establish a valuation allowance against all or a significant  portion of our deferred tax assets resulting in a substantial increase of our  effective tax rate and a material adverse impact on our operating results.





Financial  instruments





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.





|A. | Operating Results
|-- | -----------------




Results  of Operations for 2004, 2003 and 2002





Statement of  Operations





The  following table sets forth certain components of our income, as well as the  percent change of each year from the prior year, for the periods presented.





|                                                |  | Year ended    December 31, |         | Percent    change | 
|----------------------------------------------- |  | -------------------------- | ------- | ----------------- | 
|                                                |  |                            |         |                   | 
|                                                |  | 2004                       |         | 2003              | 
|                                                |  |                            |         |                   | 
|                                                |  | (in    millions of reais)  |         |                   | 
|Net    operating revenue                        |  |                            | 2,210.4 |                   | 
|Cost of    services and goods sold              |  |                            | (910.4  | )                 | 
|Gross profit                                    |  |                            | 1,300,0 |                   | 
|Operating    expenses:                          |  |                            |         |                   | 
|Selling                                         |  |                            | (472.7  | )                 | 
|General and administrative                      |  |                            | (149.1  | )                 | 
|Other operating income (expense), net           |  |                            | 3.1     |                   | 
|Total operating expenses                        |  |                            | (618.7  | )                 | 
|Operating    income before net financial result |  |                            | 681.3   |                   | 
|Financial    income, net                        |  |                            | 62.2    |                   | 
|Operating    income                             |  |                            | 743.5   |                   | 
|Net    non-operating (expense) income           |  |                            | (9.0    | )                 | 
|Income    before taxes and minority interest    |  |                            | 734.5   |                   | 
|Income and    social contribution tax expense   |  |                            | (224.2  | )                 | 
|Minority    interests                           |  |                            | (3.2    | )                 | 
|                                                |  |                            |         |                   | 
|Net income                                      |  |                            | 507.1   |                   | 
|                                                |  |                            |         |                   | 




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Net Operating  Revenue





Our  operating revenues are mainly derived from:





| |  | customer    usage charges, which include charges for outgoing calls, roaming and other    similar services, and revenues from the sale of airtime for prepaid services;                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                               
| |  | interconnection    charges (or network usage charges), which are amounts we charge other    cellular and fixed-line service     providers for use of our network in order to complete calls originated    outside our network;
| |   |                                                                                                                                                                                                                               
| |  | monthly    subscription charges, which we charge exclusively to our contract plan    customers;                                                                                                                               
| |   |                                                                                                                                                                                                                               
| |  | sale of    cellular handsets and accessories; and                                                                                                                                                                             
| |   |                                                                                                                                                                                                                               
| |  | other    service charges, including charges for call forwarding, call waiting, call    blocking and text messaging (SMS), which are charged only when the customers    plan does not include these services for free.        




The  composition of our operating revenues has been affected by the shift toward  prepaid services (which generate usage charges and interconnection charges but  do not generate monthly subscription charges, and which have attracted  lower-income customers to our services).   Net additions decreased the number of contract customers by 0.5% to  945  thousand in 2004 and by 10.3% to  950 thousand in 2003 from 861 thousand in 2002.  Net additions increased the number of prepaid customers by 54.2%  to 4,875 thousand in 2004 and by 43.3% to 3,162 thousand in 2003 from 2,207  thousand in 2002.





Interconnection  rates increased by 10.0% in February 2002 and 22.0% since February 2003.  Anatel authorizes cellular operators to  increase tariffs based upon the prior 12-month periods cumulative inflation,  measured by the IGP variation from February to January of each year.





As  of July 6, 2003, cellular telecommunications operators in Brazil were required  by the SMP rules to implement long-distance Carrier Selection Codes (Códigos de  Seleção de Prestadora, or CSP) used by customers to choose their  carrier for domestic long-distance services (VC2 and VC3) and international  cellular calls. As a result, TCO no longer receives revenues or pays  interconnection fees for VC2 or VC3 calls and international calls.





Additionally,  Anatel adopted Bill & Keep rules for interconnection charges in July  2003. The rules provide that companies under the SMP regime are not required to  pay tariffs for the use of the local network of another SMP provider as long as  customers use local service (i.e., make calls in the same registration area)  and as long as there is a traffic balance between the providers. However, when  traffic from the SMP provider that originates the call to the SMP provider that  terminates the call represents more than 55% of the total local traffic between  the two providers, the SMP provider who originates the higher traffic through  the other provider ́s network must pay to such other provider the local usage  tariff for the portion of the traffic that exceeds 55%.





The  composition of operating revenues by category of service is presented in our  consolidated financial statements and discussed below.  We do not present net operating revenues  (i.e., after deduction of taxes) by category of service.





The  following table sets forth the components of our net operating revenues, as  well as the percent change of each year from the prior year, for the periods  presented.





|                                         |  | Year ended    December 31, |         | Percent    change | 
|---------------------------------------- |  | -------------------------- | ------- | ----------------- | 
|                                         |  |                            |         |                   | 
|                                         |  | 2004                       |         | 2003              | 
|                                         |  |                            |         |                   | 
|                                         |  | (in    millions of reais)  |         |                   | 
|Usage    charges                         |  |                            | 1,283.3 |                   | 
|Monthly    subscription charges          |  |                            | 149.5   |                   | 
|Interconnection    charges               |  |                            | 872.1   |                   | 
|Sale of    handsets and accessories      |  |                            | 486.8   |                   | 
|Other                                    |  |                            | 158.0   |                   | 
|Gross operating revenue                  |  |                            | 2,949.7 |                   | 
|Value-added    and other indirect taxes  |  |                            | (610.8  | )                 | 
|Discounts    granted and return of goods |  |                            | (128.5  | )                 | 
|                                         |  |                            |         |                   | 
|Net operating revenues                   |  |                            | 2,210.4 |                   | 
|                                         |  |                            |         |                   | 




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Net  operating revenues increased by 12.8% to R$2,210.4 million in 2004 from  R$1,958.9 million in 2003, which in turn represented a 24.6% increase from  R$1,572.1 million in 2002.  The growth  of net operating revenues in 2004 was principally due to a 17% increase in  usage charges due to a 41.5% increase in our customer base, a 26.9% increase in  sales of cellular handsets and accessories, and a 92.2% increase in revenues  from other services, mainly due to intensive campaigns addressed to users of  SMS (text messaging service), WAP and 1xRTT.   The growth in revenues in 2003 was attributed mainly to a 23.4% increase  in local outgoing traffic, a 23.0% increase in usage charges because of an  increase of a 34.1% increase in our customer base, a 38.4% increase in sales of  cellular handsets and accessories; and a 153.5% increase in revenues from other  services.





The  increases in 2004 and 2003 were partially offset by lower average monthly  revenues per customer.  The average  number of customers, calculated as the number of customers at the beginning of  the year plus the number of customers at the end of the year, divided by two,  increased 38.3% to 4,966 thousand customers in 2004 from 3,590 thousand  customers in 2003, representing in turn a 31.0% increase from 2,740 thousand customers  in 2002.  Average monthly net revenues  from services per user decreased principally as a result of 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; and the introduction of new service plans directed at users with lower  monthly subscription charges.





Usage  charges.  Usage  charges increased 17.0% to R$1,283.3 million in 2004, from R$1,096.5 million in  2003, which in turn represented a 21.0% increase from R$905.8 million in 2002.  This increase was principally due to a 41.5% increase in the total number of  subscribers to 5,820 thousand total lines in service at December 31, 2004 from  4,112 thousand total lines in service at December 31, 2003. Beginning in July  2003, this increase was partially offset by the impact of the new rules  relating to the long distance carrier selection code described above.





Monthly  subscription charges.   Revenues from monthly subscription charges were basically constant at  R$149.5 million in 2004, compared to R$148.3 million in 2003, which in turn  represented a 29.0% increase from R$115.0 million in 2002.  The constant value from 2004 to 2003  resulted mainly from a constant average number of contract customers.  The increase in monthly subscription charges  in 2003 from 2002 resulted from an increase in our number of contract customers  and the launch of new plans that are designed to fit a contract customers  profile.





Interconnection  charges.  Our  revenues from interconnection charges increased 12.3% to R$872.1 million in  2004, from R$776.8 million in 2003, which in turn represented a 19.6% increase  from R$649.3 million in 2002. The increases in network usage revenues in 2004  and 2003 reflected the increase in our average interconnection charges and an  increase in our customer base, which were offset by a reduction in incoming  call traffic.





Sales  of handsets and accessories.  Revenues from sales of handsets and accessories increased 26.9%  to R$486.8 million in 2004, from R$383.5 million in 2003, which in turn  represented a 38.5% increase from R$276.9 million in 2002.  The increase in 2004 resulted mainly from an  increase in sales volume, especially in sales of medium and higher value  handsets with a focus on trade-ins of TDMA devices for CDMA devices.  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 TCO therefore subsidizes portions of the costs of handsets.  Although profit margins vary from one handset model to another and from time to  time, profit margins are generally negative after taxes
and discounts. In 2004,  2003 and 2002, the subsidy resulted in a gross loss (calculated as the  difference from net operating revenues from sales minus the cost of goods sold)  of approximately R$225.0, R$88.5 million and R$105.5 million on handsets sales,  respectively.





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Other.  Revenues
    from other services increased 92.2% to R$158.0 million in 2004, from R$82.2
    million in 2003, which in turn represented a 132.9% increase from R$35.3
    million in 2002.  The increases in revenues from other  services in
    2004 and 2003 were due primarily to increases in the use of the text messaging
    (SMS), WAP and the 1xRTT services and an increase in the number of subscribers.





Value-added  and other indirect taxes.  ICMS and other indirect taxes increased 26.5% to R$610.8 million  in 2004, from R$482.8 million in 2003, which in turn represented a 27.9%  increase from R$377.6 million in 2002.   ICMS and other indirect taxes on operating revenues were 20.7% of our  gross operating revenues in 2004, 19.4% in 2003 and 19.0% in 2002.  The effective rate of taxes on gross  operating revenues varies depending upon the composition of our revenues, since  the interconnection charges are not subject to ICMS.  Additionally, in 2004, the COFINS tax increased from 3.0% to  7.6%, except in the telecom services.





Sales  and service discount and return of goods sold.  Sales and service discount and return of  goods sold increased 181.8% to R$128.5 million in 2004, from R$45.6 million in  2003, which in turn represented a 39.9% increase from R$32.6 million in 2002.  Discounts granted vary depending on how competitive the company intends to be.





Cost of  Services and Goods Sold





The  following table sets forth certain components of our cost of services and  goods, as well as the percent change of each year from the prior year, for the  years ended December 31, 2004, 2003 and 2002.





|                                    |  | Year ended    December 31, |        | Percent    change | 
|----------------------------------- |  | -------------------------- | ------ | ----------------- | 
|                                    |  |                            |        |                   | 
|                                    |  | 2004                       |        | 2003              | 
|                                    |  |                            |        |                   | 
|                                    |  | (millions    of reais)     |        |                   | 
|Cost of    services and goods sold: |  |                            |        |                   | 
|Depreciation    and amortization    |  |                            | (158.4 | )                 | 
|Personnel                           |  |                            | (21.8  | )                 | 
|Materials    and services           |  |                            | (80.2  | )                 | 
|Interconnection                     |  |                            | (72.9  | )                 | 
|Taxes                               |  |                            | (12.3  | )                 | 
|Cost of    goods sold               |  |                            | (555.9 | )                 | 
|Others                              |  |                            | (8.9   | )                 | 
|                                    |  |                            |        |                   | 
|Total                               |  |                            | (910.4 | )                 | 
|                                    |  |                            |        |                   | 




Cost  of services and goods sold increased 0.7% to R$910.4.0 million in 2004, from  R$904.0 million in 2003, which in turn represented a 21.9% increase from  R$741.8 million in 2002.  In 2004, costs  of goods sold increased by 42.5% principally due to an increased volume sold  and an increase in the average costs of devices, resulting from the sale of  more sophisticated and expensive handset models (2.5G and multimedia).  This increase was offset by a reduction in  interconnection charges of 50.4% to R$72.9 million for 2004 compared to R$147.1  for 2003 due to the change from SMC to SMP technology.  There was also a decrease in the FISTEL rate  of 85.5% to R$12.3 million in 2004 compared to R$85.0 million in 2003.  The gross margin (gross profit divided by  net revenues) was 58.8% in 2004 compared to 53.9% in 2003 and 52.8% in 2002.





Depreciation  and amortization.   Depreciation and amortization expenses decreased 1.7% to R$158.4 million  in 2004, from R$161.2 million in 2003, which in turn represented a 25.3%  increase from R$128.7 million in 2002. The reduction in 2004 was principally  due to items whose period of depreciation had concluded.  The increases in 2003 were due primarily to  the expansion of our network and investments in technical support systems,  resulting in an increase in depreciable assets.





Personnel.  Personnel expenses increased 16.0% to R$21.8  million in 2004, from R$18.8 million in 2003, which in turn reflected a 20.5%  increase from R$15.6 million in 2002.   The increase in 2004 compared to 2003 was principally a result of an increase  in personnel salaries because of a collective bargaining agreement signed in  November 2004, which established a linear increase of 6% in line with  inflation.  The increase in 2003,  compared to 2002, principally derived from severance costs relating to a former  executive and to an overall increase in personnel salaries, pursuant to a  collective bargaining agreement that established a linear increase of 7.5% in  salaries in line with inflation.





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Materials  and services.   Materials and services include cost of materials and services received  from third parties, including rents for dedicated lines paid to other cellular  telecommunications service providers, to fixed-line companies and  carriers.  Cost of materials and  services decreased by 15.5% to R$80.2 million in 2004, from R$94.9 million in  2003, which in turn represented a 32.9% increase from R$71.4 million in 2002.  The reduction in 2004 compared to 2003 was principally due to expenses for  leased circuits and to other operators.   The increase in 2003, compared to 2002, was due primarily to (1) an  increase of R$4.5 million in leased lines payable to other telecommunications  service providers, because of increases in traffic and in tariffs; and (2) an  increase in the cost of maintaining our network.





Interconnection.  Expenses from interconnection include fees  we pay to other telecommunications service providers for the use of their  network to complete local, long-distance and international calls originating in  our network.  Usage charges decreased  50.4% to R$72.9 million in 2004, from R$147.1 million in 2003, which in turn  represented a 3.1% increase from R$142.7 million in 2002. The decrease in 2004  was principally due to decreased costs under the SMC program from the SMP program.  The increase in 2003 was due to tariffs  increase.





Taxes.
    Taxes decreased 85.5% to R$12.3 million in 2004 from R$85.0 million in 2003,
    which
    in turn represented a 41.2% increase from R$60.2 million in 2002. The decrease
in 2004 was principally  due to the implementation of accounting policies related
    to FISTEL fee.   The
increases in 2003 was principally due to the expansion of our network (expansion
of our subscriber base and to the installation of new base stations).





Cost  of goods sold.   The cost of handsets and accessories sold increased 42.5% to R$555.9  million in 2004, from R$390.0 million in 2003, which in turn represented a  24.1% increase from R$314.2 million in 2002. The increase in the cost of goods  sold in 2004 and 2003, was principally due to an increase in sales volume and  an increase in the average cost of handsets and the sale of more sophisticated  and expensive handset models.





Operating  Expenses





The  following table sets forth certain components of our operating expenses, as  well as the percent change of each component from the prior year, for the  periods presented.


|                                     |  | Year ended    December 31, |        | Percent    change | 
|------------------------------------ |  | -------------------------- | ------ | ----------------- | 
|                                     |  |                            |        |                   | 
|                                     |  | 2004                       |        | 2003              | 
|                                     |  |                            |        |                   | 
|                                     |  | (in    millions of reais)  |        |                   | 
|Operating    expenses:               |  |                            |        |                   | 
|Selling expenses                     |  |                            | (472.7 | )                 | 
|General and administrative expenses  |  |                            | (149.1 | )                 | 
|Other net operating income (expense) |  |                            | 3.1    |                   | 
|                                     |  |                            |        |                   | 
|Total                                |  |                            | (618.7 | )                 | 
|                                     |  |                            |        |                   | 




Operating
    expenses increased 22.0% to R$618.7 million in 2004, from R$507.2 million
    in 2003, which in turn represented a 36.4% increase from R$371.8 million
    in 2002.  The
    increase resulted mainly from a 57.3% increase in selling expenses, which
    included sales and commissions to independent distributors, and a decrease
    of 22.8%
in general and administrative expenses in 2004.





Selling  expenses.   Selling expenses increased 57.3% to R$472.7 million in 2004, from  R$300.5 million in 2003, which in turn represented a 39.6% increase from  R$215.3 million in 2002.  The increase  in 2004 compared to 2003 was principally due to an increase in outsourced  services, which included sales commissions to independent distributors  reflecting net additions of subscribers and a 185.2% increase in depreciation  expenses due to the greater volume of exchanged devices.  The increase in 2003 compared to 2002 was  principally due to an increase of R$59.3 million in outsourced services, which  included sales commissions to independent distributors reflecting net additions  of subscribers, and a 42.3% increase in provisions for doubtful accounts to  R$47.1 million in 2003 from R$33.1 million in 2002.





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Allowance  for doubtful accounts, included in selling expenses, increased 45.0% to R$68.3  million in 2004 compared to R$47.1 million in 2003, which in turn represented a  42.3% increase from R$33.1 million in 2002.   Allowance for doubtful accounts corresponded to 2.3%, 1.9%, and 1.7% of  gross revenues for the years ended December 31, 2004, 2003, and 2002,  respectively.





Allowance  for doubtful accounts in 2004 and 2003 increased principally as a result of the  increase in net operating revenues.  In  2003, such increase was partially offset by an R$8.0 million decrease in  allowances as a result of changes in accounting policies.





General and  administrative expenses.   General and administrative expenses decreased 22.8% to R$149.1 million  in 2004, from R$193.2 million in 2003, which in turn represented a 36.2%  increase from R$141.9 million in 2002.   The decrease in 2004, compared to 2003, was principally due to a  decrease of R$13.5 million  in personnel  and a reduction of R$31.3 million in third-party services owing to the  conclusion of a management fee contract and the renegotiation of other  administrative contracts.  The increase  in 2003, compared to 2002, resulted mainly from an increase in personnel costs  and costs associated with outside services, primarily related to corporate  information technology services.





Other net  operating income (expense).   Net operating expenses decreased 123.0% to R$3.1 million in 2004, from  R$13.5 million in 2003, which in turn represented a 7.5% decrease from R$14.6  million in 2002. The decrease in 2004, compared to 2003, was principally due to  advertising revenues of R$13.0 million and an increase of R$5.6 million in  revenue from fines to customers.  This decrease  in operating expenses was partially offset by an increase of audiovisual costs  and an increase of provisions for contingencies.





The  decrease in other net operating income in 2003, compared to 2002, resulted  mainly from the reversal of R$5.3 million provision relating to litigation over  the assessment of ICMS tax on activation fees, as well as from a R$5.2 million  increase in revenues from fines received from clients. This was partially  offset by the increase of the expenditures with the FUST and FUNTTEL taxes,  which increased proportionally to the increase of our revenues from  telecommunications services.





Net Financial  Income (Expenses)





The  following table sets forth certain components of our net financial income  (expenses), as well as the percent change of each component from the prior  year, for the periods presented.





|                                                         |  | Year ended    December 31, |       | Percent    change | 
|-------------------------------------------------------- |  | -------------------------- | ----- | ----------------- | 
|                                                         |  |                            |       |                   | 
|                                                         |  | 2004                       |       | 2003              | 
|                                                         |  |                            |       |                   | 
|                                                         |  | (in    millions of reais)  |       |                   | 
|Financial    income                                      |  |                            | 153.4 |                   | 
|Exchange    gains (losses)                               |  |                            | (20.6 | )                 | 
|Gains (loss)    on foreign currency derivative contracts |  |                            | (20.9 | )                 | 
|Financial    expenses                                    |  |                            | (49.7 | )                 | 
|                                                         |  |                            |       |                   | 
|Total financial income (expense), net                    |  |                            | 62.2  |                   | 
|                                                         |  |                            |       |                   | 




Net  financial income (expenses) reflects, among others, the net effect of interest  income and expense, and net effect of exchange rate fluctuation affecting our  loans, financings and derivative operations.   See note 9 to our consolidated financial statements. Our net financial  income decreased 44.3% to R$62.2 million in 2004 from R$111.6 million in 2003,  which in turn represented a increase of 2,690.0% from R$4.0 million in 2002.  The decrease in 2004 was mainly due to a decrease in the financial income and  in the exchange gain. The increase in 2003 was mainly due to the exchange rate  fluctuation. Derivative contracts resulted in a loss of R$20.9 million in 2004  against a loss of R$92.7 million in 2003.








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Income and Social Contribution Taxes





We incurred income and social contribution taxes in the amount of R$224.2 million in 2004, a 23.8% increase from R$181.1 million in 2003, which in turn represented a 37.7% increase from R$131.5 million in 2002. 
   The effective income tax rate  before minority interests was approximately 30.5% in 2004, 27.7% in 2003, and  28.2% in 2002.  The increase in income  and social contribution taxes vary proportionately to our net income or loss.  See note 11 to our consolidated financial statements.  The increase in 2004 was principally due to a tax benefit of R$59  million recognized as a result of the restructuring we completed in July  2004.  See Item 4.A. Our History and  DevelopmentTCOs Corporate Restructuring.





|B. | Liquidity and Capital Resources
|-- | -------------------------------




Sources  of Funds





We  generated cash flow from operations of R$674.6 million, R$625.5 million and  R$615.8 million in 2004, 2003 and 2002, respectively.





We  had R$123.6 million in long-term loans and financing as of December 31, 2004.  and R$102.7 million in short-term loans and financing, which consisted  primarily of funding from financial institutions. At December 31, 2004, we had  a working capital surplus (current assets minus current liabilities) of  R$1,078.2 million. Excluding financial items, working capital at December 31,  2004 was a surplus of R$243.6 million, representing an increase of R$184.4  million compared to December 31, 2003, attributable primarily to: (i) an  increase of R$114.4 million in handset inventories; (ii) an increase of R$124.4  million in deferred and recoverable taxes and (iii) an increase of R$78.9  million in customer accounts receivable.   These increases were partially offset by an increase of R$191.1 million  in accounts payable.





Our  principal assets are the shares of Telegoiás, Telemat, Telems, Teleron,  Teleacre, NBT and TCO IP, as well as the assets transferred to TCO as a result  of the merger with Telebrasília.  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 our subsidiaries, subject to limitations  under Brazilian law.  There are no  contractual restrictions on the payment of dividends by our subsidiaries to us.





We  believe that our available borrowing capacity, together with funds generated by  operations, should provide sufficient liquidity and capital resources to pursue  our business strategy for the foreseeable future, with respect to working  capital, capital expenditures and other operating needs.





Uses  of Funds





Our  principal uses of funds are for capital expenditures, servicing our debt, and  payments of dividends to shareholders.   Acquisition of property, plants and equipment used funds in the amount  of R$418.4, R$207.6 million and R$170.6 million in 2004, 2003 and 2002,  respectively. Dividends and interest on shareholders equity payments consumed  cash flows of R$121.4, R$93.7 million and R$96.4 million, in 2004, 2003 and  2002 respectively.  Payment of debt and  derivative instruments consumed cash flows of R$154.4, R$285.5 million and  R$515.3 million in 2004, 2003 and 2002, respectively.





Capital Expenditures





The  following table sets forth our capital expenditures for the periods presented.





|                           |  | Year ended    December 31, |      
|-------------------------- |  | -------------------------- | -----
|                           |  |                            |      
|                           |  | 2004                       |      
|                           |  |                            |      
|                           |  | (in    millions of reais)  |      
|Switching    equipment     |  |                            | 156.7
|Transmission    equipment  |  |                            | 153.4
|Information    technology  |  |                            | 18.6 
|Others(1)                  |  |                            | 89.7 
|                           |  |                            |      
|Total capital expenditures |  |                            | 418.4
|                           |  |                            |      




|   
|---
|(1)




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The  primary focus of our capital expenditure program has been, and continues to be,  the improvement of the capacity of the services we currently offer and the  offering of new services as well as the development of information systems.  This includes the increase of our network capacity, the overlay of 1xRTT  technology in our TDMA network, the improvement of our overall quality, and the  increase of the digitalization level of our network.





We  anticipate that our capital expenditures for 2005 will be approximately R$390 million,  mainly for investments in network expansion, introduction of new products and  services that will make customers lives easier and to maximize the use of  cellular telephony, to improve the quality of our services.  Our management expects to finance 2005  capital expenditures principally with cash generated from operations.





Payment of  Dividends





See  Item 8Financial InformationConsolidated Statements and Other Financial  InformationPayment of Dividends.





Debt





As  of December 31, 2004, TCOs total debt position was as follows:





|Debt                                                |  | Amount    outstanding as    of December 31, 2004 |      
|--------------------------------------------------- |  | ------------------------------------------------ | -----
|                                                    |  |                                                  |      
|                                                    |  | (in    millions of reais)                        |      
|Long-term    debt, excluding the short-term portion |  |                                                  | 123.6
|Short-term    debt                                  |  |                                                  | 102.7
|                                                    |  |                                                  |      
|Total debt                                          |  |                                                  | 226.3
|                                                    |  |                                                  |      




As  of December 31, 2004, TCOs total debt was R$226.3 million, of which R$71.2  million, or 31.4%, was denominated in U.S. dollars and, therefore, exposed to  currency fluctuations. Devaluation of the real results in exchange losses on  foreign currency indebtedness. In order to protect against the risk of  devaluation of the real, we have entered into over-the-counter derivatives  transactions with international and domestic financial institutions. In 2004  and 2003, our derivatives produced an accumulated net unrealized loss of R$20.7  million and a net gain of R$15.0 million respectively. We are exposed to  interest rate risk as a consequence of our floating rate debt. At December 31,  2004, approximately 99.5% of our interest-bearing liabilities bore interest at  floating rates, primarily LIBOR for U.S. dollar-denominated debt and CDI, TJLP  and UMBNDES, a local index, for real-denominated
debt. Accordingly, our  financing expenses will increase if market interest rates, such as LIBOR, CDI or  TJLP, rise. CDI rates as of December 31, 2004 and 2003 are 17.76% and 16.27%  respectively. At December 31, 2004, all of our foreign currency derivatives  contracts bore interest payments linked to the Brazilian CDI rate. We have not  hedged against the risk of increased interest rates.





Some  of the debt agreements of TCO and its subsidiaries contain restrictive  covenants. Financial ratios involve (1) current ratios, (2) capitalization  ratios, (3) EBITDA margins (EBITDA divided by net revenue), (4) interest  coverage ratios and (5) debt to capital ratios. As of December 31, 2004 and  2003, we are in compliance with such restrictive covenants.





U.S.  GAAP Reconciliation





We
    prepare our consolidated financial statements in accordance with the Brazilian
    Corporate Law method, which differs in significant respects from U.S. GAAP.
    Under U.S. GAAP, we recorded net income for 2004, 2003 and 2002 of R$468.0,
    R$487.7 million and R$299.3 million, respectively, compared to net income
    of R$507.1, R$463.4 million and R$329.2 million, respectively, under the
    Brazilian Corporate Law Method.  Shareholders  equity at December
    31, 2004 and 2003 was R$2,493.3 and R$1,545.1 million, respectively, under
    U.S. GAAP, compared to R$2,441.5 and R$1,556.1 million,  respectively, under
    the Brazilian Corporate Law method.





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See  note 37 to our audited consolidated financial statements for a description of  the principal differences between the Brazilian Corporate Law Method and U.S.  GAAP as they relate to us, and a reconciliation to U.S. GAAP of net income  (loss) and total shareholders equity.





New  Accounting Pronouncements





In  April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on  Derivative Instruments and Hedging Activities, which amends and clarifies  financial accounting and reporting for derivative instruments, including  certain derivative instruments embedded in other contracts and for hedging  activities under FASB Statement No. 133, Accounting for Derivative Instruments  and Hedging Activities. The provisions of this statement are effective for  contracts entered into or modified after June 30, 2003, and for hedging  relationships designated after June 30, 2003. The adoption of SFAS 149 did not  result in any impact on the Companys financial statements.





In  April 2003, the FASB issued SFAS No. 150, Accounting for certain Financial  Instruments with Characteristics of Both Liabilities and Equity. This  Statement establishes standards for how an issuer classifies and measures  certain financial instruments with characteristics of both liabilities and  equity. It requires that an issuer classify a financial instrument that is  within its scope as a liability (or an asset in some circumstances). Many of  those instruments were previously classified as equity. Some of the provisions  of this Statement are consistent with the current definition of liabilities in  FASB Concepts Statement No. 6, Elements of Financial Statements. The adoption  of SFAS 150 did not result in any impact on the Companys financial statements.





In  December 2003, the FASB issued a revision to Interpretation No. 46,  Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51  (FIN 46R or the Interpretation). FIN 46R clarifies the application of ARB  No. 51, Consolidated Financial Statements, to certain entities in which  equity investors do not have the characteristics of a controlling financial  interest or do not have sufficient equity at risk for the entity to finance its  activities without additional subordinated financial support. FIN 46R requires  the consolidation of these entities, known as variable interest entities  (VIEs), by the primary beneficiary of the entity. The primary beneficiary is  the entity, if any, that will absorb a majority of the entitys expected  losses, receive a majority of the entitys expected residual returns, or
both.





Among  other changes, the revisions of FIN 46R (a) clarified some requirements of the  original FIN 46, which had been issued in January 2003, (b) eased some  implementation problems, and (c) added new scope exceptions. FIN 46R deferred  the effective date of the Interpretation for public companies, to the end of  the first reporting period ending after March 15, 2004, except that all public  companies must at a minimum apply the provisions of the Interpretation to  entities that were previously considered special-purpose entities under the  FASB literature prior to the issuance of FIN 46R by the end of the first  reporting period ending after December 15, 2003.  The Company does not anticipate that the adoption of FIN 46R will  did not have a material impact on its financial position, cash flows and results  of operations.





In  December 2003, the FASB issued SFAS No. 132, Revised 2003, (SFAS 132R), which  requires an entity to make additional disclosures about pensions and other  postretirement benefits. These disclosures include information describing the  types of plan assets, investment strategy, measurement date(s), plan  obligations, cash flows and components of net periodic benefit cost.  SFAS 132R would be effective for any  domestic plans beginning with fiscal years ending after December 15, 2003 and  any foreign plans beginning with fiscal years ending after June 15, 2004.  The Company has adopted these additional  disclosures for the year ended December 31, 2003.





In  December 2003, the Securities and Exchange Commission (SEC) issued Staff  Accounting  Bulletin (SAB) No. 104,  Revenue Recognition.  SAB 104 updates  portions of the interpretive guidance included in Topic 13 of the codification  of Staff Accounting Bulletins in order to make this interpretive guidance  consistent with current authoritative accounting and auditing guidance and SEC  rules and regulations. The company believes it is currently following the  guidance of SAB 104.





In  November 2002, the Emerging Issues Task Force (EITF), of the FASB reached a  consensus on EITF 00-21. EITF 00-21 provides guidance on how to account for  arrangements that may involve multiple revenue-generating activities, for  example, the delivery of products or performance of services, and/or rights to  use other





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assets. The requirements of  EITF
    00-21 will be applicable to agreements entered into for periods beginning
    after June 15, 2003 and will therefore first apply to the Company for any
arrangements entered into from April 1, 2004. The Company prospectively adopted
    this EITF relating to fee minutes in connection with sales of handsets as
    from January 1, 2004.





In  July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining  whether realized gains and losses on derivative contracts not held for trading  purposes should be reported on a net or gross basis is a matter of judgment  that depends on the relevant facts and circumstances and the economic substance  of the transaction. In analyzing the facts and circumstances, EITF Issue No.  99-19, and Opinion No. 29, Accounting for Nonmonetary Transactions, should be  considered. EITF Issue No. 03-11 is effective for transactions or arrangements  entered into after September 30, 2003. The adoption of EITF Issue No. 03-11 did  not have a material effect on the Companys financial statements.





In  December 2004, the Financial Accounting Standards Board issued Statement of  Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets  an  amendment of APB Opinion No. 29 (SFAS 153), which amends Accounting  Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions to  eliminate the exception for nonmonetary exchanges of similar productive assets  and replaces it with a general exception for exchanges of nonmonetary assets that  do not have commercial substance. SFAS 153 is effective for nonmonetary assets  exchanges occurring in fiscal periods beginning after June 15, 2005. The  Company will apply this statement in the event that exchanges of nonmonetary  assets occur in fiscal periods beginning after June 15, 2005.





|C. | Research and Development
|-- | ------------------------




We  did not make any contributions or incur any expenses related to research and  development in 2004, 2003 and 2002. We rely primarily on the research and  development of our third-party suppliers.





|D. | Trend Information
|-- | -----------------




In  2005, the rate of growth in Brazils cellular market is expected to exceed  Brazils economic growth.  In addition,  we expect continued strong competition from other operators, greater focus on  data and value added services, and further enhancements related to customer  service.  We expect that we will  maintain our leadership position in the Brazilian cellular market, focusing on  differentiation in the development of integrated solutions and the application  of new technologies.  We plan to  continue to offer services and products with high quality in order to meet our  clients expectations.





|E. | Off-balance sheet arrangements
|-- | ------------------------------




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.





|F. | Tabular disclosure of contractual obligation
|-- | --------------------------------------------




The  following table represents our contractual obligations and commercial  commitments as of December 31, 2004:





|                                   |  | Payments    due by period in millions of reais |      
|---------------------------------- |  | ---------------------------------------------- | -----
|                                   |  |                                                |      
|                                   |  | Total                                          |      
|                                   |  |                                                |      
|Contractual    obligations:        |  |                                                |      
|Long-term debt(1)                  |  |                                                | 226.3
|Capital lease obligations          |  |                                                | 0.6  
|Operating leases                   |  |                                                | 450.5
|Unconditional purchase obligations |  |                                                | 533.7




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|                                         |  | Payments    due by period in millions of reais |        
|---------------------------------------- |  | ---------------------------------------------- | -------
|                                         |  |                                                |        
|                                         |  | Total                                          |        
|                                         |  |                                                |        
|Other long-term obligations(2)           |  |                                                | 46.6   
|                                         |  |                                                |        
|Total    contractual cash obligations(3) |  |                                                | 1,257.7
|                                         |  |                                                |        




|   
|---
|(1)
|   
|(2)
|   
|(3)




|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------




|A. | Directors and Senior Management
|-- | -------------------------------




Our  company is managed by a Board of Directors and a Board of Executive Officers.  Our shareholders elect the members of the board of directors.  The Board of Directors consists of ten  members, with a three-year term for each member.  The Board of Directors holds regular meetings every three months  and holds special meetings when called by the Chairman or by two members of the  Board of Directors.  After each meeting,  the corresponding minutes are prepared reflecting all the decisions made during  the meeting.





Listed  below are the current members of the Board of Directors and their respective  positions:





|Name                                           |  | Position |  | Date of    election | 
|---------------------------------------------- |  | -------- |  | ------------------- | 
|                                               |  |          |  |                     | 
|Félix Pablo    Ivorra Cano                     |  | Chairman |  | June 22, 2004       | 
|Shakhaf Wine                                   |  | Director |  | March 16, 2004      | 
|Fernando    Xavier Ferreira                    |  | Director |  | April 29, 2003      | 
|Luis Miguel    Gilpérez López                  |  | Director |  | March 16, 2004      | 
|Ernesto    Lopez Mozo                          |  | Director |  | April 29, 2003      | 
|Ignácio    Aller Mallo                         |  | Director |  | April 29, 2003      | 
|Zeinal    Abedin Mohamed Bava                  |  | Director |  | April 29, 2003      | 
|Carlos    Manuel de Lucena e Vasconcellos Cruz |  | Director |  | April 29, 2003      | 
|Eduardo    Perestrelo Correia de Matos         |  | Director |  | April 27, 2003      | 
|Pedro Manuel    Brandão Rodrigues              |  | Director |  | July 11, 2003       | 




Set  forth below are brief biographical descriptions of the directors:





Félix Pablo  Ivorra Cano, born on July 1, 1946, is the president of the board of  directors and has been a member of the board of directors since February  1999.  Mr. Ivorra currently is the  president of the board of directors of Telefónica Móviles and serves on the  board of directors of Telecomunicações de São Paulo S.A, Brasilcel N.V.,  Celular CRT Participaçoes S.A., Tele Sudeste Celular Participaçoes S.A., Telesp  Celular Participaçoes S.A., Tele Centro Oeste Celular Participações S.A., Tele  Leste Celular Participaçoes S.A., Telefónica Móviles SAC Perú, Telefónica  Móviles Perú Holding, S.A.A. and MobiPay International, S.A.  He joined the Telefónica Group in July 1972  and served in the areas of Technical Specifications, Network Planning,  Commercial Planning and as General Director of
Advanced Communications.  In 1993, he was appointed General Director  of the team that founded Telefónica Servicios Móviles, where he held several  positions including General Commercial Director and General Director of  Business Development.  During 1997 and  part of 1998, he was chairman of the board of Telefónica Móviles group  companies Mensatel, S.A. and Radiored, S.A. 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, also in Madrid.





Shakhaf Wine,  born on June 13, 1969, is currently an executive officer of Portugal Telecom  S.G.P.S. and a member of the board of directors of Brasilcel N.V., Telesp  Celular Participações S.A., Tele Centro Oeste Celular





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Participações S.A., Tele  Sudeste Celular Participaçoes S.A., Celular CRT Participações S.A, and Folha  Universo Online S.A. Mr. Wine is also the President of the Audit Committee of  Brasilcel N.V. Mr. Wine was a Director of Investment Banking and a Relationship  Manager for European corporate clients in the Global Telecommunications Group  of Merrill Lynch International from 1998 and 2003, Senior Associate Director of  the Latin American and Telecommunications groups of Deutsche Morgan Grenfell  from 1993 and 1998. Previously Mr. Wine was a foreign exchange trader and  dealer to the Brazilian Central Bank at Banco Icatu S.A. He holds a degree in  Economy from the Pontifícia Universidade Católica do Rio de Janeiro.





Fernando  Xavier Ferreira, born on February 13, 1949, is currently the Chief  Executive Officer of the Telefónica Group in Brazil and member among others of  the Board of Directors of Telefónica Móviles, Brasilcel, N.V.  Tele Sudeste Celular Participações S.A.  Celular CRT Participações S.A. Tele Centro Oeste Celular Participaçoes S.A.  Tele Leste Celular Participaçoes, S.A. and Telesp Celular Participações  S.A.  During 1998, Mr. Ferreira served  as a member of ANATEL.  From 1995 to  1998, he was General Director of Telebrás and president of the board of  directors of Embratel and Telesp S.A.  Mr.  Ferreira was President of Telecomunicações do Paraná S.A. Telepar from 1997 to  1999 and Vice President of that company from 1979 to 1987.  He is currently a member of the  Latin-America Committee of the
New York Stock Exchange and the Global  Infrastructure Commission. He holds a degree in Electrical Engineering from the  Catholic University of Rio de Janeiro, Brazil.





Luis Miguel  Gilpérez López, born on December 7, 1959, is the Executive Director  of the International Area of Telefónia Móviles. Mr. Gilpérez also serves on the  board of directors of Medi Telecom, S.A., Telefónica Móviles México, S.A. de  C.V., Tele Sudeste Celular Participaçoes S.A., Tele Centro Oeste Celular  Participaçoes S.A., Celular CRT Participaçoes, S.A., Telesp Celular Participaçoes  S.A. He is also de Executive Chairman of MobiPay International, S.A. He began  his career at an insurance company, where he worked for six years, in various  departments.  He joined the Telefónica  group in 1981, where he has worked since then.   He has particularly been involved with activities related to mobile  telephony.  He was in charge of the  services commercial activities from 1987 to 1993, when Telefónica
Móviles  España was created.  At Telefónica  Móviles España he has held management positions in virtually all its business  areas. He has a post graduate degree in Business Administration and holds a  degree in Industrial Engineering.





Ernesto  Lopez Mozo, born on May 9, 1964, 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 Telefónica Móviles de España, S.A., Mobipay International,  S.A., Telefónia Móviles México, S.A. de C.V., Brasilcel N.V, Telesp Celular  Participações S.A., Tele Centro Oeste Celular Participaçoes, S.A., Tele Sudeste  Celular Participações, S.A., Tele Leste 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.  He holds a
degree in civil  engineering from ETSICCP in Madrid and a masters degree in Business Administration  from the Wharton School.





Ignácio  Aller Malo, born on December 1, 1945,  is a member of the board of directors of Telefónia Móviles  México, S.A. de C.V., Brasilcel N.V, Telesp Celular Participações S.A., Tele  Centro Oeste Celular Participaçoes S.A., Tele Sudeste Celular Participações,  S.A., Tele Leste Celular Participações S.A. and Celular CRT Participações,  S.A.  Mr. Aller has served as Chief  Operating Officer of Telefónica Móviles S.A. by 2003 and has held several  positions at Telefónica de España since 1967.





Zeinal
      Abedin Mohamed Bava, born on November 18, 1965, is currently the  Chief
      Financial Officer of Portugal Telecom, SGPS, S.A. since 2000; Chief Executive
      Officer of TV Cabo Portugal, S.A. since March 2004, Executive Vice-Chairman
      of the Board of Directors of  PT  Comunicações, S.A. since
      January 2004; Member of the Board of Directors of PT Corporate  Soluções
      Empresariais de Telecomunicações e Sistemas, S.A. since  June
      2003; Chief Executive Officer of PT MultimediaServiços de  Telecomunicações
      e Multimedia, SGPS, S.A. since May 2003; Member of the Board of Directors
      of PT ComprasServiços de Consultoria e Negociação,
      S.A. since May 2003; Member of the Board of Directors of Fundação
      Portugal Telecom since March 2003; Chairman of the Board of Directors of
      PrevisãoSociedade Gestora de
Fundos de Pensões, S.A. since March 2003; Chairman of the Board of Directors
of PT Serviços de Gestão, S.A. since February 2003; Member of the Board
of Directors of Brasilcel, N.V. since December 2002; Vice-Chairman of the Board
of Directors of PT MultimediaServiços de Telecomunicações
e Multimedia, SGPS, S.A. since November 2002; Member of the Board of Directors
of Portugal Telecom Brasil,





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S.A. since July 2002; Member of  the Board of Directors of BESTBanco Electrónico de Serviço Total, S.A. since  May 2001; Member of the Board of Directors of Telesp Celular Participações S.A.  since April 10, 2001; Member of the Board of Directors of Tele Sudeste Celular  Participações S.A. since 2003; Member of the Board of Directors of Tele Centro  Oeste Celular Participações S.A. since 2003; Member of the Board of Directors  of Celular CRT Participações S.A. since 2003; Member of the Board of Directors  of Tele Leste Celular Participações, S.A. since 2003; Vice-Chairman of the  Board of Directors of PT Ventures, SGPS, S.A. (formerly Portugal Telecom  Internacional, SGPS, S.A.) from 2000 until 2002; Director and Relationship  Manager for Portugal of Merrill Lynch International from 1998 until 1999;  Executive Director of Deutsche Morgan Grenfell from 1996 until 1998; 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 de Lucena e Vasconcellos Cruz, born on September 9, 1957, is  currently the Chief Executive Officer of Portugal Telecom Investimentos  InternacionaisConsultoria Internacional S.A. and PT Ventures, SGPS, S.A. since  April 2004; Member of the Board of Directors of PT Corporate  Soluções  Empresariais de Telecomunicações e Sistemas, S.A. since June 2003; Chief  Executive Officer of PT Comunicações, S.A. from May 2002 until January 2004;  Chief Executive Officer of PT Prime, SGPS, S.A. from 2002 until January 2004;  Chairman of the Board of Directors of PT Prime, SGPS, S.A. from 2002 until  January 2004; Chairman of the Board of Directors of PT ContactTelemarketing e  Serviços de Informação, S.A. from 2002 until January 2004; Chief Executive  Officer of PTM.com, SGPS, S.A. from May 2003 until January 2004; Member of the  Board

of Directors of PT ComprasServiços de Consultoria e Negociação, S.A.  since May 2003; Member of the Board of Directors of Fundação Portugal Telecom  since March 2003; Member of the Board of Directors of Brasilcel, N.V. since  December 2002; Member of the Board of Directors of Portugal Telecom Brasil,  S.A. since July 2002; Member of the Board of Directors of TMNTelecomunicações  Móveis Nacionais, S.A. from June 2002 until May 2003; Member of Board of  Directors of Telesp Celular Participações S.A. since April 2001; Vice-Chairman  of Telesp Celular Participações S.A. since 2001; Member of the Board of  Directors of Tele Sudeste Celular Participações S.A. since 2003; Member of the  Board of Directors of Celular CRT Participações S.A. since 2003; Member of the  Board of Directors of Tele Leste Celular Participações S.A. since 2003; Member  of the Board of Directors of Tele Centro Oeste Celular
Participações S.A. since  2003; Chairman and Chief Executive Officer of Telesp Celular S.A. from May 2001  until May 2002; President and Chief Executive Officer of Tradecom, SGPS, S.A.  from 2000 until 2001; Executive Board Member of PT Prime, SGPS, S.A. from 2000  until 2001; Invited Professor of Universidade Católica Portuguesa and ISCTE for  Post-Graduate Courses and MBA Program from 2000 until 2001; Member of World  Board of Dun & Bradstreet Corporation, Executive Vice-President of Dun  & Bradstreet Corporation, President and Chief Executive Officer of D&B  GMC, Executive Vice President of D&B Europe, President and Chief Executive  Officer of D&B Iberia, Vice President of Trans Union España Credit Bureau  S/A from 1997 until 1999; Senior Vice-President of Dun & Bradstreet  Corporation, Senior Vice-President of Dun & Bradstreet Europe, President  and Chief Executive Officer of D&B Iberia & Middle West, Vice-President  of A.P.E.I.N.
(Associação Portuguesa de Empresas de Informação de Negócio) in  1996; President & Chief Executive Officer of Dun & Bradstreet Ibéria in  1995; President and Chief Executive Officer of Dun & Bradstreet Portugal,  Vice-President of Associação Portuguesa para a Qualidade from 1990 until 1993;  President of European Customer Service group of Dun & Bradstreet in 1992;  General Director of Dun & Bradstreet France in 1989; General Director of  Sales of Dun & Bradstreet France in 1988; Commercial Director of Dun &  Bradstreet Portugal in 1987; National Director of Sales of Dun & Bradstreet  Portugal in 1986; Director of Sales Department of Dun & Bradstreet Portugal  in 1985; Senior Economist of LEASEINVEST from 1983 until 1985; Economist of  Finance Ministry of Portugal from 1978 until 1983. 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, born on January 6, 1949, is currently  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.,  Telesp Celular Participações S.A., Tele Sudeste Celular Participações S.A., Tele  Centro Oeste Celular Participações S.A., Tele Leste Celular Participações S.A.  and Celular CRT Participações S.A.  From  1976 to 1987, 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 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.





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Pedro Manuel  Brandão Rodrigues, born on June 19, 1951, is currently also a member  of the board of directors and of the Executive Committee of PT Móveis,  S.G.P.S., S.A. and of Telecomunicações Móveis Nacionais  TMN. He was elected  for the Assembly of the Republic in March 2002, and he is a member of the  National Council of Education of Portugal since July 2000. Mr. Brandão was a  member of the board of directors of several Portuguese corporations and, from  1993 to 2000, a member of the Executive Committee of Banco Mello and Banco  Mello de Investimentos. He holds a doctoral degree in engineering from the  University of Birmingham, England, a master degree in production process and  management, and an engineering degree from the Instituto Superior Técnico.





Board  of Executive Officers





The  board of executive officers consists of eight members, each 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 choose a  replacement for that officer among the remaining officers.  One officer may be elected for more than one  position on the board of executive officers, but the members of the board of  executive officers cannot be elected to the board of directors.  The board of directors may remove executive  officers from office at any
time:        Listed  below are the current members of the Board of Executive Officers and their  respective positions:





|Name                                 |  | Position                                                                                                                        |  | Date of    election/reelection | 
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | 
|                                     |  |                                                                                                                                 |  |                                | 
|Francisco    José Azevedo Padinha    |  | Chief    Executive Officer                                                                                                      |  | October 1, 2004                | 
|Arcadio Luís    Martínez García      |  | Executive    Vice President for Finance, Planning and Control and Investors Relations Officer                                   |  | February 16, 2005              | 
|Paulo Cesar    Pereira Teixeira      |  | Executive    Vice President for Operations                                                                                      |  | October 1, 2004                | 
|Francisco    José Azevedo Padinha(1) |  | Executive    Vice President for Marketing and Innovation Executive Vice President for IT    and Product and Service Engineering |  |                                | 
|Paulo Cesar    Pereira Teixeira(2)   |  | Executive    Vice President for Technology and Networks                                                                         |  | October 1, 2004                | 
|Guilherme    Silvério Portela Santos |  | Executive    Vice President for Customers                                                                                       |  | December 29, 2004              | 
|Paulo Cesar    Pereira Teixeira(3)   |  | Executive    Vice President for Regulatory Matters and Institutional Relations                                                  |  | October 1, 2004                | 




|   
|---
|(1)
|   
|(2)
|   
|(3)




Set  forth below are brief biographical descriptions of the executive officers:





Francisco  José Azevedo Padinha, born on October 22, 1946, is currently the  chief executive officer of each of Brasilcel N.V., Tele Sudeste Celular  Participações S.A., Tele Leste 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., Global Telecom S.A., Tele Centro Oeste  Celular Participações S.A., Telegoiás Celular S.A., Telemat Celular S.A.,  Telems Celular S.A., Teleacre Celular S.A., Teleron Celular S.A., Norte Brasil  Telecom S.A., TCO-IP S.A., Avista Participações Ltda., Tagilo Participações  Ltda., Sudestecel Participações S.A.,   TBS Celular Participações S.A., Ptelecom Brasil S.A. and Portelcom
Participações S.A.; the chairman of the board of directors of each of PT Prime  Tradecom Soluções





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Empresariais de Comércio  Electrónico, S.A., Megamedia Soluções Multimédia, S.A., PT Prime, SGPS, 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.  From 2000 to 2001, Mr. Padinha was  the chief executive officer of PT Prime SGPS, 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.





Arcadio Luís  Martínez Gacía, born on April 5, 1957, is currently the executive  vice president for Finance, Planning and Control and Investors Relations  Officer of Tele Sudeste Celular Participações S.A., Tele Leste 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., Global Telecom  S.A., Tele Centro Oeste Celular Participações S.A.  From 2001 until 2003 Mr. Martinez was a Controller of European  Operations at Telefonica Moviles S.A. in Madrid.  From 1999 to 2001 he worked as European Controller for SBC  Communications, based in Brussels, Belgium and from 1993 to 1999 he served in  different positions in the financial organization of Ameritech
International,  based in Chicago, USA and Brussels, Belgium. He holds a degree in Economics  from Universidad de Santiago de Compostela (Spain) and a Masters of Business  Administration from the University of Chicago, USA.





Guilherme  Silvério Portela Santos, born on February 3, 1966, is currently the  executive vice president for customers of each of Tele Sudeste Celular  Participações S.A., Tele Leste Cvelular 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., Global Telecom S.A., Tele Centro Oeste Celular  Participações S.A., Telegoiás Celular S.A., Telemat Celular S.A., Telems  Celular S.A., Teleacre Celular S.A., Teleron Celular S.A., Norte Brasil Telecom  S.A., TCO-IP S.A.; and an executive manager at PT Móveis, SGPS, 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.   Mr. Santos holds a Civil Engineering degree from the Higher Education Technical  Institute, Portugal, and a masters degree from INSEAD, France.





Paulo Cesar  Pereira Teixeira, born on June 18, 1957 , is currently the executive  vice president for operations of Tele Sudeste Celular Participações S.A., Tele  Leste 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., Global  Telecom S.A., Tele Centro Oeste Celular Participações S.A., Telegoiás Celular  S.A., Telemat Celular S.A., Telems Celular S.A., Teleacre Celular S.A., Teleron  Celular S.A., Norte Brasil Telecom S.A., TCO-IP S.A.; and director of Avista  Participações Ltda., Tagilo Participações Ltda., Sudestecel Participações  S.A.,  TBS Celular Participações S.A.,  Ptelecom Brasil S.A. and Portelcom
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 (1985-86).  In 1987 and 1988, he served at several  different positions in Telebrás or in the companies of the Telebrás Group.  Mr. Teixeira holds an Electrical Engineering  degree from the Catholic University of Pelotas, Brazil.





Board  of Auditors (Conselho Fiscal)





We  have a permanent Board of Auditors with three members.  They are elected annually at the annual  general shareholders meeting.





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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  Board of Auditors holds regular meetings every three months and special  meetings when called by the President or by any member of the Board of  Auditors.





Listed  below are the current members of the Board of Auditors and their respective  positions:





|Name                                  |  | Position  |  | Date of    election | 
|------------------------------------- |  | --------- |  | ------------------- | 
|                                      |  |           |  |                     | 
|João José    Caiafa Torres(1)         |  | Member    |  | March 31, 2005      | 
|Norair    Ferreira do Carmo(2)        |  | Member    |  | March 31, 2005      | 
|Evandro Luís    Pippi Kruel(2)        |  | Member    |  | March 31, 2005      | 
|Reinaldo    Batista Ribeiro(1)        |  | Alternate |  | March 31, 2005      | 
|Wolney    Querino Schuler Carvalho(2) |  | Alternate |  | March 31, 2005      | 
|Fabiana Faé    Vicente Rodrigues(2)   |  | Alternate |  | March 31, 2005      | 




|   
|---
|(1)
|   
|(2)




|B. | Compensation
|-- | ------------




During  2004, the total amount of compensation paid by Tele Centro Oeste Celular  Participações, Norte Brasil Telecom its subsidiaries to members of the Board of  Directors, executive officers and members of the Board of Auditors was  approximately R$2.612 million, including bonuses and profit-sharing plans.  This amount includes performance  remuneration and profit-sharing arrangements applicable to all employees.





During  2004, the total amount of expenses made by our company to provide private  pension for our directors was approximately R$225 thousand.





|C. | Board Practices
|-- | ---------------




For  more detailed information, see Directors and Senior Management, Board of  Executive Officers and Board of Auditors above.





There  are no service contracts between us or our subsidiaries and any of our  directors providing for benefits upon termination of employment.





|D. | Employees
|-- | ---------




At  December 31, 2004, we had 1,357 full-time employees and 101 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:





|                                                  |  | At    December 31, |      
|------------------------------------------------- |  | ------------------ | -----
|                                                  |  |                    |      
|                                                  |  | 2004               |      
|                                                  |  |                    |      
|Total number    of employees (including trainees) |  |                    | 1,357
|Number by    category of activity:                |  |                    |      
|Technical and operations area                     |  |                    | 308  
|Sales and marketing                               |  |                    | 646  
|Finance and administrative support                |  |                    | 245  
|Customer service                                  |  |                    | 158  




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Approximately
    42% of our companys personnel is affiliated with labor unions.  The
    relationships with these unions are considered good. The process of negotiation
    of the collective-bargaining agreement for the years 2003 and 2004, as in
    previous years, was conducted in a professional manner, which made it easier
    to gain approval for the collective-bargaining agreement from the employees.





Training  and development actions implemented by TCO in the year 2004, directed mainly to  technical and management empowerment of the workforce employed in the Business,  Engineering and Information Technology areas, together represent investments  approaching R$1.25 million.  The  registered amount of per capita training hours in 2004 was 27.17 hours.





By  means of our A Band and B Band subsidiaries, we currently sponsor two types of  private pension plans: a defined benefit plan (PBSA-TCO) and an hybrid plan,  which offers a defined benefit plan, for unexpected situations, and defined  contribution for anticipated situations. Expenses related to the sponsorship of  private pension plans for employees and management in 2004 totaled R$3,878  million.





|E. | Share Ownership
|-- | ---------------




As  of December 31, 2004, each of the members of the board of directors and the  board of executive officers owned, directly or indirectly, less than 0.01% of  any class of our shares. We do not offer stock option plans to any of our  directors or employees.





|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.  See Item 10. Additional  InformationMemorandum and Articles of Association.





On  April 25, 2003, TCP acquired 64.03% of the voting capital stock of TCO for  approximately R$1,505 million, corresponding to R$19.48719845 per each lot of  1,000 shares acquired. TCP acquired additional shares of voting capital stock  in a public tender offer. As of December 31, 2004, TCP owned 90.22% of the  common shares excluding treasury shares. Accordingly, TCP does not have  different voting rights, but, as a result of owning more than 50% of our common  shares, it can control the election of TCOs Board of Directors and the  direction and future operations of our company.





The  following table sets forth information concerning the ownership of common  shares by TCP and by TCOs officers and directors as a group as of December 31,  2004.





|Name of    owner                                    |  | Number of    common    shares owned |                 | Percentage    of    outstanding    common shares | 
|--------------------------------------------------- |  | ----------------------------------- | --------------- | ------------------------------------------------ | 
|                                                    |  |                                     |                 |                                                  | 
|Telesp    Celular Participações S.A                 |  |                                     | 111,583,149,852 |                                                  | 
|All    directors and executives officers as a group |  |                                     | 37,722          |                                                  | 




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





We  are not aware of any other shareholder owning more than 5.0% of the common  shares.





At  December 31, 2004, there were approximately 193 record holders of ADSs in the  United States. The ADSs represent approximately 32.45% of our preferred shares.  Brasilcel does not hold ADSs of TCO.





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|B. | Related Party Transactions
|-- | --------------------------




The  main transactions with unconsolidated related parties are as follows:





Related Parties  New Controlling Shareholder





In  April 2003, BID S.A. sold its equity interest   in TCO to TCP. The principal transactions with unconsolidated related  parties of the new controlling shareholder are as follows:





| |  | Use of    network and long distance (roaming) cellular communications:  These transactions involve companies owned    by the same group.  Part of these    transactions were established based on contracts between Telebrás
      and the operating concessionaires before privatization and part are interconnection agreements.
          The terms of these transactions are regulated by Anatel.  As of July 2003, users began
          to choose their long-distance carrier and the company established agreements
          that provide to long distance operators (including Telecomunicações de São Paulo    S.A.) co-billing services;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Corporate    services provided by
      or to other companies under common control are transferred to the company
      at the cost actually incurred for these services; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | Call center services provided by
  Dedic (Mobitel S.A.) and Atento to users of TCO and its subsidiaries
  telecommunications services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            




Related Parties  Former Controlling Shareholder





Our  majority shareholder in 2002 was BID S.A., which was controlled by Fixcel S.A.,  which in turn was under common control of Banco Credibel, SPL Construtora e  Pavimentadora and CSM Cartões S.A. (Splice Group). Prior to 2002, BID S.A. was  controlled by Splice do Brasil S.A.  According  to a contract entered into between Splice do Brasil S.A. and the subsidiaries  of Tele Centro Oeste Celular Participações S.A., technical assistance services  were payable to Splice do Brasil S.A. corresponding to 1% of the net operating  income. For the year ended December 31, 2002 the amount of R$12,532 thousand  was charged to general and administrative expenses.  In January 2002, the TCO made an advance payment of R$34,259  thousand to BID S.A. corresponding to the present value of the tax benefit on  the merged premium. The amount was increased by R$5,967 thousand based on  market
rates at December 31, 2002.





We  have engaged in a number of transactions with related parties. See note 32 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 3.  Key InformationSelected  Financial Data and Item 18.  Financial  Statements.





Legal  Matters





We  are party to several administrative and legal proceedings that, if decided  adversely to us, could have a material adverse effect on our business,  financial condition and results of operations.   We record provisions in our financial statements equivalent to the full  amount of the estimated losses associated with those claims where the  likelihood of an unfavorable outcome is deemed probable by our outside  counsel.  However, we do not record  provisions in those instances where the likelihood of an unfavorable outcome is  deemed possible or remote by our outside counsel.  Below is a summary of our material pending administrative and  legal proceedings:





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Civil





Breakup of Telebrás





Telebrás,  our legal predecessor, is a defendant in a number of administrative and legal  proceedings and is subject to various claims and contingencies. Under the terms  of the Telebrás breakup, the liability for any claims arising out of acts  committed by Telebrás prior to the effective date of the breakup remains with  Telebrás, except for labor and tax claims (for which Telebrás and the companies  incorporated as a result of the breakup are jointly and severally liable by  operation of law) and any liability for which specific accounting provisions  have been assigned to us or one of the other companies incorporated as a result  of the breakup of Telebrás.  In  addition, the legality of the breakup of Telebrás has been challenged in  numerous legal proceedings, some of which have not been dismissed and are still  pending.  We believe based on the  opinion
of outside counsel that the likelihood of an unfavorable outcome with  respect to these claims is remote.





Tax Credits





Tele  Centro Oeste Participações and the other new holding companies incorporated in  connection with the privatization of the telecommunications companies offset  certain tax debts against the premiums paid by their controlling  shareholders.  A claim was filed against  Tele Centro Oeste Participações and the other new holding companies seeking  relief in the form of the annulment of the administrative acts that recognized  these offsets.  Although we believe that  the restructuring was implemented in accordance with Brazilian law, we believe  based on the opinion of outside counsel that the likelihood of an unfavorable  outcome with respect to this claim is possible.  We would be required to pay all the taxes that were offset  against goodwill.  We are unable to  determine at this time the extent of any potential liabilities with respect to  this
claim.





Ownership of Caller ID





Lune  Projetos Especiais Telecomunicação Comércio e Ind. Ltda., a Brazilian company,  filed lawsuits against 23 wireless telecommunications operators, including  including Tele Centro Oeste, Telegoiás Celular S.A., Telems Celular S.A.,  Telemat Celular S.A., Teleron Celular S.A., Teleacre Celular S.A. and Norte  Brasil Telecom S.A.  The lawsuits allege  that those operators violated patent number 9202624-9, related to Equipamento  Controlador de Chamadas Entrantes e do Terminal do Usuário, or Caller ID,  granted to Lune by the Brazilian Intellectual Property Agency  INPI, on  September 30, 1997.  Lune calls on the  operators to cease to provide Caller ID services and seeks payment from them  for the unauthorized use of the Caller ID system in an amount equivalent to the  payment of fees received by such operators for use of the Caller ID  system.  However,
Lunes right to use  patent number 9202624-9 was suspended by a federal judge in the State of São  Paulo in response to a lawsuit filed against Lune and INPI by Ericsson  Telecomunicações S.A. Telesp Celular S.A. and Telerj Celular filed identical  lawsuits against Lune and INPI and those lawsuits are still pending before the  courts.  We believe based on the opinion  of outside counsel that the likelihood of an unfavorable outcome with respect  to Lunes claim against us is possible.   We are unable to determine at this time the extent of any potential  liabilities with respect to this claim.





Validity of Prepaid Plan Minutes





Telegoiás,  NBT and Teleron, together with other Brazilian wireless telecommunications  operators, are defendants in various lawsuits brought by the federal public  prosecutors office and a consumer protection association challenging the  imposition of a deadline for the use of purchased prepaid minutes. The  plaintiffs allege that purchased prepaid minutes should not expire after any  specified deadline.  Conflicting  decisions have been issued by the federal court reviewing this matter.  Although we believe that our criteria for  imposing the deadline are in compliance with Anatels rules, we believe based  on the opinion of outside counsel that the likelihood of an unfavorable outcome  with respect to this claim is possible.





Litigation Relating to the Charging of Subscription





Telegoiás,  together with other mobile telecommunications operators, are defendants in a  class-action suit brought by Procon-Goiás, which challenged the charging, by  these operators, of the monthly subscription tariff, alleging that there is no  legal prevision of such charge. According to the plaintiff, the charging of  monthly subscription tariffs also violate Brazilian Consumer Law.





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Based  on the opinion of our counsel, we believe that the possibility of an  unfavorable decision in this lawsuit is remote, once that the charging of  monthly subscription tariffs is expressly allowed by Brazilian  telecommunications regulations.





Litigation Relating to Telebrás Loans





Tele  Centro Oeste filed a lawsuit against Tele Centro Sul (one of the holding  companies arising from the breakup of Telebrás), Telebrás itself and KPMG, the  auditors for the breakup of Telebrás, regarding the distribution of debts and  credits of former Telebrás loans, after its breakup.





In  response to the lawsuit filed against it, Tele Centro Sul filed two  counter-lawsuits in October 1999 against Telebrasília and Telegoiás seeking  payment of the Telebrás loans in the amount of R$41.3 million from Telebrasília  and R$24.2 million from Telegoiás.





The  first lawsuit, filed by Tele Centro Oeste against Tele Centro Sul, Telebrás and  KPMG was dismissed.  In the other two  lawsuits, filed by Tele Centro Sul against Telebrasília and Telegoiás, the  court ruled partially in favor of Tele Centro Sul.  In the Court of Appeals of the Federal District, TCOs,  Telebrasílias and Telegoiás appeal was denied.  Tele Centro Suls appeal was granted.





Although  another appeal was filed in the Court of Special Appeals, a final decision  unfavorable to TCO with respect to the necessity of payment by Telebrasília and  Telegoiás to Tele Centro Sul, is probable, but on the specific point regarding  indexation of the debts according to exchange variation, a decision unfavorable  to TCO is only possible, since there is a good possibility that exchange  variation will be excluded as a criteria of indexation of the outstanding  balances.





Tax-Related





Application of ICMS





In
    June 1998, the Conselho Nacional de Política Fazendária, or CONFAZ,
    decided to apply the ICMS tax to certain service revenues, such as activation
    fees, and to make the application of the tax to such activation fees retroactive
    for the five years preceding June 30, 1998.   This claim impacts Tele
    Centro Oeste Celular Participações, Telegoiás  Celular S.A.,
    Telems Celular S.A., Telemat Celular S.A., Teleron Celular S.A. and Teleacre
    Celular S.A.  We believe  the application of the ICMS tax to non basic
    telecommunications services such as cellular activation is unlawful because
    it would subject to taxation certain services that are not telecommunications
    services.  In addition, we do not believe new taxes may be applied retroactively.  We
    believe based on the opinion of outside counsel (including certain judicial
    precedents) that the likelihood of an  unfavorable outcome with respect to
    this claim is remote.  Moreover, we
believe that the predecessor companies would be liable to our subsidiaries for
any tax liability arising from the retroactive application.





Application of COFINS and PIS





On  November 27, 1998, the method for calculating the amount of contribution  required under PIS and COFINS was modified by Law No. 9,718, which increased  the COFINS contribution rate from 2% to 3% and permitted the deduction of up to  1/3 of the amount due under COFINS from the amount due under CSLL.  Since our subsidiaries had a negative tax  calculation basis, they could not benefit from this deduction.  In addition, Law No. 9,718 effectively  increased the amounts of COFINS and PIS due from our subsidiaries by including  financial revenues in the calculation methodology.  This claim impacts Tele Centro Oeste Celular Participações.





We  believe that this increase is unconstitutional because:  (1) Article 195 of the Brazilian  Constitution, which was effective when Law No. 9,718 was enacted, provided that  the PIS contribution could only be levied on compensation of employees,  revenues and profits; (2) in order to increase the COFINS and PIS  contributions, it would be necessary to enact a law requiring a greater quorum  than the one required to approve Law No. 9,718; and (3) the law was made  effective before the expiration of the required 90-day waiting period.





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We  believe based on the opinion of outside counsel that the likelihood of an  unfavorable outcome with respect to this claim is possible.  However, we do not believe an unfavorable  outcome would have a material adverse effect on our financial condition and  results of operations.





Passing on of the COFINS and PIS to Customers





Several  telecommunications carriers, including us, are defendants in a lawsuit brought  by the federal public prosecutors office challenging our policy of passing the  COFINS and PIS expenses on to our customers by incorporating them into our  charges.  This claim impacts Tele Centro  Oeste Celular Participações, Telegoiás Celular S.A., Telems Celular S.A.,  Telemat Celular S.A., Teleron Celular S.A. and Teleacre Celular S.A.  We are challenging the lawsuit on the  grounds that COFINS and PIS are cost components of the services provided to our  customers and, as such, should be incorporated into the price of such services,  as is the practice throughout the telecommunications industry.  We believe based on the opinion of our  outside counsel that the likelihood of an unfavorable outcome with respect to  this claim is remote.





CIDE





We  and our subsidiaries filed lawsuits challenging the application of CIDE   Contribução de Intervenção no Domínio Econômico on the remittances of payments  owed to suppliers headquartered outside Brazil in accordance with technology  transfer and technological assistance contracts or trademark and software  licenses, in accordance with the terms of Law No. 10,168/2002.  We believe based on the opinion of outside  counsel that the likelihood of an unfavorable outcome with respect to this  claim is possible.





Other Litigation





We  are also party to certain legal proceedings arising in the normal course of  business.  We believe that our  provisions are sufficient to cover our estimated losses owing to adverse legal  decisions.  We believe that adverse  decisions 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





We  pay our shareholders both dividends and interest on shareholders equity, which  is a form of distribution that is tax-deductible in Brazil.  The following table summarizes our history  of payments of dividends and interest on shareholders equity for the years  2004, 2003 and 2002.  The table sets  forth amounts in reais per thousand common shares and preferred shares and  amounts in U.S. dollars per ADS translated into U.S. dollars at the prevailing  selling rate for Brazilian currency into U.S. dollars in the commercial rate  exchange market on each of the respective dates of such payments.





|          |  | Dividends    plus interest on shareholders equity
    Year ended December 31, |         
|--------- |  | ------------------------------------------------------------------------------ | --------
|          |  |                                                                                |         
|          |  | 2004                                                                           |         
|          |  |                                                                                |         
|          |  | (R$ per
    thousand)                                                          |         
|          |  |                                                                                |         
|Common    |  |                                                                                | 0.317172
|Preferred |  |                                                                                | 0.317172




|   
|---
|(1)




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 the higher of (i) 6% of the  amount obtained by dividing the amount of subscribed capital by the number of  our shares and (ii) 3% of the amount of shareholders equity on a per share  basis.  The annual dividend distributed  to our holders of our preferred shares has priority in the allocation of  adjusted net income.





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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,                                                                                                                       
|  |                                                                                                                                                                                                               
|  |                                                                                                                                                                                                              
|  |                                                                                                                                                                                                               
|  |                                                                                                                                                                                                              




Under  our by-laws, we may pay dividends out of 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.   Retained earnings are defined as the amount of our net income in prior  years that was not paid out as dividends in the year in which it was earned,  but rather was retained in accordance with a  proposal of the board of directors duly approved by a shareholders meeting.





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 to it in future years.  Any amount so allocated in a prior year    must be either:                     
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                        
| | 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 reserve 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.





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Priority and Amount of Preferred  Dividends





Our  by-laws provide for a minimum noncumulative dividend of (i) 6% of the amount  obtained by dividing the amount of subscribed capital by the number of our  shares and (ii) 3% of the amount obtained by dividing shareholders equity by  the number of our outstanding 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    common share is equal to the preferred dividend; and    
|  |                                                                                                                                                     
| | thereafter,    distributed equally among holders of preferred and common shares.                                                                    




Payment of Dividends





We  are required by Brazilian Corporate 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 rata basis according to the date  when the subscription price is paid to us.





Our  preferred shares underlying the ADSs are held in Brazil by a Brazilian  custodian, Banco Itaú S.A., as the agent for the depositary, which is the  registered owner of our shares.





Payments  of cash dividends and distributions, if any, will be made in 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.





|B. | Significant Changes
|-- | -------------------




Reverse  Stock Split





On  March 31, 2005, TCO approved a reverse split of the 386,664,974,968 registered  book-entry shares of capital stock of TCO, with no par value, of which  129,458,666,783 are common shares and 257,206,308,185  are preferred shares.  The  reverse split will occur at the ratio of three thousand (3,000) shares to one  (1) share of the respective class, after which there will be 128,888,325  registered book-entry shares, with no par value, of which 43,152,889 will be  common shares and 85,735,436 will be preferred shares.





The  reasons for the reverse stock split   are: (i) to adjust the per share value of the shares to a more adequate  level from a stock market perspective, since the trading of the shares in reais  per share gives greater transparency as compared with the quotation per lot of  one thousand (1,000) shares; (ii) to unify the basis for trading the shares in  the national and international markets, since the shares were quoted in lots of  one thousand (1,000) shares in the national market  the São Paulo Stock  Exchange (BOVESPA), and in lots of three thousand (3,000) shares for each  American Depositary Receipt (ADR) on the New York Stock Exchange  (NYSE); (iii) to reduce operational  expenses and to increase the efficiency of the system for registering  information regarding the shareholders of TCO; and (iv) to reduce the  possibilities of
informational errors, improving services to the shareholders  of TCO.





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There  will be no reverse split of ADRs. Only the ratio of shares to each ADR will be  changed from the current ratio of three thousand (3,000) preferred shares per  ADR to one (1) preferred share per ADR. Thus, there will be no fractional ADRs  resulting from the reverse split.





|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------




|A. | Offer and Listing Details
|-- | -------------------------




Brazilian  private equity and debt are principally traded on BOVESPA, which is the trading  market for our common and preferred shares.   Our preferred shares began trading on the Brazilian stock exchanges on  September 21, 1998.  In the United  States, the preferred shares trade in the form of ADSs each representing 3,000  preferred shares, issued by The Bank of New York, as Depositary pursuant to a  Deposit Agreement among TCO, the Depositary and the registered holders and  beneficial owners from time to time of ADRs.   The ADSs commenced trading separately on the NYSE on November 16, 1998  under the symbol TRO.  At December 2004,  there were approximately 193 record holders of ADSs in the United States. The  Total ADS Holders represent approximately 32.45% of our preferred shares.  Brasilcel does not hold ADSs of TCO.





The  table below sets forth, for the indicated periods, the high and low closing  prices of the ADSs on The New York Stock Exchange, in U.S. dollars, and the  preferred shares on the São Paulo Stock Exchange, in reais:





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|                                |  | New York    Stock Exchange    U.S.$ per ADS |       | São Paulo    Stock Exchange     R$ per 1,000 preferred shares | 
|------------------------------- |  | ------------------------------------------- | ----- | ------------------------------------------------------------- | 
|                                |  |                                             |       |                                                               | 
|                                |  | High                                        |       | Low                                                           | 
|                                |  |                                             |       |                                                               | 
|Year ended                      |  |                                             |       |                                                               | 
|                                |  |                                             |       |                                                               | 
|December 31,    2000            |  |                                             | 15.87 |                                                               | 
|December 31,    2001            |  |                                             | 13.62 |                                                               | 
|December 31,    2002            |  |                                             | 7.45  |                                                               | 
|December 31,    2003            |  |                                             | 10.55 |                                                               | 
|December 31,    2004            |  |                                             | 12.49 |                                                               | 
|                                |  |                                             |       |                                                               | 
|Year ended    December 31, 2003 |  |                                             |       |                                                               | 
|                                |  |                                             |       |                                                               | 
|First    quarter                |  |                                             | 5.01  |                                                               | 
|Second    quarter               |  |                                             | 6.17  |                                                               | 
|Third    quarter                |  |                                             | 7.86  |                                                               | 
|Fourth    quarter               |  |                                             | 10.55 |                                                               | 
|                                |  |                                             |       |                                                               | 
|Year ended    December 31, 2004 |  |                                             |       |                                                               | 
|                                |  |                                             |       |                                                               | 
|First    quarter                |  |                                             | 12.49 |                                                               | 
|Second    quarter               |  |                                             | 12.35 |                                                               | 
|Third    quarter                |  |                                             | 10.37 |                                                               | 
|Fourth    quarter               |  |                                             | 11.07 |                                                               | 
|                                |  |                                             |       |                                                               | 
|Quarter    ended                |  |                                             |       |                                                               | 
|                                |  |                                             |       |                                                               | 
|March 31,    2005               |  |                                             | 11.71 |                                                               | 
|                                |  |                                             |       |                                                               | 
|Month    ended                  |  |                                             |       |                                                               | 
|                                |  |                                             |       |                                                               | 
|October 31,    2004             |  |                                             | 11.07 |                                                               | 
|November 30,    2004            |  |                                             | 10.14 |                                                               | 
|December 31,    2004            |  |                                             | 10.22 |                                                               | 
|January 31,    2005             |  |                                             | 9.90  |                                                               | 
|February 28,    2005            |  |                                             | 11.97 |                                                               | 
|March 31,    2005               |  |                                             | 11.71 |                                                               | 




The  common shares and preferred shares of Telebrasília traded on BOVESPA from May  18, 1998 to July 30, 1999.  On August 2,  1999, Telebrasília shares began trading on the Sociedade Operadora do Mercado  de Ativos, or SOMA, the over-the-counter market.  On June 7, 2002, Telebrasília shares were substituted with shares  of TCO due to the merger of Telebrasília into TCO.  On May 18, 1998, Telegoiás shares began trading on SOMA.  The other subsidiaries Telemat, Telems,  Teleron, Teleacre, NBT, and (as of December 10, 2001) Telegoiás are closely  held corporations, and their shares do not trade on any stock market.





TCO  held a general extraordinary shareholders meeting on April 26, 2002, in which  it approved the merger of Telebrasília into TCO and the consequent transfer of  the concession to explore cellular mobile services previously held by  Telebrasília.





|B. | Plan of Distribution
|-- | --------------------




Not  applicable.





|C. | Markets
|-- | -------




Trading  on the BOVESPA





In  2000, the BOVESPA was reorganized through the execution of memoranda of  understanding by the Brazilian stock exchanges.  Under the memoranda, all securities are now traded only on the  BOVESPA, with the exception of electronically traded public debt securities and  privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.





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When  shareholders trade in common and preferred shares on the BOVESPA, the trade is  settled in three business days after the trade date without adjustment of the  purchase price for inflation.  The  seller is ordinarily required to deliver the shares to the exchange on the  second business day following the trade date.   Delivery of and payment for shares are made through the facilities of  the clearinghouse, Companhia Brasileira de Liquidação e Custódia S.A., or CBLC.





The  BOVESPA is a nonprofit entity owned by its member brokerage firms.  Trading on the BOVESPA is limited to member  brokerage firms and a limited number of authorized nonmembers.  The BOVESPA has two open outcry trading  sessions each day from 11:00 a.m. to 1:30 p.m. and from 2:30 p.m. to 5:45 p.m.,  São Paulo time, except during daylight savings time in the United States.  During daylight savings time in the United States, the sessions are from 10:00  a.m. to 1:00 p.m. and from 2:00 p.m. to 4:45 p.m., São Paulo time, to closely  mirror the NYSE trading hours.  Trading  is also conducted between 11:00 a.m. and 6:00 p.m., or between 10:00 a.m. and  5:00 p.m. during daylight savings time in the United States on an automated  system known as the Computer Assisted Trading System (Sistema de Negociação  Assistida por Computador) on the BOVESPA and on the National Electronic
Trading  System (Sistema Eletrônico de Negociação Nacional).  This system is a computerized system that links electronically  with the seven smaller regional exchanges.   The BOVESPA also permits trading from 6:45 p.m. to 7:30 p.m. on an  online system connected to traditional and Internet brokers called the after  market.  Trading on the after market is  subject to regulatory limits on price volatility and on the volume of shares  transacted through internet brokers.





In  order to better control volatility, the BOVESPA adopted a circuit breaker  system pursuant to which trading sessions may be suspended for a period of 30  minutes or one hour whenever the indices of the BOVESPA falls below the limits  of 10% or 15%, respectively, in relation to the index registered in the  previous trading session.





There  are no specialists or market makers for our shares on BOVESPA.  Trading in securities listed on the BOVESPA  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 BOVESPA is  Companhia Brasileira de Liquidação e Custódia S.A.  CBLC, which is wholly  owned by that Exchange.





The  BOVESPA is significantly less liquid than the NYSE or other major exchanges in  the world.  As of December 31, 2004, the  aggregate market capitalization of the 358 companies listed on the BOVESPA was  equivalent to approximately R$904.9 billion (U.S.$340.9 billion) and the 10  largest companies listed on the BOVESPA represented approximately 48.8% of the  total market capitalization of all listed companies.  By comparison, as of December 31, 2004, the aggregate market  capitalization of the 2,768 companies listed on the NYSE was approximately  U.S.$19.8 trillion and the 10 largest companies listed on the NYSE represented  approximately 18.0% of the total market capitalization of all listed  companies.  Although all of the  outstanding shares of an exchange-listed company may trade on the BOVESPA, in  most cases only the preferred shares or fewer than half of the listed common  shares
are actually available for trading by the public, the remainder being  held by small groups of controlling persons, by government entities or by one  principal shareholder, that rarely trade their shares.  For this reason, data showing the total  market capitalization of BOVESPA tend to overstate the liquidity of the  Brazilian equity securities market.  See  Risk FactorsRisks Relating to Our Preferred Shares and Our ADSsThe relative  volatility and illiquidity of the Brazilian securities markets may adversely  effect holders of ADSs.





The  Brazilian equity market is relatively small and illiquid compared to major  world markets.  In 2004, the combined  daily trading volumes on BOVESPA averaged approximately U.S.$ 419.7  million.  In 2004, the 10 most actively  traded shares represented approximately 45.3% of the total trading in the cash  market on BOVESPA.  Trading on BOVESPA  by non-residents of Brazil is subject to certain limitations under Brazilian  foreign investment legislation.





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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 Council 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 Law No. 6,404, as  amended, known as the Brazilian Corporate Law.





Law  No. 10,303 of December 31, 2001 amended 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 and autonomy altered and expanded.  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.  Other  modifications include changes in the proportion of common and preferred shares  (these changes apply solely to companies incorporated after the enactment of  the new law), new rules for the issuance of debentures and the exercise of the  right of
withdrawal, enhanced duties and powers for 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 20, 2002, and approved the necessary modifications to our by laws.





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





The  Brazilian securities law, 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.





Principal  Differences Between the Brazilian and the U.S. Corporate Governance Practices





The  significant differences between our corporate governance practices and the NYSE  corporate governance standards are as follows:





Independence  of Directors and Independence Tests





Brazilian  Corporate Law and our by-laws require that our directors be elected by our shareholders  at a general shareholders meeting.  All  our directors are appointed by our controlling shareholders.





Neither  our board of directors nor our management test the independence of the  directors before such elections are made.   However, both Brazilian Corporate Law and the CVM establish rules in  relation to certain qualification requirements and restrictions, investiture,  compensation, duties and responsibilities of the companies executives and  directors.  Although we believe these  rules provide adequate assurances that our directors are independent, we  believe such rules would permit us to have directors that would not otherwise  pass the independence tests established by the NYSE.





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Executive  Sessions





According  to Brazilian Corporate Law, up to one-third of the members of the board of  directors can be elected into executive positions. The remaining non management  directors are not expressly empowered to serve as a check on management and  there is no requirement that those directors meet regularly without  management.  Notwithstanding, none of  our executive officers are members of our board of directors.





Committees





We  are not required under applicable Brazilian Corporate Law to have, and  accordingly we do not have, a Nominating Committee, Corporate Governance  Committee and Compensation Committee. Pursuant to our by-laws our directors are  elected by our shareholders at a general shareholders meeting.  Compensation for our directors and executive  officers is established by our shareholders.





Audit  Committee and Audit Committee Additional Requirements





Brazilian  Corporate Law requires us to have a board of auditors (Conselho Fiscal), which  is composed of three to five members elected at the general shareholders  meeting.  The board of auditors operates  independently from our management and from our external auditors.  Its main function is to examine the  financial statements of each fiscal year and provide a formal report to our  shareholders.  We have a board of  auditors that consists of three members and three alternates and which meets  once a quarter.  In April 2003, the SEC  stated that the listing of securities of foreign private issuers may be exempt  from the audit committee requirements if the issuer meets certain requirements.





We  also have an audit committee, whose members do not follow the independence  requirements of Rule 10A-3(c)(3) of the Securities Exchange Act of 1934, as  amended, or the Exchange Act, which are not applicable to us until July 31,  2005 according to Rule 10A-3(a)(5)(A) of the Exchange Act.  See Item 16.D.  Exemptions from the  Listing Standards for Audit Committees.





Under  Brazilian Corporate Law, an audit committee member may simultaneously serve on  the audit committees of more than three public companies. In addition, our  company does not impose limitations in this regard and our board is not  required to affirmatively determine and disclose that the directors ability to  effectively serve is not impaired. We are aware that the members of our audit  committee also serve on the audit committees of all of the other companies that  have been operating under the brand name Vivo: Telesp Celular Participações,  Tele Centro Oeste Celular Participações S.A., Tele Sudeste Celular  Participações and Celular CRT Participações S.A.





Policy  for Disclosure and Disclosure Committee





The  Policy for Disclosure of Relevant Act or Fact was set up by the Board of  Directors of TCO in compliance with Article 16 of CVM Instruction No. 358,  dated June 12, 2002.





The  ultimate responsibility for the disclosure of relevant information, acts or  facts is incumbent upon the CEO, the CFO and the Investor Relations Officer,  the first two being responsible for authorizing information to be disclosed,  while the Investor Relations Officer is responsible for the communication  itself of the relevant information, under the terms of the provisions of the  Relevant Act or Fact Policy and CVM Instructions 358/02 and 369/02.





Disclosures  are reviewed by the Disclosure Committee in support of the CEO and CFO. The  Disclosure Committee is responsible for processing the disclosure of  information and relevant Acts and Facts of the Company, and for ensuring  quality disclosure of information, as well as for the implementation of the  Disclosure Procedures and Controls.





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The  Disclosure Committee reports directly to the CEO and to the CFO and is composed  of one coordinator and 10 members (representing the Investor Relations,  Controls, Corporate Communication, Accounting, Financial, Mergers and  Acquisitions, Communication and Publicity and Compliance Officers, as well as  the General Secretary and the Legal Officer), and has the duty of evaluating  the need to outsource services (such as auditors, legal counsel and other  independent consultants), in order to provide adequate support for the  disclosure process.





Shareholder  Approval of Equity Compensation Plans





Our  shareholders do not have the opportunity to vote on all equity compensation  plans.  However, any issuance of new  shares that exceeds the authorized capital is subject to shareholder  confirmation.





Corporate  Governance Guidelines





We  have not adopted any corporate governance guidelines in addition to the rules  imposed upon us by applicable Brazilian law.   We believe that the corporate governance guidelines applicable to us  under Brazilian law are consistent with the guidelines established by the  NYSE.  We have adopted and observe (i)  the Policy of Disclosure of Material Acts or Facts, which deals with the public  disclosure of all relevant information as per CVMs guidelines; and (ii) the Policy  of Negotiation of Equities, which requires management to inform all  transactions relating to our securities





Code  of Business Conduct and Ethics





Although  the adoption of a code of ethics is not required by Brazilian Corporate Law, we  implemented in June 2003 our Code of Ethics regulating the conduct of our  senior financial officers.  See Item  16.B.  Code of Ethics. We do not have a code of business conduct and ethics  applicable to all our directors and employees.





|D. | Selling Shareholders 
|-- | ---------------------
|   |                      
|   | Not    applicable.   
|   |                      
|E. | Dilution             
|   |                      
|   | Not    applicable.   
|   |                      
|F. | 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  amended and restated by-laws were registered with the Public Registry of  Brazils Federal District, No. 20030226171 on May 23, 2003, under company  number (NIRE) 53.30000.580-0. Article 5 of our by-laws will be amended as a  result of the capital increase determined by the shareholders meeting of Tele  Centro Oeste at its June 30, 2004 meeting, which was registered with JUCDF  under n. 20040450325.





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Objectives  and Purposes





We  are a publicly traded company duly registered with the Brazilian securities  commission. Our by-laws provide that our corporate purpose is to:





| |  | exercise the    control of operating SMP;                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                               
| |  | promote,    directly or through our subsidiaries or controlled companies, the expansion    and implementation of the cellular services within our concessions;                                                                
| |   |                                                                                                                                                                                                                               
| |  | promote,    carry out and direct the financing of capital from internal and external    sources to be used by us or our controlled companies;                                                                                 
| |   |                                                                                                                                                                                                                               
| |  | promote and    encourage study and research activities aimed at the development of the    telecommunications sector;                                                                                                          
| |   |                                                                                                                                                                                                                               
| |  | perform,    directly or through our subsidiaries and affiliated companies, technical and    consulting services in the areas of telecommunications, Internet, computers,    finance and investor relations;                   
| |   |                                                                                                                                                                                                                               
| |  | promote,    encourage and coordinate, directly or through our subsidiaries or affiliated    companies, the development and training of personnel necessary to perform    activities in the telecommunications sector;         
| |   |                                                                                                                                                                                                                               
| |  | import and    export goods and services for our operations and the operations of our    subsidiaries and affiliated companies;                                                                                                
| |   |                                                                                                                                                                                                                               
| |  | participate    in the equity capital of other companies;                                                                                                                                                                      
| |   |                                                                                                                                                                                                                               
| |  | execute    other activities connected or related to our object;                                                                                                                                                               
| |   |                                                                                                                                                                                                                               
| |  | perform    telecommunication services and related activities;                                                                                                                                                                 
| |   |                                                                                                                                                                                                                               
| |  | trade capacity    of foreign satellites in Brazil and exploit Brazilian satellite for    transmission of telecommunication signals;                                                                                           
| |   |                                                                                                                                                                                                                               
| |  | perform    value-added services; and                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                               
| |  | provide    telecommunication capacity, connections and services to companies having    authorization, permissions or concessions to provide telecommunication    services and to companies which provide value-added services.




Directors





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





| |  | 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                 
| |  | 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 and our by-laws, 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                                                               
| | - | -------------------------------------------------------------------------------------------------------------
| |   |                                                                                                              
| |  | antitakeover    mechanisms or other procedures designed to delay, defer or prevent changes in    our control.




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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 8.A.  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 10 and 12.  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 alternate are elected by  the majority vote of the holders of our preferred shares present at the annual  meeting of shareholders at which the members of the board of auditors are  elected.





Brazilian  Corporate Law provides that certain nonvoting 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 official  gazette and two other Brazilian newspapers, 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.





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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 official gazette and two other newspapers, 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 object 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;                                                                                                                                 




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| |  | participate    in a group of companies, if certain liquidity standards are not met according    to 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 Brazilian Corporate Law as amended by Law No. 10,303/01; and                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | cisão, or    split-up, Telesp Celular Participações S.A., 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 the  same way as registered shareholders.





Regulation  of Foreign Investment and Exchange Controls





There  are no restrictions on ownership of our preferred shares by individual or legal  entities domiciled outside Brazil. However, the right to convert dividend  payments and proceeds from the sale of our shares into foreign currency and to  remit such amounts abroad is subject to restrictions under foreign investment  legislation which generally require, among other things, that the relevant  investment be registered with the Central Bank and the CVM.





Foreign  investors may register their investment in our shares under Law No. 4,131 of  September 3, 1962 or Resolution No. 2,689 of January 26, 2000. Registration  under Resolution No. 2,689 affords favorable tax treatment to non-Brazilian  investors who are not residents in a tax haven jurisdiction (i.e., countries  that do not impose income tax or where the maximum income tax rate is lower  than 20%), as defined by Brazilian tax laws.





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Under  Resolution No. 2,689, non-Brazilian investors may invest in almost all  financial assets and engage in almost all transactions available in the  Brazilian financial and capital markets, provided that certain requirements are  fulfilled. In accordance with Resolution No. 2,689, the definition of  non-Brazilian investor includes individuals, legal entities, mutual funds and  other collective investment entities, domiciled or headquartered abroad.





Under  Resolution No. 2,689, a non-Brazilian investor must:





| |  | appoint at    least one representative in Brazil, with powers to perform actions relating    to its investment;
| | - | ---------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                
| |  | appoint an    authorized custodian in Brazil for its investment;                                               
| |   |                                                                                                                
| |  | register as    a non-Brazilian investor with the CVM; and                                                      
| |   |                                                                                                                
| |  | register its    foreign investment with the Central Bank.                                                      




Additionally,  the investor operating under the provisions of Resolution No. 2,689 must be  registered with the Brazilian internal revenue service (Receita Federal) pursuant  to the latters Regulatory Instruction 200. This registration process is  undertaken by the investors legal representative in Brazil.





Securities  and other financial assets held by non-Brazilian investors pursuant to  Resolution No. 2,689 must be registered or maintained in deposit accounts or  under the custody of an entity duly licensed by the Central Bank or the CVM. In  addition, securities trading is restricted to transactions carried out in the  stock exchanges or through organized over-the-counter markets licensed by the  CVM, except for transfers resulting from a corporate reorganization, or  occurring upon the death of an investor by operation of law or will. See Item  10.E.  TaxationBrazilian tax  considerations for more information.





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. Accordingly, the proceeds from the sale of ADSs by holders of American  Depositary Receipts outside Brazil are free of Brazilian foreign investment  controls and holders of ADSs who are not resident in a tax haven jurisdiction  will be entitled to favorable tax treatment.





The  right to convert dividend payments and proceeds from the sale of our 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 investment be registered with the Central  Bank. Restrictions on the remittance of foreign capital abroad could hinder or  prevent the custodian for the preferred shares represented by ADSs, or holders  who have exchanged ADSs for preferred shares, from converting dividends,  distributions or the proceeds from any sale of preferred shares, as the case  may be, into U.S. dollars and remitting such U.S. dollars abroad. Delays in, or  refusal to, granting the required government approval for conversions of  Brazilian currency payments and remittances abroad could adversely affect  holders of ADSs.





We  have obtained a certificate of registration in the name of The Bank of New  York, the depositary. Pursuant to this certificate, 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 to remit  the proceeds outside Brazil. If a holder exchanges ADSs for preferred shares,  such holder may continue to rely on the depositarys certificate of capital  registration for only five business days after such exchange. After that, such  holder must seek to register its investment directly with the Central Bank.  Thereafter, unless the holder has registered its investment with the Central  Bank, such holder may not convert into foreign currency and remit outside  Brazil the proceeds from the disposition of, or distributions with respect to,  such preferred shares. Such holder generally will be
subject to less favorable  Brazilian tax treatment than a holder of ADSs.





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Before  March 14, 2005, there were two principal foreign exchange markets in Brazil, in  which notes were freely negotiated but could be strongly influenced by Central  Bank intervention:





| | the    commercial rate exchange market dedicated principally to trade and financial    foreign exchange transactions such as the buying and selling of registered    investments by foreign entities, the purchase or sale of shares, or the    payment of dividends or interest with respect to shares; and
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                             
| | the floating    rate exchange market that was generally used for transactions not conducted    through the commercial foreign exchange market.                                                                                                                                                              




On  March 4, 2005, the National Monetary Council enacted Resolution No. 3,265,  pursuant to which the commercial rate exchange market and the floating rate  exchange market were unified in a sole exchange market, effective as of March  14, 2005. The new regulation allows, subject to certain procedures and specific  regulatory provisions, the purchase and sale of foreign currency and the  international transfer of reais by a person or legal entity, without  limitation of the amount involved, provided, however, the legality of the  transaction.





Under  Brazilian law, whenever there is a serious imbalance in Brazils balance of  payments or reasons to foresee a serious imbalance, the Brazilian government  may impose temporary restriction on the remittance of foreign currency abroad  and on the conversion of Brazilian currency into foreign currencies. Such  restrictions may hinder or prevent the custodian or holders who have exchanged  ADSs for underlying preferred shares from converting distributions or the  proceeds from any sale of such shares, as the case may be, into U.S. dollars  and remitting such U.S. dollars abroad.





|C. | Material Contracts
|-- | ------------------




On  February 3, 2003, TCO 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 area corresponding to the  Brazils Federal District.  The  authorization replaces the concession agreement entered into with Anatel on  November 4, 1997, and authorizes TCO to provide SMP services until July 24,  2006.  It may be renewed for an  additional term of fifteen years upon payment of 2% of TCOs net revenues from  usage charges in the region described above in the year prior to the year when  payment is due, and every two years during the extension period.  In consideration for the authorization, TCO  was required to pay R$9.0 thousand.  The  authorization is a legal requirement for providing telecommunication services  in the region covered
thereby.





On  February 3, 2003, Telegoiás 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 area corresponding to the  states of Goiás and Tocantins, with the exception of the following  municipalities: Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara,  Paranaiguara and São Simão.  The  authorization replaces the concession agreement entered into with Anatel on  November 4, 1997, and authorizes Telegoiás to provide SMP services until  October 29, 2008.  It may be renewed for  an additional term of fifteen years upon payment of 2% of Telegoiás net  revenues from usage charges in the region described above in the year prior to  the year when payment is due, and every two years during the extension period.  In consideration for
the authorization,  Telegoiás was required to pay R$9.0 thousand.   The authorization is a legal requirement for providing telecommunication  services in the region covered thereby.





On  February 3, 2003, Telems 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 area corresponding to the state  of Mato Grosso do Sul, with the exception of the municipality of Paranaíba.  The authorization replaces the concession  agreement entered into with Anatel on November 4, 1997, and authorizes Telems  to provide SMP services until September 28, 2009.  It may be renewed for an additional term of fifteen years upon  payment of 2% of Telems net revenues from usage charges in the region  described above in the year prior to the year when payment is due, and every  two years during the extension period.   In consideration for the authorization, Telems was required to pay R$9.0  thousand.  The authorization is a legal  requirement for providing
telecommunication services in the region covered  thereby.





On  February 3, 2003, Telemat 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 area corresponding to the state  of Mato Grosso.  The authorization  replaces the concession agreement entered into with Anatel on November 4, 1997,  and authorizes Telemat to provide SMP services until March 30, 2009.  It may be renewed for an additional term of  fifteen years upon payment of 2% of Telemats net revenues from usage charges  in the region described above in the year prior to the year when payment is  due, and every two years during the extension period.  In consideration for the authorization, Telemat was required to  pay R$9.0 thousand.  The authorization  is a legal requirement for providing telecommunication services in the region  covered
thereby.





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On  February 3, 2003, Teleron 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 area corresponding to the state  of Rondônia.  The authorization replaces  the concession agreement entered into with Anatel on November 4, 1997, and  authorizes Teleron to provide SMP services until July 21, 2009.  It may be renewed for an additional term of  fifteen years upon payment of 2% of Telerons net revenues from usage charges  in the region described above in the year prior to the year when payment is  due, and every two years during the extension period.  In consideration for the authorization, Teleron was required to  pay R$9.0 thousand.  The authorization  is a legal requirement for providing telecommunication services in the region  covered
thereby.





On  February 3, 2003, Teleacre 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 area corresponding to the state  of Acre.  The authorization replaces the  concession agreement entered into with Anatel on November 4, 1997, and  authorizes Teleacre to provide SMP services until July 15, 2009.  It may be renewed for an additional term of  fifteen years upon payment of 2% of Teleacres net revenues from usage charges  in the region described above in the year prior to the year when payment is  due, and every two years during the extension period.  In consideration for the authorization, Teleacre was required to  pay R$9.0 thousand.  The authorization  is a legal requirement for providing telecommunication services in the region  covered thereby.





On  February 3, 2003, NBT 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 area corresponding to the  states of Amazonas, Roraima, Amapá, Pará and Maranhão.  The authorization replaces the concession  agreement entered into with Anatel on November 27, 1998, and authorizes NBT to  provide SMP services until November 29, 2013.   It may be renewed for an additional term of fifteen years upon payment  of 2% of NBTs net revenues from usage charges in the region described above in  the year prior to the year when payment is due, and every two years during the  extension period.  In consideration for  the authorization, NBT 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 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 our preferred shares represented by our ADSs or the holders  of our 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 our 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 our ADS 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 Item  10TaxationBrazilian Tax Considerations.





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Under  Resolution No. 2,689 of the CMN, foreign investors registered with the CVM may  buy and sell Brazilian securities, including our preferred shares, on Brazilian  stock exchanges.  Registration is  available to qualified foreign investors, which principally include foreign  financial institutions, legal entities and individuals.  Resolution No. 2,689 also extends favorable  tax treatment to registered investors.   See Item 10TaxationBrazilian Tax Considerations.





Pursuant  to the Resolution No. 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 No. 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 our preferred shares by a non-Brazilian holder who qualifies under  Resolution No. 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 which  must be done before the first investment on Brazilian stock exchanges (the  amount so registered is referred to as registered capital) allows the  remittance to and outside Brazil of foreign currency, converted at the  commercial market rate, acquired with the proceeds of distributions on, and  amounts realized through, dispositions of our 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 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 our  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 No. 2,689 or obtains  its own certificate of registration.  A  holder that obtains a certificate of registration will be subject to less  favorable Brazilian tax treatment than a holder of ADSs.  See Item 10TaxationBrazilian Tax  Considerations.





If  the holder does not qualify under Resolution No. 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 No. 2,689, residents in tax havens are subject to less favorable tax  treatment than other foreign investors.   See Item 10TaxationBrazilian Tax Considerations.





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Under  current Brazilian legislation, the federal government may impose temporary  restrictions on remittances of foreign capital abroad in the event of a serious  imbalance or an anticipated serious imbalance of Brazils balance of  payments.  For approximately six months  in 1989 and early 1990, the Brazilian 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 Brazilian government will not impose  similar restrictions on foreign repatriations in the future.  See Item 3Risk FactorsRisks Relating to  Brazil.





|E. | Taxation
|-- | --------




The  following discussion contains a description of the material Brazilian and U.S.  federal income tax consequences of the acquisition, ownership and disposition  of preferred shares or ADSs by certain holders.  This summary is based upon the 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 advisers as to the Brazilian, U.S. federal or other tax  consequences of the acquisition, ownership and disposition of preferred shares  or ADSs, including, in particular, the effect of any state, local or non-U.S.,  non-Brazilian 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 adviser 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.





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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 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 property located in Brazil, including preferred shares, to  another U.S. holder or non-Brazilian holder are subject to Brazilian tax, as of  February 2004.  In this case, gains  would be subject to a 15% withholding tax rate, except if the beneficiary is  located in a low-tax jurisdiction, as defined by Brazilian law, in which case  the applicable rate would be 25%.





Our  understanding is that ADSs do not qualify as property located in Brazil and,  therefore, are not subject to Brazilian taxes upon disposition to other  non-Brazilian or U.S. holders.  Insofar  as the regulatory norm referred to in Article 26 is recent and generic and has  not been tested through the administrative or judicial courts, we are unable to  evaluate what the final ruling on the matter will be.





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 25% 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 on preferred shares 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 on preferred shares through transactions on Brazilian stock    exchanges are generally subject to tax at a rate of 15% as of January 2005,    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 No.  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 No. 2,689 to  transactions on Brazilian stock exchanges or qualified over-the-counter  markets.  The preferential
treatment  generally afforded under Resolution No. 2,689 and afforded to investors in ADSs  is not available to residents of tax havens.   All preferred shares underlying ADSs qualify under Resolution No. 2,689.





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 No. 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.  Although  there is controversy surrounding this issue, there are arguments to sustain the  position that the acquisition cost of shares registered as an investment with  the Central Bank is calculated on the basis of the foreign currency amount  registered with the Central Bank.  See  Registered Capital.





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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%.  In case the non-Brazilian holder is domiciled in a tax haven  jurisdiction, the applicable rate would be 25%.





As  of January 1, 2005, the purchase price of preferred shares sold on the  Brazilian stock exchange is subject to withholding tax at a rate of 0.005%,  except in the case of non-Brazilian holders that invest through Resolution No.  2,689.  This tax may be offset against  the 15% income tax due on the gains realized upon the sale of the shares.





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





| | 1. | Beneficiaries Residing or Domiciled in Tax    Havens or Low Tax Jurisdictions
| | -- | -----------------------------------------------------------------------------




Law  No. 9,779, dated as of January 19, 1999, states that, with the exception of  limited circumstances, any income derived from operations by a beneficiary that  resides or is domiciled in a country considered to be a tax haven is subject to  income tax to be withheld by the source at a rate of 25%.  Accordingly, if the distribution of interest  attributed to shareholders equity is made to a beneficiary residing or  domiciled in a tax haven, the applicable income tax will be at a rate of 25%  instead of 15%.  The increased rate also  applies for capital gains paid to residents of low-tax jurisdictions as of  February 2004.





In  accordance with Law No. 9,959, non-Brazilian holders of ADSs or preferred  shares who are residents of tax havens have been excluded from the tax  incentives granted to holders of ADSs and investors under Resolution No. 2,689  since January 1, 2000 and are subject to the same tax treatment applicable to  holders that are residents of or domiciled in Brazil.





| | 2. | 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.





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In  addition to the IOF tax, a second, temporary tax that applies to the removal of  funds from accounts at banks and other financial institutions, the CPMF tax,  will be imposed on distributions in respect of ADSs at the time these distributions  are converted into U.S. dollars and remitted abroad by the Custodian.  The CPMF tax is due to expire on December  31, 2007.  It is currently imposed at a  rate of 0.38%.  Transactions conducted  through the Brazilian stock exchanges in current accounts specified for stock  exchange transactions have been exempt from the CPMF tax since July 13,  2002.  Additionally, as of August 2004,  Brazilian holders may elect to make investments through a special investment  account, which is exempt from CPMF. In this case, the tax only applies upon the  transfer of funds from the banking account to the investment account. Once  deposited in this
account, funds may be withdrawn without the CPMF.  However, funds deposited in the investment  account must only be used for investments.





U.S.  Federal Income Tax Considerations





The  following discussion is a summary of the material U.S. federal income tax  consequences of the acquisition, ownership and disposition of our preferred  shares or our 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 of the U.S. Internal  Revenue Service (the IRS) and judicial decisions, all as currently in effect  and 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 (generally, for investment purposes).  It does not discuss all of the tax consequences that may be  relevant to a U.S. Holder in light of the U.S. Holders particular  circumstances or to U.S. Holders subject to special rules, such as 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 hedge, straddle or  conversion transaction) consisting 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 or persons who acquired preferred  shares or ADSs pursuant to the exercise of any employee stock option or  otherwise as compensation.  Holders
of  preferred shares or ADSs should consult their own tax advisers with regard to  the application of the U.S. federal income tax laws to their particular  situations as well as any tax consequences arising under the laws of any state,  local or non-U.S. taxing jurisdiction.





As  used herein, the term U.S. Holder means a beneficial owner of preferred  shares or ADSs that is, for U.S. federal income tax purposes, (1) a citizen or  individual resident of the United States, (2) a corporation (or other entity  treated as a corporation for U.S. federal income tax purposes) organized under  the laws of the United States or of any political subdivision thereof or (3) an  estate or trust the income of which is subject to U.S. federal income taxation  regardless of its source.  The U.S.  federal income tax treatment of a partner in a partnership that holds our  preferred shares or ADSs will depend on the status of the partner and the  activities of the partnership. Partners in such partnerships should consult  their own tax advisors.





THE  SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS INTENDED FOR  GENERAL INFORMATION PURPOSES ONLY.   PROSPECTIVE PURCHASERS OF PREFERRED SHARES OR ADSs ARE URGED TO CONSULT  WITH THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO  THEM OF ACQUIRING, OWNING OR DISPOSING OF PREFERRED SHARES OR ADSs, INCLUDING  THE APPLICABILITY AND EFFECT OF STATE, LOCAL,   NON-U.S. AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAWS.





General





In  general, for U.S. 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 U.S. federal income tax  purposes.





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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 the  ADSs.  Such actions would also be  inconsistent with the claiming of the reduced rate of tax, described below,  applicable to dividends received by certain non-corporate holders.  Accordingly, the analysis of the  creditability of Brazilian taxes and the availability of the reduced tax rate  for dividends received by certain non-corporate holders, each described below,  could be affected by future actions taken by the U.S. Treasury.





Taxation of Dividends





Distributions  made by us of cash or property (including distributions of interest on capital)  generally will constitute a taxable dividend to the extent paid out of our  current or accumulated earnings and profits, as determined under U.S. federal  income tax principles.  The full amount  of any dividend paid in respect of our preferred shares or ADSs (including the  amount of Brazilian withholding taxes imposed on such dividend) will be  included in the gross income of a U.S. Holder, as ordinary income from sources  outside the United States, at the time that the dividend is received by the  U.S. Holder, in the case of our preferred shares, or by the depositary, in the  case of ADSs.  If a distribution made by  us exceeds our current and accumulated earnings and profits, as determined  under U.S. federal income tax principles, such excess will be treated first as  a nontaxable return of
capital to the extent of the U.S. Holders adjusted tax  basis in our preferred shares or ADSs, and thereafter as capital gain.





The  amount of any dividend paid in reais generally will be measured by  reference to the spot rate for converting reais into U.S. dollars in effect on the  date that the dividend is received by the U.S. Holder, in the case of our  preferred shares, or by the depositary, in the case of ADSs.  A U.S. Holder may recognize foreign currency  gain or loss, which would be treated as ordinary gain or loss, upon a  subsequent conversion of reais into U.S. dollars.  U.S. Holders should consult their own tax  advisers regarding the calculation and U.S. federal income tax treatment of  foreign currency gain or loss.  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. 
The amount of a dividend will include any  amounts withheld by us or our paying agent in respect of Brazilian taxes.  Dividends paid by us will be treated as  foreign source dividend income to you and will not be eligible for the dividends  received deduction generally allowed to U.S. corporations under the Code.





Subject  to certain exceptions for short-term and hedged positions, and subject to the  discussion above regarding concerns expressed by the U.S. Treasury, the U.S. dollar  amount of dividends received by an individual prior to January 1, 2009 with  respect to the ADSs will be subject to taxation at a maximum rate of 15% if the  dividends represent qualified dividend income.  Dividends paid on the ADSs will be treated as qualified dividend  income if (i) the ADSs are readily tradable on an established securities market  in the United States and (ii) we were not in the year prior to the year in  which the dividend was paid, and are not in the year in which the dividend is paid,  a passive foreign investment company (PFIC), foreign personal holding company  (FPHC) or foreign investment company (FIC).  The ADSs are listed on the New York Stock
Exchange, and may  qualify as readily tradable on an established securities market in the United  States so long as they are so listed.   However, no assurances can be given that the ADSs will be or remain  readily tradable.





Based  on existing guidance, it is not entirely clear whether dividends received with  respect to the preferred shares will be treated as qualified dividends, because  the preferred shares are not themselves listed on a United States  exchange.  In addition, the United  States Treasury Department has announced its intention to promulgate rules  pursuant to which holders of ADSs or preferred stock and intermediaries though  whom such securities are held will be permitted to rely on certifications from  issuers to establish that dividends are treated as qualified dividends.  Because such procedures have not yet been  issued, we are not certain that we will be able to comply with them.  U.S. Holders of ADSs and preferred shares  should consult their own tax advisors regarding the availability of the reduced  dividend tax rate in the light of their own particular circumstances.





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Subject  to certain limitations and restrictions, and subject to the discussion above  regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be  entitled to a foreign tax credit against its U.S. federal income tax liability,  or a deduction in computing its U.S. 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 our preferred  shares or ADSs will generally constitute passive income or, in the case of  certain U.S. Holders, financial services income from sources outside the  United States.  The rules relating to  the calculation of foreign tax credits and the applicable limitations are  complex.  U.S. Holders should consult  their own advisers concerning

the implications of the foreign tax credit rules  in light of their particular circumstances.





Taxation of Capital Gains or Losses





Upon  a sale or other taxable disposition of preferred shares or ADSs, a U.S. Holder  will recognize capital gain or loss for U.S. federal income tax purposes equal  to the difference, if any, between the amount realized on the sale or other  taxable disposition and the U.S. Holders adjusted tax basis in the preferred  shares or ADSs.  Such gain or loss will  be capital gain or loss and 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 at the  time of the sale or other taxable disposition.   Certain U.S. Holders (including individuals) may be eligible for  preferential rates of U.S. federal income tax in respect of long-term capital  gains.  The deductibility of capital  losses is subject to limitations under the Code.





Gain  or loss derived from the sale or other disposition of our preferred shares or  ADSs generally will be treated as U.S. source income or loss for foreign tax  credit purposes.  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  U.S. 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 U.S. 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 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  U.S. 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  advisers 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.   Moreover, dividends on our ADSs would no longer be qualified dividend  income subject to preferential rates of U.S. federal income tax, as described  above.  Based on our operations and  business plans, we do not believe that we are currently a PFIC and do not  expect to become a PFIC in the foreseeable future.





Information Reporting and Backup  Withholding





Payment  of dividends and sales proceeds that are made within the United States or  through certain U.S.-related financial intermediaries generally are subject to  information reporting and to backup withholding unless (i) you are a  corporation or other exempt recipient or (ii) in the case of backup withholding,  you provide a correct taxpayer identification number and certify that you are  not subject to backup withholding.   Backup withholding is not an additional tax.  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 U.S. federal  income tax liability, if any, and may entitle such U.S. Holder to a refund,  provided that the required information is timely furnished to the IRS.





U.S.  HOLDERS AND PROSPECTIVE PURCHASERS OF OUR PREFERRED SHARES OR ADSs SHOULD  CONSULT THEIR OWN TAX ADVISERS AS TO THE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL  AND OTHER TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR  PREFERRED SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.





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|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 SEC.   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 SCS, Quadra 2, Bloco C, 226,7°  andar, 70302-916, Brasília, DF, 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 the purchase of handsets) are  denominated in currencies (primarily the U.S. dollar) other than those in which  we earn revenues (primarily the real). Similarly, we are subject to market  risk deriving from changes in interest rates, which may affect the cost of our  financing.





We  have entered into derivative instruments, such foreign currency swaps to manage  the exchange rate risk.  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, 2004, we had U.S.$31.2 million of indebtedness  denominated in U.S. dollars.   Our foreign currency-denominated debt produced a loss of R$20.6 million  in 2004, a gain of R$76.4 million in 2003 and a loss of R$123.9 million in  2002. This was offset by our derivatives, which produced a loss of R$20.9  million in 2004, a loss of R$92.7 million in 2003 and a gain of R$65.5 million  in 2002. The unrealized costs, net of unrealized gains on foreign exchange  derivatives contracts was R$20.7 million and R$15.0 million at December 31,  2004 and 2003, respectively. The unrealized gain, net of unrealized costs on  foreign exchange derivatives contracts was R$51.5 million at December 31, 2002.





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The  potential loss to us over one year that would have resulted from a  hypothetical, instantaneous and unfavorable change of 1000 basis points in the  foreign exchange applicable to financial assets and liabilities on December 31,  2004 would be approximately R$8.3 million. On the other hand, our derivative  instruments would have a gross gain of R$8.3 million. The net gain would be  R$0.03 million.





Exchange  rate sensitivity analysis was made by applying a 10% change to the Central Bank  exchange rate on December 31, 2004 of R$2.6544 to U.S.$1.00, which would  represent a devaluation of the real of R$0.2654.  We then assumed that this unfavorable currency move would be  sustained from December 31, 2004 through December 31, 2005.  The foreign exchange loss that affects  financial expenses was calculated by applying such devaluation to our  indebtedness and foreign exchange purchase commitments (essentially handset  purchases), net of derivative instruments.





Interest  Rate Risk





We  are exposed to interest rate risk as a result of an investment of cash and cash  equivalents mainly in short-term real denominated instruments.  At December 31, 2004, this amount totaled  R$951.2 million.





Additionally,  we are exposed to interest rate risk as a consequence of our floating rate debt  in U.S. dollars and due to the nature of our derivative agreements, whereby our  U.S. dollar-denominated obligations are swapped into real-denominated  obligations bearing interest linked to the CDI. At December 31, 2004, we had  R$226.3 million in loans and financing outstanding, of which approximately  R$137.2 million bore interest at national currency floating rates (TJLP and  UMBNDES), R$71.2 million bore interest at foreign currency floating rates  (LIBOR) and the remaining R$16.7 million bore interest at fixed rates.  We have hedged 100.3% of our foreign  exposure existing as of December 31, 2004   resulting in Interbank Deposit Certificate (Certificado de Depósito Interfinanceiro  CDI) denominated debts. However, we are 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.





The  potential gross gain to us over one year that would have resulted from a  hypothetical, instantaneous and unfavorable change of 100 basis points in the  interest rate applicable to financial assets and liabilities on December 31,  2004 would be approximately R$6.2 million. This sensitivity analysis is based  on the assumption of an unfavorable 100 basis points increase in 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, such as 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 analysis was made by applying a 10% increase to all  floating-rate-denominated debt, assuming that the different indexes (CDI TJLP  and LIBOR )) would all rise by 10% instantaneously on December 31, 2003 and  that this unfavorable shift would continue for one year.





|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------




Not  applicable.





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PART II





|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------




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 as of December 31, 2004.  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]
|-------- | ----------




|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------




As  of yet, we have not appointed an audit committee financial expert as defined  by the SEC. Because we are not required to have an audit committee as defined  in Exchange Act Rule 10A  3(a)(5)(A) until July 31, 2005, we have deferred the  appointment and the determination thereof by our board of directors until such  date.





|ITEM 16B. | CODE OF ETHICS
|--------- | --------------




In  June, 2003, we approved a code of ethics to regulate the conduct of our senior  financial officers.  Our code of ethics  deals with the following issues:





| | honest and    ethical conduct, including the ethical handling of actual or apparent    conflicts of interest between personal and professional relationships;                                       
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                     
| | full, fair,    accurate, timely and understandable disclosure in reports and documents that    we file with, or submits to, the CVM and/or the SEC and in other public    communications made by us;
|  |                                                                                                                                                                                                     
| | compliance    with applicable governmental laws, rules and regulations;                                                                                                                             
|  |                                                                                                                                                                                                     
| | prompt    internal reporting of violations of the code to the Internal Audit Officer    who, after review, has to report them to the CEO and CFO; and                                               
|  |                                                                                                                                                                                                     
| | accountability    for adherence to the code.                                                                                                                                                        




A  copy of this document is also available on our website (www.vivo.com.br).





There  have been no waivers to our code of ethics in 2004.





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|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------




Deloitte  Touche Tohmatsu Auditores Independentes, or Deloitte, acted as our independent  auditor for the years ended December 31, 2004 and 2003.  Ernst & Young Auditores Independentes  S.A., or E&Y, acted as our independent auditor for the year ended December  31, 2002.  E&Y performed audit  related services in 2004 and 2003 in connection with our corporate  restructuring.  The chart below sets  forth the total amount billed to us by Deloitte and E&Y for services  performed in the years 2004 and 2003, and breaks down these amounts by category  of service in reais:





|                      |  | Year ended    December 31, |    
|--------------------- |  | -------------------------- | ---
|                      |  |                            |    
|                      |  | 2004                       |    
|                      |  |                            |    
|                      |  | (in thousand    reais)     |    
|Audit fees            |  | $                          | 603
|Audit-related    fees |  | $                          | 106
|Tax fees              |  | $                          | 27 
|All other    fees     |  |                            |   
|                      |  |                            |    
|Total                 |  | $                          | 736
|                      |  |                            |    




Audit Fees





Audit  Fees are the aggregate fees billed by Deloitte for the audit of our  consolidated annual financial statements, reviews of interim financial  statements, reviews of interim financial statements and attestation services  that are provided in connection with statutory and regulatory filings or  engagements.





Audit-Related Fees





Audit-related  fees are the fees charged by Deloitte for services relating to the giving of  assurances and for services in conjunction with our corporate restructuring.





Tax Fees





Tax  fees are fees for professional services rendered by Deloitte for tax compliance  services.





Pre-Approval Policies and Procedures





The  audit committee approves all audit, audit-related services, tax services and  other services provided by Deloitte or E&Y.  Any services provided by Deloitte or E&Y that are not  specifically included within the scope of the audit must be pre-approved by the  audit committee prior to any engagement.   The audit committee is permitted to approve certain fees for audit-related  services, tax services and other services pursuant to a de minimis exception before  the completion of the engagement.  In  2004 and 2003, none of the fees paid to Deloitte were approved pursuant to the de minimis  exception.





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|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------




Not  required for the year ended December 31, 2004.





|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED    PURCHASERS
|--------- | -------------------------------------------------------------------------




The  table below shows all repurchases by us or affiliated purchases of our  preferred shares during 2004:





|Period                               |  | Total    number of    shares purchased |                | Average    price    paid per 1,000    shares in reais |  | Total    number of    shares purchased as part    of publicly announced    plans or programs |  | Maximum    number of    shares that may yet be    purchased under the    plans or programs |               
|------------------------------------ |  | -------------------------------------- | -------------- | ----------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ | --------------
|                                     |  |                                        |                |                                                       |  |                                                                                              |  |                                                                                            |               
|January 2004                         |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|February 2004                        |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|March 2004                           |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|April 2004                           |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|May 2004                             |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|June 2004                            |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|July 2004                            |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|August 2004                          |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|September 2004                       |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|October 2004                         |  |                                        | 84,252,534,000 |                                                       |  | 10.70                                                                                        |  |                                                                                            | 84,252,534,000
|November 2004                        |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|December 2004                        |  |                                        |               |                                                       |  |                                                                                             |  |                                                                                            |              
|                                     |  |                                        |                |                                                       |  |                                                                                              |  |                                                                                            |               
|Total shares repurchased during 2004 |  |                                        | 84,252,534,000 |                                                       |  |                                                                                              |  |                                                                                            | 84,252,534,000




PART III





|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------




Not  applicable.





|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------




See  our consolidated financial statements beginning on Page F-1.





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|ITEM 19. | EXHIBITS
|-------- | --------




|1.1  | Amended and    Restated By-laws (Estatuto Social) of TCO (English translation).                                                                                                                                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.2  | Amendment to    the Charter of TCO previously filed with TCOs registration statement on    September 18, 1998 and incorporated herein by reference.                                                                                                                                                                   
|2.1  | Deposit    Agreement dated as of July 27, 1998 between TCO and The Bank of New York,    previously filed with TCOs registration statement on September 18, 1998 and    incorporated herein by reference.                                                                                                              
|4.1  | Standard    Authorization Agreement for Personal Cellular Service (English translation).                                                                                                                                                                                                                               
|4.2  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and TCO on February 3,    2003, incorporated by reference to our annual report Form 20-F for the fiscal    year ended December 31, 2002, filed on June 24, 2003.      
|4.3  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and Telegoiás on    February 3, 2003, incorporated by reference to our annual report Form 20-F    for the fiscal year ended December 31, 2002, filed on June 24, 2003.
|4.4  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and Telems on February    3, 2003, incorporated by reference to our annual report Form 20-F for the    fiscal year ended December 31, 2002, filed on June 24, 2003.   
|4.5  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and Telemat on February    3, 2003, incorporated by reference to our annual report Form 20-F for the    fiscal year ended December 31, 2002, filed on June 24, 2003.  
|4.6  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and Teleron on February    3, 2003, incorporated by reference to our annual report Form 20-F for the    fiscal year ended December 31, 2002, filed on June 24, 2003.  
|4.7  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and Teleacre on    February 3, 2003, incorporated by reference to our annual report Form 20-F    for the fiscal year ended December 31, 2002, filed on June 24, 2003. 
|4.8  | Personal    Cellular Service Authorization Agreement (English translation) entered into    and between the Brazilian government, through Anatel, and NBT on February 3,    2003, incorporated by reference to our annual report Form 20-F for the fiscal    year ended December 31, 2002, filed on June 24, 2003.      
|6.1  | Statement    regarding computation of per share earnings (incorporated by reference to    note 37(g) to our audited consolidated financial statements included    elsewhere in this annual report).                                                                                                                    
|8.1  | List of    Subsidiaries.                                                                                                                                                                                                                                                                                               
|12.1 | Certification    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    of 2002.                                                                                                                                                                                                              
|12.2 | Certification    of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    of 2002.                                                                                                                                                                                                              
|13.1 | Certification    of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                               
|13.2 | Certification    of 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 long-term debt of our company, none of which authorizes  securities in a total amount that exceeds 10% of the total assets of our  company.  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.





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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.CONSOLIDATED FINANCIAL STATEMENTS
  AS OF DECEMBER 31, 2004 AND 2003 AND FOR THE THREE YEARS IN THE PERIOD ENDED
  DECEMBER 31, 2004

CONTENTS

|                                                               |     
|-------------------------------------------------------------- | ----
|Report of Deloitte Touche
    Tohmatsu Auditores Independentes | F-2 
|Report of Ernst & Young
    Auditores Independentes S.C.       | F-3 
|Consolidated Balance Sheets                                    | F-4 
|Consolidated Statements of Income                              | F-6 
|Consolidated Statements of Changes
    in Financial Position   | F-7 
|Consolidated Statements
    of Changes in Shareholders’ Equity | F-8 
|Consolidated Statements of Cash
    Flows                      | F-9 
|Notes to the Consolidated Financial
    Statements             | F-10

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Management ofTele Centro Oeste Celular Participações S.A.:Brasília  DF

|(1) | We have audited the accompanying consolidated balance sheets of Tele Centro Oeste Celular Participações S.A. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity and changes in financial position for the two years in the period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tele Centro Oeste Celular Participações S.A. and subsidiaries as of December 31, 2004 and 2003, the results of their operations and the changes in their financial position, and in shareholders’ equity for each of the two years in the period ended December 31, 2004, 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.  Information relating to the nature and effect of such differences is presented in Note 37 to the consolidated financial statements.

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The consolidated statements of cash flows for each of the two years in the period ended December 31, 2004 are presented for purposes of additional analysis and are 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.

|    |                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | As discussed in note 2.c, the Company changed the basis of presentation of the consolidated financial statements from the Constant Currency Method to Brazilian Corporate Law Method in 2003.

Deloitte Touche Tohmatsu
Auditores Independentes

São Paulo, Brazil.
April 1, 2005

F-2

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Directors and ShareholdersTele Centro Oeste Celular Participações S.A.

We have audited the accompanying consolidated statements of income of
Tele Centro Oeste Celular Participações S.A. and the statements of changes in shareholders’ equity and cash flows for the year ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance as to 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 audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of Tele Centro Oeste Celular Participações S.A. and its operations and its cash flows for the year ended December 31, 2002, in conformity with Brazilian Corporate Law, which differ in certain respects from accounting principles generally accepted in the United States of America (See Note 37 to the consolidated financial statements).

Ernst & Young Auditores Independentes S.C./s/ Luiz Carlos NanniniPartner

Brasília, Brazil
February 14, 2003

F-3

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003
(In thousands of Brazilian Reais)

|                                       |  | Note |  |  | 2004      |  |  | 2003      | 
|-------------------------------------- |  | ---- |  |  | --------- |  |  | --------- | 
|                                       |  |      |  |  |           |  |  |           | 
|ASSETS                                 |  |      |  |  |           |  |  |           | 
|Current assets                         |  |      |  |  |           |  |  |           | 
|Cash
    and cash equivalents          |  | 13   |  |  | 951,186   |  |  | 972,054   | 
|Trade
    accounts receivable, net     |  | 14   |  |  | 477,135   |  |  | 398,253   | 
|Inventories                            |  | 15   |  |  | 193,510   |  |  | 79,076    | 
|Recoverable
    taxes                  |  | 16   |  |  | 170,366   |  |  | 97,128    | 
|Deferred
    income taxes              |  | 11   |  |  | 104,016   |  |  | 52,883    | 
|Prepaid
    expenses                   |  | 17   |  |  | 39,960    |  |  | 12,274    | 
|Other
    current assets               |  | 18   |  |  | 28,145    |  |  | 6,565     | 
|                                       |  |      |  |  |           |  |  |           | 
|Total current assets                   |  |      |  |  | 1,964,318 |  |  | 1,618,233 | 
|Noncurrent assets                      |  |      |  |  |           |  |  |           | 
|Recoverable
    taxes                  |  | 16   |  |  | 42,938    |  |  | 32,237    | 
|Deferred
    income taxes              |  | 11   |  |  | 416,507   |  |  | 23,027    | 
|Derivative
    contracts               |  | 35   |  |  |          |  |  | 87        | 
|Prepaid
    expenses                   |  | 17   |  |  | 11,486    |  |  |          | 
|Other
    assets                       |  | 18   |  |  | 30,072    |  |  | 58,134    | 
|                                       |  |      |  |  |           |  |  |           | 
|Total noncurrent assets                |  |      |  |  | 501,003   |  |  | 113,485   | 
|Permanent assets                       |  |      |  |  |           |  |  |           | 
|Investments                            |  |      |  |  | 4,196     |  |  | 4,588     | 
|Property,
    plant and equipment, net |  | 19   |  |  | 1,104,290 |  |  | 891,030   | 
|Deferred
    assets, net               |  | 20   |  |  | 21,848    |  |  | 26,910    | 
|                                       |  |      |  |  |           |  |  |           | 
|Total permanent assets                 |  |      |  |  | 1,130,334 |  |  | 922,528   | 
|                                       |  |      |  |  |           |  |  |           | 
|Total assets                           |  |      |  |  | 3,595,655 |  |  | 2,654,246 | 
|                                       |  |      |  |  |           |  |  |           | 

The accompanying notes are an integral part of these consolidated financial statements.

F-4

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|TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003(In thousands of Brazilian Reais)
|-----------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                     
|Current liabilities                                                                                                                      
|Payroll
    and related accruals                                                                                                         
|Accounts
    payable and accrued expenses                                                                                                
|Taxes
    other than income taxes                                                                                                        
|Dividends
    payable                                                                                                                    
|Loans
    and financing                                                                                                                  
|Derivative
    contracts                                                                                                                 
|Reserve
    for contingencies                                                                                                            
|Other
    current liabilities                                                                                                            
|                                                                                                                                         
|Total current liabilities                                                                                                                
|Noncurrent liabilities                                                                                                                   
|Loans
    and financing                                                                                                                  
|Reserve
    for contingencies                                                                                                            
|Derivative
    contracts                                                                                                                 
|Pension
    and other post-retirement plans                                                                                              
|Other
    liabilities                                                                                                                    
|                                                                                                                                         
|Total noncurrent liabilities                                                                                                             
|                                                                                                                                         
|Minority interests                                                                                                                       
|                                                                                                                                         
|Shareholders’ equity                                                                                                                     
|Capital
    stock                                                                                                                        
|Treasury
    shares                                                                                                                      
|Capital
    reserves                                                                                                                     
|Income
    reserves                                                                                                                      
|Retained
    earnings                                                                                                                    
|                                                                                                                                         
|Total shareholders’ equity                                                                                                               
|                                                                                                                                         
|                                                                                                                                         
|Funds for capitalization                                                                                                                 
|                                                                                                                                         
|Total liabilities and shareholders’ equity                                                                                               
|                                                                                                                                         

The accompanying notes are an integral part of these consolidated financial statements.

F-5

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of Brazilian reais, except share earnings per thousand shares)

|                                                                         |  |  |      |  |  | Years ended December 31 |  
|------------------------------------------------------------------------ |  |  | ---- |  |  | ----------------------- | -
|                                                                         |  |  |      |  |  |                         |  
|                                                                         |  |  | Note |  |  | 2004                    |  
|                                                                         |  |  |      |  |  |                         |  
|Net operating revenue                                                    |  |  | 4    |  |  | 2,210,426               |  
|Cost of services and goods sold                                          |  |  | 5    |  |  | (910,409                | )
|                                                                         |  |  |      |  |  |                         |  
|Gross profit                                                             |  |  |      |  |  | 1,300,017               |  
|Operating expenses                                                       |  |  |      |  |  |                         |  
|Selling
    expenses                                                     |  |  | 6    |  |  | (472,710                | )
|General
    and administrative expenses                                  |  |  | 7    |  |  | (149,102                | )
|Other
    operating income (expenses), net                               |  |  | 8    |  |  | 3,090                   |  
|                                                                         |  |  |      |  |  |                         |  
|Operating income before financial income (expenses), net                 |  |  |      |  |  | 681,295                 |  
|Financial income (expenses), net                                         |  |  | 9    |  |  | 62,208                  |  
|                                                                         |  |  |      |  |  |                         |  
|Operating income                                                         |  |  |      |  |  | 743,503                 |  
|Non-operating (expenses) income, net                                     |  |  | 10   |  |  | (9,066                  | )
|                                                                         |  |  |      |  |  |                         |  
|Income before income and social contribution taxes and minority interest |  |  |      |  |  | 734,437                 |  
|Income and social contribution taxes                                     |  |  | 11   |  |  | (224,175                | )
|Minority interest                                                        |  |  |      |  |  | (3,211                  | )
|                                                                         |  |  |      |  |  |                         |  
|Net income                                                               |  |  |      |  |  | 507,051                 |  
|                                                                         |  |  |      |  |  |                         |  
|                                                                         |  |  |      |  |  |                         |  
|Outstanding shares at end of year (thousands)                            |  |  |      |  |  | 380,877,925             |  
|                                                                         |  |  |      |  |  |                         |  
|Earnings per thousand shares (Brazilian Reais)                           |  |  |      |  |  | 1.33                    |  
|                                                                         |  |  |      |  |  |                         |  

The accompanying notes are an integral part of these consolidated financial statements.

F-6

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|TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003(In thousands of Brazilian reais)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|SOURCES OF FUNDS                                                                                                                                                                    
|From operations                                                                                                                                                                     
|Net
    income                                                                                                                                                                      
|Items
    not affecting working capital:                                                                                                                                            
|Depreciation
    and amortization                                                                                                                                                   
|Minority
    interest                                                                                                                                                               
|Monetary
    and exchange variations on noncurrent assets and liabilities                                                                                                           
|Net
    book value of permanent asset disposals                                                                                                                                     
|Reserve
    for contingencies                                                                                                                                                       
|Unclaimed
    dividends and interest on capital of subsidiary                                                                                                                       
|Negative
    goodwill on acquisition of investment in NBT                                                                                                                           
|Increase
    (decrease) in social security liabilities                                                                                                                              
|                                                                                                                                                                                    
|Total
    from operations                                                                                                                                                           
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|From shareholders                                                                                                                                                                   
|Impact
    of merged assets on net working capital                                                                                                                                  
|Treasury
    stock                                                                                                                                                                  
|Unclaimed
    dividends and interest on shareholders’ equity                                                                                                                        
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|FROM THIRD PARTIES                                                                                                                                                                  
|Long-term
    loans and financing                                                                                                                                                   
|Decrease
    in noncurrent assets                                                                                                                                                   
|Transfer
    from noncurrent assets to current assets                                                                                                                               
|Transfer
    from current to noncurrent liabilities                                                                                                                                 
|Increase
    in noncurrent liabilities                                                                                                                                              
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|Total
    sources                                                                                                                                                                   
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|USES OF FUNDS                                                                                                                                                                       
|Additions
    to investments                                                                                                                                                        
|Additions
    to property, plant and equipment                                                                                                                                      
|Additions
    to deferred assets                                                                                                                                                    
|Transfer
    from noncurrent to current liabilities                                                                                                                                 
|Transfer
    to current from noncurrent assets                                                                                                                                      
|Increase
    in noncurrent assets                                                                                                                                                   
|Decrease
    in long-term liabilities                                                                                                                                               
|Capital
    reductions                                                                                                                                                              
|Interest
    on shareholders’ equity                                                                                                                                                
|Fiscal
    benefit capitalized                                                                                                                                                      
|Treasury
    stock                                                                                                                                                                  
|Proposed
    dividends                                                                                                                                                              
|Minority
    shareholders                                                                                                                                                           
|                                                                                                                                                                                    
|Total
    uses                                                                                                                                                                      
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|INCREASE IN WORKING CAPITAL                                                                                                                                                         
|                                                                                                                                                                                    
|REPRESENTED BY                                                                                                                                                                      
|CURRENT ASSETS AT YEAR END                                                                                                                                                          
|CURRENT LIABILITIES AT YEAR END                                                                                                                                                     
|                                                                                                                                                                                    
|Working capital at year end                                                                                                                                                         
|Working capital at beginning of the year                                                                                                                                            
|                                                                                                                                                                                    
|                                                                                                                                                                                    
|INCREASE IN WORKING CAPITAL                                                                                                                                                         
|                                                                                                                                                                                    

The accompanying notes are an integral part of these consolidated financial statements.

F-7

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|TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.CONSOLIDATED
       STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002(In thousands of Brazilian reais)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                  
|                                                                                                                                                                                                  

|                                                                                  |              |   | Capital Reserves   |   |                          |  |                  | 
|--------------------------------------------------------------------------------- | ------------ | - | ------------------ | - | ------------------------ |  | ---------------- | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|                                                                                  | ShareCapital |   | Treasury 
  shares |   | Interest on construction |  | Share 
  premium | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Balances at December 31, 2001                                                     | 505,000      |   | (6,826             | ) |                         |  | 52               | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Acquisition
    of the minority interest of Telebrasília Celular S.A.             | 29,046       |   |                   |   | 679                      |  | 37,481           | 
|Payment to shareholders
    related to premium utilization                        |             |   |                   |   |                         |  |                 | 
|Purchase of shares (common/preferred)                                             |             |   | (62,913            | ) |                         |  |                 | 
|Disposal of preferred shares                                                      |             |   | 9,790              |   | 3,826                    |  |                 | 
|Cancellation of shares                                                            |             |   | 10,787             |   |                         |  |                 | 
|Net income                                                                        |             |   |                   |   |                         |  |                 | 
|Transfer to reserves                                                              |             |   |                   |   |                         |  |                 | 
|Interest on shareholders’ equity                                                  |             |   |                   |   |                         |  |                 | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Balances at December 31, 2002                                                     | 534,046      |   | (49,162            | ) | 4,505                    |  | 37,533           | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Capital increase with retained earnings                                           | 36,049       |   |                   |   |                         |  |                 | 
|Unclaimed dividends of 1999                                                       |             |   |                   |   |                         |  |                 | 
|Net income                                                                        |             |   |                   |   |                         |  |                 | 
|Transfer to reserves                                                              |             |   |                   |   |                         |  |                 | 
|Interest
    on shareholders’ equity                                              |             |   |                   |   |                         |  |                 | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Balances at December 31, 2003                                                     | 570,095      |   | (49,162            | ) | 4,505                    |  | 37,533           | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Capital
    increase with reserve  Special Meeting of March 30, 2004             | 194,416      |   |                   |   |                         |  |                 | 
|Reversal of goodwill reserve                                                      |             |   |                   |   |                         |  |                 | 
|Capital
      increase  corporate
    restructuring (Note 30) S.A.               |             |   |                   |   |                         |  |                 | 
|Capital Increase  exchange
    of shares held by minority shareholders (Note 30) | 28,555       |   |                   |   |                         |  |                 | 
|Capital
      Decrease  Special
    Meeting of June 30, 2004                     | (100         | ) |                   |   |                         |  |                 | 
|Treasury stock                                                                    |             |   | 53                 |   |                         |  |                 | 
|Tax loss on merged goodwill                                                       |             |   |                   |   |                         |  |                 | 
|Unclaimed dividends and interest
    on shareholders equity                       |             |   |                   |   |                         |  |                 | 
|Donation for investments                                                          |             |   |                   |   |                         |  |                 | 
|Net income                                                                        |             |   |                   |   |                         |  |                 | 
|Statutory reserve                                                                 |             |   |                   |   |                         |  |                 | 
|Dividends                                                                         |             |   |                   |   |                         |  |                 | 
|Interest on shareholders’ equity                                                  |             |   |                   |   |                         |  |                 | 
|Reserve for expansion                                                             |             |   |                   |   |                         |  |                 | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|                                                                                  |              |   |                    |   |                          |  |                  | 
|Balances at December 31, 2004                                                     | 792,966      |   | (49,109            | ) | 4,505                    |  | 37,533           | 
|                                                                                  |              |   |                    |   |                          |  |                  | 

The accompanying notes are an integral part of these consolidated financial statements.

F-8

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED  STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of Brazilian reais)

|                                                                                |  |  | 2004     |   |  | 2003     |   |  | 2002     |  
|------------------------------------------------------------------------------- |  |  | -------- | - |  | -------- | - |  | -------- | -
|                                                                                |  |  |          |   |  |          |   |  |          |  
|Cash flows provided by operations                                               |  |  |          |   |  |          |   |  |          |  
|Net
    income                                                                  |  |  | 507,051  |   |  | 463,408  |   |  | 329,183  |  
|Adjustments
    to reconcile net loss to cash provided by operating activities: |  |  |          |   |  |          |   |  |          |  
|Depreciation
    and amortization                                               |  |  | 210,060  |   |  | 194,781  |   |  | 158,750  |  
|Minority
    interests                                                          |  |  | 3,211    |   |  | 8,460    |   |  | 6,131    |  
|Monetary/exchange
    variation on loans and financing                          |  |  | 2,794    |   |  | (66,494  | ) |  | 174,500  |  
|Losses
    on permanent asset disposals                                         |  |  | 10,580   |   |  | 18,894   |   |  | 14,334   |  
|Losses
    from changes in shareholdings in subsidiaries                        |  |  |         |   |  | 252      |   |  | (205     | )
|Unclaimed
    dividends                                                         |  |  |         |   |  |         |   |  | (5,418   | )
|(Gains)
    Losses on forward and swap contracts                                |  |  | 20,940   |   |  |         |   |  |         |  
|Provision
    for doubtful accounts                                             |  |  | 68,338   |   |  | 47,134   |   |  | 33,059   |  
|Increase
    in trade accounts receivable                                       |  |  | (147,220 | ) |  | (217,131 | ) |  | (74,553  | )
|(Increase)
    decrease in deferred/recoverable taxes                           |  |  | (17,764  | ) |  | (36,709  | ) |  | 7,272    |  
|(Increase)
    decrease in other current assets and inventories                 |  |  | (163,405 | ) |  | (41,931  | ) |  | 4,093    |  
|Increase
    in other noncurrent assets                                         |  |  | (14,592  | ) |  | (1,504   | ) |  | (18,448  | )
|(Increase)
    decrease in derivative contracts  assets                        |  |  |         |   |  | 53,217   |   |  | (50,858  | )
|Increase
    in payroll and related accruals                                    |  |  | 1,121    |   |  | 8,298    |   |  | 5,179    |  
|Increase
    in accounts payable and accrued Expenses                           |  |  | 191,121  |   |  | 121,872  |   |  | 1,865    |  
|Increase
    in taxes other than income taxes                                   |  |  | (25,250  | ) |  | 34,515   |   |  | 27,120   |  
|Increase
    (decrease) in other current liabilities                            |  |  | 5,950    |   |  | 7,655    |   |  | (28,664  | )
|Increase
    in accrued interest                                                |  |  | (629     | ) |  | 8,067    |   |  | 3,821    |  
|Increase
    (decrease) in income taxes                                         |  |  | (23      | ) |  | (3,169   | ) |  | 3,738    |  
|Increase
    in reserve for contingencies                                       |  |  | 24,744   |   |  | 10,269   |   |  | 22,628   |  
|Increase
    in provision for pension and other post-retirement plans           |  |  | (2,643   | ) |  | 2,346    |   |  | 464      |  
|Increase
    (decrease) in noncurrent liabilities                               |  |  | 175      |   |  |         |   |  |         |  
|Increase
    in derivative contracts  liabilities                              |  |  |         |   |  | 13,253   |   |  | 1,840    |  
|                                                                                |  |  |          |   |  |          |   |  |          |  
|                                                                                |  |  | 674,559  |   |  | 625,483  |   |  | 615,831  |  
|                                                                                |  |  |          |   |  |          |   |  |          |  
|Investing activities                                                            |  |  |          |   |  |          |   |  |          |  
|Additions
    to investments                                                    |  |  | (1,169   | ) |  |         |   |  |         |  
|Acquisition
    of minority interest in subsidiaries                            |  |  |         |   |  | (2,096   | ) |  | (729     | )
|Marketable
    securities                                                       |  |  |         |   |  | 712,135  |   |  | (349,825 | )
|Additions
    to property, plant and equipment                                  |  |  | (418,417 | ) |  | (207,644 | ) |  | (170,622 | )
|Addition
    to deferred assets                                                 |  |  | (154     | ) |  |         |   |  |         |  
|Proceeds
    from asset disposals                                               |  |  | 150      |   |  | 527      |   |  | 313      |  
|                                                                                |  |  |          |   |  |          |   |  |          |  
|                                                                                |  |  | (419,590 | ) |  | 502,922  |   |  | (520,863 | )
|                                                                                |  |  |          |   |  |          |   |  |          |  
|Financing activities                                                            |  |  |          |   |  |          |   |  |          |  
|Loans
    repaid                                                                |  |  | (139,208 | ) |  | (285,504 | ) |  | (515,293 | )
|New
    loans obtained                                                          |  |  |         |   |  | 64,319   |   |  | 447,768  |  
|Net
    settlement on derivatives contracts                                     |  |  | (15,205  | ) |  |         |   |  |         |  
|Payment
    to shareholders related to premium utilization                      |  |  |         |   |  |         |   |  | (49,843  | )
|Interest
    on shareholders’ equity/dividends paid                             |  |  | (121,377 | ) |  | (93,669  | ) |  | (96,437  | )
|Decrease
    in capital stock                                                   |  |  | (100     | ) |  |         |   |  |         |  
|Treasury
    stock                                                              |  |  | 53       |   |  |         |   |  | (49,297  | )
|                                                                                |  |  |          |   |  |          |   |  |          |  
|                                                                                |  |  | (275,837 | ) |  | (314,854 | ) |  | (263,102 | )
|                                                                                |  |  |          |   |  |          |   |  |          |  
|Increase (decrease) in cash and cash equivalents                                |  |  | (20,868  | ) |  | 813,551  |   |  | (168,134 | )
|Cash and cash equivalents at beginning of year                                  |  |  | 972,054  |   |  | 158,503  |   |  | 326,637  |  
|                                                                                |  |  |          |   |  |          |   |  |          |  
|Cash and cash equivalents at end of year                                        |  |  | 951,186  |   |  | 972,054  |   |  | 158,503  |  
|                                                                                |  |  |          |   |  |          |   |  |          |  
|                                                                                |  |  |          |   |  |          |   |  |          |  

The accompanying notes are an integral part of these consolidated financial statements.

F-9

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2004, 2003 and 2002
(Amounts expressed in thousands of Brazilian reais)

|1. | Operations and background
|-- | -------------------------

|   |              
|-- | -------------
|a. | Incorporation

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


In preparation for the privatization of the Telebrás System, the operating subsidiaries were divided into twelve separate groups, (a) three regional fixed-line operators, (b) eight regional cellular operators and (c) one national long-distance operator. The cellular telecommunications businesses were first separated from the operating subsidiaries and subsequently from the fixed-line businesses. The new cellular businesses and the long-distance operator were combined into the twelve separate groups (the “New Holding Companies”). Both the separation of the cellular businesses and the subsequent grouping of the former Telebrás subsidiaries were performed using a procedure under Brazilian
corporate law called cisão (the “spin-off”). As of part of this process Tele Centro Oeste Celular Participações S.A. (the “Holding Company”) was formed.


Tele Centro Oeste Celular Participações S.A. (the “Company” or “TCO”) was formed on May 22, 1998, through the spin-off of certain assets and liabilities of Telebrás, including 81.4%, 83.8%, 91.9%, 96.0%, 91.3% and 94.0% of the share capital of Telebrasília Celular S.A., Telegoiás Celular S.A., Telemat Celular S.A., Telems Celular S.A., Teleron Celular S.A. and Teleacre Celular S.A., respectively. Until August 4, 1998, the Companies were controlled by the Federal Government.


On April 10, 2003, ANATEL approved the acquisition by Telesp Celular Participações S.A. (“TCP”) of the controlling equity interest in TCO that was held by BID S.A.. On April 25, 2003, TCP completed the acquisition which represented 20.69% of the total capital and 64.03% of the voting capital of TCO. On September 30, 2003, the Brazilian Securities Commission (CVM) approved the acquisition by TCP of additional common shares of TCO. On November 18, 2003, TCP completed a public tender offer and acquired an additional 26.70% of the voting capital of TCO. On October 8, 2004, TCP completed another public tender offer and acquired 84,252,534,000 preferred shares issued by the Company.


At December 31, 2004, TCO is owned by TCP (86.19% of voting capital and 50.65% of total capital) which in turn is controlled by Brasilcel N.V. (“Brasilcel”). Brasilcel is controlled by Telefónica Móviles, S.A. (50.00% of total capital), PT Móveis  Serviços de Telecomunicações, SGPS, S.A. (49.99% of total capital), and Portugal Telecom, SGPS, S.A. (0.01% of total capital).


|b. | Business and regulatory environment
|-- | -----------------------------------

The Company is the controlling shareholder of the operators Telegoiás Celular S.A. (“Telegoiás”), Telemat Celular S.A. (“Telemat”), Telems Celular S.A. (“Telems”), Teleron Celular S.A. (“Teleron”), Teleacre Celular S.A. (“Teleacre”) and Norte Brasil Telecom S.A. (“NBT”).


The Company provides mobile telephone services in the Federal District area, including activities necessary or useful to the provision of these services, through an authorization granted to it valid until July 24, 2006. Its subsidiaries also provide mobile telephone services as follows:


|                |  |  |              |  |  |                                             |  |  | Expiration date of       | 
|--------------- |  |  | ------------ |  |  | ------------------------------------------- |  |  | ------------------------ | 
|Subsidiary      |  |  | Interest  % |  |  | Operating area by States                    |  |  | concession/authorization | 
|                |  |  |              |  |  |                                             |  |  |                          | 
|Telegoiás       |  |  | 100.00       |  |  | Goiás and Tocantins                         |  |  | 10/29/2008               | 
|Telemat         |  |  | 100.00       |  |  | Mato Grosso                                 |  |  | 03/30/2009               | 
|Telems          |  |  | 100.00       |  |  | Mato Grosso do Sul                          |  |  | 09/28/2009               | 
|Teleron         |  |  | 100.00       |  |  | Rondônia                                    |  |  | 07/21/2009               | 
|Teleacre        |  |  | 100.00       |  |  | Acre                                        |  |  | 07/15/2009               | 
|NBT             |  |  | 100.00       |  |  | Amazonas, Roraima, Amapá, Pará and Maranhão |  |  | 11/29/2013               | 
|Telebrasília(i) |  |  | N/A          |  |  | Distrito Federal                            |  |  | 07/24/2006               | 

(i) Merged into the Company in 2002.

F-10

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)

The above concessions/authorizations are subject to a 15 year renewal. The Company will be subject to an annual fee of approximately 1% of operating annual revenues during the renewal period.


The business of the Company and its subsidiaries operators of mobile telephone services, including related services, are regulated by the National Telecommunications Agency  ANATEL (“Agência Nacional de Telecomunicações”), the telecommunication industry regulator in accordance with Law No. 9,472, of July 16, 1997, and respective regulations, decrees, decisions and plans.


As of July 6, 2003, the Company’s operators implemented the Carrier Selection Code (CSP), by which customers are now able to choose their carrier for national and international long distance services, in compliance with the rules of Personal Mobile Service SMP  (Serviço Móvel Pessoal),. The subsidiaries no longer receive revenue from national and international long distance calls and instead, they receive interconnection fees for the use of their network on these calls.


2.
Presentation of the Financial Statements a.
Presentation of consolidated financial statements as of December 31, 2004 and 2003 and for the three years in the period ended December 31, 2004 The accompanying consolidated financial statements present the consolidated balance sheets and results of operations of TCO and its subsidiaries.
 The accompanying financial statements are a translation and adaptation from those originally issued in Brazil. Certain reclassifications, modifications and changes in terminology have been made in order to conform more closely to reporting practices in the United States.
 Minority interest is included in the consolidated financial statements of TCO for periods prior to the restructuring of the Company’s subsidiaries on June 30, 2004 by which the Company’s subsidiaries became wholly-owned (see Note 30). Prior to the restructuring, the minority interests were 2.9%, 2.2%, 1.5%, 2.8% and 1.7% in Telegoiás Celular S.A., Telemat Celular S.A., Telems Celular S.A., Teleron Celular S.A and Teleacre Celular S.A., respectively.
 b.
Methods of presentation of the Financial Statements Until December 31, 1995, publicly-traded companies in Brazil were required to prepare financial statements pursuant to two methods: (i) the corporate law method, which was and remains valid for all legal purposes, including the basis for determining income taxes and calculation of mandatory minimum dividends; and (ii) the constant currency method, to present supplementary price-level adjusted financial statements, pursuant to standards prescribed by the Brazilian Securities Commission (CVM).
 (i) The Corporate Law Method The corporate law method 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 shareholder’s accounts using indexes mandated by the Federal Government. The net effect of these restatements was credited or charged to the statement of operations in a single caption, usually entitled “Monetary correction adjustments” or “Inflation adjustments”. Under the Constant Currency Method, the financial statements were adjusted for inflation up to December 31, 2000.
 (ii) The Constant Currency Method Under the Constant Currency Method, all historical Brazilian real amounts in the financial statements and notes thereto are expressed in constant purchasing power as of latest balance sheet date, in accordance with standards prescribed by the CVM for publicly traded entities. Under the Constant Method, the financial statements were adjusted for inflation up to December 31, 2000.
 F-11   Back to Contents
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
c.
Change in Basis of Presentation of Financial StatementsThe accompanying consolidated financial statements are prepared in accordance with Brazilian corporate law, standards applicable to concessionaries of public telecommunications services, and accounting standards and procedures established by the Brazilian Securities Commission  CVM, which includes monetary restatement of permanent assets and shareholder’s equity through December 31, 1995 (hereinafter referred to as “BR CL”).
In periods prior to the year ended December 31, 2003, the Company had prepared its financial statements for presentation in the United States in accordance with the Constant Currency Method. In order to conform the financial statements for the use of its shareholders in the United States to the same basis used in the primary market in Brazil, the Company has elected to present its financial statements commencing in the years ended December 31, 2003 in accordance with BR CL.
d.
Summarized income statement for the year ended December 31, 2002 under Constant Currency MethodYears ended
    December 31,2002Income StatementNet operating revenue


1,561,308Cost of goods and services


(779,480
)Gross profit


781,828Income before taxes and minority interest


303,850Net income for the year


305,094Reconciliation of net income between BR CL and the Constant Currency Method is as follows:Net income2002BR CL


329,183Restatement of net permanent assets


(46,399
)Tax effects


15,771Minority interests


6,539Constant Currency Method


305,094e.
    Principles of consolidationThese consolidated financial statements include the balances and transactions of the TCO and its subsidiaries as of December 31, 2004 and 2003 and for the three years in the period ended December 31, 2004. All inter-company balances and transactions have been eliminated.
f.
ReclassificationsCertain reclassifications have been made to the prior periods to conform to the 2004 presentation.3.
Summary of the principal accounting policiesa.
Cash and Cash EquivalentsAre considered to be all available balances in cash and banks and highly liquid temporary cash investments, stated at cost, plus accrued interest to the balance sheet date, with original maturity dates of three months or less.
F-12

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
b.
Trade Accounts Receivable, NetAccounts receivable from telephone subscribers are calculated at the tariff rate on the date the services were rendered.   Trade accounts receivable, net also include services provided to customers up to the balance sheet date, but not yet invoiced, as well as the accounts receivable from the sale of handsets and accessories.
c.
Provision for Doubtful AccountsProvision is made for trade accounts receivable whose recoverability is not considered probable.
d.
Foreign Currency TransactionsAre recorded at the prevailing exchange rate at the date of the related transactions. Foreign currency denominated assets and liabilities are translated using the exchange rate at the balance sheet date. Resulting gains and losses related to exchange variations on foreign currency denominated assets and liabilities are recognized in the statements of operations, as part of financial expense, net.
Exchange variation and premiums related to foreign currency are calculated and recorded on an accrual basis regardless of the settlement period.
e.
InventoriesConsist of handsets and accessories stated at the average cost of acquisition. A provision is recognized to adjust the cost of handsets and accessories to net realizable value for inventory considered obsolete or slow-moving.
f.
Prepaid ExpensesAre stated at amounts disbursed for expenses which have not been incurred.g.
Property, Plant and EquipmentProperty, plant and equipment are stated at acquisition or construction cost less accumulated depreciation, restated for inflation until December 31, 1995. Cost incurred for maintenance and repairs that increase installed capacity or useful life are capitalized. Other maintenance and repair costs are charged to income as incurred. The present value of costs to be incurred to disassemble towers and equipment in leased property is capitalized and amortized over the related equipment’s useful life, not to exceed the term of lease agreements. Depreciation is calculated using the straight-line method based on the estimated useful lives of the underlying assets. Depreciation rates are shown in Note 20(b).
For all periods presented, the Company did not capitalize interest for financing construction in progress as part of the cost of property, plant and equipment.
h.
Deferred AssetsPre-operating expendituresIncome and expenses incurred during the pre-operating period by the subsidiary Norte Brasil Telecom S.A. were recorded as deferred charges. The Company began to amortize these deferred charges on a straight-line basis over a period of 10 years as from January 2000, when Norte Brasil Telecom S.A. commenced operations.
During the latter part of 2000, the Company formed TCO IP, an internet service provider. Pre-operating costs incurred by TCO IP were capitalized as deferred charges. The Company began to amortize these costs on a straight-line basis over a period of 5 years when TCO IP commenced operations in October 2001.
F-13

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
i.
Vacation Payable AccrualCumulative vacation payable due to employees is accrued as earned.j.
Income and Social Contribution TaxesIncome and social contribution taxes are calculated and recorded based on the tax rates in effect on the balance sheet date, on an accrual basis. Deferred income taxes attributable to temporary differences and loss carryforwards are recorded as assets or liabilities when it is more likely than not that the assets will be realized.
k.
Loans and financingLoans and financing are updated for monetary and/or exchange variations and include accrued interest to the balance sheet date.
l.
FISTEL feeFistel (Telecommunication Inspection Fund) fee paid at activation of subscribers are deferred and amortized over the customers’ estimated retention period, equivalent to 24 months.
m.
Reserve for ContingenciesA reserve is recorded based on the opinion of management and the Company’s external legal counsel relating to cases in which the likelihood of an unfavorable outcome is probable.
n.
Pension and other post-retirement benefitsThe subsidiaries, together with other companies of the Brazilian 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.  Actuarial liabilities are determined using the projected unit credit method and plan assets are stated at fair market value. Actuarial gains and losses are recorded in income (See Note 30).
o.
Revenue RecognitionRevenue from services is recognized when the services are rendered.  Billing is on a monthly basis.  Unbilled revenues are estimated and recognized as revenue when the services are rendered.  Revenue from the sale of prepaid cellular handset cards is 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 final customer. Sales made through dealers are recorded as revenue when the handsets are activated. The net impact of the deferral of these sales is recorded in other assets at period end (see Note 18).
p.
Financial Income (expense), netRepresents interest earned (incurred) during the period and monetary and exchange variation resulting from financial investments and loans and financing. Gains and losses on derivative contracts are also included in financial expense, net.
q.
DerivativesThe Company enters into certain derivative contracts to manage the exposure of its cash flows in foreign currency to fluctuations in the exchange rates in relation to the Brazilian real. These derivative contracts are calculated and recorded based on contractual terms, and the exchange rates in effect at the balance sheet date. Resulting gains and losses, realized or unrealized, are recorded as “Financial expense, net”.  Premiums paid or received in advance are deferred for amortization over the period of the respective contracts.
F-14

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
r.
Advertising expenseAdvertising costs are charged to expense as incurred and amounted to R$72,635, R$48,079 and R$33,955 for the years ended December 31, 2004, 2003 and 2002, respectively.
s.
Employees’ profit sharingAccruals are made to recognize the estimated expenses for employee’s profit sharing, for which payment is subject to approval at the annual Shareholders’ Meeting.
t.
Earnings Per Thousand-SharesEarnings per thousand shares are calculated based on the number of shares outstanding at the balance sheet date.
u.
Segment InformationThe Companies operate solely in one segment that provides local and regional cellular telecommunications services. All revenues were generated in relation to services provided in or routed through the Federal District and the states of Goiás, Tocantins, Mato Grosso do Sul, Mato Grosso, Rondônia, Acre, Maranhão, Pará, Amapá, Roraima and Amazonas.
v.
Minority interestsThe Company records minority interest in the statements of operations to reflect the portion of the earnings of majorityowned operations that are applicable to the minority interest shareholders. See note 2a.
w.
Use of estimatesThe preparation of consolidated financial statements in conformity with BR CL 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.
4.
Net Operating RevenueYears ended December  31,2004


2003


2002Monthly subscription charges


149,526


148,316


114,956Usage charges


1,244,523


1,065,664


882,980Additional call charges


38,746


30,827


22,890Interconnection


872,095


776,814


649,271Other services


158,017


82,184


35,312Gross revenue from services


2,462,907


2,103,805


1,705,409Value-added tax on services  ICMS


(391,942
)

(328,796
)

(256,572
)PIS and COFINS


(85,181
)

(72,877
)

(61,779
)ISS


(706
)




Discounts granted


(105,577
)

(44,677
)

(23,721
)Net revenue from services


1,879,501


1,657,455


1,363,337Sale of handsets


486,778


383,471


276,884Value-added tax on sales  ICMS


(85,996
)

(62,940
)

(48,866
)PIS and COFINS


(46,988
)

(18,213
)

(10,359
)Discounts granted


(138
)

(863
)

(1,960
)Returns of goods


(22,731
)




(6,926
)Net revenue from sales of handsets
    Handsets and accessories


330,925


301,455


208,773Total net operating revenue


2,210,426


1,958,910


1,572,110F-15

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
There were no customers who contributed more than 10% of total gross operating revenues of the Company in 2004, 2003 and 2002, except for Brasil Telecom, which contributed approximately 23% of total gross operating revenues in 2004, 19% in 2003 and 20% in 2002, mainly in relation to interconnection revenues.
5.
Cost of Services and Goods SoldYears ended December  31,2004


2003


2002Cost of goods sold


(555,946
)

(390,026
)

(314,193
)Depreciation and amortization


(158,377
)

(161,201
)

(128,749
)Personnel


(21,759
)

(18,752
)

(15,581
)Outsourced services


(39,224
)

(44,311
)

(28,944
)Leased lines


(25,065
)

(36,885
)

(32,348
)Rent, insurance and condominium fees


(15,935
)

(13,710
)

(10,087
)Interconnection


(72,915
)

(147,137
)

(142,741
)Fistel fees


(12,331
)

(85,036
)

(60,178
)Other


(8,857
)

(6,964
)

(8,951
)Total


(910,409
)

(904,022
)

(741,772
)6.
Selling ExpensesYears ended December  31,2004


2003


2002Outsourced services


(296,443
)

(194,808
)

(135,512
)Personnel


(68,411
)

(36,222
)

(22,324
)Supplies


(7,885
)

(4,435
)

(4,312
)Rent, insurance and condominium fees


(8,389
)

(7,379
)

(5,269
)Taxes and contributions


(563
)

(183
)

(78
)Depreciation and amortization


(22,235
)

(7,797
)

(10,164
)Provision for doubtful accounts


(68,338
)

(47,134
)

(33,059
)Other


(446
)

(2,558
)

(4,564
)Total


(472,710
)

(300,516
)

(215,282
)7.
General and Administrative ExpensesYears ended December  31,2004


2003


2002Personnel


(51,428
)

(64,946
)

(42,120
)Supplies


(3,113
)

(3,985
)

(3,223
)Outsourced services


(56,045
)

(87,343
)

(71,394
)Rent, insurance and condominium fees


(8,599
)

(9,204
)

(4,814
)Taxes and contributions


(2,027
)

(3,065
)

(2,052
)Depreciation and amortization


(27,887
)

(24,222
)

(17,932
)Others


(3
)

(493
)

(325
)Total


(149,102
)

(193,258
)

(141,860
)F-16

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
8.
Other Operating Income (Expenses), NetYears ended December  31,2004


2003


2002IncomeFines


27,819


22,168


16,994Recovered expenses


3,612


602


252Reversal of reserves for contingencies


2,659


5,869


396Other


31,223


4,240


7,853Total income


65,313


32,879


25,495ExpensesReserve for contingencies


(12,530
)

(3,622
)

(2,799
)Telegoiás and NBT goodwill amortization


(1,561
)

(1,561
)

(1,561
)Other taxes


(30,825
)

(29,915
)

(20,431
)Donations and sponsorships


(14,926
)

(10,937
)

(9,537
)Other


(2,381
)

(307
)

(5,795
)Total expense


(62,223
)

(46,342
)

(40,123
)Total, net


3,090


(13,463
)

(14,628
)9.
Financial Income (Expenses), NetYears ended December
      31,2004
  
  
  2003
  
  
  2002Financial incomeInterest income


173,881


230,630


168,186Monetary/exchange variation on assets


5,100


79,812


2,981Derivative transactions, net








65,502PIS/COFINS on financial income


(20,464
)

(19,979
)

(9,226
)Total


158,517


290,463


227,443Financial expensesInterest expense


(49,712
)

(82,776
)

(96,621
)Monetary/exchange variation on liabilities


(25,656
)

(3,364
)

(126,852
)Derivative transactions, net


(20,941
)

(92,653
)

Total


(96,309
)

(178,793
)

(223,473
)Financial income, net


62,208


111,670


3,97010.
Net Non-Operating Income (Expenses), NetYears ended December  31,2004


2003


2002Gain (loss) on investments





(252
)

(205
)Losses on permanent asset disposals


(10,580
)

(18,894
)

(14,334
)Unclaimed dividends








5,418Other non-operating income


1,514


12,782


13,413Total, net


(9,066
)

(6,364
)

4,29211.
Income and Social Contribution TaxesBrazilian income taxes comprise federal income tax and the social contribution tax. For the three-year period ended December 2004, the income tax rate was 25% and the social contribution tax rates were 9%. Deferred income tax assets and liabilities related to temporary differences and income and social contribution tax loss carryforwards were calculated at the tax rate of 34%.
F-17

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Components of Income TaxesYears ended December  31,2004


2003


2002Current taxes


215,799


160,035


105,477Deferred taxes


8,376


21,054


26,039Total


224,175


181,089


131,516Reconciliation of Effective Tax Rate:The following is a reconciliation of the reported income tax expense and the amount calculated by applying the combined statutory tax rates of 34% in 2004, 2003 and 2002:
2004


2003


2002Income before taxes as reported


734,437


652,957


466,830Taxes charged at the combined statutory rate


249,709


222,005


158,722Permanent additionsDonations and grants


1,731


1,678


1,763Expired interest on shareholders’ equity


2,224


1,424


Other


6,260


2,439


4,621Permanent exclusionsInterest on shareholders’ equity


(27,880
)

(44,961
)

(32,176
)Other itemsUnrecognized taxes on temporary differences  TCO IP


1,715


2,193


Surtax difference


(168
)

(168
)

(168
)Taxes incentives and other


(9,416
)

(3,521
)

(1,246
)Income and social contribution taxes


224,175


181,089


131,516Effective rate


30.5
%

27.7
%

28.2
%Composition of Deferred Income tax AssetsDeferred income and social contribution taxes are comprised of:
2004


2003Merged tax credit (corporate restructuring)


451,437


21,943Allowance/Reserve forContingencies


34,114


25,701Doubtful accounts


11,478


11,501Accrued expenses


23,494


16,765Total


520,523


75,910Current


104,016


52,883Noncurrent


416,507


23,027Deferred taxes have been recorded as it is more likely than not that they will be realized, as follows:
a)
The merged tax credit consists of the net balance of goodwill and the reserve for maintenance of integrity of shareholders’ equity and is realized in proportion to the goodwill amortization for TCO and its subsidiaries; this will be recovered by December 31, 2004. (See note 30).F-18

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
b)
Temporary differences: The realization of temporary differences will occur by payment of provisions, the effective loss on allowance for doubtful accounts or provision for obsolescence.12.
Supplemental Cash Flow Information2004


2003


2002Cash paid for interest


23,839


30,473


51,718Income tax and social contributions paid


259,773


175,848


77,861Acquisition of minority interest of Telebrasilia Celular S.A. through issuance of shares








37,545Effect of corporate restructuring


510,788





Donations for investments


890





Unclaimed dividends and interest on shareholders equity


2,451


4,155


Acquisition of minority


28,555





13.
Cash and Cash Equivalents2004


2003Banks


57,190



24,690Short-term cash investments


893,996


947,364Total


951,186


972,054Short-term cash investments refer principally consist of fixed-income investments which are indexed to interbank deposit (CDI) rates and are highly liquid.
14.     Trade Accounts Receivable, Net
2004


2003Unbilled amounts


65,859


61,300Billed amounts


180,907


159,560Interconnection


134,564


117,876Products sold


129,563


93,345Provision for doubtful accounts


(33,758
)

(33,828
)Total


477,135


398,253There was no customer who represented more than 10% of trade accounts receivable of the Company in 2004 and 2003, except for Brasil Telecom, which represented approximately 16 % and 17.1% of such account in 2004 and 2003, respectively, mainly in relation to interconnection charges.
The changes in the provision for doubtful accounts are as follows:2004


2003


2002Balance at beginning of year


33,828


26,594


40,781Bad debt expense


68,338


47,134


33,059Write-offs


(68,408
)

(39,900
)

(47,246
)Balance at end of year


33,758


33,828


26,594F-19

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
15.     Inventories
2004


2003Cellular handsets and accessories


178,884


65,490Supplies


22,681


14,915Reserve for obsolescence


(8,055
)

(1,329
)Total


193,510


79,076Reserve for obsolescence is calculated for cellular handsets which are considered to be obsolete or for slow moving inventories.
16.
Recoverable Taxes2004


2003Prepaid income and social contribution taxes


33,647


42,309Withholding income tax


57,808


28,689Recoverable ICMS (State VAT)


82,446


54,866Recoverable PIS and COFINS (taxes on revenue) and other


32,048


273205,949


126,137ICMS on deferred sales


7,355


3,228213,304


129,365Current


170,366


97,128Noncurrent


42,938


32,23717.     Prepaid Expenses
2004


2003Advertising


14,159


9,587Fistel fee


34,399


Financial charges


652


1,036Insurance premiums


304


224Other


1,932


1,427Total


51,446


12,274Current
  
  
  39,960
  
  
  12,274Noncurrent
  
  
  11,486
  
  
  18.     Other Assets
2004


2003Employees advance


1,940


4,126Effect of deferring recognition of sales of handsets to dealers (Note 3 o)


15,119


Credit with related companies


1,327


Advance to affiliate for purchase of shares


15,584


44,461Escrow deposits


14,383


13,660Other assets


9,864


2,452Total


58,217


64,699Current


28,145


6,565Noncurrent


30,072


58,134F-20

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
19.
Property, Plant and Equipmenta.     Composition2004


2003Cost


Accumulated
  depreciation


Net book
  value


Net book
  valueTransmission equipment


961,790


(569,247
)

392,543


346,389Switching equipment


336,881


(127,678
)

209,203


169,606Infrastructure


189,784


(82,881
)

106,903


106,664Land


7,859





7,859


7,898Software use rights


209,592


(83,602
)

125,990


76,594Buildings


33,484


(9,237
)

24,247


20,550Handsets


59,896


(38,408
)

21,488


7,675Concession license


60,550


(21,886
)

38,664


43,042Other assets


78,328


(35,658
)

42,670


34,919Construction in progress


134,723





134,723


77,693Total


2,072,887


(968,597
)

1,104,290


891,030(*)
For the year ended December 31, 2004, the useful life of handsets was reduced from 24 to 18 months, to better reflect the impact of the usage of the handsets. The consolidated effect of such change resulted in additional depreciation expense for the year ended December 2004 in the amount of R$3,567.b.      Depreciation RatesDepreciation rates applied to property, plant and equipment are as follows:
%2004


2003


2002Switching equipment


10.00


10.00


10.00Transmission equipment


14.29


14.29


14.29Infrastructure


5.00 to 10.00


5.00 to 10.00


5.00 to 10.00Software use rights


20.00


20.00


20.00Buildings


4.00


4.00


4.00Leased handsets


66.67


50.00


20.00Concession license


6.90


6.67


6.67Other assets (excluding land)


5.00 to 20.00


5.00 to 20.00


5.00 to 20.00c.      RentalsThe Company rents equipment and premises through a number of operating lease agreements. Total rent expense incurred under these agreements is as follows:
2004


2003


2002Rental expense


31,639


28,869


20,720F-21

Back to Contents
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Future minimum rental payments under non-cancelable operating leases with remaining initial terms in excess of one year at December 31, 2004 are:
2005


6,8962006


5,1852007


3,9392008


2,8332009 and thereafter


3,622Total


22,47520.
Deferred Assets, NetAnnual
        Amortization
        Rate %
    
    
    2004
    
    
    2003Pre-operating expensesFinancial
        expenses
    
    
    10
    
    
    16,701
    
    
    16,701General and
        administrative expenses
    
    
    10
    
    
    27,991
    
    
    27,991Goodwill
    
    
    20
    
    
    154
    
    
    44,846
    
    
    44,692Accumulated amortization
    
    
    
    
    
    (22,998
    )
    
    (17,782
    )Total
    
    
    
    
    
    21,848
    
    
    26,910Norte Brasil Telecom S.A. (NBT) began its operations at the end of October 1999, covering 11 of the 97 cities within the Company’s operating area. As the Company’s activities relating to the rendering of services were insignificant at December 31, 1999, all expenses incurred until this date were considered as pre-operating and only subject to amortization as from January 2000.

21.     Payroll and Related Accruals
2004


2003Salaries and wages


12,445


12,003Social charges


8,320


7,813Accrued benefits


682


510Total


21,447


20,32622.     Accounts Payable and Accrued Expenses
2004


2003Suppliers


390,710


192,335Interconnection


17,958


26,715Amounts payable to long distance operators   SMP (*)


37,361


36,035Other


21,353


21,176Total


467,382


276,261(*)
Refers to long-distance services billed to customers and to be passed on to operators due to the migration to SMP.F-22

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
23.
Taxes other than income taxes2004


2003Value-added tax (ICMS)


66,798


57,242Income and social contribution taxes





23PIS and COFINS (taxes on revenue)


24,853


16,718Fistel fees


6,956


55,832Fust and Funttel


1,587


1,219Other taxes


2,691


2,311Total


102,885


133,34524.
Dividends payable2004


2003Current year dividends and interest on shareholders’ equity


133,104


130,000Withholding tax on interest on shareholders’ equity


(12,300
)

(19,500
)Dividends from prior years of  minority shareholders


23,591


24,619Total


144,395


135,11925.
Loans and Financinga)
Composition of debtDescription





Annual Interest


Maturity


2004


2003BNDES


R$


TJLP + 3.5% to 4%


01/15/2008


125,981


171,067Other


R$


Column 20-FGV


12/15/2008


1,523


1,845Finimp


US$


Libor + interest of 2% to 7%


05/14/2004





29,705Resolution No. 2,770


US$


Average interest of 7.41%


11/29/2004





1,755Export Development Corporation  EDC


US$


Libor (6 months) + 3.9% to 5%


12/14/2006


71,158


125,509BNDES  basket of currencies


UMBNDES


3.5% + basket of foreign currency


01/15/2008


11,232


15,987Teleproduzir (*)


R$


Interest of 0.2% p.m.


07/31/2012


15,159


9,972Accrued interest











1,231


2,300Total











226,284


358,140Current











102,727


135,042Noncurrent











123,557


223,098(*)
Refers to the long-term installment of the tax liability resulting from the Programa Teleproduzir program with the Government of Goiás State relating to the payment of the ICMS. This program enable the Company to pay ICMS in 84 monthly installments, with a grace period of 12 months from the program closing date which occurred in July 2004.TJLP  Brazilian long-term interest rate.
b)
Repayment ScheduleThe long-term portion of loans and financing matures as follows:
Year2006


70,6782007


40,0402008


4,7182009


2,1662010 and thereafter


5,955Total


123,557F-23

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
c)
Restrictive covenantsThe Company has loans and financing from the National Bank for Economic and Social Development (BNDES) and Export Development Corporation  EDC, which balances at December 31, 2004 were R$137,213 and R$71,158, respectively. Such loans and financing have restrictive covenants, which include restrictions as to debt levels, EBITDA (Earnings Before Interest, Taxes, , Depreciation and Amortization) and liquidity ratio. As of date of  the consolidated financial statements, the Company was in compliance with all covenants.. Furthermore, these covenants have not restricted the Company’s ability to conduct its normal business or incur additional debt to fund its working capital or capital expenditures.
d)
GuaranteesBanks

GuaranteesBNDES  TCO operators

In the event of default, 15% of receivables and CD’s equivalent to the amount of the next installment payable are pledged.BNDES NBT

In the event of default, 100% of receivables and CD’s equivalent to the amount of next installment payable during the first year and two installments payable in the remaining period are pledged.26.
Other liabilities2004


2003Services to be provided  prepaid


19,061


11,826Accrual for customer loyalty program (i)


2,089


870Advances from customers


6,567


9,276Other


8,892


54636,609


22,518Current


27,922


21,972Noncurrent


8,687


546(i)
The Company and its subsidiaries
    have loyalty programs in which the calls are transformed into points for
    future exchange for handsets. Accumulated points are reserved as they are
    obtained considering redemption historical data, accumulated points and point
    average cost. Upon redemption of handsets by customers, the reserve is reduced.27.
Reserve for ContingenciesThe Company and its subsidiaries are parties to certain lawsuits involving labor, tax and civil matters. Management has recognized reserves for cases in which the likelihood of an unfavorable outcome is considered probable by legal counsel.
2004


2003Telebrás


113,062


94,931Tax claims


11,611


11,191Civil claims


8,549


2,653Labor claims


895


598Total


134,117


109,373Current


5,473


Noncurrent


128,644


109,373F-24

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
The changes in the reserve for contingencies are as follows:
2004


2003


2002Beginning balance


109,373


99,104


76,476Additional reserve


9,871


(2,084
)

2,799Monetary variation


18,130


12,502


20,225Reversals


(3,257
)

(149
)

(396
)Ending balance


134,117


109,373


99,104Telebrás claim
The Telebrás claims related to original loans from Telecomunicações Brasileiras S.A.  TELEBRÁS, which, according to Attachment II to the Spin-off Report dated February 28, 1998, approved by the Shareholders’ Meeting held in May 1998, and in the opinion of Company management, should be allocated to the respective holding companies of Telegoiás and Telebrasília Celular S.A. Although management believes that there was an error in the allocation of the loans upon the spin-off, the Company has reserved amounts corresponding to loans payable to Tele Centro Sul Participações S.A. (“Tele Centro Sul”) based on external legal counsel’s opinion that the possibility of an
unfavorable outcome is probable. The Company is restating the loans based on the general market price index (IGP-M) plus 6% annual interest. Tele Centro Sul has filed a claim to index the loans to the U.S. dollar. The Company’s external legal counsel’s opinion is that an unfavorable outcome is possible relating to the claim referring to the restatement index. The difference in contingencies not recognized between IGP-M plus 6% and the U.S. dollar index is estimated at R$7,188 and R$31,669 as of December 31, 2004 and 2003, respectively.
Tax
Probable losses
Based on the opinion of the Company’s legal counsel and tax consultants, the subsidiary NBT recognized a provision in the amount of R$1,445, on December 31, 2004, for Delinquency Notices issued by National Institute of Social Security (INSS), which have been challenged by NBT. The Company has also recognized a provision for probable relating to PIS and COFINS (see discussion below).
Possible losses
Based on external legal counsel and tax consultants’ opinions, management believes that the likelihood of an unfavorable outcome relating to the following claims is possible and consequently, the Company has not recorded a provision for losses related to these claims, except for certain claims relating to the Employees’ Profit Sharing Program (PIS) and Social Contribution on Billing (COFINS) (item b) below), for which the loss is probable. The total amount of possible losses is R$48,495 and relates to the following claims:
a)      ICMS (State VAT)
The subsidiaries received tax assessment notices related to various ICMS claims for which a provision of R$23,108 and R$1,656 was recorded at December 31, 2004 and 2003, respectively.
b)      PIS and COFINS (taxes on revenue)
On November 27, 1998, the calculation of PIS and COFINS was changed by Law No. 9,718 which: (i) increased the COFINS rate from 2% to 3%, (ii) authorized a deduction of up to 1/3 of the COFINS amount from the social contribution (CSLL) tax, and also (iii) indirectly increased COFINS and PIS due by the subsidiaries, requiring the inclusion of other income in their tax bases.
F-25

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
According to the Company’s external legal counsel, this increase is unconstitutional, since: (i) article 195 of the Constitution of the Federative Republic of Brazil, which took effect upon publication of Law No. 9,718, determined that PIS and COFINS should be levied only on payroll, revenues and profits, (ii) the federal government used an inadequate method to increase COFINS and PIS, i.e., ordinary law instead of supplementary law and (iii) the law was enacted prior to the expiration of the 90-day grace period.
The Company filed a lawsuit challenging the constitutionality of this change in tax law. In order to suspend the tax credit requirement, a provision was recorded and escrow deposits were made amounting to R$9,525 as of December 31, 2004 and 2003.
Due to the changes introduced by Law No. 10,637/02, the Company has included other income in the PIS tax base since December 2002.
c)      Tax on Services (ISS)The subsidiary NBT received a delinquency notice issued by the Municipality of Boa Vista (PR), in which the ISS payment on related services (detailed account, choice of a specific line, line replacement, line transfer, call waiting, conference, call identification, call blocking, contract transfer, temporary transfer  follow-me), for the period from October 2000 to May 2002. The amount of this contingency, as of December 31, 2004, is equivalent to R$543.
The subsidiary Telems received a similar delinquency notice concerning the period from May 1998 to March 2001, whose amount, as of December 31, 2004, is equivalent to R$370.
The subsidiary Telemat received a delinquency notice in the amount of R$295 that was issued by the Municipality of Rondonópolis.
d)      CIDE
TCO and its subsidiaries filed lawsuits challenging the incidence of CIDE  Contribuição de Intervenção no Domínio Econômico on the remittances of values for the payment of technology transference contracts, technical assistance contracts, trademark licensing contracts and software licenses, on the terms of Law 10.168/2002, owed to suppliers with headquarters outside of Brazil. Based legal counsel’s opinion, management believes that the resolution of this issue will not have a material adverse financial effect to the company. Nevertheless, the chances of an unfavorable decision in these cases are possible.
Remote Losses
a)      ICMS
In June, 1998, the CONFAZ (Conselho Nacional de Política Fazendária) agreed to apply 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. The Company believes that the extension of the ICMS tax to non-basic telecommunications services such as cellular activation is unlawful because it would subject to taxation certain services that are not telecommunications services and because new taxes may not be applied retroactively. Based upon advice from legal counsel and on precedents from Superior Tribunal de Justiça, the Company does not expect significant losses arising from this matter.
The chances of an unfavorable decision on this case are remote, Therefore, the Company has not made provisions for the application of the ICMS tax on cellular activation.  The Company believes that the retroactive application is remote. Moreover, the Company believes that the Predecessor Companies would be liable to its subsidiaries for any tax liability arising from the retroactive application.
F-26

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
b)      PIS and COFINS
The Company, is a defendants in a lawsuit brought by the federal public prosecutor’s office challenging its policy of passing the COFINS and PIS costs to its customers by incorporating them into our charges. The Company is contesting the lawsuit on the basis that, according to our understanding. COFINS and PIS are cost components of the services provided to its customers and, as such, should be incorporated into the price of such services, as is the practice throughout the telecommunications industry. The Company believes that there is a high probability of success in challenging this claim, being the chances of an unfavorable decision remote.
Labor and Civil Claims
A provision for losses on labor and civil claims has been recorded to cover probable losses. Claims for which the likehood of an unfavorable outcome is possible amount to R$15,218 and R$5,505 for civil claims and R$2,417 and R$1,149 for labor claims as of December 31, 2004 and 2003, respectively.
Probable losses
a)      Litigation Relating to Telebrás Loans
Tele Centro Oeste filed a lawsuit against Tele Centro Sul  one of the holding companies arising from the breakup of Telebrás, Telebrás itself and KPMG, the auditors for the breakup of Telebrás, regarding the distribution of debts and credits of former Telebrás’ loans, after its breakup.
In response to the lawsuit filed against it, Tele Centro Sul filed two counter-lawsuits in October 1999 against Telebrasília and Telegoiás seeking payment of the Telebrás loans in the amount of R$ 41.3 million from Telebrasília and R$ 24.2 million from Telegoiás.
The first lawsuit, filed by Tele Centro Oeste against Tele Centro Sul, Telebrás and KPMG was dismissed. In the other two lawsuits, filed by Tele Centro Sul against Telebrasília and Telegoiás, the court ruled partially in favor of Tele Centro Sul. In the Court of Appeals of the Federal District, TCO’s, Telebrasília’s and Telegoiás’ appeal was denied. Tele Centro Sul’s appeal was granted.
Although another appeal was filed in the Court of Special Appeals, a final decision unfavorable to TCO with respect to the necessity of payment by Telebrasília and Telegoiás to Tele Centro Sul, is probable, but on the specific point regarding indexation of the debts according to exchange variation, a decision unfavorable to TCO is only possible, since there is a high possibility that exchange variation will be excluded as a criteria of indexation of the outstanding balances.
Possible losses
a)
Litigation Related to the Ownership of Caller IDIn July 2002, the Company, together with other Brazilian mobile telecommunication operators, were named as defendants in an action filed by Lune Projetos Especiais Telecommunicação 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 of 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.
F-27

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
b)
Litigation Related to the Validity of the Minutes in the Prepaid PlansTelegoiás, NBT and Teleron, together with other Brazilian wireless telecommunications operators, are defendants in various lawsuits brought by the federal public prosecutor’s office and a consumer protection association challenging the imposition of a deadline for the use of purchased prepaid minutes. The plaintiffs allege that purchased prepaid minutes should not expire after any specified deadline.  Conflicting decisions have been issued by the federal court reviewing this matter.  Although the Company believes that the criteria for imposing the deadline are in compliance with Anatel’s rules, the Company believes based on the opinion of outside counsel that the likelihood of an unfavorable
outcome with respect to this claim is possible.
c)
Tax CreditsTele Centro Oeste Participações and the other new holding companies incorporated in connection with the privatization of the telecommunications companies offset certain tax debts against the premiums paid by their controlling shareholders.  A claim was filed against Tele Centro Oeste Participações and the other new holding companies seeking relief in the form of the annulment of the administrative acts that recognized these offsets.  Although we believe that the restructuring was implemented in accordance with Brazilian law, we believe based on the opinion of outside counsel that the likelihood of an unfavorable outcome with respect to this claim is possible.  The Company would be required to pay all the taxes that
were offset against goodwill.  The Company is unable to determine at this time the extent of any potential liabilities with respect to this claim.
Remote lossesa)
Litigation Relating to the Charging of Subscription TariffTelegoiás, together with other mobile telecommunications operators, are defendants in a class action suit brought by Procon-Goiás, which challenged the charging, by these operators, of the monthly subscription tariff, alleging that there is no legal prevision of such charge. According to the plaintiff, the charging of monthly subscription tariffs also violate Brazilian Consumer Law.
Based on the opinion of legal counsel, the Company believes that the possibility of an unfavorable decision in this lawsuit is remote, once that the charging of monthly subscription tariffs is expressly allowed by Brazilian telecommunications regulations.
b)
Breakup of TelebrásTelebrás, the Company’s legal predecessor, is a defendant in a number of administrative and legal proceedings and is subject to various claims and contingencies. Under the terms of the Telebrás breakup, the liability for any claims arising out of acts committed by Telebrás prior to the effective date of the breakup remains with Telebrás, except for labor and tax claims (for which Telebrás and the companies incorporated as a result of the breakup are jointly and severally liable by operation of law) and any liability for which specific accounting provisions have been assigned to us or one of the other companies incorporated as a result of the breakup of Telebrás.  In
addition, the legality of the breakup of Telebrás has been challenged in numerous legal proceedings, some of which have not been dismissed and are still pending.  The Company believes based on the opinion of outside counsel that the likelihood of an unfavorable outcome with respect to these claims is remote.
28.
LeasesThe Company and its subsidiaries have entered into certain leasing agreements relating to computer equipment. Lease expense recorded for the years ended December 31, 2004, 2003 and 2002 was R$3,644, R$4,043 and R$1,122, respectively. The total future rental commitment relating to these leases is R$617 and will be paid up to June 2005.
F-28

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
29.
Pension and post-retirement benefit plansAt the time of the privatization, employees had the right to maintain their rights and benefits in Fundação Sistel de Seguridade Social, or Sistel, a multi-employer defined benefit plan that supplements government-provided retirement benefits (the so called PBS) and a multi-employer post-retirement health-care plan (the so called PAMA).  Under the PBS and PAMA plans, the Company 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 the Company, and its assets and liabilities are fully segregated from the Company. Employees hired since January 1999 are not members of Sistel.
Before December 1999, the Sistel plans covered the employees of the former Telebrás System and the Company was contingently liable for all of the unfunded obligations of the plans.  In January 2000, the Company 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. For the Company was created PBS TCO Plan. This new private pension plan is still administered by Sistel and has 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 (PBS-A and PAMA plans).
In 2000, the Company established the TCO Prev, a new private pension plan.  Unlike Sistel’s defined benefits plan, the TCO Prev calls for defined contributions by the operating subsidiaries, as sponsors, and the 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.  As of December 31, 2004, approximately 99% of Company’s employees were members of the TCO Prev. The Company and its subsidiary 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.
The contributions to PBS TCO Plan are determined based on actuarial studies conducted by independent actuaries pursuant to the rules in force in Brazil.  The cost determination basis of capitalization and contribution paid by the sponsor is 13.5% on payroll of its employees who participate in the plan, of which 12% are allocated to PBS Telesp Celular e PBS TCO Plan plan cost and 1.5% to PAMA.
The contributions of the Company to TCO Prev are equal to participants’, ranging between 1% and 8% on participation salary, pursuant to the percentage chosen by participant.
During 2004, the subsidiaries made contributions do PBS TCO Plan in the amount of R$3 (R$4 in 2003) and TCO Prev in the amount of R$1,079 (R$1,355 in 2003).
As of December 31, 2001, the Company chose to recognize actuarial liabilities pursuant to CVM Resolution 371, of December 13, 2000, directly in shareholders’ equity, net of any corresponding tax effect. On December 31, 2004 and 2003, the Company immediately recognized the aggregate actuarial gains and losses in the income for the year. The projected unit cost method was used for actuarial appraisal of the plans, which relevant assets are positioned on November 30, 2004 and 2003, respectively. For multi-sponsored plans (PAMA and PBS-A), proration of assets plans was made based on the actuarial liability of the company in relation to the aggregate actuarial liability of the plan.
The following table demonstrates the composition of the provision for retirement benefit plans and health care plans to retired employees as of December 31, 2004, in addition to other information required by CVM Resolution 371 on such plans.
Plan


2004


2003TCO Prev





2,471PAMA


167


339Total


167


2,810F-29

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
a)
Reconciliation of funded status2004TCO Prev


PAMA (i)


PBS-TCO (ii)


PBS-A (ii)Benefit obligation


40,545


665


1,808


3,183Fair value of plan assets


(41,635
)

(498
)

(1,931
)

(4,139
)Funded status


(1,090
)

167


(123
)

(956
)2003TCO Prev


PAMA (i)


PBS-TCO (ii)


PBS-A (ii)Benefit obligation


36,143


777


1,737


3,053Fair value of plan assets


(33,672
)

(438
)

(1,884
)

(3,647
)Funded status


2,471


339


(147
)

(594
)(i)
Refers to the Company’s and its subsidiaries’ proportional participation in assets and liabilities of the multiemployer plans  PAMA and PBS-A.(ii)
Although PBS, Visão and PBS-A show a surplus, on December 31, 2004 and 2003, the pension assets were not recognized since the surplus is legally not reimbursable, and the surpluses may not be used to reduce future contributions.b)
Net periodic cost for the year2004


2003TCO Prev


PAMA


TCO Prev


PAMA(iii)Service cost


1,254


2


1,343


5Interest cost


4,034


86


3,536


73Expected return on plan assets











Amortization of initial transition obligation











Total


5,288


88


4,879


78c)
Change in accrued cost2004


2003TCO Prev


PAMA


TCO Prev


PAMA(iii)Accrued cost at beginning of the year


2,471


339


383


73Actuarial (gains) losses for the year


(7,770
)

(259
)

(1,436
)

189Sponsor’s contributions for the year


(1,079
)

(1
)

(1,355
)

(1
)Net periodic cost for the year


5,288


88


4,879


78Accrued cost at the end of the year


(1,090
)

167


2,471


339d)
Change in benefit obligation2004TCO Prev


PAMA


PBS-TCO


PBS-ABenefit obligation as of December 31, 2003


36,143


777


1,737


3,053Service cost


1,254


2


4


Interest cost


4,034


86


189


332Benefits paid for the year


(527
)

(40
)

(141
)

(237
)Actuarial (gains) losses for the year


(359
)

(160
)

19


35Benefit obligation as of December 31, 2004


40,545


665


1,808


3,183F-30

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TELE
        CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)2003TCO Prev


PAMA


PBS-TCO


PBS-ABenefit obligation as of December 31, 2002


31,505


656


826


2,524Service cost


1,343


5


66


Interest cost


3,536


73


91


275Benefits paid for the year


(232
)

(33
)

(278
)

(210
)Actuarial (gains) losses for the year


(9
)

77


1,032


464Benefit obligation as of December 31, 2003


36,143


778


1,737


3,053e)
Change in plan assets2004TCO Prev


PAMA


PBS-TCO


PBS-AFair value of plan assets as of December 31, 2003


33,672


438


1,884


3,647Benefits paid for the year


(527
)

(40
)

(141
)

(237
)Sponsor’s contributions for the year


1,079


1


3


Return on plan assets for the year


7,411


99


185


729Fair value of plan assets as of December 31, 2004


41,635


498


1,931


4,1392003TCO Prev


PAMA


PBS-TCO


PBS-AFair value of plan assets as of December 31, 2002


25,225


291


2,660


3,153Benefits paid for the year


(232
)

(33
)

(278
)

(210
)Sponsor’s contributions for the year


1,355


1


4


Return on plan assets for the year


7,324


180


(502
)

704Fair value of plan assets as of December 31, 2003


33,672


439


1,884


3,647f)
Estimated net periodic cost estimated for 20052005  EstimatedTCO Prev


PAMA


PBS-TCO


PBS-AService cost



1,219


1


3


Interest cost


4,538


74


196


346Expected return on assets


(5,750
)

(80
)

(256
)

(490
)Amortization of actuarial losses











Employee contributions











Total


7


(5
)

(57
)

(144
)F-31

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
g)
Actuarial assumptions2004TCO Prev/PBS-TCO


PAMA


PBS-ADiscount rate for determining benefit obligations


11.30% p.a.


11.30% p.a.


11.30% p.a.Expected return on plan assets


13.75% p.a.


16.40% p.a.


12.20% p.a.Future salary increases


7.10% p.a.


7.10% p.a.


7.10% p.a.Increase in health care costs


N/A


8.15% p.a.


N/ABenefit increase rate


5.00% p.a.


5.00% p.a.


5.00% p.a.Mortality table


UP84 with 1 year with increase in hazard


UP84 with 1 year with increase in hazard


UP84 with 1 year with increase in hazardBiometric disability table


Mercer


Mercer


Mercer2003TCO Prev/PBS TCO


PAMA


PBS-ADiscount rate for determining benefit obligations


11.30% p.a.


11.30% p.a.


11.30% p.a.Expected return on plan assets


11.83% p.a.


11.30% p.a.


11.30% p.a.Future salary increases


7.10% p.a.


7.10% p.a.


7.10% p.a.Increase in health care costs


N/A


8.15% p.a.


N/ABenefit increase rate


5.00% p.a.


5.00% p.a.


5.00% p.a.Mortality table


UP84 with 1 year of aggravation


UP84 with 1 year of aggravation


UP84 with 1 year of aggravationBiometric disability table


Mercer


Mercer


Mercer30.
Corporate RestructuringOn September 2000, the Company completed a corporate restructuring aimed to transfer the tax benefit related to the goodwill paid by the Company’s shareholders in the privatization process.   The transaction was affected, through the creation and subsequent merger of temporary entities; however, resulted only in the effective transfer of the tax benefit to the Company.
On May 13, 2004, the Board of Directors of the Company and its subsidiaries approved another corporate restructuring for the transfer to the Company and its subsidiaries of the goodwill paid by TCP in the acquisition of TCO controlling interest, which, on May 31, 2004, amounted to R$1,503,121. Prior to the merger of the goodwill by the Company, a reserve has been constituted to maintain the merging company’s shareholders’ equity in the amount of R$992,060. Thus, net assets merged by Company amount to R$511,061, which essentially represent the tax benefit resulting from the deductibility of the mentioned goodwill upon being merged by the Company and its subsidiaries.
On June 30, 2004, the transfer of a portion of the net assets to its subsidiaries was approved based on appraisal reports prepared by independent experts, and described as follows:
Company


Goodwill


Reserve - merged


Net amountTelemat


248,558


(164,048
)

84,510Telegoiás


352,025


(232,336
)

119,689Telems


144,078


(95,092
)

48,986Teleron


68,775


(45,392
)

23,383Teleacre


29,353


(19,373
)

9,980Sum spin off


842,789


(556,241
)

286,548Balance TCO


660,332


(435,819
)

224,513Total


1,503,121


(992,060
)

511,061F-32

Back to Contents
TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Concurrently to the transfer of a portion of the net assets to the subsidiaries, it has been approved the proposal to merge shares of the subsidiaries held by minority shareholders, who received shares of the Company in the proportion set forth in an appraisal report at current market prepared by independent experts. The transfer of the interest in the subsidiaries resulted in a capital increase of R$28,555. Consequently, the above mentioned subsidiaries are now 100% owned by TCO.
The tax benefit transferred as a result of these restructurings is reported by the Company as a capital reserve, which is transferred to capital stock with the issuance of common shares to the Company’s controlling shareholders as the related tax benefit is realized. The number of shares to be issued is determined at each issuance date based on the tax benefit realized and the market value of the shares.  The Company’s minority shareholders have preemptive rights to subscribe for additional shares at the then current market prices, if such shares are issued to the controlling shareholders.
For statutory purposes, and in compliance with income tax legislation, the tax benefit is recorded in two separate components, comprised of the related goodwill transferred and the reserve for the maintenance and integrity of the merged company’s equity, which are recorded net in the balance sheet as a deferred tax benefit. The related goodwill and the reserve is being amortized on a straight-line basis over a five years. This amortization along with the related tax benefit are recorded net in the consolidated statements of operations as part of income and social contribution taxes. This accounting results in no impact on net income nor on shareholders’ dividends.  The following summarizes the amounts
recorded in the balance sheet and the net impact in the consolidated statements of operations as of and for the years indicated for these restructurings.
2004


2003Balance sheet:Goodwill  merged


1,327,756


64,538Reserve  merged


(876,319
)

(42,595
)Net equivalent to the merged tax credit


451,437


21,9432004
    
    
    2003Income:Goodwill amortization
    
    
    (239,903
    )
    
    (64,538
    )Reversal of
        reserve
    
    
    158,336
    
    
    42,595Tax credit
    
    
    81,567
    
    
    21,943Effect on income
    
    
    
    
    
    In accordance with the above-mentioned information, the goodwill amortization, net of the reversal of reserve and corresponding tax credit, results in a null effect on income and, consequently, on the calculation basis of statutory minimum dividends. In order to demonstrate the financial and equity situation of the Company and its subsidiaries in the financial statements, the net value of R$451,437, on December 31, 2004 (R$21,943 in 2003), which essentially represents the balance of the merged tax credit, was classified in the balance sheet in noncurrent and realizable assets as deferred taxes.
31.
Shareholders’ Equitya.
CapitalThe authorized capital at December
    31, 2004 and 2003 is 700,000,000 thousand shares. The subscribed and paid-in
    capital at December 31, 2004 corresponds to R$ 792,966 (R$ 570,095 in 2003),
    represented by 386,664,975,000 shares in 2004 and 379,200,036,000 shares
    in 2003 with no par value, distributed as follows (in thousands of
    shares):
F-33

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
December 31, 2004


December 31, 2003Common shares


129,458,667


126,433,338Preferred shares


257,206,308


252,766,698Total


386,664,975


379,200,036(-) Treasury common shares


(5,787,050
)

(5,791,394
)Total outstanding shares


380,877,925


373,408,642Book value per thousand shares  BR CL (in R$)


6.4102


4.1672On March 30, 2004, the Company increased the capital stock in R$175,338, without issuing new shares, by means of the capitalization of revenue reserves exceeding the capital stock on March 31, 2004, and in R$19,078 with the issuance of 2,247,062 common shares, by means of the capitalization of the tax benefit realized in 2001, 2002 and 2003.
On June 30, 2004, the Company increased the capital stock in R$28,555 and decreased it in R$100 due to the Company’s restructuring. Thus, the capital stock on December 31, 2004 is R$792,966, comprised by shares without par value as follows:
b.
Treasury sharesThe following is a summary of treasury stock transactions for 2004 and 2003:
(In thousands of shares)Preferred shares


Common SharesTreasury shares, December 31, 2002





5,791,394Acquired


9,548


2,101Sold





Canceled


(7,461
)

(8,532
)Treasury shares, December 31, 2003 and 2004


2,087


5,784,963c.
Capital reservesSpecial premium reserve
This reserve (R$532,731 as of December 31, 2004 and R$ 72,189 as of December 31, 2003) resulted from the corporate restructuring implemented by the Company and will be capitalized partially (R$25,436 as of December 31, 2003) in favor of the controlling shareholder when the related tax benefit is effectively realized and the remaining balance will offset Other assets  Advance for purchase of shares (See Note 30).
Share premiumThis reserve represents the excess of share issue or capitalization value over the value per share at the issuance date. This reserve originated mainly on the merger of Telebrasília Celular S.A. into the Company.
d.
Income reservesLegal reserveThe legal reserve is calculated based on 5% of annual net income until it equals 20% of paid-up capital or 30% of capital plus capital reserves; thereafter, allocations to this reserve are no longer mandatory. This reserve is intended to ensure the integrity of capital and can only be used to offset losses or increase capital.
Expansion reserveIn accordance with Article 196 of Law No. 6,404/76, management will propose at the general shareholders meeting the establishment of a retained income reserve in the amount of R$351,856 relating to the remaining net income balance for the year, after the allocation of the legal reserve and dividends.  This reserve will be used for future inv1estment purposes based on the capital budget to be approved by the general shareholders’ meeting.
F-34

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
e.
Dividends/interest on shareholders’ equityUnless otherwise provided for in article 12 of the bylaws, preferred shares has no voting right, being assured to them the priority in capital reimbursement, without premium, right to receive dividend to be paid, equivalent to at least 25% of the net income of the year, calculated pursuant to article 202 of the Corporate Law, with priority to receive nonaccumulative minimum dividends, equivalent to the higher of:
(i)
6% per year on the amount resulting from the division of the subscribed capital by the aggregate amount of the Company’s shares; or(ii)
3% per year on the amount resulting from the division of the shareholders’ equity by the aggregate amount of the Company’s shares, as well as the right to profit sharing paid in conditions equal to common shares, after being assured to them a dividend equal to the preferred minimum established to preferred shares.Dividends were calculated as follows:2004


2003


2002Net income for the year


508,648


463,408


329,183Reversal of unrealized income reserve








Legal reserve


(25,432
)

(23,171
)

(16,459
)Adjusted net income for the year


483,216


440,237


312,724Mandatory minimum dividends (25%)


120,804


110,059


78,181Common shares


39,226


35,558


26,068Preferred shares


81,578


74,501


52,113As determined by management, in 2003, shareholders were credited interest on shareholders’ equity of R$133,104 (R$0.349466 per thousand shares), subject to 15% withholding income tax, resulting in a net of R$120,804 (R$0.317172 per thousand shares). A proposal will be submitted to the Shareholders’ Meeting to include interest on shareholders’ equity, net of withholding income tax, into the mandatory minimum dividends, as follows:
2004


2003


2002Common shares


43,220


42,001


30,208Preferred shares


89,884


87,999


63,291Withholding income tax


(12,300
)

(19,500
)

(14,025
)Total


120,804


110,500


79,474Dividends per thousand shares  R$


0.317


0.296


0.21332.
Transactions with Related PartiesRelated Parties  New Controlling ShareholderIn April 2003, BID S.A. sold its equity interest  in TCO to TCP. The principal transactions with unconsolidated related parties of the new controlling shareholder are as follows:

Use of network and long-distance (roaming) cellular communication: these transactions involve companies owned by the same group: Telecomunicações de São Paulo S.A., Telerj Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A., Telesp Celular S.A., Global Telecom S.A. and Celular CRT S.A. Part of these transactions was established based on contracts between Telebrás and the operating concessionaires before privatization under the terms established by Anatel.
Call center services provided by Mobitel and Atento to users of TCO telecommunications services.
Corporate services are transferred from the Controlling Group to TCO at the cost effectively incurred.F-35

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
A summary of balances and transactions with unconsolidated related parties is as follows:
2004


2003AssetsTrade accounts receivable


11,841


415Credit with related companies


1,327


LiabilitiesTrade accounts payable


18,361


6,312Liabilities with related companies


6,597


9,276Years ended December 31,2004


2003Statement of operationsRevenue from telecommunications servicesTelecomunicações de São Paulo S.A


62,723


35,412Celular CRT





243Tele Leste and subsidiaries





86Tele
    Sudeste and subsidiaries





320TCP and subsidiaries





1,253Total


62,723


37,314ExpensesCost of service and sellingTelecomunicações de São Paulo S.A





(38
)Celular CRT





(223
)Tele Leste and subsidiaries





(125
)Tele Sudeste and subsidiaries





(438
)TCP and subsidiaries





(1,054
)Total





(1,878
)Selling expensesAtento Brasil S.A


(29,414
)

Mobitel S..A


(7,545
)

(995
)Total


(36,959
)

(995
)General and administrative expensesTelecomunicações de São Paulo S.A


(705
)

(322
)Total


(705
)

(322
)Recovery of apportionment expensesTCP and subsidiaries


3,858


1,318Tele Sudeste and subsidiaries


1,562


154Tele Leste and subsidiaries


384


618Celular CRT


855


320Total 2004


6,659


2,410Expenses apportionedTCP and subsidiaries


(46,255
)

(15,405
)Tele Sudeste and subsidiaries


(15,543
)

(9,485
)Tele Leste and subsidiaries


(1,747
)

(780
)Celular CRT


(1,589
)

(724
)Total 2004


(65,134
)

(26,394
)F-36

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Related Parties  Former Controlling Shareholder
The majority shareholder of the Company in 2002 was BID S.A., which was controlled by Fixcel  S.A., which in turn was under common control with Banco Credibel, SPL Construtora e Pavimentadora and CSM Cartões S.A. (Splice Group). Prior to 2002, BID S.A. was controlled by Splice do Brasil S.A.
According to a contract entered into between Splice do Brasil S.A. and the subsidiaries of Tele Centro Oeste Celular Participações S.A., technical assistance services was payable to Splice do Brasil S.A. corresponding at 1% of the net operating income. For the year ended December 31, 2002, the amount of R$ 12,532 was charged to general and administrative expenses relating to this contract.
In January 2002, the Company made an advance payment of R$ 34,259 (R$15,584 as of December 31, 2004) to BID S.A. corresponding to the present value of the tax benefit on the merged goodwill. The amount was increased by R$ 5,967 based on market rates at December 31, 2002.
2002Fixcel S.A.


Splice do Brasil S.A.


Banco Credibel


SPLConstrutora e Pavimentadora


CSM Cartões
    S.A.


TotalStatement of operationsTransactionsIncome from short-term investments


65,169


44,173


2,615








111,957Income on premium (Coverage Participações)


5,967














5,967Financial expenses


16,596


7,393











23,989Maintenance services





12,532











12,532Other materials

















Acquisition of telephone cards














5,854


5,854Acquisition of property, plant and equipment





4,236





3,458





7,69433.
Management compensationDuring 2004 and 2003, management compensation amounted to R$2,135 and R$2,767 in the consolidated and R$1,750 and R$2,633 in the holding company, respectively, and recognized as general and administrative expenses.
F-37

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
34.
InsuranceThe Company and its subsidiaries maintain a monitoring policy of risks inherent to its operations. On December 31, 2004, the Companies had insurance contracts in force to cover operating risks, general liability and health care, etc. The management of the Company and its subsidiaries is of the opinion that these values are sufficient to cover any losses. The main assets, liabilities or interest covered by insurance and respective amounts are as follows:
Type

Insured amountOperating risks

R$
796,320General civil liability

R$
5,822Vehicle fleet(officers fleet)

R$
200Vehicle fleet(operational fleet)

R$
20035.
Financial instrumentsa)     Risk considerationsThe Company and its subsidiaries provide mobile telephone services in the States of Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul, Rondônia, Acre, Amazonas, Roraima, Amapá, Pará, Maranhão and Distrito Federal, pursuant to the authorization granted by the Federal Government. The operators are also engaged in the purchase and sale of handsets through their own sales networks and distribution channels, thus fostering their essential activities.
The major market risks to which the Company and its subsidiaries are exposed in exercising their activities include:
Credit risk: arising from any difficulty in collecting amounts receivables related to telecommunication services provided to customers and revenues from the sale of handsets by the distribution network.
Interest rate risk: resulting from debt and goodwill on derivative instruments contracted at floating rates and involving the risk of increases in interest expenses as a result of an unfavorable upward trend in interest rates (LIBOR, CDI and TJLP).
Currency risk: related to debt and derivatives contracted in foreign currency and associated with potential losses resulting from adverse exchange rate movements.
Since they were formed, the Company and its subsidiaries have been actively managing and mitigating risks inherent in their operations by means of comprehensive operating procedures, policies and initiatives.
Credit riskCredit risk from providing telecommunication services is minimized by strictly monitoring the customer portfolio and actively addressing delinquent receivables by means of clear policies relating to the concession of postpaid services. The Company and its subsidiaries’ customers use 84% (77% in 2003) prepaid services that require pre-loading, thus not representing a credit risk.
Credit risk from the sale of handsets is managed by following a conservative credit granting which encompasses the use of advanced risk management methods that include applying credit scoring techniques, analyzing potential customer’s balance sheet, and making inquires of credit protection agencies’ database. In addition, an automatic control system has been implemented with the distribution of the Company’s software ERP for consistent transactions.
F-38

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
The Company and its subsidiaries are also exposed to credit risk arising out of its financial investments and receivables from swap transactions. The Company and its subsidiaries make efforts to diversify such exposure among first class financial institutions.
Interest rate riskThe Company and its subsidiaries are also exposed to fluctuations in the Long-term Interest Rate (TJLP) on financing from BNDES. As of December 31, 2004, the balance of principal of these transactions amounted to R$125,981 (R$171,067 in 2003).
The Company and its subsidiaries are exposed to interest rate risk, due to exchange derivative transactions and borrowings contracted in Brazilian reais associated with the cost of CDI rates. However, the balance of those financial investments also indexed at CDI partially neutralizes such effect.
Foreign currency-denominated loans are also exposed to interest rate risk (LIBOR) associated with foreign loans. As of December 31, 2004, these transactions amounted to US$26,808 thousand (US$53,722 thousand in 2003).
Exchange rate riskThe Company and its subsidiaries utilize derivative financial instruments to protect against exchange rate risk on foreign currency-denominated loans. Such instruments usually include swap contracts.
The Company’s and its subsidiaries’ net exposure to currency risk as of December 31, 2004 is shown in the table below:
2004


2003Loans and financing  US$


(26,979
)

(54,330
)Loans and financing  UMBNDES


(4,251
)

(5,533
)Derivative contracts  US$ (notional amount)


31,327


61,239Net


97


1,376UMBNDES is a monetary unit prepared by BNDES, consisting of a basket of foreign currencies, of which the principal is the U.S. dollar; for this reason, the Company and its subsidiaries consider it as U.S. dollar in the risk coverage analysis related to fluctuations in exchange rates.
b)     Derivative instrumentsAs of December 31, 2004 and 2003, the Company has foreign currency exchange contracts with notional amounts of US$31,327,000 and US$61,239,000, respectively, to protect against exchange rate fluctuations on foreign currency obligations. As December 31, 2004, the Company recorded an accrued and unrealized net loss of R$20,741 (R$15,006 in 2003) on these contracts represented by a balance of R$20,741 in liabilities (R$87 in assets and R$15,093 in liabilities in 2003), of which R$13,930 (R$9,426 in 2003) is current and R$6,811 (R$5,667 in 2003) is long term. The Company and its subsidiaries record derivative gains and losses as a component of net financial expenses.
Book and market values of loans and financing, and derivative instruments are estimated as follows:
As of December 31, 2004Book





Unrealizedvalue


Market value


lossLoans and financing


(226,284
)

(223,788
)

2,496Derivative contracts


(20,741
)

(17,437
)

3,304Total


(247,025
)

(241,225
)

5,800F-39

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
As of December 31, 2003Book





Unrealizedvalue


Market value


lossLoans and financing


(348,168
)

(344,996
)

3,172Derivative contracts


(15,006
)

(7,368
)

7,638Total


(363,174
)

(352,364
)

10,810c)
Market value of financial instrumentsThe market value of loans and financing and derivative instruments were determined based on the discounted cash flows, using available projected interest rate information.
Market values have been determined using available market information and appropriate valuation methodologies. Accordingly, the estimates presented above are not necessarily indicative of the amounts that could be realized in a current market. The use of different market assumptions may have a material effect on estimates.
36.
Subsequent eventOn March 28,2005, the Board of Directors of TCO approved the corporate restructuring of Teleacre Celular S.A, Telegoiás Celular S.A, Teleron Celular S.A and Telems Celular S.A.. The purpose of this operation seeks to obtain financial and operational benefits by reducing administrative costs, as well as the simplification of corporate and accounting processes. The incorporation of Telemat Celular S.A in TCO IP S.A is still pending of final approval of ANATEL.
On March 31, 2005, TCO approved a reverse split of the 386,664,974,968 registered book-entry shares of capital stock of TCO, with no par value, of which 129,458,666,783 are common shares and 257,206,308,185 are preferred shares. The reverse split will occur at the ratio of three thousand (3,000) shares to one (1) share of the respective class, after which there will be 128,888,325 registered book-entry shares, with no par value, of which 43,152,889 will be common shares and 85,735,436 will be preferred shares.
The reasons for the reverse stock split are: (i) to adjust the per share value of the shares to a more adequate level from a stock market perspective, since the trading of the shares in reais per share gives greater transparency as compared with the quotation per lot of one thousand (1,000) shares, (ii) to unify the basis for trading the shares in the national and international markets, since the shares were quoted in lots of one thousand (1,000) shares in the national market  the São Paulo Stock Exchange ( “BOVESPA”), and in lots of three thousand (3,000) shares for each American Depositary Receipt (“ADR”) on the New York Stock Exchange (“NYSE”); (iii) to reduce
operational expenses and to increase the efficiency of the system for registering information regarding the shareholders of TCO; and (iv) to reduce the possibilities of informational errors, improving services to the shareholders of TCO.
There will be no reverse split of ADRs. Only the ratio of shares to each ADR will be changed from the current ratio of three thousand (3,000) preferred shares per ADR to one (1) preferred share per ADR. Thus, there will be no fractional ADRs resulting from the reverse split.
37.
Summary of Differences between BR CL and U.S. GAAPThe Company’s accounting policies comply with BR CL which differ significantly from generally accepted accounting principles in the United States of America (U.S. GAAP) are described below.
As discussed in Note 2.c., the Company changed the basis of presentation of its financial statements from the Constant Currency Method to BR CL in 2003, Under the Constant Currency Method, the effects of monetary restatement were recorded until December 31, 2000. For previously issued financial statements prepared under the Constant Currency Method, the effects of monetary of inflation restatement represented a comprehensive measure of accounting for the effects of Brazilian price-level changes.
F-40

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Under BR CL, however, the effects of monetary restatement are recorded only until December 31, 1995. Since Brazil was still considered a highly inflationary economy until 1997, the U.S. GAAP reconciliation presented herein includes an adjustment to record monetary restatement for periods up to and including December 31, 1997. The applicable U.S. GAAP adjustments related to additional monetary restatement for 1996 and 1997 have are reflected for all periods presented herein.
The following is a reconciliation of net income under U.S. GAAP as for the year ended December 31, 2002, as previously reported under the Constant Currency Method and that reported herein under BR CL.
Net Income2002U.S. GAAP as originally reported


287,415Effect of change in monetary restatement on U.S. GAAP adjustments


18,473Taxes effects
  
  
  (6,281
  )Minority interests
  
  
  (283
  )U.S. GAAP as restated


299,324a.
Different Criteria for Capitalizing and Amortizing Capitalized InterestUntil December 31, 1998, under BR CL 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 related to interest on third party loans was credited to interest expense based on actual interest costs, with the balance relating to own capital being credited to capital reserves. For the three-year period ended December 31, 2004, the Company did not capitalize interest attributable to construction-in-progress .
Under U.S. 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 U.S. GAAP, the amount of interest capitalized excludes the monetary gain associated with local currency borrowings and the foreign exchange gains and losses on foreign currency borrowings.
The effects of these different criteria for capitalizing and amortizing capitalized interest are presented below:
2004


2003


2002Capitalized interestU.S. GAAP Capitalized interest


7,339


3,129


13,476U.S. GAAP capitalized interest on disposals


(1,932
)




BR CL  capitalized interest on disposals


1,926





U.S. GAAP difference


7,333


3,129


13,476Amortization of capitalized interestAmortization under  BR CL


7,920


8,935


7,514Capitalized interest on disposals


(1,492
)Less amortization under U.S. GAAP


(8,155
)

(8,754
)

(6,460
)Capitalized interest on disposals


1,496U.S. GAAP difference


(231
)

181


1,054b.
Proposed Dividends and Interest on Shareholders’ EquityUnder BR CL proposed dividends are accrued for in the financial statements in anticipation of their approval at the shareholders’ meeting. Under U.S. GAAP, dividends are not accrued until they are formally declared.
F-41

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
The interest on shareholders’ equity is a legal liability from the date it is declared, therefore, these amounts are included as dividends in the year they are proposed for U.S. GAAP purposes.
c.
Monetary Restatement of 1996 and 1997The amortization of the asset appreciation, which originated from the inflation accounting during 1996 and 1997, when Brazil was still considered as high inflationary economy for U.S. GAAP purposes, was recognized in the reconciliation to U.S. GAAP. The resulting step-up is amortized over the remaining lives of the related assets.
d.
Pension and Other Post-retirement BenefitsThe Company and its Subsidiaries participate in two multiemployer benefit plans (PBS-A and PAMA) for their  retired employees that are operated and administered by SISTEL and provide for the costs of pension and other post-retirement benefits based on a fixed percentage of remuneration, as recommended annually by independent actuaries. For purposes of U.S. GAAP, the Company is only required to disclose its annual contributions and the funded status related to multiemployer plans. The Company and its Subsidiaries also sponsor a single-employer defined pension benefit plan (PBS-TCO).  The provisions of SFAS No. 87  Employers’ Accounting for Pensions were applied for the multiemployer plan and the single
employer plans 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 28).
Substantially all the active employees
    have elected to migrate to a Company sponsored defined contribution pension
    plan created in 2000 (TCO-PREV). Those who have migrated have been credited
    individually with the balance of accumulated benefits as of the date of migration.
    As a result, a settlement and curtailment of the defined benefit pension
    plan occurred in 2000, as defined in SFAS No. 88. In addition, the Company
    and its subsidiaries are liable for certain contributions for certain risks
    involving death or disability.
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 differences:

A company that participates in a multiemployer defined benefit pension or postretirement benefit plan is required to recognize any assets or liabilities in respect to its participation in such plans, while SFAS Standards require 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 recognize such initial transition obligation
as of December 31, 2001, directly to shareholders’ equity. Such option has been
adopted by the Company. 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 U.S. GAAP liability exceeded the BR CL estimated liability by R$675 as of December 31, 2004, whereas BR CL liability exceeded the U.S. GAAP estimated liability by R$2,696 as of December 31, 2003. For 2004, a summary of the difference between BR CL and U.S. GAAP in accrued pension and other postretirement plans is as follows:
2004U.S. GAAP


BR CL


Accumulated differencePBS-TCO


(1,062
)




(1,062
)TCO-PREV


1,904





1,904PAMA-TCO





167


(167
)Accrued pension/postretirement benefit


842


167


675F-42

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
e.
Disclosure RequirementsU.S. GAAP disclosure requirements differ from those required by BR CL. However, in these consolidated financial statements, the level of disclosure has been expanded to comply with U.S. GAAP.
f.
Financial Income (Expense)BR CL requires that interest be shown as part of the operating income. Under U.S. GAAP, interest expense would be shown after the operating income and accrued interest would be included in accounts payable and accrued expenses.
g.
Earnings per ShareUnder BR CL, 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.
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.
As described in Note 29.a., the Company’s preferred shares have certain priority in the payment of minimum, noncumulative dividends. Consequently, 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.
Total dividends are calculated as described in Note 29. Since the Company has paid preferred dividends in excess of the required minimum for all years presented, distributable and undistributable net income are shared equally by the preferred and common shareholders on a “pro rata” basis.
At December 31, 2004, 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 29c). 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 special premium reserve of  R$517,148 in 2004  by the average price of common shares traded on theSão PauloStock Exchange (“Bovespa”) on the last 21 trading days of each year.
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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
The computation of basic and diluted earnings per share is as follows:
At December 31, 2004


At December 31, 2003


At December 31, 2002(in thousands, except per share data and percentages)Common


Preferred


Common


Preferred


Common


PreferredBasic numeratorActual dividends declared


23,007


46,693


35,701


74,799


27,564


51,911Basic allocated undistributed dividends


129,407


268,886


121,858


255,312


76,249


143,601Allocated net income
    available for common and preferred shareholders


152,414


315,579


157,559


330,111


103,813


195,512Basic denominatorWeighted average shares outstanding


122,717,982


254,985,981


120,641,944


252,766,698


127,583,902


240,279,068Basic earnings per share


1.24


1.24


1.31


1.31


0.81


0.81Diluted numeratoActual dividends declared


23,007


46,693


35,701


74,799


27,564


51,911Diluted allocated undistributed earnings


155,658


242,635


123,788


253,382


76,249


143,601Allocated net income
    available for common and preferred shareholders


178,665


289,328


159,489


328,181


103,813


195,512Diluted denominatorWeight average shares outstanding


122,717,982


254,985,981


120,641,944


252,766,698


127,583,902


240,279,068Dilutive effects of premium reserve


40,862,786





2,845,872





2,986,572


Diluted weight average shares


163,580,768





123,487,816





130,570,474


240,279,068Diluted earnings per share


1.09


1.13


1.29


1.30


0.81


0.81The 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
h.
Permanent AssetsBR CL 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. Under U.S. GAAP, the assets in this classification would be non-current assets and property, plant and equipment.
i.
LeasesThe Company has leased certain computer
    hardware and software under non-cancelable lease. Under BR CL, all leases
    are considered to be operating leases, with lease expense recorded when paid.
    For U.S. GAAP purposes, these leases are considered to be capital leases
    as defined in SFAS No. 13, Accounting for Leases. Under SFAS No. 13, the
    Company is required to record the asset at the present value of the minimum
    lease payments with a corresponding debt obligation. Depreciation is recorded
    over the shorter of the estimated useful life of the asset or the lease.
    Interest expense is recognized over the life of the lease and payments under
    the lease are amortized to principal and interest under the effective interest
method.
j.
Valuation of Long-lived AssetsUnder U.S. GAAP, the Company evaluates long-lived assets for impairment using the criteria set forth in SFAS No. 144 Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of.  In accordance with this standard, the Company periodically evaluates the carrying value of long-lived assets to be held and used, when events and circumstances warrant such a review.  The carrying value of long-lived assets is considered impaired when the separately identifiable anticipated undiscounted cash flow from such assets is less than their carrying value.  In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the assets.
The Company has performed a review of its long-lived assets including property, plant and equipment, finite-lived intangible asset (including concession) and concluded that the recognition of an impairment charge was not required for all periods presented.  The Company’s evaluation of its ability to recover the carrying value
F-44

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
of its long-lived assets was based upon projections of future operations that assumed a higher level of revenues and gross margin percentages that the Company has historically achieved. There can be no assurance that the Company will be successful in achieving these improvements in its revenues and gross margin percentages, mainly due to technological and competition environment. Should the Company be unable to achieve such improvements, future impairment provisions may be recorded related to its investments in property, plant and equipment and the concessions acquired to operate its cellular networks by ANATEL.
k.
Income TaxesThe Company fully accrues for deferred income taxes on temporary differences between tax and accounting records. The existing policies for providing for deferred taxes are substantially in accordance with SFAS No.109, “Accounting for Income Taxes.
Under BR CL, 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 re-approved every 30 days or they lapse. Under SFAS 109, the provisional measures discussed are not considered to be enacted law. The provisional measure was approved in Law 10,637 as of December 30, 2002.Therefore, until 2002, the combined deferred tax effect calculated on temporary differences would be 33%, not 34%. For 2004 and 2003, no difference related to the social contribution tax rate. Under BR CL, the deferred taxes are presented gross.
Under U.S. GAAP, deferred taxes are presented net.
l.
Costs of Start-up ActivitiesUnder BR CL, the Company deferred certain start-up costs in relation to the creation of certain subsidiaries.
Under U.S. GAAP, AICPA  Statement of Position 98-5, “Reporting on the Costs of Start-up Activities” requires costs of start-up activities and organization cost to be expensed as incurred.
m.
Revenue RecognitionFor U.S. GAAP, the Company recognizes service revenue as the services are provided.  Prepaid service revenue is deferred and amortized based on subscriber airtime usage.  Sales of handsets along with the related cost of the handsets are amortized over their estimated useful life (2 years).  The excess of the cost over the amount of deferred revenue related to handset sales is recognized on the date of sale.
(i)
    RoamingThe Company has roaming agreements with other cellular service providers.  When a call is made from within one coverage area by a subscriber of another cellular service provider, that service provider pays the Company for the service at the applicable rates.  Conversely, when one of the Company’s customers roams outside the coverage area, the Company pays the charges associated with that call to the cellular service provider in whose region the call was originated and charges the same amount to its subscriber.  Under BR CL, revenues for roaming charges are recorded net of the related costs when the services are provided.  Under U.S. GAAP, revenues and costs for roaming charges should be recorded gross.  Accordingly this difference in
accounting policy has no impact on net (loss) or shareholders’ equity.  The impact of this difference under U.S. GAAP was to increase both revenues and cost of services and goods sold by R$48,622, R$59,972 and R$55,931 for 2004, 2003 and 2002, respectively.
(ii)
    Value-added and other sales
    taxesUnder BR CL, these taxes are recorded in revenue net of the related tax expense. Under U.S. GAAP, these taxes are recorded gross as revenue and related cost of services and goods sold. Accordingly, this difference in accounting has no impact in net or shareholders’ equity.  The impact of this difference under U.S. GAAP was to increase both revenues and cost of services and goods sold  by R$610,813, R$482,826 and R$377,576 for 2004, 2003 and 2002,  respectively, for U.S. GAAP as compared to amounts reported under BR CL.
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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
(iii)
    Deferred revenue sales of handsetsUnder BR CL, revenues and costs related to handset
    sales, including applicable value added and other sales taxes are recognized
    when sold. Under U.S. GAAP, revenue on sales of handsets along with the related
    cost of the handset, including applicable value added and other sales taxes,
    are amortized over their estimated useful life. Any excess of the cost over
    the amount of deferred revenue related to handset sales is recognized on
    the date of sale. As substantially all of the Company’s handsets are sold
    below cost, this difference in accounting policy had no impact on net or shareholders’ equity.
    The unamortized balance of deferred handset revenue and the related balance
    of unamortized deferred handset costs was R$230,493, R$434,511 and R$399,308
    at December 31, 2004, 2003 and 2002, respectively. The impact of this difference
    under U.S. GAAP was to increase (decrease) both net revenues and cost of
    services and goods sold by R$204,018, R$35,203 and R$114,821 at December
    31, 2004, 2003
    and 2002, respectively.
(iv)
    Free minutes given in connection
    with sales of handsetsUnder U.S. GAAP, pursuant to Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements with Multiple Deliverables,” the Company began to separately account for free minutes given in connection with the sales of handsets. The adoption of EITF No. 00-21 is effective prospectively for transactions entered into as from January 1, 2004. Consequently, a portion of the revenue generated from the sale of handsets is allocated to the free minutes given and deferred based on the fair value of the minutes. The revenues associated with the free minutes are then recognized based on subscriber airtime usage.
n.
    Amortization of ConcessionFor  BR CL purposes, the concession (license) for the Band B Company, NBT was being amortized over 30 years  which included an additional 15 years assuming renewal by Anatel. As from January 2001 the amortization period was prospectively changed to 15 years.
For U.S. GAAP purposes, the amortization period of 15 years includes only the initial term of the concession.
o.
    Investments in Marketable
    SecuritiesUnder BR CL, marketable securities are valued based on historical cost plus accrued interest.  U.S. GAAP requires securities be valued in accordance with SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities”. Under U.S. GAAP, the FIXCEL debentures were classified as available-for-sale under SFAS 115. However, since, the fair value approximated the carrying value, no U.S. GAAP adjustment was required.
p.
    Derivatives and Hedging ActivitiesAs of January 1, 2001, the Company adopted Financial Accounting Standards Board Statement No. 133, "Accounting for Derivative Instruments and for Hedging Activities ("SFAS 133"), which was issued in June, 1998 and amended by  SFAS 137, "Accounting for Derivative Instruments and Hedging Activities  Deferral of the Effective Date of FASB Statement No. 133" SFAS 138, "Accounting for Derivative Instruments and Certain Hedging Activities" and SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (collectively referred to as Statement SFAS 133). SFAS 133 established accounting and reporting standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or a 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 133 on January 1, 2001, did not have an impact on the Company’s results of operations and financial position.
Under BRCL, the Company records its derivatives contracts as either an asset or liability measured at the spot rates at period end plus the coupon rate as stated in the agreements and adjustments to contract value are recorded in income.
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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
At December 31, 2004 and 2003 the Company had entered into cross currency swaps contracts whereby the Company earns the exchange variation between the United States dollar and the Brazilian Real plus 3.9% to 20.0% and pays interest based on a short term interbank rate. At December 31, 2004 and 2003 these agreements have total notional amounts of US$ 31,327,000 and US$ 61,239,000, respectively, and expire on various dates through 2007. Under U.S. GAAP, these contracts were not designed as hedges for accounting purposes as defined by SFAS133 and consequently, the changes in fair value of these contracts were recorded in earnings. The fair values adjustments of the Company's derivative contracts were estimated based on quoted market prices of
comparable contracts, and at December 31, 2004 and 2003 were approximately R$4,320 and R$41,561, respectively.
q.
    Comprehensive IncomeUnder U.S. GAAP, under SFAS No. 130, “Reporting Comprehensive Income” comprehensive income is equal to  net income under USGAAP.
r.
    Unclaimed DividendsThe Company recorded the amount of R$ 5,418 relating to unclaimed dividends in 2002 net income for BR CL purposes. Under U.S. GAAP this amount was recorded directly in shareholders equity.
s.
    Acquisition of Minority InterestIn 2002, the Company acquired the minority interest in the subsidiary, Telebrasilia Celular S.A. (Telebrasilia). The acquisition increased the Company’s interest in Telebrasilia from 88.25% to 100%. In 2004, the Company acquired the remaining minority interest in Telegoiás Celular S.A (Telegoiás), Telemat Celular S.A (Telemat), Telems Celular S.A (Telems), Teleron Celular S.A (Teleron) and Teleacre Celular S.A (Teleacre). Under BR CL, these transactions were recorded at book value.  Under U.S. GAAP, the Company recorded these transactions at fair value as required by the purchase method under SFAS No. 141.  As a result, for U.S. GAAP purposes the shares issued to purchase the minority interests in 2002 and 2004 were recorded
at the fair value of R$64,799 and R$48,542, respectively, on the respective dates of the transactions. Additionally, in 2002 and 2004, the Company recorded a step up in the fair value of assets of R$41,294 and R$30,285, respectively, and deferred income tax liabilities of R$14,040 and R$10,297, respectively. The step up in the fair value of assets is being amortized over approximately 19 years and 8 years for intangibles and fixed assets, respectively, and resulted in additional depreciation and amortization expense under U.S. GAAP.
t.
    Advance to affiliateIn January 2002, the Company made an advance payment of R$34,259, adjusted based on market rates, to BID S.A. corresponding to the present value of the tax benefit on the merged premium. With this transaction, the Company relieved itself of issuing the corresponding shares to BID S.A. in the future.  Under BR CL, in 2004 and 2003 the amounts of R$15,584 and R$44,461, respectively, were recorded as an advance to affiliate. For U.S. GAAP purposes, such transaction would be recorded as a distribution to shareholder. Additionally, for U.S. GAAP purposes, no interest income would be accrued related to this transaction.
u.
    FISTEL feeBeginning in 1999, under BR CL, the Fistel (Telecommunication Inspection Fund) fee, assessed on each activation of a new cellular line, is deferred and amortized over the customers’ estimated subscription period. For U.S. GAAP purposes, this tax would be charged directly to the consolidated statements of income. Therefore, the deferred Fistel taxes on activation fees at December 31, 2004, 2003 and 2002 is being adjusted in the reconciliation of the income differences between U.S. GAAP and BR CL.
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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Reconciliation of the Income Differences Between U.S. and  BR CL
2004


2003


2002Net income as reported


507,051


463,408


329,183Different criteria for:Amortization of monetary restatement of 1996 and 1997


(3,487
)

(11,144
)

(11,144
)Loss on disposal of assets monetarily restated in 1996 and 1997





(60
)

Capitalized interest


7,333


3,129


13,476Amortization of capitalized interest


(231
)

181


1,054Amortization of concession  NBT


342


3,093


144Capital lease


1,508


2,583


Adjustment of advance to affiliate


(2,291
)

(4,235
)

(5,967
)Purchase accounting:Depreciation on fixed assets adjustments


(318
)

(318
)

(234
)Amortization on intangible assets


(2,723
)

(1,965
)

(1,298
)Pension and other postretirement plans


(3,371
)

3,511


(1,457
)Costs of start-up activities and others


5,216


4,610


4,593Derivative contracts


(4,320
)

41,561


(33,937
)Unclaimed dividends








(5,418
)Amortization of donations


43


87


FISTEL fee


(34,399
)




Free minutes given in connection with sales of handsets


(21,470
)




Deferred tax effects of above adjustments


18,968


(15,361
)

9,853Effects of minority interest on the above adjustments


142


(1,410
)

476U.S. GAAP net income


467,993


487,670


299,324Net income per thousand shares accordance with U.S. GAAP


2004


2003


2002Earnings per thousand common shares  Basic


1.24


1.31


0.81Weighted average of common shares   Basic


122,717,982


120,641,944


127,583,902Common shares  DilutedEarnings per thousand common shares  Diluted


1.09


1.29


0.81Weighted average of common shares  Diluted


163,580,768


123,487,816


130,570,474Preferred shares  BasicEarning per thousand preferred shares  Basic


1.24


1.31


0.81Earnings per thousand preferred shares  Diluted


1.13


1.30


0.81Weighted average of preferred shares
    (basic and diluted)


254,985,981


252,766,698


240,279,068F-48

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Reconciliation of the Shareholders’ Equity Differences Between U.S. and  BR CL
2004


2003Total shareholders' equity as reported


2,441,502


1,556,086Add/(deduct):Different criteria for:Monetary restatement of 1996 and 1997  fixed assets


87,236


87,236Amortization of monetary restatement of 1996 and 1997


(81,249
)

(77,762
)Capitalized interest


7,519


186Amortization of capitalized interest


21,298


21,529Amortization of concession  NBT


(2,670
)

(3,012
)Capital lease


4,091


2,583Adjustment of advance to affiliate


(15,584
)

(44,461
)Purchase accounting:Fixed assets adjustments


2,958


2,958Depreciation on fixed assets adjustments


(870
)

(552
)Intangible assets


68,621


38,336Amortization on intangible assets


(5,986
)

(3,263
)Pension and other post-retirement plans


(675
)

2,696Costs of start-up activities and others


(21,694
)

(26,910
)Derivatives contracts


3,304


7,624Reversal of proposed dividends


51,104


Donations received


(989
)

(98
)Amortization of donations


130


87Fistel fee


(34,399
)

Free minutes given in connection with sales of handsets


(21,470
)

Deferred tax effects of above adjustments


(8,889
)

(17,560
)Minority interests





(583
)Shareholders’ equity according to U.S. GAAP


2,493,288


1,545,120Statements of Changes in Shareholders’ Equity under  U.S. GAAP
2004


2003


2002Shareholders’ equity under U.S. GAAP as of beginning of the year


1,545,120


1,183,295


1,006,393Acquisition of the minority interest of Telebrasília Celular S.A








64,799Capital decrease


(100
)




Capital increase  acquisition of minority interest


48,984





Capital increase  corporate restructuring (Note 30)


511,061





Tax loss on merged goodwill


(273
)




Acquisition of treasury shares








(62,913
)Reissuance of treasury shares


53





13,616Adjustment of advance to affiliate








(34,259
)Net income


467,993


487,670


299,324Unclaimed dividends


2,450


4,155


5,418Payment to shareholders’ related
    to premium utilization








(15,584
)Interest on shareholders’ equity


(82,000
)

(130,000
)

(93,499
)Shareholders’ equity under U.S. GAAP as of the end of the year


2,493,288


1,545,120


1,183,295F-49

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
U.S. GAAP supplementary
    information Reconciliation of operating income under  BR CLTo operating income under U.S. GAAP 


2004


2003


2002BR CL operating income as reported


743,503


659,321


462,538Reversal of financial (income) expense, net


(62,208
)

(111,670
)

(3,970
)U.S. GAAP adjustmentsAmortization of monetary restatement of 1996 and 1997


(3,487
)

(11,144
)

(11,144
)Loss on disposal
    of assets monetarily restated in 1996 and 1997





(60
)

Amortization on capitalized interest


(231
)

181


1,054Amortization of concession  NBT


342


3,093


144Fixed assets  reversal of rental expenses





8,694


Depreciation of capital lease


(1,765
)

(2,197
)

Fistel fee


(34,399
)




Purchase accountingDepreciation of fixed assets
    adjustment


(318
)

(318
)

(234
)Amortization of intangible asset


(2,723
)

(1,965
)

(1,298
)Pre-operating expenses


5,216


4,610


4,593Amortization of donations


43


87


Unclaimed dividends








(5,418
)Pension and other postretirement benefits


(3,371
)

3,511


(1,457
)Free minutes given in connection with sales of handsets


(21,470
)




U.S. GAAP operating income


619,132


552,143


444,808Reconciliation of net operating revenue and costs of services and goods sold under  BR CLto U.S. GAAP 


2004


2003


2002BR CL net operating revenue


2,210,426


1,958,910


1,572,110Reclassification to cost of services and goods soldTaxes on sales


610,813


482,826


377,576Increase in revenue for roaming charges


48,622


59,972


55,931U.S. GAAP adjustmentsDeferred revenues on handset sales, net of amortization


204,018


(35,203
)

(114,821
)Free minutes given in connection with sales of handsets


(30,091
)




U.S. GAAP net revenue


3,043,788


2,466,505


1,890,796F-50

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
2004


2003


2002BR CL cost of services and goods sold


(910,409
)

(904,022
)

(741,772
)Reclassification to cost of services and goods soldTaxes on sales


(610,813
)

(482,826
)

(377,576
)Taxes on free
    minutes given in connection with sales of handsets


8,621





Increase in revenue for roaming charges


(48,622
)

(59,972
)

(55,931
)Deferred cost on handset sales, including taxes on sales, net of amortization during the year


(204,018
)

35,203


114,821Reclassification from selling expenseRewards program expense


(1,395
)

(309
)

(561
)U.S. GAAP adjustmentsAmortization of monetary restatement of 1996 and 1997


(3,487
)

(11,144
)

(11,144
)Amortization on capitalized interest


(231
)

181


1,054Amortization of concession  NBT


342


3,093


144Fixed assets  capital lease





8,694


Depreciation of capital lease


(1,765
)

(2,197
)

Fistel Fee


(34,399
)




Purchase accountingDepreciation of fixed assets adjustment


(318
)

(318
)

(234
)Amortization of intangible assets


(2,723
)

(1,965
)

(1,298
)Amortization of donations


43


87


Pension and other post-retirement benefits


(3,371
)

3,511


(1,457
)U.S. GAAP cost of services and goods


(1,812,545
)

(1,411,984
)

(1,073,954
)U.S. GAAP gross profit


1,231,243


1,054,521


816,842Additional information:


2004


2003Total assets under U.S. GAAP


3,614,669


2,655,017Property, plant and equipment


1,875,268


1,592,539Accumulated depreciation


(969,087
)

(781,064
)Net property, plant and equipment


906,181


811,47538.
Additional disclosures required by U.S. GAAPa.
Pension and Other Postretirement BenefitsA summary of the liability as of December 31, 2004 and 2003 for the Company’s and Subsidiaries’ activeChange in benefit obligation2004


2003Benefit obligation at beginning
    of year


37,880


32,330Service cost


1,250


1,400Interest cost


4,224


3,627Plan participants’ contributions


8


9Actuarial (gain) loss


(340
)

1,024Benefits paid


(667
)

(510
)Benefit obligation at end of year
    (a)


42,355


37,880F-51

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
Change in plan assets2004


2003Fair value of plan assets at beginning
    of year


35,556


27,885Actuarial return on plan assets


7,595


6,822Actual contribution


1,082


1,359Benefits paid


(667
)

(510
)Fair value of plan assets at end
    of year (b)


43,566


35,556Reconciliation of funded status2004


2003Funded status (a-b)


(1,211
)

2,324Unrecognized net actuarial (loss)
    gain


6,495


2,651Unrecognized net transition obligation


(4,442
)

(4,861
)Net amount recognized


842


114Amounts recognized in the statement of financial position of:2004


2003Prepaid benefit cost


(1,062
)

(1,139
)Accrued benefit cost


1,904


1,253Net amount recognized


842


114The accumulated benefit obligation for all defined benefit pension plans was R$ 41,646 in 2004 and R$ 36,967 in 2003.
Information for pension plans with an accumulated benefit obligation in excess of plan assets:2004


2003Projected benefit obligation





36,143Accumulated benefit obligation





35,480Fair value of plan assets





33,672Disclosure of net periodic pension cost and other benefit obligation cost
2004


2003


2002Service cost


1,250


1,400


61Interest cost on PBO


4,224


3,627


92Expected return on assets


(4,192
)

(4,086
)

(287
)Amortization of initial transition
    obligation


421


420


3Amortization of gains


108


(86
)

(32
)Net periodic pension cost and other
    benefit cost


1,811


1,275


(163
)Plan assets allocationThe asset allocation for the Company’s defined benefit pension plan (PBS-TCO and TCO-Prev) at the end of 2004 and 2003, and the target allocation for 2005, by asset category, are as follows.
Target Allocation for


Percentage of Plan Assets at Year EndAsset category


2005


2004


2003Equity securities


15.0
%

14.3
%

13.9
%Loans


1.9
%

1.9
%

1.9
%Fixed income


83.1
%

83.8
%

84.2
%Total


100.0
%

100.0
%

100.0
%F-52

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
The investment strategy is based on a long-term macroeconomic scenario, which takes into consideration the assumption of maximization of risk and return of the several kinds of investments (fixed income, equity securities and loans), according to limits of allocation imposed by Conselho Monetário Nacional Resolutions.
The actuarial assumptions used in 2004 and 2003 were as follows:2004


2003Discount rate for determining projected benefit obligations



11.30
%

11.30
%Rate of increase in compensation levels


7.10
%

7.10
%Benefit adjustments


5.00
%

5.00
%Expected long-term rate of return on plan assets


13.75
%

11.83
%Inflation


5.00
%

5.00
%Number of active participants  PBS  TCO


2


3Number of active participants  TCO-PREV


1,261


1,339Number of retirees and beneficiaries  PBS  TCO


12


11Number of active participants  TCO  PREV


14


8Estimated Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
TCO-PREV


PBS-TCO2005


788


1522006


1,062


1582007


1,199


1692008


1,354


1752009


1,532


181Years 2010-2014


10,574


999b.        Intangible assets subject to
      amortization
Following is a summary of the Company’s intangible assets subject to amortization under U.S. GAAP:
2004


2003Software


Concession


Software


ConcessionGross


209,592


129,171


131,854


98,886Accumulated amortization


(83,602
)

(30,542
)

(55,260
)

(23,783
)Net


125,990


98,629


76,594


75,103Aggregate amortization expense for
    the above intangible assets amounted to R$35,102, R$39,368 and R$22,815 for
    the years ended December 31, 2004, 2003 and 2002, respectively.
The estimated aggregate amortization expense for the next five years is as follows:
Amount2005


49,4352006


49,4352007


49,4352008


7,7522009


7,517F-53

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
c.
Concentration of RiskCredit risk with respect to trade accounts receivable from third parties is diversified.  Although collateral is not required, 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 three telephone bills past-due.  Exceptions include telephone services that must be maintained for reasons of safety or national security.In conducting their businesses, the Companies are fully dependent upon the cellular telecommunications concession as granted by the Federal Government.Approximately 24.32% of all full-time 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 unions. The collective agreements currently in force expire in Month October, 31, 2006.There is no concentration of available sources of labor, services, concessions or rights, other than those mentioned above, that the Company believes could, if suddenly eliminated, severely impact the Companies’ operations.d.
Capital LeasesThe future minimum payments, by year and in the aggregate, under the Company’s non-cancelable lease obligations classified as capital leases are as follows:Liabilities recorded in the balance
    sheet for U.S. GAAP purposes


641Less current portion


(641
)Long-term capital lease obligation


The following summarizes the amounts related to the assets and accumulated depreciation for U.S. GAAP purposes of the related assets under the Company’s capital lease obligations:Property, Plant and Equipment:Software


8,694Less: accumulated amortization


(3,962
)4,732e.      Commitments (Unaudited)
At December 31, 2004, the Company
    budgeted capital expenditure commitments amounting to R$390.5 million, principally
    relating to infrastructure, information technology and transmission equipment.The Company is subject to obligations concerning quality of services, network expansion and modernization, as established in our authorizations and our original concession agreements.  The Company believes that it is currently in compliance with its quality of service and expansion obligations.F-54

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TELE CENTRO OESTE CELULAR PARTICIPAÇÕES S.A.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)For the years ended December 31, 2004, 2003 and 2002(Amounts expressed in thousands of Brazilian reais)
f.       Segment Information
The Company and its subsidiaries operate solely 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 Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul, Rondônia, Acre, Amazonas, Roraima, Amapá, Pará, Maranhão and Distrito Federal.g.       New Accounting Pronouncements
In December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51"  ("FIN 46R" or the "Interpretation"). FIN 46R clarifies the application of ARB No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its  activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities ("VIEs"), by the primary beneficiary of the entity. The primary beneficiary is the entity, if
any, that will absorb a majority of the entity's expected losses, receive a majority of the entity's expected residual returns, or both.
Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies, to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered "special-purpose entities" under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003.  The adoption of FIN 46R did not have a material impact on the Company’s
financial position, cash flows and results of operations.
In November 2002, the Emerging Issues Task Force (“EITF”), of the FASB reached a consensus on EITF 00-21 (Accounting for Revenue Arrangements with Multiple Deliverables). EITF 00-21 provides guidance on how to account for arrangements that may involve multiple revenue-generating activities, for example, the delivery of products or performance of services, and/or rights to use other assets. The requirements of EITF 00-21 will be applicable to agreements entered into for periods beginning after June 15, 2003 and will therefore first apply to the Company for any arrangements entered into from April 1, 2004. The Company prospectively adopted this EITF relating to free minutes given in connection to sales of handsets as from January
1st 2004 .
In July 2003, the EITF reached consensus in EITF Issue No. 03-11 that determining whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances and the economic substance of the transaction. In analyzing the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29, "Accounting for Nonmonetary Transactions," should be considered. EITF Issue No. 03-11 is effective for transactions or arrangements entered into after September 30, 2003. The adoption of EITF Issue No. 03-11 did not have a material effect on the Company’s financial statements.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets  an amendment of APB Opinion No. 29" (“SFAS 153”), which amends Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions" to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is effective for nonmonetary assets exchanges occurring in fiscal periods beginning after June 15, 2005. The Company will apply this statement in the event that exchanges of nonmonetary assets occur in fiscal
periods beginning after June 15, 2005.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *F-55

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SIGNATURE



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 CENTRO OESTE    CELULAR PARTICIPAÇÕES S.A.By:
  /s/ FRANCISCO JOSÉ    AZEVEDO PADINHAName:  Francisco    José Azevedo PadinhaTitle:    Chief    Executive OfficerBy:
  /s/ ARCADIO LUÍS MARTÍNEZ    GARCÍAName:
  Arcadio
    Luís Martínez GarcíaTitle:
  Executive
      Vice President for Finance, Planning and Control and Investor Relations
    Officer

Dated:  April 15, 2005