---

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

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

|Commission file number: 001-14493
TELE SUDESTE CELULAR PARTICIPAÇÕES S.A.
(Exact name of Registrant as specified in its charter) Tele Sudeste Cellular Holding Company
(Translation of Registrants name into English) The Federative Republic of Brazil
(Jurisdiction of incorporation or organization) Praia de Botafogo, 501, 7o andar22250-040 Rio de Janeiro, RJ, Brazil(Adress
of principal executive offices)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                    
|Securities registered or to be registered pursuant to Section 12(b) of the Act:                                                                                                                                                                                                                                                                                                                                     

|Title of each class:                         | Name of each exchange on which registered:
|-------------------------------------------- | ------------------------------------------
|Prefered Shares, without par value           | New York Stock Exchange*                  
|American Depositary Shares (as evidenced     | New York Stock Exchange                   
|by American Depositary Receipts), each       |                                           
|representing 5,000 shares of Preferred Stock |                                           

---

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

|                                                                                   
|-----------------------------------------------------------------------------------
|Securities registered
or to be registered pursuant to Section 12(g) of the Act:None
|                                                                                   

|Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:None
|----------------------------------------------------------------------------------------------
|                                                                                              

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

154,431,420,977 Shares of Common Stock259,575,036,202 Shares of Preferred Stock

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.

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

---



TABLE OF CONTENTS

Page

PART I

|ITEM 1.  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      | 1 
|-------- | ---------------------------------------------------------- | --
|ITEM 2.  | OFFER STATISTICS AND EXPECTED TIMETABLE                    | 1 
|ITEM 3.  | KEY INFORMATION                                            | 1 
|ITEM 4.  | INFORMATION ON THE COMPANY                                 | 11
|ITEM 5.  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS               | 35
|ITEM 6.  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                 | 49
|ITEM 7.  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS          | 57
|ITEM 8.  | FINANCIAL INFORMATION                                      | 59
|ITEM 9.  | THE OFFER AND LISTING                                      | 66
|ITEM 10. | ADDITIONAL INFORMATION                                     | 69
|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 81
|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     | 82

PART II

|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 83
|-------- | ---------------------------------------------------------------------------- | --
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 83
|ITEM 15. | CONTROLS AND PROCEDURES                                                      | 83
|ITEM 16. | [RESERVED]                                                                   | 83

PART III

|ITEM 17. | FINANCIAL STATEMENTS | 83
|-------- | -------------------- | --
|ITEM 18. | FINANCIAL STATEMENTS | 83
|ITEM 19. | EXHIBITS             | 83



INTRODUCTION

All
references in this annual report to:

- Tele Sudeste
Celular Participações S.A., Tele Sudeste, we, our and us are to Tele Sudeste
Celular Participações               S.A. and its consolidated subsidiaries (unless the
context otherwise requires), including the operations of Telerj               Celular
S.A., known as Telerj Celular, and Telest Celular S.A., known as Telest Celular;
- Brazilian
government are to the federal government of the Federative Republic of Brazil;
- real, reais or
R$ are to Brazilian reais, the official currency of Brazil;
- U.S.$, dollars or
U.S. dollars are to United States dollars;
- ADSs are to our
American Depositary Shares, each representing 5,000 shares of our non-voting preferred
stock;
- Commission are
to the U.S. Securities and Exchange Commission;
- CVM are to the
Comissão de Valores Mobiliários, the Brazilian securities commission;
- Brazilian
Central Bank, Central Bank of Brazil or Central Bank are to the Banco Central do
Brasil, the Brazilian               central bank;
- General
Telecommunications Law are to Lei Geral de Telecomunicações, as amended, which regulates
the telecommunications industry in Brazil;
- Brazilian
corporate law are to Law No. 6,404 of December, 1976, as amended;
- Anatel are to Agência
Nacional de Telecomunicações ANATEL, the Brazilian telecommunication regulatory agency;
and
- SMP are to Serviço
Móvel Pessoal, a service rendered pursuant to a new legislation that authorizes wireless
companies to provide wireless services.

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

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

PRESENTATION OF
FINANCIAL INFORMATION

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

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

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

FORWARD-LOOKING
STATEMENTS

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

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

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

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

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



PART I

ITEM 1. IDENTITY OF
DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not
applicable.

ITEM 2. OFFER
STATISTICS AND EXPECTED TIMETABLE

Not
applicable.

ITEM 3. KEY INFORMATION

A. Selected
Financial Data

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

Accounting
Consequences of the Restructuring of Telebrás

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

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

Selected Financial
Information

|                                                   | Year ended December 31,                         
|-------------------------------------------------- | ------------------------------------------------
|                                                   | 1998                                            
|                                                   | (in thousands of reaisexcept when indicated) (1)
|Income Statement Data:                            
|Brazilian GAAP                                    
|Net operating revenue                              | 1,218,304                                       
|Cost of services and goods                         | (570,202)                                       
|Gross profit                                       | 648,102                                         
|Operating income (expenses)                       
|Selling                                            | (199,515)                                       
|General and administrative                         | (82,416)                                        
|Other operating income (expenses), net.            | (10,427)                                        
|Operating income (loss) before interest            | 355,744                                         
|Financial expense, net.                            | (12,976)                                        
|Operating income (loss)                            | 342,768                                         
|Net non-operating income (expense)                 | (841)                                           
|Income (loss) before minority interests  and taxes | 341,927                                         
|Income and social contribution taxes              
|benefit (expense)                                  | (69,617)                                        
|Minority interests (2)                             | (46,688)                                        
|Net income                                         | 225,322                                         

|Earnings per thousand shares                       | 0.670 | 0.060 | 0.230     | 0.240 | 0.180
|-------------------------------------------------- | ----- | ----- | --------- | ----- | -----
|Dividends per thousand preferred  shares--R$       | 0.257 | 0.080 | (a) 0.119 | 0.108 | 0.255
|Dividends per thousand preferred  shares--U.S.$(3) | 0.137 | 0.046 | (a) 0.057 | 0.047 | 0.075
|Dividends per thousand common  shares--R$          | 0.257 | 0.015 | (a) 0.119 | 0.108 | 0.232
|Dividends per thousand common  shares--U.S.$ (3)   | 0.137 | 0.009 | (a) 0.057 | 0.047 | 0.068

|(a) | For the year 2000, there was an additional dividend for preferred and common shares issued as a result of the reorganization in the amount of R$0.019 (U.S.$0.009).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                       | Year ended December 31,                         
|------------------------------------------------------------------------------------------------------ | ------------------------------------------------
|                                                                                                       | 1998 (1)                                        
|                                                                                                       | (in thousands of reaisexcept when indicated) (1)
|U.S. GAAP                                                                                              |                                                 
|Net income (loss) before cumulative
effect of  adoption of accounting principle                        | 218,273                                         
|Cumulative effect of adoption of
accounting  principle, net of income tax effects of   R$1,025         | --                                              
|Net income (loss)                                                                                      | 218,273                                         
|Net income (loss) before cumulative effect of
  adoption of accounting principle per thousand  shares:
|Common shares--basic                                                                                   | 0.66                                            
|Common shares--diluted                                                                                 | 0.66                                            
|Weighted average number of common      shares outstanding--basic (thousands)                           | 124,369,031                                     
|Weighted average number of common      shares outstanding--diluted (thousands).                        | 124,369,031                                     
|Preferred shares--basic                                                                                | 0.66                                            
|Preferred shares--diluted                                                                              | 0.66                                            
|Weighted average number of Preferred      shares outstanding--basic and diluted       (thousands)      | 206,028,812                                     

|Cumulative effect of adoption of accounting   principle, net of income tax effects of   R$1,025, per thousand shares: |    |    |    |             |   
|--------------------------------------------------------------------------------------------------------------------- | -- | -- | -- | ----------- | --
|Common shares--basic                                                                                                  | -- | -- | -- | --          | --
|Common shares--diluted                                                                                                | -- | -- | -- | --          | --
|Weighted average number of common     shares outstanding--basic     (thousands)                                       | -- | -- | -- | 136,479,679 | --
|Weighted average number of common shares     outstanding--diluted (thousands)                                         | -- | -- | -- | 225,110,055 | --
|Preferred shares--basic                                                                                               | -- | -- | -- | --          | --
|Preferred shares--diluted                                                                                             | -- | -- | -- | 0.01        | --
|Weighted average number of preferred shares     outstanding--basic and diluted (thousands)                            | -- | -- | -- | 259,587,240 | --

|Net income (loss) per thousand shares:                                                     |             |             |             |             |            
|------------------------------------------------------------------------------------------ | ----------- | ----------- | ----------- | ----------- | -----------
|Common shares--basic                                                                       | 0.66        | (0.25)      | 0.34        | 0.22        | (0.11)     
|Common shares--diluted                                                                     | 0.66        | (0.25)      | 0.24        | 0.15        | (0.11)     
|Weighted average number of common shares   outstanding--basic (thousands)                  | 124,369,031 | 124,369,031 | 125,390,242 | 136,479,679 | 148,443,147
|Weighted average number of common shares   outstanding--diluted (thousands)                | 124,369,031 | 124,369,031 | 221,471,887 | 225,110,055 | 222,297,796
|Preferred shares--basic                                                                    | 0.66        | (0.19)      | 0.34        | 0.22        | (0.10)     
|Preferred shares--diluted                                                                  | 0.66        | (0.19)      | 0.29        | 0.20        | (0.10)     
|Weighted average number of preferred shares   outstanding--basic and diluted   (thousands) | 206,028,812 | 210,029,997 | 214,170,953 | 259,587,240 | 259,575,037

|(1) | For 1998 through 2000, information is presented in constant reais of December 31, 2000. For 2001 and 2002, information is expressed in nominal reais. All information is presented in accordance with Brazilian GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | See Item 4A. Our History and Development.                                                                                                                                                                          
|(3) | U.S. dollar amount determined according to the applicable exchange rate at the date of the general shareholders meeting that approved the dividend distribution.                                                    

|                                                           | Year ended December 31,                         
|---------------------------------------------------------- | ------------------------------------------------
|                                                           | 1998                                            
|Cash Flow Data:                                            | (in thousands of reais except when indicated)(1)
|Operating activities:                                      |                                                 
|Total net cash provided by (used in) operating  activities | 405,527                                         
|Investing activities:                                     
|Total net cash used in investing activities                | (252,398)                                       
|Financing activities:                                     
|Total net cash provided by (used in) financing  activities | (91,338)                                        
|                                                          
|Increase (decrease) in cash and cash equivalents           | 61,791                                          
|                                                          
|Cash and cash equivalents at beginning of year             | 49,466                                          
|                                                           |                                                 
|Cash and cash equivalents at end of year                   | 111,257                                         

|(1) | For 1998 through 2000, information is presented in constant reais of December 31, 2000. For 2001 and 2002, information is expressed in nominal reais. All information is presented in accordance with Brazilian GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | On December 31,           
|------------------------------------------------ | --------------------------
|                                                 | 1998                      
|                                                 | (in thousands of reais)(1)
|Balance Sheet Data:                              |                           
|Brazilian GAAP                                  
|Property, plant and equipment, net               | 1,476,476                 
|Total assets                                     | 1,958,712                 
|Net assets                                       | 1,259,611                 
|Loans and financing--current portion             | 12,710                    
|Loans and financing--non-current portion         | 33,245                    
|Shareholders' equity                             | 1,259,611                 
|Capital stock                                    | 404,650                   
|                                                
|U.S. GAAP                                        |                           
|Property, plant and equipment, net               | 1,467,174                 
|Total assets                                     | 1,960,152                 
|Net assets                                       | 1,243,299                 
|Loans and financing--current portion (principal) | 10,252                    
|Loans and financing--non-current portion         | 33,245                    
|Shareholders' equity                             | 1,243,299                 
|Capital stock                                    | 404,650                   

|(1) | For 1998 through 2000, information is presented in constant reais of December 31, 2000. For 2001 and 2002, information is expressed in nominal reais. All information is presented in accordance with Brazilian GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Exchange Rates

There
are two legal exchange markets in Brazil:

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

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

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

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

The
Brazilian government may impose temporary restrictions on the conversion of reaisinto
foreign currencies and on the remittance to foreign investors of proceeds from their
investments in Brazil. Brazilian law permits the government to impose these restrictions
whenever there is a serious imbalance in Brazils balance of payments or reason to
foresee a serious imbalance.

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

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

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

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

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

B.
Capitalization and Indebtedness

Not
applicable.

C. Reasons for
the Offer and Use of Proceeds

Not
applicable.

D. Risk Factors

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

Risks Relating to
Brazil

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

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

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

Tax
reforms may affect our tariff rates.

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

Inflation
and certain government measures to curb inflation may have adverse effects on the
Brazilian economy, the 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
2002, the general price index, or the IGP-DI (the Índice Geral de Preços  Disponibilidade
Interna), an inflation index developed by the Fundação Getúlio Vargas, a private
Brazilian economic organization, reflected inflation of 26.4% compared to 10.4% in 2001
and 9.8% in 2000. If Brazil experiences significant inflation, we may be unable to
increase service rates to our customers in amounts that are sufficient to cover our
increasing operating costs, and our business may be adversely affected.

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

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

As
of December 31, 2002, we had R$460.5 million in total debt, all denominated in U.S.
dollars. As of December 31, 2002, we had currency derivatives in place to cover all of
our U.S. dollar-denominated debt. Also, significant costs relating to our network
infrastructure are payable or linked to payment by us in U.S. dollars. At the same time,
while we may derive income from derivative transactions denominated in foreign
currencies, all of our operating revenues are generated in reais. To the extent that the
value of the realdecreases relative to the U.S. dollar, our debt becomes more expensive
to service and it becomes more costly for us to import the technology and the goods that
are necessary to operate our business.

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

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

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

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

Risks Relating to the
Brazilian Telecommunications Industry and Us

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The
industry in which we conduct our business is subject to rapid technological changes and
these changes could have 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.

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

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

PT
Móveis S.G.P.S., S.A. and Telefónica Móviles, S.A., our principal shareholders, currently
own through Brasilcel, N.V., directly and indirectly, approximately 81.6% of our common
shares and 83.9% of our total capital.  PT Móveis S.G.P.S., S.A. is 100% controlled by
Portugal Telecom S.G.P.S., S.A.  See Item 7. Major Shareholders and Related Party
TransactionsMajor Shareholders. Due to their share ownership, our principal shareholders
have the power to control us and our subsidiaries, including the power to elect our
directors and officers and determine the outcome of any action requiring shareholder
approval, including transactions with related parties, corporate reorganizations and the
timing and payment of our dividends. In addition, PT Móveis S.G.P.S., S.A. and Telefónica
Móviles, S.A. share their participation in us equally.  Any disagreement or dispute
between our controlling shareholders may have an impact on the decision-making
capabilities of our management.

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

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

We
face risks associated with litigation.

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

Risks Relating to Our
Preferred Shares and Our ADSs

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

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

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, which entitles certain investors to buy and sell
shares on Brazilian stock exchanges without obtaining separate certificates of
registration.

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

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

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

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

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

ITEM 4. INFORMATION
ON THE COMPANY

A. Our History
and Development

General

We
are incorporated under the laws of the Federative Republic of Brazil under the name of
Tele Sudeste Celular Participacões S.A. as a corporation with unlimited duration, known
as Tele Sudeste. 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 Praia de Botafogo, 501, Torre Corcovado, 7o andar, 22250-040, Rio de
Janeiro, RJ, Brazil. Our telephone number is +55 21 2586 6613, our facsimile number is
+55 21 2586-6813 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, located at 111 Eighth Avenue, New York, New York 10011.

We
are a holding company engaged through wholly owned companies in the cellular
telecommunications business in Brazil.  We directly control Telerj Celular and Telest
Celular.



Below
you will find a chart showing the major companies in our ownership structure as of March
31, 2003.

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

Telebrás and the
Privatization

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

In
November 1990 and November 1993, our predecessor companies began providing cellular
telecommunications services as Telebrás System operating companies in the states of Rio
de Janeiro and Espírito Santo, respectively.

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 Predecessors
Companies assets and liabilities were allocated to the new holding companies, which we
refer to as the New Holding Companies.  The New Holding Companies, together with their
respective subsidiaries, consisted of:  (i) eight cellular holding companies, each in one
of eight cellular regions, holding one or more operating companies that provide cellular
services; (ii) three wireline holding companies, each in one of three wireline regions,
holding one or more operating companies that provide local and intraregional long
distance services; and (iii) Embratel Participações S.A., a holding company of Empresa
Brasileira de Telecomunicações S.A.

Tele
Sudeste was one of the New Holding Companies.  In connection with the reorganization of
the Telebrás system, or the Breakup of Telebrás, Tele Sudeste was allocated all of the
share capital held by Telebrás in Telerj Celular and Telest Celular, the cellular
operating companies that provided cellular telecommunications service in the states of
Rio de Janeiro and Espírito Santo, respectively.  In July 1998, as part of its
restructuring and privatization plan, the federal government sold substantially all its
common shares of the New Holding Companies, including Tele Sudeste, to private sector
buyers.

The
federal governments common shares of Tele Sudestes capital stock were purchased by a
consortium comprising Telefónica Internacional S.A., Iberdrola Investimentos Sociedade
Unipessoal Ltda., NTT Mobile Communications Network, Inc. and Itochu Corporation.

Telefónica Exchange
Offer

In
2000, Telefónica, S.A., known as Telefónica, a company organized under the laws of Spain
and then our controlling shareholder, began a reorganization to permit managerial and
operational consolidation of its business lines and to enhance its strategic and
competitive positions.  Telefónicas objective was to develop separate but affiliated
business units to conduct its various businesses throughout Spain, Latin America and
other regions.

On
January 12, 2000, Telefónicas board of directors created new global business lines.  The
Telefónica board of directors created Telefónica Móviles, S.A. to consolidate the
wireless telecommunication operations of the Telefónica Group; Telefónica DataCorp, to
consolidate Telefónicas worldwide data transmission businesses; Terra Networks, to
consolidate Telefónicas Internet operations; and Telefónica Publicidad e Información
S.A., which would consolidate Telefónicas telecommunication directory business.

In
May 2000, Telefónica launched offers to exchange ADSs of certain of its subsidiaries in
Brazil, Peru and Argentina for Telefónica shares and ADSs.  Upon the completion of the
Brazilian and U.S. exchange offers, shareholders representing 67.51% of Tele Sudestes
capital stock tendered their shares and/or ADSs in exchange for Telefónica shares and/or
ADSs.  As a result, Telefónica became the beneficial owner of:

- 109,549,687,708
of our common shares;
- 14,936,976,292 of
our preferred shares; and
- 34,260,404 of our
ADSs.

After
the completion of these exchange offers, Telefónica transferred its ownership interest in
our capital stock to Telefónica Móviles.

Reorganization

Tele
Ibero Americana

On
May 17, 1999, Tele Ibero Americana Ltda., an affiliate of Telefónica, then our
controlling shareholder, requested the approval of the CVM to carry out a public tender
for all the shares of Telerj Celular and Telest Celular.  On July 6, 1999, Tele Ibero
Americana acquired through the tender offer of 793,179,014 shares of common stock and
4,637,252,567 preferred shares of Telerj Celular, representing in the aggregate 18% of
the capital stock of Telerj Celular, for a purchase price of R$326.8 million.  Tele Ibero
Americana also acquired 10,773,193 shares of common stock and 109,905,396 preferred
shares of Telest Celular, representing in the aggregate 6% of the capital stock of Telest
Celular, for a purchase price of R$9.3 million.  Following such acquisitions and until
November 2000, 10% of the shares of Telerj Celular and 9% of the shares of Telest Celular
were still traded on the São Paulo stock exchange.  See Item 9C. Markets.  The CVMs
Release No. 299 prevented any capital restructuring to take place in either Telerj
Celular or Telest Celular for a period of one year following the date of the tender
offer.  On October 11, 2000, Telerj Celular and Telest Celular announced that they would
carry out a capital restructuring.

Minority
Shareholders

On
November 30, 2000, the shareholders of Tele Sudeste and the shareholders of each of
Telerj Celular and Telest Celular approved a reorganization through which Telerj Celular
and Telest Celular became wholly owned subsidiaries of Tele Sudeste, and the minority
shareholders of Telerj Celular and Telest Celular were offered shares of Tele Sudeste in
exchange for their shares of Telerj Celular and Telest Celular.

After
the completion of the reorganization:

- the by-laws of
Telerj Celular and Telest Celular were amended to reflect their new status as wholly
owned subsidiaries;
- a request for the
deregistration of Telerj Celular and Telest Celular shares was filed with, and approved
by, the CVM; and
- the shares of
Telerj Celular were delisted from BOVESPA, and the shares of Telest Celular were delisted
from the Sociedade               Operadora do Mercado de Acesso (SOMA).

Transfer
of Goodwill

The
acquisition price paid by Telefónica and its partners for our common shares and the
acquisition price paid by Tele Ibero Americana on July 6, 1999 for the shares of Telerj
Celular and Telest Celular included a premium, or goodwill, in the amount of R$1,405.5
million in excess of the book value of our shares, net of amortization through December
31, 2000.

We
conducted a corporate reorganization in late 2000 to:

- transfer the
acquisition premium to us, allowing us to deduct the amount of such premium against
income for the purposes of               income and social contribution taxes;
- achieve tax
savings of R$464.5 million resulting from the amortization of the premium; and
- simplify our
corporate structure.

The
premium was accounted for as a deferred tax asset, which in accordance with Brazilian
GAAP will be amortized over a five-year period.  The approximate value of the tax savings
resulting from transferring the premium to us is R$464.8 million.  We have also recorded
a special reserve to be used in capital increases as the tax savings are realized.  Upon
the realization of any such tax savings, the special reserve will be reduced against a
capital increase and subsequent issuance of a corresponding number of shares to the
benefit of Sudestecel Participações, S.A. and Tagilo Participações Ltda. (formerly Tele
Ibero Americana), as defined below.  Tele Sudeste minority shareholders will then have a
preemptive right to purchase shares in each capital increase in proportion to their
interest in our capital stock.

Purchase of Shares
from Iberdrola

On
April 5, 2001, Telefónica and Iberdrola signed an agreement through which Telefónica
acquired all the Iberdrola groups shareholdings in the Brazilian telecommunications
operators in which both groups held interests.

Anatel authorized this transaction on August 22, 2001 and in December
2001 Telefónica S.A. acquired 7% of the capital stock of Sudestecel Participações S.A. (the holding company which controls Tele Sudeste
Celular Participações S.A.). In exchange, Iberdrola received shares of Telefónica S.A.

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

Changes in our Capital

On
April 2, 2002, our capital was reduced by R$763,522.76, as a result of the cancellation
of Tele Sudeste shares held in treasury.

On
April 29, 2002, an increase in our capital was approved by our board of directors within
the limits of our authorized capital, with the capitalization of a portion of the reserve
created after the transfer of goodwill paid by our controlling shareholder.  This
increase was later confirmed at a shareholders meeting held on March 25, 2003.

Our
share capital as of December 31, 2002 was R$685,321,135.81, divided into 154,431,420,977
common shares and 259,575,036,202 preferred shares.

Brasilcel

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

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

- us;
- Telesp Celular
Participações S.A., which controls an A Band operator in the state of São Paulo, Global
Telecom S.A., and a B               Band operator in the states of Paraná and Santa
Catarina;
- Tele Leste
Celular Participações S.A., which controls A Band operators in the states of Bahia and
Sergipe; and
- Celular CRT
Participações S.A., which controls an A Band operator in the state of Rio Grande do Sul.

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

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

Changes in our Capital
in 2003

On
February 19, 2003, we began a process of increasing our capital, which was approved by
our board of directors within the limits of our authorized capital, for the
capitalization of a portion of the reserve created after the transfer of goodwill paid by
our controlling shareholder.  The capital increase amounted to R$93,516,558.61, and
18,591,761,155 common shares were issued.  This increase was confirmed at a board of
directors meeting held on March 31, 2003.

As a result of this increase in capital, on March 31, 2003, the shareholdings of Telefónica
Móviles and Portugal Telecoms affiliates in Tele Sudeste were as follows:

- Sudestecel
Participações S.A. held 95,197,157,438 common shares, or 22.01% of total capital;
- Tagilo Participações
Ltda. held 12,577,645,437 common shares and 33,317,534,708 preferred shares, or 10.61% of
total capital;               and
- Brasilcel held
43,450,494,855 common shares, 14,015,090,743 preferred shares and 34,857,604 ADRs, or
53.57% of total capital.

Our
share capital as of March 31, 2003 was R$778,837,694.42, divided into 173,023,182,132
common shares and 259,575,036,202 preferred shares.

Our
by-laws will be changed to reflect this capital increase at a future shareholders meeting.

Capital Expenditures

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

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2000                   
|                              | (thousands of reais)(1)
|                             
|Automatic switching equipment | 160,273                
|Other equipment               | 232,051                
|Real estate                   | 3,730                  
|Other assets (2)              | 46,531                 
|Total capital expenditures    | 442,585                

|(1) | For 2000, information is presented in constant reais of December 31, 2000. For 2001 and 2002, information is expressed in nominal reais.                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Handsets for rental, network constructions, furniture and fixtures, office equipment and store layouts.sets for rental, network constructions, furniture and fixtures, office equipment and store layouts.

We
anticipate that our capital expenditures for 2003 will be approximately R$225 million.
 We intend for these capital expenditures to be funded mostly by cash generated from
operations.  See Item 5B. Liquidity and Capital Resources.

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

B. Business
Overview

Overview

We
provide cellular telecommunications services in the Brazilian states of Rio de Janeiro
and Espírito Santo, referred to in this annual report as our Region, under an
authorization from the Brazilian federal government.  Cellular telecommunications
services were first offered in the state of Rio de Janeiro in November 1990, and in the
state of Espírito Santo in 1993.  We are the leading provider of cellular
telecommunications services in our Region according to the number of customers published
by Anatel.  The table below sets forth the net operating revenues for Telerj Celular and
Telest Celular for the periods indicated in 2000, 2001 and 2002:

|                              | Year ended December 31,
|----------------------------- | -----------------------
|                              | 2000                   
|                              | (thousands of reais)   
|                             
|Telerj Celular                | 1,393,834              
|Telest Celular                | 170,181                
|Deductions from consolidation | 2,541                  
|                              |                        
|Total                         | 1,561,474              
|                              |                        

Telerj
Celulars and Telest Celulars results represent 87.2% and 12.8%, respectively, of our
total net revenues.

Our
Region covers an area of approximately 90,000 square kilometers (approximately 44,000
square kilometers in the state of Rio de Janeiro and 46,000 square kilometers in the
state of Espírito Santo), representing approximately 1% of Brazils territory. The GDP of
our Region in 2002 was an estimated R$180.5 billion, or approximately U.S.$51.0 billion,
representing approximately 13.74% of Brazils GDP for 2002. The per capita income for
the states of Rio de Janeiro and Espírito Santo during 2002 was an estimated R$10,491.82
and R$7,877.08 respectively, or approximately U.S.$2,969.66 and U.S.$2,229.57,
respectively, according to Brasil em Foco Target 2002, our estimates based on
percentages of the states GDP published by IBGE in previous years and Brazils GDP 2002
calculated by IBGE and published by the Diário Oficial do Estado de São Paulo, on March
28, 2003.

We
provide mobile telecommunication services on a frequency range known as A Band in Region
I of the General Authorization Plan  PGA, which covers 100% of the municipalities in our
Region and 87.4% of the population of our Region.  At December 31, 2002, we had 3.455
million lines in service, a 14.1% net increase from the end of the previous year, and a
market share of approximately 58% in our Region.

The
population of our Region is approximately 18 million (14.7 million in Rio de Janeiro and
3.3 million in Espírito Santo), representing 10% of Brazils total population and
encompassing more than 26 municipalities with more than 100,000 residents, including the
cities of Rio de Janeiro, Niterói, Nova Iguaçu and Vitória.  Approximately 96% of the
population of the state of Rio de Janeiro and 87% of the population of the state of Espírito
Santo live in urban areas.

Our Operations

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

|                                                           | 2000      | 2001      | 2002     
|---------------------------------------------------------- | --------- | --------- | ---------
|Cellular lines in service at year-end                      | 2,503,411 | 3,028,213 | 3,454,870
|Customer growth during year                                | 35.2%     | 21.0%     | 14.1%    
|Prepaid lines in service at year-end                       | 1,549,151 | 2,023,266 | 2,368,213
|Churn (1)                                                  | 33.3%     | 17.9%     | 18.2%    
|Estimated population of Region at year-end (millions) (2)  | 17.5      | 17.9      | 18.0     
|Estimated covered population at year-end (millions) (3)    | 15.8      | 15.3      | 15.8     
|Percentage of population of Region covered at year-end (4) | 90.5%     | 85.9%     | 87.4%    
|Penetration at year-end (5)                                | 23.7%     | 27.7%     | 32.7%    
|Average monthly minutes of use per customer (6)            | 130       | 127       | 110      

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

Our Services

We
offer cellular telecommunications services to our customers pursuant to a variety of rate
plans.  In August 1998, we began offering digital cellular telecommunications services.
 The introduction of digital technology has allowed us to increase capacity, offer
additional value-added services and provide more secure communication.  We also offer
other services, including voicemail, call forwarding, call waiting, caller
identification, limitation on the number of used minutes, wireless application protocol
service and SMS, among others.  We began to sell handsets in November 1998.

We
also offer automatic roaming services throughout Brazil, allowing our customers to make
and receive calls while out of our Region.  We offer international roaming in Argentina,
Uruguay, Chile, Peru, Korea and more than 1,000 cities within the United States, Mexico,
Canada and the Caribbean.  At the beginning of 2000, we started providing international
cellular roaming, including the renting of Global System Mobile, or GSM handsets, in
certain parts of Europe, Africa, Asia and Oceania.

We
also provide cellular telecommunications services to customers of other cellular service
providers while present in our Region.  We charge the other service providers for the
service provided to their customers.  See Operating AgreementsRoaming Agreements.

In
May 1999, we launched our prepaid service, which consists of providing mobile cellular
telecommunication services without monthly subscription charges.  This service has a
higher rate per minute and requires up-front payments from the customers, made through
the purchase of our prepaid cards.  Recharging through vouchers and ATMs is currently
also available.

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

In
July 2000, we launched two new services:

- MoviStar Torpedo.MoviStar Torpedo allows users to send and receive SMS of up to 145 characters. These
messages can be sent to our users from personal computers, handsets or
through a call center operator; and
- E-mocion.E-mocion is our brand name for the wireless application protocol service, or WAP, which
allows users to browse the Internet from their handsets.

In
April 2001, we launched MoviStar Amigo +, a service designed for customers of any of our
prepaid plans. MoviStar Amigo +offers features such as:

- one free balance
verification per day, for customers of the MoviStar Fácil, our prepaid analog plan;
- automatic credit
recharge with debit to the customers bank account by dialing *123; and
- roaming services,
provided after a customer of our contract plan has authorized the debit of the roaming
fees to his phone               account.

In
the beginning of the third quarter of 2001, we launched a loyalty program for our
customers called Mundo de Vantagens MoviStar Top. This program targets non-business
customers in our Top plans and customers with contract plans. Under this program, each
call generated in our Region entitles the customer to a certain number of points. When a
customer accumulates a certain number of points, it will be permitted to exchange its
cellular phone for more modern equipment. The points are private, nontransferable and
valid for three years. In addition, this program offers discounts for gym memberships,
language courses, computing courses, airlines, hotels, restaurants and stores.

In
July 2001, we also launched Torpedo Chatand My E-mocion. Through Torpedo Chat, a
cellular chat room, customers can create their own chat rooms to discuss the topic of
their choice, invite their friends to participate in discussions and maintain private
conversations in a chat room. My E-mocionprovides all customers with an email account
integrated with an agenda and other tools.

We
launched three new plans during 2001. MoviStar Top 35was offered to our customers in
August 2001, for which we charge a fixed fee per month and offer a certain number of
minutes in the Region. In addition, we launched the post-payment plans, MoviStar
Profissional 75and MoviStar Profissional 150, which are targeted to our corporate
customers and their employees. We do not charge subscription fees for MoviStar
Profissional 75and MoviStar Profissional 150, but we charge a fixed fee for a certain
number of minutes per month in the states of Rio de Janeiro and Espírito Santo.

With
the introduction of the 1xRTT (2.5G) technology in April 2002, we launched a service
called MoviStar Dados 2.5G, which allows the user access to the Internet. This service
requires use of a 2.5G cellular phone or modem card. Terra Networks was the first
provider to offer access to MoviStar Dados 2.5G. Other partnerships are currently being
negotiated.

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

We
continue to develop and plan to propose new service plans to better service our customers.

Customer Service

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

The
call center provides 24-hour customer service.  On December 31, 2002, we had 1,261
operators in 464 answering positions (peak hours), which represented one customer service
attendant per 2,740 customers.  During 2002, the customer service team answered, on
average, 64,959 calls per business day.

The
back office (technical assistance and billing questions customer service department) has
103 employees who respond to questions and requests placed through e-mails, letters,
faxes, the website and the call center.  In 2002 they responded to, on average, 32,629
requests per month.

Quality
of Service

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

- infrastructure;
- terminal
equipment and its performance in its environmental conditions (either in home area or
when roaming nationally or               internationally); and
- our Customer Care
departments and their effectiveness in handling customers complaints.
- We have addressed
these concerns in several ways:
- through frequent
network performance evaluations based on drive testing and collected data analyses;
- by evaluating the
data gathered from the several event counters available in the network as well as
specific analysis tools;               and
- through customers
complaints handled by the Customer Care and Corporate Sales teams.

Another
important aspect of our quality of service analysis relates to our methods for comparison
with our competitors.  We use the following three types of analysis to analyze the
competition:

- tests and
performance comparisons, to address issues such as call completion, dropped calls,
interference levels or signal to              noise ratios, voice quality scoring, etc;
- comparison with
the monthly data reported to Anatel and the data that is publicly available; and
- use of competitors services
as customers, in order to evaluate the way that their customer care centers evaluate and
solve               complaints.

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

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

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

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

In
order to expand our services and maintain our quality standards, we have been adopting a
strict quality strategy since 1999. In 1999, our Call Center was granted an ISO-9002
certificate of quality, awarded by the Bureau Veritas Quality International do Brasil, or
BVQI, an independent private institute which analyzes the quality of services and
products offered by companies in various sectors and is associated with the United
Kingdom Accreditation System, or UKAS. In 2000, the following areas received their
ISO-9001 certificates of quality, which were awarded by BVQI and by the Instituto
Nacional de Metrologia e Qualidade Industrial, or INMETRO, a Brazilian agency associated
with the Ministry of Development, Industry and Foreign Commerce:

- Product and
Services Development;
- Customer Service
and Sales at Company-Owned Stores and Call Center;
- Sales through
Indirect Channels;
- Sales to
Corporate Customers;
- Commercial
Logistics;
- Fraud Detection
and Prevention;
- Network
Operations, Optimization and Maintenance;
- System
Maintenance; and
- Billing and
Collection.

We
are in a continuing process to gain ISO-9001 certificates of quality in other areas.  At
the beginning of 2002, we applied to receive another ISO-9001 certificate.

Our Region

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

|                     | At December 31, 2002   | Year ended December 31, 2002
|-------------------- | ---------------------- | ----------------------------
|Area                 | Population(milliom)(1) | % of Brazilspopulation     
|Rio de Janeiro state | 14.8                   | 8.4%                        
|Espírito Santo state | 3.2                    | 1.9%                        
|Our Region           | 18.0                   | 10.3%                       

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

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

Marketing and Sales

We classify our customers as contract and prepaid customers.

Measures
are being developed to improve the services offered to our customers in order to increase customer loyalty. Such measures include additional
service plans tailored to various user segments, including loyalty programs such as the
Mundo de Vantagens Movistar Top. See Our Services.

During
the second quarter of 1999, we introduced prepaid cellular telecommunications services,
which has no activation fee and allows customers to pay only for services used.  The
prepaid plans are designed to meet the needs of new customers willing to pay higher
per-minute rates as opposed to regular monthly subscription charges.  Customers of these
plans do not enter into contracts with us, but are instead required to make up-front
payments for service.  At December 31, 2002, 68.5% of our customers used prepaid service.

Voicemail,
caller identification, call waiting, short message and WAP services have been offered
since 2000 free of charge to all of our digital customers.

From
time to time, we offer various short-term promotions in connection with our cellular
telecommunications services in order to attract new customers and shift customers from
analog to digital technology.

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

The
purchase of a handset is a significant barrier to acquiring new customers.  We are
concerned with keeping our prices competitive and offering our customers convenient
customer service locations, either through our company-owned stores or authorized
dealers.  Some of our authorized dealers offer their own payment plans in addition to
regular credit card payment plans.

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

Network Sales

We market our services through a network of stores that includes general retail stores and outlets that
sell only our cellular telecommunication services and related goods.  At December 31, 2002, our services
were marketed through 652 stores (including one moving store), 43 of which were operated by us and 609 of
which were operated by independent distributors in dealerships located in 118 cities throughout our
Region.  Through our direct sales force and authorized dealers, we are able to sell our cellular
telecommunications services and prepaid cards and provide after-sales services to our customers.  Prepaid
calling cards are found not only in our own stores and those of our accredited representatives but also in
more than 11,520 sales points, which are not necessarily exclusive.  These include such outlets as
gasoline stations, post offices and bookstores.  The prepaid cards may also be replenished at 1,929
branches of certain banks, including Caixa Ecônomica Federal and lottery houses, Banco Itaú, Banco
Bradesco, Banco do Brasil and Unibanco.  We also market our cellular telecommunications service directly
to certain large corporate customers.

Our Network

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

As
of December 31, 2002, our cellular telecommunications network covered 100% of the
municipalities, or 87% of the population, of our Region.  Our network provides both CDMA
digital and AMPS analog services.  Our network is connected primarily using a fiber-optic
transmission capacity we lease from fixed-line operators (Embratel and Telemar).  As of
December 31, 2002, our network also includes (i) 20 cellular switches (18 in Rio de
Janeiro and two in Espírito Santo), of which 12 are digital, two are dual mode and six
are analog, (ii) 1,844 base stations (1,569 in Rio de Janeiro and 275 in Espírito Santo),
of which 1,245 are digital or dual mode and 599 are analog, and (iii) 20 other
communication devices, such as voicemail, prepaid service, SMS, Home Location Registers
and gateways.  NEC do Brasil S.A., Nortel Networks  Northern Telecom do Brasil and
Lucent Technologies do Brasil, Ind. e Com. Ltda. are our principal suppliers.  We
continue to increase network capacity and coverage to improve quality of service and to
meet consumer demand.

Our
network management center operates in the city of Rio de Janeiro.  Our network management
center is able to identify abnormalities in our network and in other networks, using the
latest failure and signal monitoring systems.  In addition, quality and service standards
are constantly monitored.  The network management center is integrated with the
maintenance and operations center, which is designed to supervise our Network Elements,
Infrastructure and Transmission division, and operate the Radio Network Elements,
Computing Centrals, Backbone and Service Platforms divisions.

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

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

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

The
introduction of 2.5G technology in April 2002 in Rio de Janeiro has allowed for the
development of new services, diversification and the improvement of Internet applications
available to our customers.  This technological advance allows for always on services,
meaning that the customer is constantly connected to the Internet.  Customers of these
services are billed for the amount of information transferred (Kbytes) rather than on a
per-minute basis.  Notebooks, palmtops and PDAs that are connected to standard PCMCIA
1xRTT cards operating like a wireless modem or that are connected to 2.5G handsets by
cable will now have access to Internet services and to corporate intranets.  Our 2.5G
network allows for greater spectrum efficiency, accommodating approximately 1.6 times
more customers than the standard second generation CDMA network.

In
2002, among other developments, we:

- activated 1xRTT
in the southern and downtown areas and airports of the city of Rio de Janeiro, and in Vitórias
metropolitan               area;
- subsequently
broadened the network to include the neighborhoods of Barra and Recreio, with 36 ERBS
activations;
- implemented 100%
coverage in Rio de Janeiros subway system;
- migrated from
1,995 2Mbits/s leased systems to a transmission network of our own;
- implemented the
backbone in Vitória;
- activated the
Movistar customer payment balance control service;
- established the
automatic roaming with Cingular (USA), Usacell (Mexico), Telecom Personal (Paraguay),
Guatemala, El Salvador               and Puerto Rico; and
- established a
Short Message Service interconnection with Global Telecom, ATL, CRT Celular, Telemig
Celular and Teleamazônia               Celular.

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

Sources of Revenue

We
generate revenue from:

- usage charges,
which include measured service charges for calls and other similar charges;
- network usage
charges (or interconnection charges), which are amounts we charge other cellular and
              fixed-line service providers for use of our network;
- monthly
subscription charges, which are not charged to our prepaid customers;
- sale of cellular
handsets and accessories; and
- other charges,
including charges for call forwarding, call waiting, short message service and call
              blocking, which are charged only when the customers plan does not include
these services for free.

Our
rates are subject to approval by Anatel.  See Regulation of the Brazilian
Telecommunications IndustryRate Regulation.

Customer
Charges

Since
October 1994, cellular telecommunications service in Brazil has been offered on a calling-party
pays basis, under which the customer pays only for calls that it originates.  In
addition, customers pay roaming charges on calls made or received outside 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 five areas, called registration areas, designated for
payment purposes, comprised of the metropolitan area of Rio de Janeiro, two areas of
upstate Rio de Janeiro and two areas in the state of Espírito Santo.

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 Operating AgreementsInterconnection
Agreements.  Our average interconnection charges for 2000, 2001 and 2002 were R$0.2367,
R$0.2711 and R$0.2955 per minute net of value-added taxes, respectively.  In February
2003, Anatel authorized the increase of our interconnection charge to R$0.3856, net of
value-added taxes.  The wireless telecommunication companies that were authorized to
increase their interconnection charges were also ordered to give Telemar a 30% discount
on certain tariffs for local calls during off peak hours.

Bill
and Keep

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

Roaming
Fees

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

Handset
Sales

We
sell dual-mode (800MHz CDMA-1xRTT/AMPS and 800MHz CDMA/AMPS) and tri-mode (1900MHz CDMA
and 800MHz CDMA/AMPS) cellular handsets and PCMCIA boards through our own stores and
dealers.  Our current suppliers are Samsung, Motorola, LG, Nokia, Qualcom, Maxon Epsilon,
Gradiente, Sony Ericsson and GTran.

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

We
also offer our individual contract customers the option of using their points to
partially pay for the acquisition of new handsets or for a new line.  See Our Services.

Operating Agreements

Interconnection
Agreements

The
terms of our interconnection agreements include provisions with respect to the number of
connection points and traffic signals.  See Regulation of the Brazilian
Telecommunications IndustryObligations of Telecommunications Companies and Interconnection.  At
the beginning of our operations, we entered into interconnection agreements with Embratel
Participações S.A., or Embratel, and the Predecessor Companies.

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

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

In
2002, we entered into an interconnection agreement with our competitors for the supply of
SMS to our customers and, through the Brazilian Roaming Committee, we entered into an
interconnection agreement for remitting and receiving SMS to and from all operating
companies in Brazil.

Roaming
Agreements

We
are a member of the Brazilian Roaming Committee, a group comprising 21 cellular
telecommunications service providers operating in Brazil through either A Band or B Band.
 The Brazilian Roaming Committee was created to independently conduct the activities
related to roaming services in Brazil and the international roaming agreements entered
into by Brazilian companies with telecommunications service providers operating in the
member countries of the Mercosur.

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

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

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

Taxes on
Telecommunications Services and Handset Sales

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

- ICMS.The
principal tax is the Imposto sobre Circulação de Mercadorias e Serviços, or ICMS. ICMS
is a tax that the Brazilian states impose at varying rates on certain
revenues from the sale of goods and services, including telecommunications
services. The ICMS rates for domestic telecommunications in the States of
Rio de Janeiro and Espírito Santo were 25% during 2002. Since January
2003, the ICMS rate for domestic telecommunications in the states of Rio de Janeiro
increased to 30%. In 2002, the ICMS rate for handset sales were 17% in the
state of Espírito Santo and 12% in the state of Rio de Janeiro.
- COFINS.The
Contribuição Para Financiamento da Seguridade Social, or COFINS, is a social contribution
tax on gross operating revenues. On November 27, 1998, the Brazilian
federal government, through Law No. 9,718, increased the COFINS rate from
2% to 3%, allowing a set-off of up to one-third of the COFINS amount with
the amount owed as a result of the Contribuição Social Sobre Lucro Líquido,
or CSLL. On January 1, 2000, we began to include the COFINS tax in our
bills at a rate of 3%.
- PIS.The
Programa de Integração Social, or PIS, is another social contribution tax that is imposed
on gross operating revenue at a rate of 0.65%. Law No. 9,718 also
indirectly raised the PIS contribution tax owed by Telerj Celular and
Telest Celular, leading our subsidiaries to challenge such increase
judicially. See Item 8A. Consolidated Statements and Other Financial
InformationLegal Matters. In October 2002, Law No. 10,637 was enacted,
making such contribution noncumulative and increasing the rate to 1.65%,
except in connection with telecommunication services, where the rate
continues to be 0.65%.
- FUST.On August 17,
2000, the Brazilian federal government, through Law No. 9,998, created the Fundo de
Universalização dos Serviços de Telecomunicações, or FUST, a social
contribution tax applicable to all telecommunications services. The
purpose of the FUST tax is to fund a portion of the costs incurred by
telecommunication service providers to meet the universal service targets required by
Anatel, in case these costs are not entirely recoverable through the
provision of the telecommunications services. FUST is imposed at a rate of
1% of gross operating revenues exclusively from telecommunication services,
net of ICMS, PIS and COFINS and its cost may not be passed on to customers.
It became effective on January 1, 2001.
- FUNTTEL.On
November 28, 2000, the Brazilian federal government, through Law No. 10,052, created the
Fundo para Desenvolvimento Tecnológico das Telecomunicações, or FUNTTEL, a
social contribution tax applicable to all telecommunications services. The
purpose of the FUNTTEL tax is to promote the development of
telecommunications technology in Brazil and to improve competition in the industry
by:

encouraging
research and the development of new technologies;promoting the
training of personnel;creating new
employment opportunities; andallowing small-
and medium-sized companies to access the lending market.


FUNTTEL is imposed at
a rate of 0.5% of gross operating revenues exclusively from telecommunication
              services, net of ICMS, PIS and COFINS, and its cost may not be passed on to
customers.  It became               effective on March 1, 2001.
- encouraging
research and the development of new technologies;
- promoting the
training of personnel;
- creating new
employment opportunities; and
- allowing small-
and medium-sized companies to access the lending market.


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

The FISTEL tax is
comprised of two different fees:


an installation
and inspection fee that is assessed every time we activate a new cellular number, as
                  well as every time an authorization certificate is issued with respect
to new equipment in                   telecommunications stations; andan operation and
inspection fee, assessed annually on the basis of the total number of cellular numbers
                  in use and the total number of radio base stations installed at the end
of the fiscal year,                   which is equal to 50% of the installation and
inspection fee.  Effective April 2001, the                   installation and inspection
fee has been assessed based on the net activation of cellular                   numbers,
i.e., the number of new cellular activations subtracted from the number of cancelled
                  subscriptions, as well as on the basis of the net additions of radio
base stations.
- an installation
and inspection fee that is assessed every time we activate a new cellular number, as
                  well as every time an authorization certificate is issued with respect
to new equipment in                   telecommunications stations; and
- an operation and
inspection fee, assessed annually on the basis of the total number of cellular numbers
                  in use and the total number of radio base stations installed at the end
of the fiscal year,                   which is equal to 50% of the installation and
inspection fee.  Effective April 2001, the                   installation and inspection
fee has been assessed based on the net activation of cellular                   numbers,
i.e., the number of new cellular activations subtracted from the number of cancelled
                  subscriptions, as well as on the basis of the net additions of radio
base stations.

Billing and Collection

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

Under
our billing system, we have created more than 16 price plans and other services targeted
at different customer profiles.  We use six staggered billing cycles and eighteen
different payment dates each month.  The date of payment can be chosen by the customer
when the contract is signed.

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

Tele
Sudeste has established a uniform policy for dealing with delinquent customer accounts.
 Any suspension of service may be done only after providing notice to the customer.  If a
customers payment is more than 15 days past due, outgoing service is suspended, and if
payment is more than 40 days past due, both outgoing and incoming services are suspended
until full payment for all outstanding charges is received.  If a customers payment is
more than 90 days past due, service is discontinued.  In 2002, approximately 61% of our
mobile bills were paid in full within the due date, 75% before the first reminder was
sent, and 94% before the second reminder was sent.

Tele
Sudestes collection system has improved its background check proceedings designed for
tracking customers who are delinquent in making payments, thereby improving our
collection rate.  In addition, we have employed eight outside collection agencies to
recover payments from customers that are more than 95 days past due.

We
provision for customer accounts when amounts are determined to be uncollectible (90 days)
and write off customer accounts for services provided that are over 180 days past due.
 We wrote off R$40.1 million for accounts related to telecommunication service charges
more than 180 days past due in 2002.

Our
provisions for doubtful accounts (Provision for doubtful accounts including
handsets/Gross operating revenue) were 3.43%, 3.29% and 4.06% of gross operating revenue
in 2000, 2001 and 2002, respectively.  See Item 5A. Operating ResultsResults of
Operations for 2000, 2001 and 2002Operating Expenses.

After
each collection cycle, we and other telecommunications service providers settle the
roaming and network usage fees outstanding balances.  See Sources of RevenueRoaming
Fees and Item 5A. Operating ResultsResults of Operations for 2000, 2001 and 2002Operating
Revenues.  For international calls made by our customers, we forward the gross amounts
collected for such calls to the international long distance carrier and charge them a fee
for the use of our cellular telecommunications network.  Domestic long distance fees are
reconciled and distributed to each Brazilian telecommunication operating company by a
clearinghouse operated by Embratel.

Fraud Detection and
Prevention

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

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

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

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

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

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

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

Competition

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

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

B
Band

The
General Telecommunications Law provided for the introduction of competition to
telecommunications services in Brazil.  The Brazilian federal government has granted 10
licenses to provide cellular telecommunications service within certain regions in Brazil,
known as B Band.  There is one B Band service provider operating in our Region, Algar
Telecom Leste S.A., or ATL, which operates in the states of Rio de Janeiro and Espírito
Santo.  ATL is controlled by a consortium led by the Telecom Americas Ltd. (controlled by
América Móvil S.A. de C.V.).  ATL began providing cellular telecommunications services in
our Region in the end of 1998.  The rights and obligations under ATLs license are
substantially identical to our rights and obligations. Although ATL provides only TDMA
digital service, its customers use dual-mode cellular handsets that can operate on an
analog network.

C
Band

We
face no C Band competition in our Region.

D
and E Band

In
February 2001, Anatel held an auction for the D Band SMP authorizations.

TNL
PCS S.A., or Oi, a company organized under the laws of Brazil, and a subsidiary of Tele
Norte Leste Participações S.A., or Telemar, successfully bid for the D Band SMP
authorization covering the region in which Telemar offers public regime fixed-line
telephone services.  Ois region comprises 16 states in northeastern Brazil, including
the states of Rio de Janeiro and Espírito Santo. Oi
started its operating activities in June 2002 and provides SMP services through GSM/GPRS
digital technology.

The
D band license for the mid-south region and the state of São Paulo was awarded to Telecom
Italia Mobile, or TIM.

On
March 13, 2001, Anatel held an auction for the E Band SMP authorization.  TIM was the
only bidder in the E Band SMP auction, acquiring a license to provide SMP services in the
region comprising 16 states in northeastern Brazil, in which Telemar operates as a
fixed-line provider.

TIM
controls two A Band operators serving the states of Paraná and Santa Catarina and the
Northeast region, and two B Band service providers, one operating in the state of Minas
Gerais and the other in the states of Bahia and Sergipe, as well as the new licenses
acquired in the SMP auctions, and therefore TIM offers wireless services nationwide.
 However, the beginning of its operations in the new areas was conditioned on the
achievement of the 2003 operational targets by Brasil Telecom.  Brasil Telecom is a
fixed-line service provider in which Telecom Italia owned shares.  In August 29, 2002,
Telecom Italia decreased its shareholding in Solpart Participações, the indirect
controlling company of Brasil Telecom.  In accordance with the press release, Telecom
Italia transferred 18.29% of its shares to other partners of Solpart, Timepart Participações
and Techold Participações.  Thus, Telecom Italia made official its resignation from the
control of Brasil Telecom and uncharacterized the affiliation in the companys
controlling group. TIM began its operations in the new areas in September 2002.

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

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

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

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

Other
Competition

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

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

Regulation of the
Brazilian Telecommunications Industry

General

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

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

Concessions
and Authorizations

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

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

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

SMP
Regulation

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

Under
these new licenses:

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

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

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

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

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

Benefit
of the SMP System

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

Obligations
of Telecommunications Companies

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

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

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

Interconnection

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

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

Rate
Regulation

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

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

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

Internet
and Related Services in Brazil

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

C.
Organizational Structure

As
of December 31, 2002, our voting shares were indirectly controlled by two major
shareholders:  PT Móveis and Telefónica Móviles, through Brasilcel N.V., with 80.5% of
our voting stock, 85.4% of our preferred shares and 83.6% of our total capital stock.

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

D. Property,
Plant and Equipment

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

At
December 31, 2002, we had 20 cellular switches and other equipments installed in four
owned spaces and eight shared places.  We lease almost all of the sites where our
cellular telecommunications network equipment is installed.  Our 1,844 permanent base
stations were installed in 1,430 cell sites, and the average term of these leases is five
years.  In addition, we have our own administrative buildings (approximately 11,561
square meters), warehouse space (approximately 3,224 square meters) and one store and
also lease administrative facilities (approximately 15,059 square meters), warehouse
space (approximately 6,380 square meters) and 41 retail stores throughout our region.

ITEM 5. OPERATING AND
FINANCIAL REVIEW AND PROSPECTS

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

Critical Accounting
Policies

The
significant accounting policies that we believe are critical to aid in fully
understanding and evaluating our reported financial position and results of operations
reported under Brazilian GAAP are described in Note 3 to our consolidated financial
statements.  A description of the differences in accounting policies between Brazilian
GAAP and U.S. GAAP is included in Note 31 to our consolidated financial statements.  The
accounting policies require us to make estimates, judgments and assumptions that we
believe are reasonable based upon the information available.  The most important
estimates include:  (i) the valuation and useful lives of our permanent assets, including
equipment, concession/authorization/license intangible assets, and goodwill on our
investments; (ii) the allowance for doubtful accounts; (iii) realization of deferred tax
assets; (iv) reserve for loss contingencies; and (v) the fair value of our financial
instruments, including derivatives, as further explained below.  While our revenue
recognition policy does not require the exercise of significant judgment or the use of
estimates, we believe that our policy is significant as revenue is a key component of our
results of operations.

- Revenue
Recognition:  While our revenue recognition policy does not require the exercise of
significant               judgment or the use of significant estimates, we believe that
our policy is significant as revenue               is a key component of our results of
operations.
- Depreciation on
property, plant and equipment is calculated using the straight-line method; rates
              adopted are based on 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, 2002.  This hypothetical decrease would result in an
incremental increase in the               annual depreciation expense of R$87.3 million
in the year of the change.
- Realization of
the deferred tax assets is dependent on our ability to generate approximately R$394.0
              million of future taxable income.  Management believes that it is more
likely than not that the               assets will be realized, based on forecasted
income.  However, there can be no assurance that we               will meet our
expectations of future income.  Management frequently evaluates the likelihood of
              realizing the deferred tax assets and assesses the need for valuation
allowances.  A future               increase in our estimate of the valuation allowance
will result in a reduction in net income in the               period that the increase in
the valuation allowance is recorded.
- We are subject to
proceedings, lawsuits and other claims related to tax, labor and civil matters.  We
              are required to assess the likelihood of any adverse judgments or outcomes
to these matters as well               as potential ranges of probable losses.  A
determination of the amount of reserves required, if               any, for these
contingencies is made after careful analysis of each individual issue, based on
              legal counsel advice.  The required reserves may change in the future due
to new developments in               each matter or changes in approach, such as a change
regarding settlement strategy in dealing with               these matters.  Future
changes in the recorded reserve amounts will impact our results of
              operations in the period that such changes are recorded.
- With respect to
financial instruments, we must make assumptions as to future foreign currency exchange
             and interest rates.  For a discussion of the possible impact of fluctuations
in the foreign               currency exchange and interest rates on our principal
financial instruments and positions, see               Item 11. Quantitative and
Qualitative Disclosures About Market Risk.
- Accrual for
rewards program is recorded on an accrual basis and, estimated based on the points earned
by               the customers and the cost of the cellular phones that will be rewarded.

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

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

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

U.S. GAAP
Reconciliation

We
prepare our consolidated financial statements in accordance with Brazilian GAAP, which
differs in significant respects from U.S. GAAP.  The differences are described in Note 31
to our consolidated financial statements.  Under U.S. GAAP, we experienced net income
(loss) for 2002, 2001 and 2000 of R$(42.5) million, R$85.5 million and R$115.1 million,
respectively, compared to net income of R$74.4 million, R$94.5 million and R$92.4
million, respectively, under Brazilian GAAP.  Shareholders equity at December 31, 2002
and 2001 was R$2,001.6 million and R$2,134.6 million, respectively, under U.S. GAAP,
compared to R$1,899.0 million and R$1,911.5 million, respectively, under Brazilian GAAP.
 The differences between Brazilian GAAP and U.S. GAAP that had the most significant
effects on net income (loss) and shareholders equity were accounting for the
capitalization of interest costs, accounting for the acquisition of minority interests in
2000 and accounting for derivative instruments.

New U.S. GAAP
Accounting Pronouncements

SFAS
No. 141  Business Combinations

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

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

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

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

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

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

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

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

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

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

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

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

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

EITF
00-21 Revenue Arrangements with Multiple Deliverables

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

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

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

A. Operating
Results

Results of Operations
for 2000, 2001 and 2002

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

Statement
of Income

|                                                       | Year ended December 31, | Percentage Change
|------------------------------------------------------ | ----------------------- | -----------------
|                                                       | 2000 (1)                | 2001(2)          
|
|Net operating revenue                                  | 1,561,474               | 1,703,299        
|Cost of services and goods                             | (920,485)               | (963,211)        
|Gross profit                                           | 640,989                 | 740,088          
|Operating expenses:                                    |                         |                  
|Selling                                                | (248,890)               | (287,181)        
|General and administrative                             | (217,120)               | (269,019)        
|Other operating expense, net                           | 5,544                   | 17,185           
|Total                                                  | (460,466)               | (539,015)        
|Operating income (loss) before interest                | 180,523                 | 201,073          
|Financial expense, net                                 | (35,602)                | (83,222)         
|Operating income (loss)                                | 144,921                 | 117,851          
|Net non-operating income (expense)                     | (3,215)                 | (1,196)          
|Income (loss) before minority interests and taxes      | 141,706                 | 116,655          
|Income and social contribution taxes benefit (expense) | (36,778)                | (22,158)         
|Minority interests                                     | (12,529)                |                 
|Net income                                             | 92,399                  | 94,497           

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

Operating
Revenues

Our
operating revenues are mainly derived from:

- customer usage
charges, which include charges for incoming and outgoing calls, roaming and other similar
              charges;
- network usage
charges, which are amounts we charge other cellular and fixed-line service providers for
              use of our network;
- monthly
subscription charges, which we charge exclusively to our contract plan customers;
- sale of cellular
handsets; and
- other service
charges, including charges for call forwarding, call waiting, call blocking and SMS,
which               are charged only when the customers plan does not include these
services for free.

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

|                                               | Year ended December 31, | Percentage change
|---------------------------------------------- | ----------------------- | -----------------
|                                               | 2000 (1)                | 2001(2)          
|
|Gross operating revenue:                       |                         |                  
|Monthly subscription charges                   | 424,696                 | 367,211          
|Usage charges                                  | 685,409                 | 742,373          
|Charges for use outside the concession area    | 22,904                  | 25,267           
|Additional charges per call                    | 48,810                  | 53,423           
|Network usage charges                          | 551,538                 | 702,050          
|Goods sold (cellular handsets and accessories) | 289,116                 | 283,244          
|Other                                          | 10,001                  | 13,070           
|Total gross operating revenue                  | 2,032,474               | 2,186,638        
|Value-added and other indirect taxes           | (471,000)               | (483,339)        
|Net operating revenue                          | 1,561,474               | 1,703,299        

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

Net
operating revenue increased 8.5% to R$1,847.6 million in 2002 from R$1,703.3 million in
2001, which in turn represented a 9.1% increase from R$1,561.5 million in 2000.  The
increase in net operating revenues in 2002 was principally due to:

- an increase in
revenues due to an increase in tariffs charged to our customers and in interconnection
              charges; and
- an increase of
14.1% in our customer base which resulted in an increase in usage charges.

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

- an increase in
revenues due to an increase tariffs charged to our customers; and
- an increase of 21.0%
in our customer base.

The
increases in 2002 and 2001 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 17.2% to 3,241,541
customers in 2002 from 2,765,812 customers in 2001, representing in turn a 27.0% increase from 2,177,582
customers in 2000.  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 17.8% to R$874.7 million in 2002, from R$742.4 million
in 2001, which in turn represented an 8.3% increase from R$685.4 million in 2000.

The increase in revenues from customer usage charges in 2002, compared to 2001, and in 2001,
compared to 2000, resulted principally from higher usage of our services due to the increase in our
customer base.

Network
usage charges. Revenues from network usage charges consist principally of fees paid to
us for the use of our network in order to complete calls originated outside our network.
Our revenues from network usage charges increased 13.2% to R$795.1 million in 2002, from
R$702.1 million in 2001, which in turn represented a 27.3% increase from R$551.5 million
in 2000.

The
increase in network usage revenues in 2002 reflected the increase in our average
interconnection charges, which were higher due to rate increases, partially offset by a
reduction in the incoming calling traffic, despite the increase in our customer base of
prepaid customers.  The increase in network usage revenues in 2001 also resulted from the
increase in our average interconnection charges, which were higher due to rate increases,
as well as the growth in the volume of calls to our customers which originated outside
our network, principally calls from fixed-line telephones in the region.  The volume of
calls to our customers resulted from the increase in our customer base of prepaid
customers, who tend to have greater incoming traffic.

Monthly
subscription charges. Revenues from monthly subscription charges decreased 23.3% to
R$281.6 million in 2002, from R$367.2 million in 2001, which in turn represented a 13.5%
decrease from R$424.7 million in 2000. The decrease in 2002 and 2001 resulted mainly
from contract plan customers switching to service plans with lower monthly subscription
fees, which was partially offset by the increase of the monthly subscription fees charged
to the contract plan customers.

Goods
sold (cellular handsets and accessories). Revenues from goods sold (cellular handsets)
increased 23.1% to R$348.6 million in 2002, from R$283.2 million in 2001, which in turn
represented a 2.0% decrease from R$289.1 million in 2000. In 1999, we began to subsidize
the price of new handsets as a broad-based marketing strategy aimed at increasing our
customer base. Revenues from handset sales are reported before commissions and
promotional discounts, and include value-added taxes. In general, the purpose of handset
sales is to encourage growth in customers and traffic, as opposed to generating profits
on the sales, and we therefore subsidize varying portions of the costs of handsets.
Although profit margins vary from one handset model to another and from time to time, on
average profit margins are negative after taxes and discounts. In 2000, 2001 and 2002,
the subsidy resulted in a gross loss (calculated as the difference from operating
revenues from sales minus the cost of goods sold) of approximately R$47.8 million, R$42.7
million and R$32.7 million on handsets sales in 2000, 2001 and 2002, respectively.

Revenues
from handsets increased in 2002 as a result of the increase in handset sale prices, with
the purpose of minimizing the impact of the increase in costs of handsets sold, as well
as the increase in the quantity of medium and high-level handsets sold in comparison with
the previous year.

Other.
Revenues from other services increased 19.2% in 2002, to R$15.6 million, compared to
R$13.1 million in 2001, which in turn represented a 30.7% increase from R$10.0 million in
2000. The increase in revenues from other services in 2002 and 2001, compared to 2001
and 2000, respectively, were due primarily to increases in the use of the SMS services
and voicemail.

Cost
of Services and Goods

Cost
of services and goods increased 15.3% to R$1,110.5 million in 2002, from R$963.2 million
in 2001, which in turn represented a 4.6% increase from R$920.5 million in 2000.

The
increase in 2002 was principally due to:

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

The
increase in 2001 was principally due to:

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

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

The
gross profit margin (gross profit as a percentage of net revenues) was 39.9% in 2002,
compared to 43.5% in 2001, and 41.1% in 2000.

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

|                                              | Year ended December 31, | Percentage change
|--------------------------------------------- | ----------------------- | -----------------
|                                              | 2000 (1)                | 2001(2)          
|
|Cost of services and goods:                   |                         |                  
|Depreciation and amortization                 | (276,391)               | (321,389)        
|Inventory (cellular handsets and accessories) | (336,950)               | (289,154)        
|Network usage charges                         | (115,849)               | (125,685)        
|Charges for leased lines                      | (63,701)                | (76,051)         
|Materials and third -party services           | (34,752)                | (34,301)         
|Fistel tax and other                          | (54,106)                | (63,373)         
|Rentals and insurances                        | (27,773)                | (39,909)         
|Personnel                                     | (8,900)                 | (13,283)         
|Other supplies                                | (2,063)                 | (66)             
|Total                                         | (920,485)               | (963,211)        

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

Depreciation
and amortization. Depreciation and amortization expenses increased 26.9% to R$407.9
million in 2002, from R$321.4 million in 2001, which in turn represented a 16.3% increase
from R$276.4 million in 2000.

The
increases in 2002 and 2001, compared to 2001 and 2000, were due primarily to the
expansion of our network, resulting in an increase in depreciable assets.

Inventory
(cellular handsets and accessories). The cost of handsets sold increased 15.8% to
R$334.9 million in 2002, from R$289.2 million in 2001, which in turn represented a 14.2%
decrease from R$337.0 million in 2000.

The
increase in the cost of handsets sold in 2002, compared to 2001, was principally due to
an increase in the cost of handsets due to the devaluation of the real and to the change
in the mix of handsets sold, with an increase in the number of more sophisticated
handsets sold.

The
decrease in the costs of handsets sold in 2001, in comparison to 2000, results from the
decrease in the cost of handsets, as well as a lower quantity of handsets sold.

Network
usage charges. Expenses from network usage charges include fees we paid 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 increased
4.1% to R$130.9 million in 2002, from R$125.7 million in 2001, which in turn represented
a 8.5% increase from R$115.8 million in 2000.

The
increase of our network usage charges in 2002 and 2001, compared to 2001 and 2000,
respectively, resulted principally from:

- an increase in
the interconnection rates; and
- an increase in
the number of minutes of outgoing calls from our network, as a result of an increase in
              the number of calls originated by users of our plans.

Charges
for leased lines. Charges for leased lines increased 10.9% to R$84.3 million in 2002,
from R$76.0 million in 2001, which in turn represented a 19.4% increase from R$63.7
million in 2000.

The
increase of charges for leased lines in 2002, compared to 2001, resulted principally from
the increase in the number of circuits between our base stations and switching centers
and by the increase in rates we were charged for use of such circuits.

The
increase of charges for leased lines in 2001, compared to 2000, resulted principally from
the increase in rates we were charged for use of circuits between our base stations and
switching centers.  The increase in the rates for use of circuits between our base
stations and switching centers mainly resulted from negotiations with the public service
fixed-line telecommunication service provider operating in our Region.  The rate increase
in 2001, compared to 2000, was partially offset by the increase in the number of circuits
between our base stations and switching centers.

FISTEL
tax. We recorded R$60.6 million, R$63.4 million and $54.1 million in payments of FISTEL
tax in 2002, 2001 and 2000, respectively. The decrease in 2002 was principally due to
the reduction in the amount of FISTEL tax due to the change in the assessment of this
tax. The increase in 2001 was principally due to the expansion of our customer base,
partially offset by the reduction of the FISTEL tax as a result of a change in the basis
for the assessment of this tax. Before 2001, the FISTEL tax was based on the total
number of subscriptions over the year, regardless of the number of deactivations. In
2001, the assessment was based on the net number of customers, resulting in a smaller
taxable amount.

Rentals
and insurances. Rental and insurances include equipment rental, insurance and other
costs of providing our services and selling handsets. Rentals and insurances increased
1.5% to R$40.5 million in 2002, from R$39.9 million in 2001, which in turn represented a
43.7% increase from R$27.8 million in 2000.

The
increase over the three-year period was due primarily to the expansion of our network,
which led to the increase in the number of sites we rented in connection with the
increase in the number of our radio base stations.

Materials
and services. Materials and services include costs of materials purchased from, and
services rendered by, third-parties and other telecommunications service providers, such
as network maintenance services. Cost of materials and services increased 6.7% to
R$36.6 million in 2002, from R$34.3 million in 2001, which in turn represented a 1.3%
decrease from R$34.8 million in 2000.

The
increase in 2002, compared to 2001, was due primarily to the increase average costs of
third-party materials and services due to the significant increase of our network in 2001.

The
decrease in 2001, compared to 2000, was due primarily to costs we incurred in connection
with the expansion of our network, partially offset by a decrease in the costs of
third-party materials and services.

Personnel.
 Personnel expenses increased 10.8% to R$14.7 million in 2002, from R$13.3 million in
2001, which in turn reflected a 49.2% increase from R$8.9 million in 2000.

The
personnel cost increase in 2002, compared to 2001, principally derived from the increase
in the number of employees we hired to service our expanding network and customer base.
 The increase in 2001, compared to 2000, was due primarily to the implementation of a new
compensation policy, for the retention of our employees.

Operating
and Other Expenses

The
following table sets forth certain components of our operating expenses, as well as the
percentage change of each component from the prior year, for each of the years in the
three-year period ended December 31, 2002.

|                                     | Year ended December 31, | Percentage change
|------------------------------------ | ----------------------- | -----------------
|                                     | 2000 (1)                | 2001(2)          
|
|Operating expenses:                 
|Selling                              | (248,890)               | (287,181)        
|General and administrative           | (217,120)               | (269,019)        
|Other net operating income (expense) | 5,544                   | 17,185           
|Total                                | (460,466)               | (539,015)        
|Net financial expense                | (35,602)                | (83,222)         
|Net non-operating income (expense)   | (3,215)                 | (1,196)          
|Income and social contribution taxes | (36,778)                | (22,158)         
|Minority interests                   | (12,529)                |                 
|Net income                           | 92,399                  | 94,497           

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

Operating
Expenses

Operating
expenses increased 13.7% to R$612.9 million in 2002, from R$539.0 million in 2001, which
in turn represented a 17.1% increase from R$460.5 million in 2000.

Selling
expenses. Selling expenses increased 25.4% to R$360.2 million in 2002, from R$287.2
million in 2001, which in turn represented a 15.4% increase from R$248.9 million in 2000.

The
increase in 2002, compared to 2001, was due principally to an increase in our expenses
for personnel (call center) and third-party services, due to an increase in the dealers commissions,
by 42.7% and 20.6%, respectively.

The
increase in 2001, compared to 2000, was due principally to:

- an increase in
expenses associated with third-party services, principally advertising and marketing
              services, and commissions paid to our authorized dealers; and
- an increase in
the allowance for doubtful accounts, as a result of an increase in the amount of
              receivables outstanding during 2001.

Provisions
for the allowance for doubtful accounts and network usage charges, included in our
selling expenses, increased 34.8% to R$96.8 million in 2002, from R$71.8 million in 2001,
which in turn represented a 2.9% increase from R$69.8 million in 2000.  The increase in
the allowance for doubtful accounts in 2002 and 2001, compared to 2001 and 2000,
respectively, was due primarily to the increase in the total amount of our past due
accounts in each year due to an increase in interconnection charges of other operators.
 Tariff increases of the network usage charges of the other operators (TU-M) and a larger
customer base increased the number of outgoing calls.

General
and administrative expenses. General and administrative expenses decreased 9.8% to
R$242.7 million in 2002, from R$269.2 million in 2001, which in turn represented a 23.9%
increase from R$217.1 million in 2000.

The
decrease in 2002, compared to 2001, resulted mainly from a decrease in personnel expenses
by 33.8% to R$38.7 million in 2002, from R$58.5 million in 2001, mainly as a result of
the hiring of new employees.

The
increase in 2001, compared to 2000, was principally a result of:

- an increase in
outsourced services expenses by 13.4%  to R$121.5 million in 2001, from R$107.1 million
              in 2000, mainly in connection with the enhancement of our information
systems; and
- an increase in
personnel expenses by 27.1% to R$58.5 million in 2001, from R$46.0 million in 2000, as a
              result of compensation adjustments to match market levels.

Other
net operating income (expense).  We had other net operating expense of R$10.0 million in
2002, as compared to net operating income of R$17.2 million in 2001, and net operating
income R$5.5 million in 2000.

The
decrease in other net operating income 2002, compared to 2001, resulted mainly from the
increase in provisions for contingencies.  See Item 8A. Consolidated Statements and
Other Financial InformationLegal Matters.

Other
net operating income in 2001, compared to other net operating income in 2000, reflects
the restatement of the net operating income for monetary correction in 2000.

Other
Expenses

Net
Financial Expense. Net financial expense 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 8 to our consolidated financial
statements.

Our
net financial expense decreased 84.7% to R$12.7 million in 2002, from R$83.2 million in
2001, which in turn represented a 133.8% increase from R$35.6 million in 2000.

The
decrease in net interest expense in 2002, compared to 2001, resulted principally from a
decrease in our net financial debts, which was partially offset by an increase in gains
associated with derivative transactions.  We had an increase of R$221.0 million in gains
from derivative transactions in 2002, compared to R$76.8 million in 2001.

The
increase in our net financial expense in 2001, compared to 2000, resulted principally
from an increase in our currency exchange variation.

In
addition, we had gains associated with derivative transactions in 2001, compared to 2000.
 We recognized gains from derivative transactions in the amount of R$76.8 million in
2001, compared to our gains associated with derivative transactions in the amount of
R$14.0 million in 2000.

Income
and Social Contribution Taxes. We incurred income and social contribution taxes in the
amount of R$35.8 million in 2002, a 61.6% increase from R$22.2 million in 2001, compared
to an income tax liability in the amount of R$36.8 million in 2000.

The
effective income tax rate before minority interests was approximately 32.5%, in 2002 and
19.0% in 2001.  The different amounts we paid as income and social contribution taxes
reflect changes in Brazilian tax laws during the years ended December 31, 2002 and 2001.
 In addition, during such period, we distributed to our shareholders different amounts as
interest on shareholders equity, which was deducted from our taxable income. See Note 10
to our consolidated financial statements.

Minority
Interests. Minority interests reflect the participation of our subsidiaries minority
shareholders in the net income or loss, as the case may be, of our subsidiaries. We
recorded minority interests in our net loss of R$12.6 million in 2000, reflecting the
interest of minority shareholders in the net income of our subsidiaries until October
2000. On November 1, 2000, these minority shareholders acquired shares of Tele Sudeste
capital stock in exchange for shares of Telerj Celular and Telest Celular, which as of
that date became wholly owned subsidiaries of Tele Sudeste.

Net
income

Net
Income.  As a result of the foregoing, net income decreased 21.3% to R$74.4 million in
2002, from R$94.5 million in 2001, which in turn represented a 2.3% increase from R$92.4
million in 2000.

B. Liquidity and
Capital Resources

Sources of Funds

We
generated cash flow from operations of R$770.7 million, R$597.6 million and R$535.6
million in 2002, 2001 and 2000, respectively.

We
had R$259.6 million of long-term loans and financing as of December 31, 2002, which
consisted primarily of funding from Brazilian financial institutions and supplier
financing.  We expect to pay this indebtedness with cash flow from operations.  See Note
22 to our consolidated financial statements.

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

Uses of Funds

Our
principal uses of funds are for capital expenditures, service of our debt, and payments
of dividends to shareholders.  Acquisition of property, plants and equipment consumed
cash flows of R$370.9 million, R$408.7 million and R$442.6 million in 2002, 2001 and
2000, respectively.  Dividends and interest on shareholders equity payments consumed
cash flows of R$116.2 million, R$47.1 million and R$26.5 million in 2002, 2001 and 2000,
respectively.  Repayment of debt consumed cash flows of R$246.5 million, R$398.4 million
and R$228.2 million in 2002, 2001 and 2000, respectively.

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.

Contractual
Obligations and Commercial Commitments

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

|                                   | Payments due by period in thousands of reais
|---------------------------------- | --------------------------------------------
|                                   | Total                                       
|Contractual obligations:           |                                             
|Long-term debt                     | 460,519                                     
|Capital lease obligation           |                                            
|Operating leases                   | 43,953                                      
|Unconditional purchase obligations | 11,481                                      
|Other long-term obligations(1)     | 14,757                                      
|                                   |                                             
|Total contractual cash obligations | 530,710                                     
|                                   |                                             

|(1) | Contracted long-term suppliers or contracted short-term suppliers
 penalties for early termination.
|--- | ---------------------------------------------------------------------------------------------------

Capital
Expenditure

Capital
Expenditures.  The following table shows our capital expenditures for property, plant and
equipment in 2000, 2001 and 2002.

|                              | Year Ended December 31,
|----------------------------- | -----------------------
|                              | 2000                   
|
|Automatic switching equipment | 160,273                
|Other equipment               | 232,051                
|Real estate                   | 3,730                  
|Other Assets                  | 46,531                 
|Total                         | 442,585                

We made capital expenditures of R$370.9 million, R$408.7 million and R$442.6 million in 2002, 2001
and 2000, respectively.  These expenditures related primarily to the expansion of the capacity of the
services we currently offer, the provision of new services and the development of our information
systems.  See Item 4A. Our History and DevelopmentCapital Expenditures.

We
have budgeted R$225 million in 2003 capital expenditures.  Approximately R$11.5 million
of our budgeted capital expenditures is committed.  Our management expects to finance
2003 capital expenditures principally with cash generated from operations.

Service
of Our Debt

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

|Debt                           | Principal amountoutstanding
|------------------------------ | ---------------------------
|                               |                            
|
|U.S. dollar-denominated loans: |                            
|Loans                          | 427,432                    
|Financing from suppliers       | 33,087                     
|Total                          | 460,519                    

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

|Year ending December 31, | Principal amount
|------------------------ | ----------------
|
|2003                     | 200,922         
|2004                     | 194,594         
|2005                     | 65,003          

As
of December 31, 2002, our exposure to currency fluctuations amounted to R$460.5 million,
all representing U.S. dollar-denominated debt.  See Note 22 to our consolidated financial
statements.

Payments
of Dividends to Shareholders

Holders
of our preferred shares are entitled under Brazilian corporate law to receive dividends
per share in an amount 10% or greater than the dividends per share to the holders of
common shares, or the preferred dividend.  To the extent there are additional
distributable profits, we are also required to distribute to all shareholders an amount
equal to at least 25% of adjusted net income, or the general dividend.  Our obligation,
if any, to pay a general dividend to holders of our preferred shares is satisfied to the
extent of any preferred dividend paid.  We may also make additional distributions to the
extent of available distributable profits and reserves.  Our subsidiaries are also
subject to mandatory distribution requirements and, to the extent of distributable
profits and reserves, are accordingly required to pay dividends to the minority
shareholders as well as to us.  All of the aforementioned distributions may be made as
dividends or as tax-deductible interest on capital.  We paid R$42.7 million to
shareholders in respect of 2001 income in the form of dividends.  Dividends of R$17.5
million in respect of 2002 are scheduled to be distributed in 2003.  See Note 20 to our
financial statements.

C. Research and
Development, Patents and Licenses, Etc.

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

We do not conduct any independent research and primarily depend upon the manufacturers of
telecommunications products for the development of new hardware.  However, we utilize the research and
development centers of the Telefónica Móviles, making use of software and related items in exchange for a
management fee paid to cover the Telefónica Móviles costs.

Our
aggregate expenditures on research and development, including our contribution to the
Center, were R$0.8 million and R$1.1 million for 2001 and 2000, respectively.  We did not
make any contributions or incur any expenses relating to research and development during
2002.

D. Trend
Information

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

ITEM 6. DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and
Senior Management

Board of Directors

Our
administration consists of a board of directors and a board of executive officers.  Our
shareholders elect the members of the board of directors.  The board of directors should
maintain a number of members ranging from eight to 12, each serving three-year terms.
 The board currently consists of 11 members.  The term of office of the current members
of the board of directors will expire in March, 2006.  The board of directors holds
regular quarterly meetings, and the chairman or two board members may call special
meetings.

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

|Name                                | Position      | Date Elected  
|----------------------------------- | ------------- | --------------
|Félix Pablo Ivorra Cano             | Chairman      | March 25, 2003
|Iriarte José Araújo Esteves         | Vice Chairman | March 25, 2003
|Fernando Xavier Ferreira            | Director      | March 25, 2003
|Antonio Viana Baptista              | Director      | March 25, 2003
|Ernesto Lopez Mozo                  | Director      | March 25, 2003
|Ignacio Aller Malo                  | Director      | March 25, 2003
|Zeinal Abedin M. Bava               | Director      | March 25, 2003
|Carlos Manuel L. Vasconcellos Cruz  | Director      | March 25, 2003
|Eduardo Perestrelo Correia de Matos | Director      | March 25, 2003
|Paulo Jorge da Costa G. Fernandes   | Director      | March 25, 2003
|Kazuo Moriya                        | Director      | March 25, 2003

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

Félix
Pablo Ivorra Cano, 56 years old, is the president of the board of directors and has been
a member of the board of directors since December 1998. He has been a member of the board of directors of Tele Leste
Participações S.A. since February 1999, and became its president in 2001. He is also the
president of the board of directors of Celular CRT Participações S.A., Telesp Celular
Participações S.A. and a member of the board of directors of Telecomunicações de São
Paulo S.A.  Telesp and Tele Centro Oeste Celular Participações S.A. He is a director of
Atento Brasil S.A., 4A Telemarketing, Telefónica Peru and Portelcom Participações S.A.
He is the main executive officer for Telefónica Móviles in Brazil and the vice president
of Telefónica Móviles Latino-America. He is also the president of the board of directors
of Brasilcel N.V. After graduating, he joined the Telefónica Group where he worked in
the areas of technical specifications, network planning, commercial planning and
developed new services. In 1993 he was the general director of the group that funded and
developed Telefónica Móviles. In 1997 and a portion of 1998, Mr. Cano was the president
of the board of directors of Mensatel S.A. and Radiored S.A., which are part of Telefónica
Móviles. He has a degree in telecommunication engineering from Escola Técnica Superior
de Engenharia - ETSI in Madrid, and a post-graduate degree in Business Administration
from the Instituto Católico de Administração de Empresas - ICADE.

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

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

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

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

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

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

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

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

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

Kazuo
Moriya, 59 years old, is currently also a managing partner and the president of NTT
DoCoMo Telecomunicações Ltda. He has worked at Nippon Telegraph and Telephone
Corporation (NTT), holding positions in the area of telecommunications both at its
headquarters and in its several offices. From 1990 to 1995, he served as shareholding
member and president of NTT do Brasil Comércio e Representações Ltda. From 1995 to 1998,
he served as vice president of international relations and in 1998 he was the assistant
senior vice president of international investments for NTT Mobile Communications Network,
Inc. (NTT DoCoMo). He holds an engineering degree from Hosei University, Japan.

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

Board of Executive
Officers

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

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

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

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

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

Francisco
José Azevedo Padinha, 56 years old, is currently also the chief executive officer of each
of Brasilcel N.V., Tele Sudeste Celular Participações S.A., Telesp Celular Participações
S.A., Tele Leste Celular Participações S.A., Celular CRT Participações S.A., Telerj
Celular S.A., Telest Celular S.A., Telebahia Celular S.A., Telergipe Celular S.A.,
Celular CRT S.A., Telesp Celular S.A. and Global Telecom S.A.; the chairman of the board
of directors of each of PT Prime Tradecom Soluções
Empresariais de Comércio Electrónico, S.A., Megamedia Soluções Multimédia, S.A., PT
Prime, S.G.P.S., S.A., the vice chairman of the board of directors of PT Ventures S.A.; a
member of the board of directors of PT Comunicações S.A.; and a member of the scientific
committee of Taguspark Sociedade de Promoção e Desenvolvimento do Parque da Ciência e
Tecnologia da Área de Lisboa, S.A. He was also the chairman of the board of directors of
Prymesys - Soluções Empresariais S.A. From 1989 until 1992 Mr. Padinha was the manager of
the central department for research and development of Companhia Portuguesa Rádio
Marconi, S.A., and from1992 until 1994 he was the chairman of the board of directors of
Telecom Portugal, S.A. Mr. Padinha was also the chairman of the board of directors of
each of Cabo TV Açoreana, S.A. (from 1993 until 1996) and INESCTEL Engenharia de Sistemas
e Computadores nas Telecomunicações, Lda (from 1996 until 1999). From 1994 until 1998,
he was a member of the board of directors of Taguspark Sociedade de Promoção e
Desenvolvimento do Parque da Ciência e Tecnologia da Área de Lisboa, S.A., and from 1999
until 2000, he was the chairman of the board of directors of each of PT Inovação, S.A.
and PT Sistemas de Informação, S.A. From 2000 until 2001, Mr. Padinha was the chief
executive officer of PT Prime S.G.P.S., S.A., and from 1994 until 2002, he was a member
of the board of directors of Portugal Telecom. He holds a telecommunications and
electronic engineering degree from the Technical University of Lisbon, Portugal, a degree
in corporate upper management from AESE/University of Navarra, Spain, and a masters
degree in innovation and technology management from the Sloan School of Management/MIT,
United States.

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

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

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

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

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

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

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

Board of Auditors
(Conselho Fiscal)

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

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

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

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

|Name                                    | Position  | Date Appointed
|--------------------------------------- | --------- | --------------
|                                        |           |               
|Flavio Stamm(1)                         | Member    | March 25, 2003
|Milton Shigueo Takarada                 | Member    | March 25, 2003
|Joao Luis Tenreiro Barroso              | Member    | March 25, 2003
|Luciano Carvalho Ventura(1)             | Alternate | March 25, 2003
|Jose Ricardo de Sousa Porpino           | Alternate | March 25, 2003
|Jose Guilherme Feijao Queiroz de Ataide | Alternate | March 25, 2003

__________________

B. Compensation

For the year-ended December 31,
2002, we paid our directors and executive officers, as compensation, an aggregate amount
of R$2.8 million. This amount includes performance remuneration and profit sharing
arrangements applicable to all employees. See Employees. Furthermore,
the members of our board of executive officers are eligible to participate in the same
complementary retirement pension plan available to our employees, called Plano
Visão. See EmployeesPlano de Benefícios Visão
Celular. In 2002, we contributed R$118,261.61 to the Plano Visão on behalf of
our executive officers. The aggregate amount of compensation we paid to the members of the
board of auditors was approximately R$64,179.00.

C. Board Practices

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

Our board of directors is comprised of
a minimum of eight and a maximum of 12 members, all shareholders, each serving a
three-year term. Our directors are elected by our shareholders at the annual general
shareholders meeting. There are no service contracts between us and our directors
providing for benefits upon termination of employment. The board of directors holds
regular quarterly meetings, and the chairman or two board members may call special
meetings.

D. Employees

At December 31, 2002, we had 1,972
full-time employees, 51 temporary employees and 64 trainees. During 2002, we had an
average of 115 trainees and temporary employees.

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

|                                               | At December 31,
|---------------------------------------------- | ---------------
|                                               |                
|                                               | 2000           
|                                               |                
|Total number of employees (including trainees) | 1,323          
|Number by category of activity:               
|Technical and operations area                  | 410            
|Sales and marketing                            | 469            
|Finance and administrative support             | 350            
|Customer service                               | 94             

Employees are represented by the
Sindicato dos Trabalhadores em Empresas de Telecomunicações do Estado do Rio
de Janeiro (SINTEL/RJ), Sindicato dos Trabalhadores em Empresas de
Telecomunicações do Norte e Nordeste Fluminense (SINTEL/NF), and by the
Sindicato dos Trabalhadores em Empresas de Telecomunicações do Estado do
Espírito Santo (SINTEL/ES). We negotiate new collective labor agreements every year
with the labor unions. The collective agreements currently in force include a salary and
benefit increase of 4% effective as of December 31, 2002.

Our management considers the
relations between our work force and us to be satisfactory. We have not experienced any
work stoppage that materially affected our operations.

Each of our subsidiaries negotiates a
new collective labor agreement every year with each local union. The collective agreements
now in force expire on November 30, 2003.

At the time of the privatization,
employers 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. Under the Sistel plan, we made
monthly contributions to Sistel equal to a percentage of the salary of each employee who
was a Sistel member. Each employee member also made a monthly contribution to Sistel based
on age and salary. Members of Sistel qualified for pension benefits when they qualified
for the government-provided retirement benefits. Sistel operates independently from us,
and its assets and liabilities are fully segregated from us.

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

In 2000, we established the Plano de
Benefícios Visão Celular, a new private pension plan for our employees.
Unlike Sistels defined benefits plan, the Plano de Benefícios Visão
Celular calls for defined contributions by our operating subsidiaries, as sponsors, and
our employees, as participants. These contributions are credited to the participants
individual accounts. Those employees who were members of the Sistel plan had the option to
transfer to the new pension plan by October 31, 2000. Newly hired employees may choose to
become participants of the new plan within 30 days from the date of employment. As of
December 31, 2002, approximately 95% of our employees were members of the Plano de
Benefícios Visão Celular. We continue to have a contingent liability for the
unfunded obligations of the plan with respect to all inactive employees of the former
Telebrás and all post-retirement health care benefits for former Telebrás
employees and current employees of all the new holding companies.

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

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

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

E. Share Ownership

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

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Of our two classes of capital stock
outstanding, only the common shares have full voting rights. The preferred shares have
voting rights under limited circumstances. Brasilcel holds, directly and indirectly, 81.6%
of the common shares. Brasilcel has the ability to control the election of our board of
directors and our future operations.

In May 2000, Telefónica held a
tender offer to exchange our ADSs or/and our shares for Telefónica shares and ADSs.
Upon the completion of the Brazilian and U.S. exchange offers, shareholders representing
67.51% of Tele Sudestes capital stock tendered their shares and/or ADSs in exchange
for Telefónica shares and/or ADSs. After the completion of this exchange offer,
Telefónica transferred its ownership interest in our capital stock to
Telefónica Móviles. See Item 4A. Our History and Development.

On November 30, 2000, the
shareholders of Tele Sudeste and the shareholders of each of its subsidiaries, Telerj
Celular and Telest Celular, approved a reorganization through which Telerj Celular and
Telest Celular became wholly owned subsidiaries of Tele Sudeste, and the minority
shareholders of Telerj Celular and Telest Celular were offered shares of Tele Sudeste in
exchange for their shares of Telerj Celular and Telest Celular. See Item 4A. Our
History and Development.

In
December 2001, Telefónica acquired all the Iberdrola groups shareholdings in the Brazilian
telecommunications operators in which both groups held interests. Telefónica S.A. received 7% of the capital
stock of Sudestecel Participações S.A. (the holding company which controls Tele Sudeste Celular
Participações S.A.). In exchange for those, Iberdrola received shares of Telefónica S.A. See Item 4A.
Our History and Development.

On January 23, 2001, Portugal
Telecom and Telefónica Móviles entered into a strategic agreement to create
a mobile services company in Brazil. In December 2002, they aggregated all of their mobile
assets to form a joint venture, entitled Brasilcel N.V. Portugal Telecom and
Telefónica Móviles are managing the joint venture on an equal basis. See
Item 4A. Our History and Development.

The following table sets forth the
principal holders of common and preferred shares and their respective shareholdings as of
May 31, 2003:

|Name                | Number ofCommon SharesOwned | Percentage ofOutstanding CommonShares | Number of Preferred SharesOwned | Percentage ofOutstandingPreferred Shares
|------------------- | --------------------------- | ------------------------------------- | ------------------------------- | ----------------------------------------
|                    |                             |                                       |                                 |                                         
|Sudestecel          |                             |                                       |                                 |                                         
|Participações S.A   | 95,197,157,438              | 55.02%                                | -                               | -                                       
|Brasilcel N.V       | 43,450,494,855              | 25.11%                                | 14,015,090,743                  | 5.40%                                   
|Brasilcel N.V. -   
|ADRS (1)            | -                           | -                                     | 174,288,020,000                 | 67.14%                                  
|Tagilo             
|Participações Ltda. | 12,577,645,437              | 7.27%                                 | 33,317,534,708                  | 12.84%                                  
|All directors and  
|executive officers 
|as a group          | 9,464                       | 0%                                    | 5,377                           | 0%                                      

__________________

The following table sets forth
information concerning the control of Sudestecel Participações S.A.:

|                              | Percentage of
|----------------------------- | -------------
|                              | Outstanding  
|Sudestecel Participações S.A. | Shares Owned 
|                              |              
|Brasilcel N.V                 | 89.5%        
|NTT DoCoMo, Inc.              | 7.0%         
|Itochu Corporation            | 3.5%         

We are not aware of any other
shareholder owning more than 5.0% of the common shares. On December 31, 2002, our officers
and directors held less than 0.1% of the common shares outstanding.

The following is a brief description
of our major shareholders, referred to above.

For a description of Brasilcel N.V., see
Item 4A. Our History and DevelopmentBrasilcel.

NTT DoCoMo, Inc. is a company fully
dedicated to telecommunications. NTT performs telecommunications infrastructure building
and maintenance; development, maintenance, sale and leasing of mobile phones and related
services; development, production and sale of software to mobile communication companies;
and telecommunications research and services.

Itochu Corporation is a Japanese
company with a wide range of activities, which include the production of organic and
synthetic fibers, food and beverages (alcoholic and non-alcoholic), fertilizers, animal
food, wood products, raw material for ceramic production and construction materials, pulp
and paper, rubber, leather derivatives, petroleum derivatives, pharmaceutical and
veterinary products, chemical products (agrochemical and others), and also activities in
areas such as land and maritime transportation, forestry, construction, mining and the
generation and distribution of electrical power.

B. Related Party
Transactions

Telerj Celular and Telest Celular entered into interconnection and roaming agreements with the following
related parties:  Telergipe Celular S.A., Telebahia Celular S.A., Telesp Celular S.A., Global Telecom
S.A., Telecomunicações de São Paulo S.A., Celular CRT S.A. and Telefónica Móviles de España S.A.  These
companies became a related party on December 27, 2002, as a result of the joint venture described in Item
4A. Our History and Development and in note 1 to our consolidated financial statements.  Telerj Celular
and Telest Celular also entered into long distance telecommunications services with Telecomunicações de
São Paulo, S.A.  Most of these agreements were entered into before the reorganization of Telebrás, and are
subject to the rules set forth by Anatel.

We have roaming contracts with
several companies belonging to the Telefónica Group in Latin America, such as
Telefónica Móviles SAC (Peru), Telefónica Comunicacíones
Personales S.A. (UNIFON)-Argentina and CTC Comunicacíones Móviles
S.A.(Chile).

We pay Telefónica Móviles S.A. for consulting services such as marketing, technical and business
development advice.  Under this contract, our subsidiaries are required to make quarterly payments of
approximately 1% of our net operating revenues.

Atento Brasil S.A., also controlled
by Telefónica, provides us call center services, according to a service agreement
with Telerj Celular and Telest Celular. In addition, we entered into contracts with
Telefónica Mobile Solutions, with respect to security systems services, and
Telefónica Engenharia, with respect to profitability and cost control systems
services. Telerj Celular and Telecomunicações de São Paulo S.A. also
provide services in connection with corporate matters to other companies controlled by
Telefónica.

We have engaged in a number of other
transactions with related parties. See note 27 to our consolidated financial statements.

C. Interests of Experts
and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated
Statements and Other Financial Information

See Item 3A. Selected Financial
Data and Item 17. Financial Statements.

Legal Matters

Civil

Litigation Related to the
Breakup of Telebrás

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

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

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

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

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

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

Litigation Arising Out of Events Prior to the Breakup of Telebras

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

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

Litigation Related to Tax
Credits

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

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

Litigation Related to the Ownership
of Caller ID

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

Litigation Related to the Validity of
the Minutes in the Prepaid Plans

We are the defendant in a lawsuit
brought by the federal public prosecutors office and an association for
consumers protection which challenged the imposition of a deadline for the use of
purchased prepaid minutes. The plaintiffs allege that any purchased prepaid minutes should
not have a time limitation for usage.

This lawsuit is still in its initial
stages, but, based on external counsels opinion, we do not believe it will be
resolved against our interests.

Tax-Related

Litigation Related to the Application
to the ICMS

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

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

Each of our subsidiaries filed suit
with the Justice Court (Tribunal de Justiça do Estado) of the state in which it is
located seeking injunctive relief from retroactive and prospective application of the ICMS
tax to cellular activation fees, and each subsidiary obtained a temporary injunction
relieving it from payment during the duration of the lawsuits. In April 2000, Telerj
Celular obtained a favorable judicial decision and an important precedent from the Lower
Justice Court of the state of Rio de Janeiro on this matter, prohibiting the assessment of
ICMS tax on cellular activation fees. This decision was later confirmed by the court of
appeals (Tribunal de Segunda Instância).

Based upon advice from our legal
counsel, we do not expect significant losses arising from this matter and therefore have
not made provisions for the application of the ICMS tax on cellular activation. Five-year
retroactive application of the ICMS cellular activation, if borne by us, would have a
maximum material adverse impact on our financial condition and results of operations
estimated at R$114.5 million. However, we do not believe that the retroactive application
is probable. Moreover, we believe that the Predecessor Companies would be liable to our
subsidiaries for any tax liability arising from the retroactive application. We do not
believe that application of the ICMS tax to cellular activation fees, applied on a
prospective basis, would have a material impact on our financial condition or results of
operations. See Note 23 to our consolidated financial statements.

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

Under the Lei Complementar No. 87/97,
the amount of ICMS assessed upon the acquisition of goods as capital assets creates the
right to a tax credit. All Brazilian states have guaranteed this right through their
respective ICMS legislations. However, on February 2, 1999, the state of Rio de Janeiro
promulgated the Lei Estadual No. 3,188 restricting this right to a tax credit, which was
guaranteed by the Brazilian federal constitution, and the Lei Complementar No. 87/97.
Through Lei Estadual No. 3,188, the state of Rio de Janeiro restricted the application of
the ICMS tax credit by establishing that the credit should be taken over at a 1/60 monthly
rate. Therefore, we were no longer allowed to expense the entire amount of ICMS tax credit
at the date of purchase of such assets.

Telerj Celular obtained a preliminary
injunction from a court of first instance, allowing it to credit fully any ICMS tax
assessed upon its acquisition of goods as capital assets. The preliminary injunction was
confirmed in a final decision of the court of first instance, which was later confirmed by
the court of appeals. This judgment is appealable at higher courts, the Tribunal de
Justiça and the Supremo Tribunal Federal. However, as Telerj Celulars outside
advisors have classified the matter as a remote loss case, Telerj Celular has
not made any provisions for the possibility of a reversal. The amount at stake was
approximately R$29.1 million on December 31, 2002.

Currently, as a result of changes
brought by Lei Complementar No. 102/00, the expensing of the ICMS tax credit arising out
of the acquisition of permanent assets should no longer be made entirely on the date of
acquisition of these assets. Since then, the expensing has been made based on a monthly
1/48 fraction.

Our cases regarding the ICMS tax in
connection with the activation fees and the amortization of the ICMS tax credit are
currently pending judgment by the Superior Tribunal de Justiça, however both of the
cases have been classified by our legal counsel as remote loss cases.

Litigation Related to the Application
to the ICMS in Telest Celular S.A.

On the advice of our external
counsel, with regard to the litigation that arose out of the ICMS tax assessment made in
2002, our subsidiary Telest Celular S.A.created a provision of R$12.1 million.

With regard to other litigation that
arose out of the ICMS tax (related to telecommunication services and tax credits), Telest
Celular S.A. created a provision of R$8.1 million, and classified the case as
possible loss.

Litigation Related to the Application
of the COFINS and PIS

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

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

Telerj Celular and Telest Celular
obtained injunctions allowing them to continue paying the COFINS and PIS contributions
based on telecommunications services and sales revenues and to continue paying the COFINS
contribution at a 2% rate. However, the injunctions were partially reversed by decisions
that determined that the COFINS could be assessed at a 3% rate. Our subsidiaries have
accordingly resumed the payment of COFINS at the 3% rate. Said decisions, however, remain
valid with respect to the exclusion of finance revenues from the calculation basis of both
contributions. Notwithstanding, they continue to dispute legally the COFINS and PIS
increase and, if they win favorable judicial decisions, may recoup overpaid taxes.

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

We, together with other
telecommunication carriers, are defendants in a lawsuit brought by the federal public
prosecutors office challenging our policy of passing on the COFINS and PIS costs to
our customers by incorporating them into our charges.

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

We believe that the probability of
success challenging this claim is very high. However, in the event that we do not succeed,
we, our financial condition and our results of operations may be materially and
significantly affected.

Administrative Proceedings

Our subsidiaries are also defendants
in administrative proceedings amounting to R$49.5 million relating, among other issues, to
(i) the failure to write off ICMS tax credits allegedly not eligible for expensing,
(ii) the failure to collect ICMS in connection with revenues paid for services not
strictly fitting the category of telecommunication services, (iii) the failure to
collect ICMS in connection with calls made from administrative stations and testing calls
made by employees, (iv) the alleged failure to collect the CSLL in full, and
(v) other issues. Based on the opinion of our external counsel, we have not made any
provision in connection with these proceedings.

Other Litigation

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

Dividend Policy and
Dividends

In order to comply with the
requirements of Law No. 10,303, on December 30, 2002, we had an Extraordinary
Shareholders Meeting for holders of preferred shares, which approved the
modifications to the distribution of dividends to the holders of preferred shares and
another Extraordinary Shareholders Meeting, which approved the relevant changes to
our by-laws. After that date, which included the dividends for the fiscal year ended 2002,
holders of our preferred shares are entitled to receive 10% more per share than the
dividends paid to the holders of our common shares.

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

- its board of
directors, independent auditors and board of auditors report to the shareholders meeting
that the distribution would be incompatible with the financial conditions of that
company; and
- the shareholders
ratify this conclusion at the shareholders' meeting.  In this case,

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

For the purposes of Brazilian
corporate law, accumulated profits are defined as net income after the provision of income
tax and social contribution for the relevant fiscal year, net of any accumulated losses
from prior fiscal years and any amounts allocated to warrants, income bonds,
employees and managements participation in a companys profits.

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

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

- first, a
percentage of net profits may be allocated to the contingency reserve for anticipated
losses that may be charged to it in future years. Any amount so allocated in a prior year
must be either:

reversed in the
fiscal year in which the loss was anticipated if such loss does not in fact occur; orwritten off in
the event that the anticipated loss occurs;
- reversed in the
fiscal year in which the loss was anticipated if such loss does not in fact occur; or
- written off in
the event that the anticipated loss occurs;
- second, if the
amount of unrealized revenue exceeds the sum of (i) the statutory reserve and (ii)
retained earnings, such excess may be allocated to the unrealized profit 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, which are prepared in
accordance with Brazilian GAAP.

Preferences of Preferred
Shares

On December 30, 2002, our
extraordinary shareholders meeting approved certain amendments to our by-laws to
reflect certain amendments to the Brazilian corporate law relating to the preemptive
rights of our preferred shares. Pursuant to those amendments, holders of our preferred
shares are entitled to receive dividends per share in an amount 10% greater than the
dividends per share to holders of common shares. Therefore, distribution of dividends per
year shall be as follows:

- first, we add to
the number of preferred shares a 10% factor;
- second, we divide
the dividends to be paid by the number obtained above added up to the number of
              common shares;
- the resulting
amount will correspond to the dividends payable to common shares;
- thereafter, when we add 10% to this
amount, we will find the amount of dividends payable to preferred shares.

Preferred shares are entitled to
priority in the receipt of equity, without premium, in case of liquidation. If the
dividend to be paid to the holders of preferred shares is not paid for a period of three
years, holders of preferred shares will be entitled to full voting rights until such time
as that dividend is paid in full for any year.

Payment of Dividends

We are required by Brazilian law and
by our by-laws to hold an annual shareholders meeting by April 30 of each year, at
which, among other things, an annual dividend may be declared by a decision of our
shareholders on the recommendation of our board of directors. The payment of annual
dividends in any given year is based on the financial statements prepared for the
preceding fiscal year ending December 31. Under Brazilian corporate law, dividends are
required to be paid within 60 days of the annual shareholders meeting, or on the
date determined at a shareholders meeting, but in any case prior to the end of the
fiscal year in which such dividend was declared. A shareholder has a three-year period
from the dividend payment date to claim dividends in respect of its shares, after which
time unclaimed dividends revert back to us. Because our shares are issued in book-entry
form, dividends will be credited to the depositary, which is responsible for the delivery
of the dividends to their respective holders. We are not required to adjust the amount of
paid-in capital for inflation. Annual dividends may be paid to shareholders on a pro 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 Bank of New York, as depositary, which is the registered owner of our shares.

Payments of cash dividends and
distributions, if any, will be made in reais to the Custodian on behalf of The Bank of New
York, 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.

Distribution and payment of dividends
to holders of our preferred shares registered as of December 31, 2002 was approved at the
annual general shareholders meeting held on March 25, 2003. The latest date for
payment of these dividends is December 31, 2003.

|          | Year ended December 31,
|--------- | -----------------------
|          |                        
|          | 2000(1)                
|          |                        
|          | R$ per                 
|          | thousand               
|          |                        
|Common    | 0.23                   
|Preferred | 0.23                   

__________________

|(1) | We paid 2000 dividends on December 21, 2001.                                                                                                                                                                                                                                                              
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | We paid 2001 dividends on September 06, 2002.                                                                                                                                                                                                                                                             
|(3) | We paid interim dividends on September 27, 2002.                                                                                                                                                                                                                                                          
|(4) | Dividends to be paid relating to our 2002 fiscal year.
Interest on shareholders' equity is R$0.0277 per thousand common and preferred shares.
In addition, there is a complementary dividend in the amount of R$0.02315 per thousand preferred shares.
These amounts will be paid until December 22, 2003.

B. Significant Changes

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

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing
Details

The trading market for our common and
preferred shares in Brazil is the Bolsa de Valores de São Paulo, or the São
Paulo Stock Exchange. Brazilian private equity and debt instruments are principally traded
on the São Paulo Stock Exchange.

Our preferred shares began trading
separately from any other security on the São Paulo Stock Exchange on September 21,
1998. The following table sets forth the reported high and low closing sale prices for the
preferred shares on the São Paulo Stock Exchange for the periods indicated.

|                         | Nominal reaisper 1,000preferred
shares
|------------------------ | --------------------------------------
|                         | Low                                   
|1998                    
|Annual                   | 2.90                                  
|1999                    
|Annual                   | 3.60                                  
|2000                    
|Annual                   | 6.80                                  
|2001                    
|Annual                   | 5.10                                  
|First quarter            | 6.80                                  
|Second quarter           | 7.89                                  
|Third quarter            | 5.10                                  
|Fourth quarter           | 6.04                                  
|2002                    
|Annual                   | 5.67                                  
|First quarter            | 5.68                                  
|Second quarter           | 5.67                                  
|Third quarter            | 5.99                                  
|Fourth quarter           | 6.10                                  
|Last Six Months         
|December 2002            | 6.69                                  
|January 2003             | 6.22                                  
|February 2003            | 6.30                                  
|March 2003               | 6.55                                  
|April 2003               | 6.95                                  
|May 2003                 | 7.10                                  
|June (until June 18)2003 | 6.80                                  

In the United States, our preferred
shares trade in the form of ADSs, each representing 5,000 preferred shares issued by The
Bank of New York, as depositary pursuant to a Deposit Agreement among us, the depositary
and the registered holders and beneficial owners from time to time of ADRs. The ADSs
commenced trading separately on the New York Stock Exchange on November 16, 1998 under the
symbol TSD. At December 31, 2002, there were approximately 150 holders of
record of our ADSs in the United States. The following table sets forth the reported low
and high closing sales prices for ADSs on the New York Stock Exchange for the dates and
periods indicated.

|                         | U.S. dollars per ADS
|------------------------ | --------------------
|                         | Low                 
|1998                    
|Annual                   | 17.62               
|1999                    
|Annual                   | 12.87               
|2000                    
|Annual                   | 17.25               
|2001                    
|Annual                   | 10.60               
|First quarter            | 17.50               
|Second quarter           | 17.60               
|Third quarter            | 10.60               
|Fourth quarter           | 11.00               
|2002                    
|Annual                   | 7.70                
|First quarter            | 11.80               
|Second quarter           | 10.20               
|Third quarter            | 7.90                
|Fourth quarter           | 7.70                
|Last Six Months         
|December 2002            | 8.83                
|January 2003             | 8.60                
|February 2003            | 8.60                
|March 2003               | 8.75                
|April 2003               | 10.70               
|May 2003                 | 11.71               
|June (until June 18)2003 | 11.80               

B. Plan of Distribution

Not applicable.

C. Markets

Trading on the São
Paulo Stock Exchange

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

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

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

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

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

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

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

Regulation of Brazilian
Securities Markets

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

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

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

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

The period established for companies
to adapt their by-laws is one year from the publication of the law on November 1, 2001.
Our shareholders held a general shareholders meeting on December 30, 2002, where
they addressed these modifications in our by-laws.

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

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

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

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

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 by-laws were filed with the
Public Registry of the state of Rio de Janeiro (JUCERJ) on April 16, 2003
under company number (NIRE) 3330026819-7. Article 5 of our by-laws will be amended as a
result of the capital increase determined by the Board of Directors of Tele Sudeste at its
March 31, 2003 meeting, which was registered with JUCERJ under n. 00001314082.

Objectives and Purposes

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

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

Directors

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

- Pursuant to
Article 17, the board of directors has the power to approve investments and acquisition
of assets, assume any obligation and execute contracts not included in the budget for an
amount exceeding R$300 million, the public issuance of promissory notes, and the
acquisition of our shares for cancellation or deposit with a custodian; and
- Pursuant to
Article 13, 2nd paragraph, the board of directors has the power to apportion the global
remuneration set forth by the shareholders meeting between the directors and the
executive officers.

Pursuant to Brazilian corporate law,
each member of the board of directors must have at least one share of our capital stock to
be elected as a director. There are no provisions in our by-laws with respect to:

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

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

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

Rights Attaching to Shares

Dividend Rights

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

Voting Rights

Each common share entitles the holder
to one vote at meetings of shareholders. Our preferred shares do not entitle the holder to
vote except as discussed in our by-laws in Articles 7, 9 and 10. Holders of our preferred
shares are each entitled to attend or to address meetings of shareholders and to elect
members of our board of directors according to Article 141, fourth paragraph, II, and
Article 141, fifth paragraph, of Law No. 6,404/76, as amended by Article 8, fourth
paragraph of Law No. 10,303/01.

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

Brazilian corporate law provides that
certain non-voting shares, such as our preferred shares, acquire voting rights in the
event we fail for three consecutive fiscal years to pay the mandatory 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 dividends to which they
are entitled for three consecutive years, and with respect to:

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

Any change in the preference,
benefits, conditions of redemption and amortization of our preferred shares, or the
creation of a class of shares having priority or preference over our preferred shares,
would require the approval of holders of a majority of our outstanding preferred shares at
a special meeting of holders of our preferred shares. Such a meeting would be called by
publication of a notice in the states official gazette and two other Brazilian
gazettes, as determined by the shareholders, at least thirty days prior to the meeting,
but would not generally require any other form of notice.

In any circumstances in which holders
of our preferred shares are entitled to vote, each preferred share will entitle the holder
to one vote.

Meeting of Shareholders

According to Brazilian law,
shareholders must be previously convoked in order for a general or extraordinary
shareholders meeting to be installed. The convocation must be published in the
states official gazette and two other gazettes, as determined by the shareholders,
at least 15 days prior to the meetings scheduled date. If the first meeting is not
installed for some reason, the second convocation must be published at least eight days
before the second meeting date.

On the first call, meetings may only
be installed with a minimum quorum of one-fourth of the holders of voting shares.
Extraordinary meetings, whose objective is the amendment of the by-laws, may only be
installed on the first call with a minimum of two-thirds of the voting capital present. In
addition, some decisions require the approval of at least one-half of the holders of
voting shares (qualified quorum). On a second call, the meetings are installed regardless
of quorum.

Preemptive Rights

Each of our shareholders has a
general preemptive right to subscribe for shares in any capital increase in proportion to
its shareholding. A minimum period of 30 days following the publication of notice of the
capital increase is allowed for the exercise of the right.

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

Preemptive rights to purchase shares
may not be offered to U.S. holders of our ADSs unless a registration statement under the
Securities Act is effective with respect to the shares underlying those rights, or an
exemption from the registration requirements of the Securities Act is available.
Consequently, if you are a holder of our ADSs who is a U.S. person or is located in the
United States, you may be restricted in your ability to participate in the exercise of
preemptive rights.

Right of Redemption

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

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

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

The right to redemption lapses 30
days after publication of the minutes of the relevant shareholders meeting or,
whenever the resolution requires the approval of the holders of our preferred shares by
vote taken in a special meeting of a majority of the holders of our preferred shares
affected by the resolution, within 30 days from the publication of the minutes of that
special meeting. We would be entitled to reconsider any action giving rise to redemption
rights within 10 days following the expiration of those rights if the redemption of shares
of dissenting shareholders would jeopardize our financial stability.

Unless otherwise provided in our
by-laws, which is not the case, shares are redeemable at their book value, determined on
the basis of the last annual balance sheet approved by the shareholders. If the
shareholders meeting giving rise to redemption rights occurs more than 60 days after
the date of the last annual balance sheet, a shareholder may demand that its shares be
valued on the basis of a new balance sheet that is as of a date within 60 days of such
shareholders meeting.

Form and Transfer

Our shares are maintained in
book-entry form with a transfer agent, Banco ABN-AMRO Real S.A., and the transfer of our
shares is made in accordance with the applicable provision of Brazilian corporate law,
which provides that a transfer of shares is effected by an entry made by the transfer
agent on its books, debiting the share account of the seller and crediting the share
account of the purchaser against presentation of a written order of the seller or judicial
authorization or order in an appropriate document which remains in the possession of the
transfer agent. Our preferred shares underlying our ADSs are registered on the records of
BOVESPA in the name of The Bank of New York, as depositary of the ADSs.

Transfers of shares by a foreign
investor are made in the same way and executed by such investors local agent on the
investors behalf except that, if the original investment was registered with the
Central Bank of Brazil under the Brazilian foreign investment in capital markets
regulations, the foreign investor should also seek amendment, if necessary, through its
local agent, of the certificate of registration to reflect the new ownership.

BOVESPA operates a central clearing
system. A holder of our shares may choose, at its discretion, to participate in this
system. All shares elected to be put into the system will be deposited in custody with the
relevant stock exchange through a Brazilian institution duly authorized to operate by the
Central Bank of Brazil and having a clearing account with the relevant stock exchange. The
fact that such shares are subject to custody with the relevant stock exchange will be
reflected in our register of shareholders. Each participating shareholder will, in turn,
be registered in our register of beneficial shareholders maintained by the relevant stock
exchange and will be treated in the same way as registered shareholders.

C. Material Contracts

On December 10, 2002, Telerj Celular
entered into an authorization agreement with Anatel, acting as a representative of the
Brazilian government, which enables it to provide personal cellular services (SMP) in the
state of Rio de Janeiro. The authorization replaces the concession agreement entered into
with Anatel on November 4, 1997, and authorizes Telerj Celular to provide SMP services
until November 30, 2005. It may be renewed for an additional term of fifteen years upon
payment of 2% of Telerj Celulars net revenues from usage charges in its region in
the year prior to the year when payment is due, and every two years during the extension
period. In consideration for the authorization, Telerj Celular was required to pay R$9.0
thousand. The authorization is a legal requirement for providing telecommunication
services in the region covered thereby.

On December 10, 2002, Telest Celular
entered into an authorization agreement with Anatel, acting as a representative of the
Brazilian government, which enables it to provide personal cellular services (SMP) in the
state of Espíritio Santo. The authorization replaces the concession agreement
entered into with Anatel on November 4, 1997, and authorizes Telest Celular to provide SMP
services until November 30, 2008. It may be renewed for an additional term of fifteen
years upon payment of 2% of Telest Celulars net revenues from usage charges in its
region in the year prior to the year when payment is due, and every two years during the
extension period. In consideration for the authorization, Telest Celular was required to
pay R$9.0 thousand. The authorization is a legal requirement for providing
telecommunication services in the region covered thereby.

D. Exchange Controls

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

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

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

Under Resolution 2,689 of the CMN,
foreign investors registered with the CVM may buy and sell Brazilian securities, including
the preferred shares, on Brazilian stock exchanges without obtaining separate certificates
of registration for each transaction. Registration is available to qualified foreign
investors, which principally include foreign financial institutions, insurance companies,
pension and investment funds, charitable foreign institutions and other institutions that
meet certain minimum capital and other requirements. Resolution 2,689 also extends
favorable tax treatment to registered investors. See TaxationBrazilian
Tax Considerations.

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

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

Registered Capital

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

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

A certificate of registration has
been issued in the name of the depositary with respect to the ADSs and is maintained by
the custodian on behalf of the depositary. Pursuant to the certificate of registration,
the custodian and the depositary are able to convert dividends and other distributions
with respect to the preferred shares represented by ADSs into foreign currency and remit
the proceeds outside Brazil. In the event that a holder of ADSs exchanges such ADSs for
preferred shares, such holder will be entitled to continue to rely on the
depositarys certificate of registration for five business days after such exchange,
following which such holder must seek to obtain its own certificate of registration with
the Central Bank. Thereafter, any holder of preferred shares may not be able to convert
into foreign currency and remit outside Brazil the proceeds from the disposition of, or
distributions with respect to, such preferred shares, unless the holder is a duly
qualified investor under Resolution 2,689 or obtains its own certificate of registration.
A holder that obtains a certificate of registration will be subject to less favorable
Brazilian tax treatment than a holder of ADSs. See TaxationBrazilian Tax
Considerations.

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

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

E. Taxation

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

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

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

Although there is presently no income
tax treaty between Brazil and the United States, the tax authorities of the two countries
have had discussions that may culminate in such a treaty. No assurance can be given,
however, as to whether or when a treaty will enter into force or how it will affect the
U.S. holders of preferred shares or ADSs.

Brazilian Tax
Considerations

The following discussion mainly
summarizes the principal Brazilian tax consequences of the acquisition, ownership and
disposition of preferred shares or ADSs by a U.S. holder not deemed to be domiciled in
Brazil for Brazilian tax purposes (a U.S. holder). This discussion does not
address all the Brazilian tax considerations that may be applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult its own tax advisor
about the Brazilian tax consequences of investing in preferred shares or ADSs.

Taxation of Dividends

Dividends paid by us in cash or in
kind from profits generated on or after January 1, 1996 (i) to the depositary in
respect of preferred shares underlying ADSs or (ii) to a U.S. holder or non-Brazilian
holder in respect of preferred shares will generally not be subject to Brazilian
withholding tax. We do not have any undistributed profits generated before January 1,
1996.

Distributions of Interest
on Capital

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

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

No assurance can be given that our
board of directors will not recommend that future distributions of profits will be made by
means of interest on capital instead of by means of dividends.

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

Taxation of Gains

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

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

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

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

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

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

There can be no assurance that the
current preferential treatment for U.S. holders and non-Brazilian holders of ADSs and U.S.
holders and non-Brazilian holders of preferred shares under Resolution 2,689 will be
maintained.

Gain on the disposition of preferred
shares is measured by the difference between the amount in Brazilian currency realized on
the sale or exchange and the acquisition cost of the shares sold, measured in Brazilian
currency, without any correction for inflation. The acquisition cost of shares registered
as an investment with the Central Bank is calculated on the basis of the foreign currency
amount registered with the Central Bank. See Exchange ControlsRegistered
Capital.

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

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

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

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

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

Other Brazilian Taxes

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

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

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

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

U.S. Federal Income Tax
Considerations

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

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

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

Taxation of Dividends

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

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

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

Taxation of Capital Gains

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

Passive Foreign
Investment Company Rules

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

Information Reporting and
Backup Withholding

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

F. Dividends and Paying
Agents

Not applicable.

G. Statement of Experts

Not applicable.

H. Documents on Display

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

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

We also file financial statements and
other periodic reports with the CVM. Copies of our annual report on Form 20-F and
documents referred to in this annual report and our by-laws will be available for
inspection upon request at our offices at Praia de Botafogo, 501, 7o andar, 22250-040
Rio de Janeiro, RJ, 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 all or partially denominated in
currencies (primarily the U.S. dollar) other than those in which we earn revenues
(primarily the real). Similarly, we are subject to market risk deriving from changes in
interest rates, which may affect the cost of our financing.

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

Exchange Rate Risk

The principal foreign exchange rate
risk faced by us arises from our U.S. dollar-denominated indebtedness. At December 31,
2002, we had R$460.5 million of indebtedness (equivalent to U.S.$130.3 million at a rate
of U.S.$1 = R$3.5333, the closing exchange rate on December 31, 2002). Our revenues are
earned almost entirely in reais. We have no material U.S. dollar-denominated assets. At
December 31, 2002, all of our U.S. dollar-denominated indebtedness was covered by long
positions of derivative agreements. Under those derivative agreements, our
subsidiaries U.S. dollar-denominated obligations are swapped for real-denominated
obligations bearing interest at rates linked to the Certificado de Depósito
Interbancário (Interbank Deposit Certificate), or CDI. At December 31, 2002, all of
our U.S. dollar fixed- and floating-rate loans are converted to floating-rate loans
through our derivative transactions. Also, 95% of our other U.S. dollar liabilities were
also covered by derivative agreements. At December 31, 2002, we recorded financial income
from foreign currency derivative transactions of R$221.0 million against financial
expenses from monetary and foreign exchange variations of approximately R$238.1 million.

Taking into account the effects of
our derivative contracts and assuming that maturing positions are renewed, a hypothetical,
instantaneous and unfavorable 10% change continuing for more than one year in foreign
currency exchange rates as of December 31, 2002 would represent a foreign exchange loss of
approximately R$0.7 million.

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

Interest Rate Risk

We invest cash and cash equivalents
(R$123.2 million at December 31, 2002) mainly in short-term real-denominated instruments.

We are exposed to interest rate risk
as a consequence of our floating rate debt in U.S. dollars. At December 31, 2002,
approximately 46% of our indebtedness bore interest at floating rates and 54% bore
interest at fixed rates. We are also exposed to interest rate risk 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. We have not entered
into derivative contracts or made other arrangements to hedge against this risk. Thus, if
market interest rates rise, then it is probable that our financing expenses will increase.
We continuously monitor interest rates with a view toward considering whether we should
enter into derivative arrangements to protect against the risk of interest rate
volatility.

The potential loss to us over one
year that would have resulted from a hypothetical, instantaneous and unfavorable change of
100 basis points in the interest rates applicable to our financial assets and liabilities
on December 31, 2002 would be approximately R$6.7 million. The above sensitivity analysis
is based on the assumption of an unfavorable 100 basis point movement of the interest
rates applicable to each homogeneous category of financial assets and liabilities and
sustained over a period of one year. A homogeneous category is defined according to the
currency in which financial assets and liabilities are denominated and assumes the same
interest rate movement within each homogeneous category, for example U.S. dollars. As a
result, our interest rate risk sensitivity model may overstate the impact of interest rate
fluctuations for such financial instruments as consistently unfavorable movements of all
interest rates are unlikely.

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

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND
PROCEDURES

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

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

ITEM 16. [RESERVED]

PART III

ITEM 17. FINANCIAL
STATEMENTS

Not
applicable.

ITEM 18. FINANCIAL
STATEMENTS

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

ITEM 19. EXHIBITS

Document filed as exhibits to this annual report.

|1.1  | By-laws of Tele Sudeste Celular Participações S.A., as amended                                                                                    
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------
|1.2  | By-laws of Tele Sudeste Celular Participações S.A., as amended (English Translation)                                                              
|4.1  | Standard Authorization Agreement for Personal Cellular Service together with an English translation                                               
|8.1  | List of subsidiaries                                                                                                                              
|10.1 | Minutes of the Meeting of the Board of Directors of Tele Sudeste Celular Participações S.A. of March 31, 2003                                     
|10.2 | Minutes of the Meeting of the Board of Directors of Tele Sudeste Celular Participações S.A. of March 31, 2003 (English Translation)               
|12.1 | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|12.2 | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.



ANNEX A

GLOSSARY OF
TELECOMMUNICATIONS TERMS

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

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

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

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

ARPU:Average revenue per user.

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

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

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

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

BTS: A digital base station.

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

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

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

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

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

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

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

Exchange:See Switch.

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

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

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

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

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

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

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

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

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

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

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

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

MOU:Minutes of use per customer.

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

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

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

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

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

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

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

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

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

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

SMS:A short message service provided by wireless telecommunications.

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

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

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

WAP:Wireless Applications Protocol



EXHIBIT 1.2

TELE SUDESTE CELULAR
PARTICIPAÇÕES S/A

CNPJ/MF N°
02.558.129/0001-45  NIRE 353.0015880-6Publicly-held Company

BY-LAWS

CHAPTER I  FEATURES OF
THE COMPANY

LEGALFORM

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

BUSINESS PURPOSE

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

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

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

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

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

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

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

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

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

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

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

HEAD OFFICE

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

CHAPTER II  CAPITAL
STOCK

AUTHORIZED CAPITAL

Art.  4  The  Company
 may  increase  its  capital  stock  up to the  limit of  seven  hundred  billion
(700,000,000,000)  shares,  both common and preferred,  irrespective of amendments to the
By-laws,  with the  Board of  Directors  being  the body  that is  competent  to  resolve
 as to the  increase  and the resulting issue of new shares, within said limit.

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

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

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

SUBSCRIBED CAPITAL

Art. 5  The
subscribed capital stock, which is fully paid-in, is six hundred and eighty-five
million, three hundred and twenty-one thousand, one hundred and thirty-five Reaisand eighty-one cents (R$ 685,321,135.81) divided into four hundred and fourteen
billion, six million, four hundred and fifty-seven thousand, one hundred and
seventy-nine (414,006,457,179) shares, of which one hundred and fifty-four billion,
four hundred and thirty-one million, four hundred and twenty thousand, nine
hundred and seventy-seven (154,431,420,977) are common shares and two hundred and
fifty-nine billion, five hundred and seventy-five million, thirty-six thousand, two
hundred and two (259,575,036,202) are preferred shares, all of them book-entry shares
without par value.

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

CHAPTER III  SHARES

COMMON SHARES

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

PREFERRED SHARES

Art. 7  Preferred
 shares have no voting rights,  except in the cases provided for in Articles 9 and 10
below,  and are assured  priority  for  reimbursement  of capital,  with no premium,  and
for receipt of dividends ten percent (10%) greater than those allotted to each common
share.

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

CHAPTER IV  GENERAL
SHAREHOLDERS MEETING

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

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

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

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

I -    Article 9;

II -  Sole Paragraph
of Article 11; and

III - Article 30.

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

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

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

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

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

CHAPTER V  MANAGEMENT
OF THE COMPANY

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

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

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

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

BOARD OF DIRECTORS

COMPOSITION

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

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

SUBSTITUTION

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

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

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

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

INCUMBENCIES

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

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

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

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

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

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

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

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

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

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

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

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

XII -      approve the
distribution of interim dividends;

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

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

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

MEETINGS

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

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

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

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

EXECUTIVE BOARD

COMPOSITION

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

a) Chief Executive
Officer;

b) Executive
Vice-President for Operations;

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

d) Executive
Vice-President for Marketing and Innovation;

e) Vice-President for
Technology and Networks;

f) Vice-President for
Regulation and Institutional Relations;

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

h) Vice-President for
Customers.

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

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

COLLEGIATE AUTHORITY OF
THE EXECUTIVE BOARD ANDREPRESENTATION OF THE COMPANY

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

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

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

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

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

INCUMBENCIES OF THE
EXECUTIVE OFFICERS

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

I- Chief Executive
Officer:

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

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

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

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

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

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

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

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

II  Executive
Vice-President for Operations:

a) to identify the
needs of customers segments;

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

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

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

e) to manage
relationships with customers;

f) to identify the
needs of the customers segments;

g) to negotiate
specific proposals and solutions for Companies;

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

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

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

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

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

m) to prepare and
manage commercial agreements; and

n) to train and
support the sales team.

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

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

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

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

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

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

f) to implement
approved projects (project management);

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

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

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

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

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

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

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

n) to analyze,
conciliate and close the accounts;

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

p) to prepare
financial analysis for decision taking;

q) to monitor revenue
assurance;

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

IV - Vice-President
for Technology and Network:

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

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

c) to program and
coordinate the projects;

d) to deploy the
service platform-related projects;

to guarantee the
implementation in accordance with the project specifications;

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

f) to monitor the
global performance of the network;

g) to manage CGRs and
service platforms;

h) to manage the
traffic;

i) to monitor
signaling and roaming systems;

j) physical and
logical security of the network;

k) to deploy network
projects;

l) to manage the
network performance and service platforms;

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

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

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

V - Executive
Vice-President for Marketing and Innovation

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

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

c) to harmonize offers
in the transactions;

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

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

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

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

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

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

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

j) to develop and
implement national and regional promotions;

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

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

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

VI - Vice-President
for Regulation and Institutional Relations:

a) to monitor the
regulation environment;

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

c) to prepare the
documentation concerning regulating issues;

d) to officialize and
publish indicators with Anatel;

e) to internally
disclose substantial regulating issues;

f) to have
relationships with outside entities;

g) to make
contributions to public consultations;

h) to review
advertising material;

i) to negotiate
agreements and interconnection and interlink tariffs;

j) to manage
interconnection agreements;

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

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

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

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

a) to develop/foment
the data business;

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

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

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

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

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

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

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

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

j) to manage
production environments;

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

l) to coordinate the
supervision of service providers;

m) to supply help desk
service;

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

o) to manage total
quality programs.

VIII - Vice-President
for Customers:

a) to perform customer
acknowledgment management;

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

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

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

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

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

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

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

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

j) to manage the
billings and fraud control;

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

CHAPTER VI  AUDIT
COMMITTEE

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

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

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

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

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

CHAPTER VII  FISCAL
YEAR AND FINANCIAL STATEMENTS

FISCAL YEAR

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

ALLOCATION OF PROFITS

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

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

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

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

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

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

CHAPTER VIII  GENERAL
PROVISIONS

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

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

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



EXHIBIT 4.1

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

Hereby, on the one part, the
AGÊNCIA NACIONAL DE TELECOMUNICAÇõES (NATIONAL TELECOMMUNICATION
AGENCY) ANATEL, hereinafter referred to as ANATEL, an entity that is a part
of the UNION,as per Federal Act n.° 9.472, of the 16th of July of 1997, Lei
Geral de Telecomunicações  LGT( General Telecommunications Act 
LGT) , registered at the General Registry of Income Tax Payers of the Ministry of Finance
 CGC/MF under n.° 02.030.715/0001-12, here represented by the President of the
Council of ANATEL LUIZ GUILHERME SCHYMURA DE OLIVEIRAtogether with the Counselor
ANTONIO CARLOS VALENTE, and on the other part, TELERJ Celular S.A.,
registered at the General Registry of Income Tax Payers of the Ministry of Finance -CNPJ
under n° 02.330.506/0001-94, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID card 
RG n° 301.540.175-9 SSP/RSand by the Vice-President for Planning and
Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA, Spanish, divorced, engineer,
National Registration of Foreigners  RNE n° V271593-8, hereinafter referred
to as AUTHORIZED, enter into the present AUTHORIZATION TERM, Anatel Case
n.° 53500.001479/2001, that shall be governed by the following sections:

# Chapter I

# Subject Matter, Area and
term of the Authorization

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

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

§2o The current
Authorization is issued based on section 214, paragraph V, of the LGT General
Telecommunications Act ) and in the Rule for the Adjustment of Grant Instruments and
Authorization of the Mobile Personal Service- SMC for the Personal Mobile Service 
SMP, approved by the Resolution ANATEL n.° 318, of the 27th of September
of 2002, and amended by the Resolution ANATEL n.° 326, of the 28th of
November of 2002, hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANT
AGREEMENT N° 007/97-DOTC/SFO/MC, of the 4th of November of 1997, D.O.U
of the 5th of November of 1997, hereinafter referred to as SUBSTITUTED
INSTRUMENT.

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

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

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

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

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

SECTION 1.6 The right
to use the radio frequencies mentioned in the previous SECTION shall remain in force until
the 30th of November of 2005, that corresponds to the remaining term extended a
single time for 15 years, being such extension against payment.

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

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

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

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

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

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

§3°The firstinstallment of the encumbrance shall be due on the 30th (thirtieth ) of
April of 2007 calculated based on the net income ascertained from the 1st of
January to the 31st of December of 2006, and the subsequent installments shall
be due at each twenty four months, having as the base date the calculation of the income
of the previous year.

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

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

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

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

# Chapter II

# Replacement Value

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

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

# Chapter III

# Form and Conditions for
the Rendering of Service

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

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

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

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

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

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

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

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

SECTION 3.5 Changes in
theshareholder control of the Authorized are subject to control on the part of
Anatel for purposes of verification of the conditions that are essential for the
forwarding and maintenance of the Authorization, as per the regulation.

Single Paragraph.These are
essential for the forwarding and maintenance of the Authorization, among others, those
foreseen in the SMP General Authorization Plan, section 10, § 2° of the PGO and
in article 133 of the LGT.

SECTION 3.6 The
conveyance of the Authorization Plan is subject to the approval on the part of Anatel,
once observed the requirements of the §2o of section 136 of the LGT.

Single ParagraphFor thepurposes of the paragraph I of section 98 of LGT, shall be considered the operation
time of the Cellular Mobile Service during the enforcement of the SUBSTITUTED INSTRUMENT.

SECTION 3.7 The
AUTHORIZED shall freely determine the prices to be charged for the rendering of the SMP,
defining the Services Plan with structures, forms, criteria and values that shall be
reasonable and non discriminatory, and that may vary due to technical characteristics, of
specific costs and use offered to the users, as per definition of the SMP regulation,
specially in the ADJUSTMENT RULE.

# Chapter IV

# Coverage Commitments

SECTION 4.1 Coverage
commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including the
coverage and service obligations.

SECTION 4.2 The
non-compliance of the commitments causes the Authorized to be subject to sanctions
foreseen herein, and in the regulation, and as a result, the termination of the
Authorization may occur.

# Chapter V

# Quality of Service

SECTION 5.1 It is an
assumption hereof the adequate quality of the services rendered by the AUTHORIZED , being
as such considered, the service that satisfies the conditions of regularity, efficiency,
safety, updating, generality and courtesy.

§1°
Regularity will be characterized by the continuous exploitation of the service with strict
compliance with what is set forth in the Anatel rules.

§2°
Efficiency will be characterized by the attainment and maintenance of the parameters
contained herein and by the service to the user , rendered within the term foreseen
herein.

§3° Safety in
the e4xploitationof the service shall be characterized by the confidentiality pf the data
related to the use of the service by the users, as well as by the full maintenance of the
confidentiality regarding the conveyed information in the scope of its exploitation.

§4° Update
will be characterized by the modernity of the equipment, of the premises and techniques of
exploitation of the service, with the use of technological advances that definitely will
benefit the users, once respected the provisions hereof.

§5°
Generality will be characterized by the non discriminatory rendering of services to any
and all users, with the commitment on the part of the Authorized to render the service to
whoever requests it as per the regulation.

§6° Courtesy
will be characterized by the respectful and immediate service rendered to all users of the
authorized service, as well as by the compliance with the obligations to inform and
provide immediate and polite services to all, users or non users that may request from the
AUTHORIZED, information, provisions or any kind of request as per the determinations
hereof.

SECTION 5.2 THE
AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de
Qualidade  PGNQ ( General Target Plan of Quality- PGMQ) for the SMP.

Single Paragraph.For the
purposes of the provisions in the §5° of section 1st of the PGMQ
 SMP, it shall be considered as the starting point of the commercial operation of
the SMP in a place where there already exists SMC services rendering, the publishing date
of the extract hereof.

SECTION 5.3 The
exploitation of the authorized service may only be interrupted according to the Regulation
of the SMP, published by Anatel.

# Chapter VI

# Numbering Plan

SECTION 6.1 THE
AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and shall
ensure to the user of the service, the portability of the access codes as per regulation.

# Chapter VII

# Users Charges

SECTION 7.1 The amount,
measuring form and the criteria for charging for the services rendered, shall be set forth
by the Authorized, based on the determinations of the SMP Regulation, once observed the
content of section 3.7 hereof.

# Chapter VIII

# Users Rights and Duties

SECTION 8.1 Users
Rights and Duties are those set forth in the LGT and in the regulation, at no loss of the
rights foreseen in Law no 8.078, of the 11th of November of 1990 in the cases
regulated by it, nor of those included in the SMP rendering agreement.

# Chapter IX

# Authorized Rights and
Duties

SECTION 9.1 The rights
and duties of theAuthorized are those set forth in the LGT and in the regulation.

SECTION 9.2 In services
hiring and equipment and material acquisition in relation herewith, the Authorized obliges
to consider offers from independent suppliers, including the national ones, and to base
its decisions, in respect to the several offers presented, in the compliance of the
objective price criteria, delivery conditions and technical specifications in the
appropriate regulation.

Single Paragraph.Regarding
the mentioned hiring process, the procedures of the Regulation on the Services Hiring
Procedures and Material and Equipment Acquisition by the Telecommunication Services
Providers, approved by the Resolution n.° 155 of Anatel, of the 5th of
August of 1999.

# Chapter X

# Anatel Obligations and
Prerogatives

SECTION 10.1 Aside from
other prerogatives inherent to its regulatory organ function and from the other
obligations derived hereof, Anatel will :

I follow up and inspect
the exploitation of the service,in order to comply with the regulation;II regulate the exploitation of the authorized service;III apply thepunishment foreseen in the service regulation, specially herein;IV to watch over thegood quality of the service, to receive, select and solve complaints and claims of the users, making them aware, within a 90 days period
of time, of the actions taken to avoid them to be deprived of their rights;V to declareterminated the Authorization in the events foreseen in the LGT;VI towatch over theguarantee of interconnection, annulling
eventual issues arisen between the AUTHORIZED and the other providers;VII to constantly follow up the relationship between the Authorized and the other
providers, solving conflicts that may arise;VIII torestrain
behaviors of the Authorized that are against the free competition regime, observed in the
competences of the CADE, the regulation and specially the content of sections 10.2. and
10.3. hereof;IX to perform theactivity of inspecting the service,
as per provisions herein; andX collect taxes related to FISTEL, adopting
the provisions foreseen in law.

SECTION 10.2 Anatel
might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO), veered
towards ascertaining untruthfulness or non-substance of the conditions stated by the
AUTHORIZED , related to the non-participation in the control of the other companies or to
other economical concentration preventive bars, whenever there are signs of relevant
influence of such , of its associated companies, controlled or controllers over the legal
entity of the SMP provider, in the terms of the Regulation for the Control and Transfer
Verification in Companies Providers of Telecommunication Services, approved by the
Resolution n.° 101 of Anatel, of the 04th of February of 1999.

Single Paragraph.Theevidence, after theprocedure foreseen in this sectionof the existence
of any situation that characterizes untruthfulness or lack of substance of the conditions
stated by the Authorized shall configure the disfranchisement hereof, according to section
139 of the LGT.

SECTION 10.3 Anatel may
still file an administrative procedure veered towards ascertaining any misdemeanor against
the economical order foreseen in Law n.° 8.884/94.

# Chapter XI

# Inspection regime

SECTION 11.1 Anatel
shall perform the inspection of the services so as to ensure the compliance with the
commitments herein.

§1°
Inspection to be performed by Anatel will cover the inspection and the follow up of the
activities, equipment and premises of the AUTHORIZED , implying broad access to all data
and information of the Authorized or of third parties.

§2°
Information gathered during inspection activities will be published in the Library, except
for those, that by request of the AUTHORIZED , are considered as confidential by Anatel.

§3°
Information that are considered as confidential , as per the previous paragraph, shall
only be used in the procedures related hereto, responding to Anatel and to those indicated
by Anatel, for any disclosure, broad or restricted, of such information outside the usage
scope.

SECTION 11.2 The
AUTHORIZED , by means of an appointed representative, may follow all and every activity of
Anatel inspection, not being entitled to oppose or prevent the inspection, under risk of
incurring in the punishment foreseen in the regulation.

# Chapter XII

# Telecommunication Nets
and Access to Visiting Users

SECTION 12.1 THE
AUTHORIZED regarding the implementation and operation of the Telecommunication Nets veered
towards providing support to SMP, shall observe the provisions in the regulation,
specially in the Telecommunication Services Regulation n.° 73, of the 25th
of November of 1998; in the General Regulation of Interconnection, approved by the
Resolution no 40, of the 23rd of July of 1998; and in the regulation of the
SMP.

Single Paragraph.The change
in technology standards, promoted by the AUTHORIZED , may not burden unilateral and
arbitrarily the user, including with respect to the existing conditions of services to the
visiting users.

SECTION 12.2
Compensation by the use of nets between the Authorized and the other providers of
telecommunication services, shall comply with the provision in section 152 of the LGT and
in the SMP regulation, especially in the ADJUSTMENT RULE.

Single Paragraph. The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter Attachment I  hereto.

# Chapter XIII

# Sanctions

SECTION 13.1 THE
AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and
related regulations, and shall, whenever required to do so, be accountable for as per
regulations of the SMP, allowing free access to its technical resources and accounting
records.

SECTION 13.2
non-compliance with conditions or commitments associated to the Authorization, shall
subject the Authorized to caveat sanctions, fines, temporary probation or forfeiture, as
per provision of the SMP.

# Chapter XIV

# Termination of the
Authorization

SECTION 14.1
Authorization shall be deemed to be terminated due to disfranchisement, forfeiture, decay,
waive or annulment, as per sections 138 to 144 of the LGT and according to the proceedings
in the regulation.

Single Paragraph.  The termination statement shall not elide the application of the adequate punishments,
as per provisions hereof, by the wrongdoings performed by the AUTHORIZED .

# Chapter XV

# Legal Regime and
Applicable documents

SECTION 15.1 This
Authorization is governed, without detracting the other integrant rules of the Brazilian
Legal Order, by the LGT, and the regulations derived thereof.

SECTION 15.2 In the
exploitation of the services authorized hereby, the regulations of Anatel shall be
complied, as part hereof, specially the documents related with the SMP Regulation.

SECTION 15.4 In the
interpretation of the norms and provisions hereof, shall be taken into consideration,
aside from the documents referred to in this Chapter, the general hermeneutic rules and
the norms and principles contained in the LGT.

# Chapter XVI

# Transitory Provisions

SECTION 16.1 Until the
Approval or the covenant of the VU-M, as per the option of the SMP provider, shall be
maintained both the value of the Net Compensation , and the criteria for the processing
and values conveyance between the providers of Cellular Mobile Services and the Fixed
Commuted Telephone Service.

# Chapter XVII

# Venue

SECTION 17.1 The Court
of the Judiciary Section of the Federal Justice of Brasilia, Federal District , is hereby
elected to settle any conflicts arising herefrom or relating hereto, to the exclusion of
any other, however privileged.

# Chapter XVIII

# Final Provisions

SECTION 18.1 ThisAuthorization Term shall become in force after the disclosure of its extract in the
Federal Official Gazette.

SECTION 18.2 Except for
theprovisions herein entrusted,any other provisions of the Substituted
Instrument become null, as per §2° of section 1.1.

IN WITNESS WHEREOF, the
parties sign this document in 03 ( three) counterparts of equal tenor and form, in the
presence of witnesses who also sign below, so that it will produce the due legal effects.

Brasília, the
10th of December of 2002.

On behalf of ANATEL:

________________________________________
LUIZ GUILHERME SCHYMURA DE OLIVEIRA
President of the Board

________________________________________
ANTÔNIO CARLOS VALENTE DA SILVA
Counselor

On behalf of the AUTHORIZED :

________________________________________
PAULO CESAR PEREIRA TEIXEIRA
Executive Vice-President

________________________________________
JOSÉ CARLOS DE LA ROSA GUARDIOLA
Vice-President for Planning and Cordination

Witnesses:

________________________________________
JARBAS JOSÉ VALENTE
4.346/D CREA-DF

________________________________________
BRUNO DE CARVALHO RAMOS
5.060.107.391/D CREA-SP

# ATTACHMENT I
STATEMENT OF OPTION

According to what is provided in item
7 of the ADJUSTMENT RULE, TELERJ Celular S.A., General Taxpayers register
 CNPJ N.° 02.330.506/0001-94, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID Card
 RG n° 301.540.175-9 SSP/RS,opts for the submission to item 5 and its
sub-items of the Norms of Compensation Criteria by the Use of the Nets of the Providers of
Personal Mobile Service  SMP, approved by the Resolution n° 319, of the
27th of September of 2002, requesting the approval of the TU-M whose maximum
value shall be the maximum value of the initial VU-M of its Service Area.

Brasília, the 10th
of December of 2002.

_________________________________________
PAULO CESAR PEREIRA TEIXEIRA
Executive Vice-President



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

Hereby, on the one
part, the AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES (NATIONAL TELECOMMUNICATION AGENCY)ANATEL,
hereinafter referred to as ANATEL,an entity that is a part of the UNION,as per
Federal Act n.o 9.472, of the 16th of July of 1997, Lei Geral de Telecomunicações  LGT(
General Telecommunications Act  LGT) , registered at the General Registry of
Income Tax Payers of the Ministry of Finance - CGC/MF under n.o 02.030.715/0001-12,
here represented by the President of the Council of ANATEL LUIZ GUILHERME SCHYMURA DE
OLIVEIRAtogether with the Counselor ANTÔNIO CARLOS VALENTE DA SILVA, and on the other
part, TELEST Celular S.A., registered at the General Registry of Income Tax
Payers of the Ministry of Finance -CNPJ under no 02.325.945/0001-09, herein
represented by its Executive Vice-President, PAULO CESAR PEREIRA TEIXEIRA,
Brazilian, married, engineer, ID card  RG no301.540.175-9 SSP/RSand by the
Vice-President for Planning and Cordination, JOSÉ CARLOS DE LA ROSA GUARDIOLA,
Spanish, divorced, engineer, National Registration of Foreigners - RNE no V271593-8,
hereinafter referred to as AUTHORIZED,enter into the present AUTHORIZATION TERM,
Anatel Case n.o 53500.001479/2001,that shall be governed by the following sections:

Chapter I

Subject Matter, Area
and term of the Authorization

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

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

§2o The current
Authorization is issued based on section 214, paragraph V, of the LGT General
Telecommunications Act ) and in the Rule for the Adjustment of Grant Instruments and
Authorization of the Mobile Personal Service- SMC for the Personal Mobile Service  SMP,
approved by the Resolution ANATEL n.o 318, of the 27th of September of 2002, and
amended by the Resolution ANATEL n.o 326, of the 28th of November of 2002,
hereinafter referred to as ADJUSTMENT RULE in substitution of the GRANT AGREEMENT No 017/97-DOTC/SFO/MC,
of the 4th of November of 1997, D.O.U of the 5th of November of 1997, hereinafter
referred to as SUBSTITUTED INSTRUMENT.

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

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

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

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

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

SECTION 1.6 The
right to use the radio frequencies mentioned in the previous SECTION shall remain in
force until the 30th of November of 2008, that corresponds to the remaining term
extended a single time for 15 years, being such extension against payment.

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

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

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

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

§1oIn the
calculation of the amount referred to in the caput of this SECTION, shall be considered
the net income derived from the Alternative and Basic Service Plan, subject matter hereof.

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

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

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

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

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

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

Chapter II

Replacement Value

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

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

Chapter III

Form and Conditions
for the Rendering of Service

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

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

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

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

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

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

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

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

SECTION 3.5 Changes
in the shareholder control of the Authorized are subject to control on the part of
Anatel for purposes of verification of the conditions that are essential for the
forwarding and maintenance of the Authorization, as per the regulation.

Single Paragraph.These are essential for the forwarding and maintenance of the Authorization, among
others, those foreseen in the SMP General Authorization Plan, section 10, §2o of
the PGO and in article 133 of the LGT.

SECTION 3.6 The
conveyance of the Authorization Plan is subject to the approval on the part of
Anatel, once observed the requirements of the §2#186; of section 136 of the LGT.

Single Paragraph.For
the purposes of the paragraph I of section 98 of LGT, shall be considered the
operation time of the Cellular Mobile Service during the enforcement of the SUBSTITUTED
INSTRUMENT.

SECTION 3.7 -The
AUTHORIZED shall freely determine the prices to be charged for the rendering of the
SMP, defining the Services Plan with structures, forms, criteria and values that
shall be reasonable and non discriminatory, and that may vary due to technical
characteristics, of specific costs and use offered to the users, as per definition of
the SMP regulation, specially in the ADJUSTMENT RULE.

Chapter IV

Coverage Commitments

SECTION 4.1 Coverage
commitments foreseen in the SUBSTITUTED INSTRUMENT shall be maintained, including
the coverage and service obligations.

SECTION 4.2 The
non-compliance of the commitments causes the Authorized to be subject to sanctions
foreseen herein, and in the regulation, and as a result, the termination of the
Authorization may occur.

Chapter V

Quality of Service

SECTION 5.1 It is
an assumption hereof the adequate quality of the services rendered by the
AUTHORIZED , being as such considered, the service that satisfies the conditions
of regularity, efficiency, safety, updating, generality and courtesy.

§1o -Regularity
will be characterized by the continuous exploitation of the service with strict
compliance with what is set forth in the Anatel rules.

§2o -Efficiency will
be characterized by the attainment and maintenance of the parameters contained herein
and by the service to the user , rendered within the term foreseen herein.

§3o -Safety in the
e4xploitationof the service shall be characterized by the confidentiality pf the data
related to the use of the service by the users, as well as by the full
maintenance of the confidentiality regarding the conveyed information in the scope of
its exploitation.

§4o -Update will be
characterized by the modernity of the equipment, of the premises and techniques of
exploitation of the service, with the use of technological advances that definitely
will benefit the users, once respected the provisions hereof.

§5o -Generality will
be characterized by the non discriminatory rendering of services to any and all users,
with the commitment on the part of the Authorized to render the service to whoever
requests it as per the regulation.

§6o -Courtesy will be
characterized by the respectful and immediate service rendered to all users of the
authorized service, as well as by the compliance with the obligations to inform
and provide immediate and polite services to all, users or non users that may
request from the AUTHORIZED, information, provisions or any kind of request as per the
determinations hereof.

SECTION 5.2 -THE
AUTHORIZED shall meet the quality targets determined in the Plano Geral de Metas de
Qualidade - PGNQ ( General Target Plan of Quality- PGMQ) for the SMP.

Single Paragraph.For the purposes of the provisions in the §5o of section 1st of the PGMQ  SMP, it
shall be considered as the starting point of the commercial operation of the SMP
in a place where there already exists SMC services rendering, the publishing date of the
extract hereof.

SECTION 5.3 The
exploitation of the authorized service may only be interrupted according to the
Regulation of the SMP, published by Anatel.

Chapter VI

Numbering Plan

SECTION 6.1 -THE
AUTHORIZED compromises to obey the Numbering Regulations published by Anatel, and
shall ensure to the user of the service, the portability of the access codes as per
regulation.

Chapter VII

Users Charges

SECTION 7.1 The
amount, measuring form and the criteria for charging for the services rendered,
shall be set forth by the Authorized, based on the determinations of the SMP Regulation,
once observed the content of section 3.7 hereof.

Chapter VIII

Users Rights and Duties

SECTION 8.1 Users
Rights and Duties are those set forth in the LGT and in the regulation, at no loss of
the rights foreseen in Law no 8.078, of the 11th of November of 1990 in the cases
regulated by it, nor of those included in the SMP rendering agreement.

Chapter IX

Authorized Rights and
Duties

SECTION 9.1 The
rights and duties of the Authorized are those set forth in the LGT and in the
regulation.

SECTION 9.2 In
services hiring and equipment and material acquisition in relation herewith, the
Authorized obliges to consider offers from independent suppliers, including the
national ones, and to base its decisions, in respect to the several offers presented,
in the compliance of the objective price criteria, delivery conditions and technical
specifications in the appropriate regulation.

Single Paragraph.Regarding the mentioned hiring process, the procedures of the Regulation on the
Services Hiring Procedures and Material and Equipment Acquisition by the
Telecommunication Services Providers, approved by the Resolution n.o 155 of Anatel, of
the 5th of August of 1999.

Chapter X

Anatel Obligations and
Prerogatives

SECTION 10.1 Aside
from other prerogatives inherent to its regulatory organ function and from the other
obligations derived hereof, Anatel will :

I follow
up and inspect the exploitation of the service, in order to comply with the regulation;
II regulate the exploitation of the authorized service; III apply the
punishment foreseen in the service regulation, specially herein; IV to watch over
the good quality of the service, to receive, select and solve complaints and claims of
the users, making them aware, within a 90 days period of time, of the actions taken to
avoid them to be deprived of their rights; V to declare terminated the Authorization in
the events foreseen in the LGT; VI to watch over the guarantee of interconnection,
annulling eventual issues arisen between the AUTHORIZED and the other providers; VII to
constantly follow up the relationship between the Authorized and the other providers,
solving conflicts that may arise; VIII to restrain behaviors of the Authorized that are
against the free competition regime, observed in the competences of the CADE, the
regulation and specially the content of sections 10.2. and 10.3. hereof; IX to perform
the activity of inspecting the service, as per provisions herein; and X collect taxes
related to FISTEL, adopting the provisions foreseen in law.

SECTION 10.2 -Anatel
might file a Proceeding to Ascertain the Non Compliance of the Obligations (PADO),
veered towards ascertaining untruthfulness or non-substance of the conditions stated
by the AUTHORIZED , related to the non-participation in the control of the other
companies or to other economical concentration preventive bars, whenever there are
signs of relevant influence of such , of its associated companies, controlled or
controllers over the legal entity of the SMP provider, in the terms of the Regulation
for the Control and Transfer Verification in Companies Providers of
Telecommunication Services, approved by the Resolution n.o 101 of Anatel, of the 04th
of February of 1999.

Single Paragraph.The evidence, after the procedure foreseen in this section of the existence of any
situation that characterizes untruthfulness or lack of substance of the conditions
stated by the Authorized shall configure the disfranchisement hereof, according to
section 139 of the LGT.

SECTION 10.3 -Anatel
may still file an administrative procedure veered towards ascertaining any
misdemeanor against the economical order foreseen in Law n.o 8.884/94.

Chapter XI

Inspection regime

SECTION 11.1 -Anatel
shall perform the inspection of the services so as to ensure the compliance with the
commitments herein.

§1o -Inspection to
be performed by Anatel will cover the inspection and the follow up of the
activities, equipment and premises of the AUTHORIZED , implying broad access to
all data and information of the Authorized or of third parties.

§2o -Information
gathered during inspection activities will be published in the Library, except for
those, that by request of the AUTHORIZED , are considered as confidential by Anatel.

§3o -Information
that are considered as confidential , as per the previous paragraph, shall only be
used in the procedures related hereto, responding to Anatel and to those indicated by
Anatel, for any disclosure, broad or restricted, of such information outside the usage
scope.

SECTION 11.2 The
AUTHORIZED , by means of an appointed representative, may follow all and every
activity of Anatel inspection, not being entitled to oppose or prevent the inspection,
under risk of incurring in the punishment foreseen in the regulation.

Chapter XII

Telecommunication Nets
and Access to Visiting Users

SECTION 12.1 THE
AUTHORIZED regarding the implementation and operation of the Telecommunication Nets
veered towards providing support to SMP, shall observe the provisions in the
regulation, specially in the Telecommunication Services Regulation n.o 73, of the
25th of November of 1998; in the General Regulation of Interconnection, approved by
the Resolution no 40, of the 23rd of July of 1998; and in the regulation of the SMP.

Single Paragraph.The change in technology standards, promoted by the AUTHORIZED , may not burden
unilateral and arbitrarily the user, including with respect to the existing conditions
of services to the visiting users.

SECTION 12.2 Compensation
by the use of nets between the Authorized and the other providers of
telecommunication services, shall comply with the provision in section 152 of the LGT
and in the SMP regulation, especially in the ADJUSTMENT RULE.

Single Paragraph.The document foreseen in item 7 of the ADJUSTMENT RULE becomes hereinafter
Attachment I hereto.

Chapter XIII

Sanctions

SECTION 13.1 -THE
AUTHORIZED is subject to Anatel inspection, once respected the legal provisions and
related regulations, and shall, whenever required to do so, be accountable for as per
regulations of the SMP, allowing free access to its technical resources and accounting
records.

SECTION 13.2 non-compliance
with conditions or commitments associated to the Authorization, shall subject the
Authorized to caveat sanctions, fines, temporary probation or forfeiture, as per
provision of the SMP.

Chapter XIV

Termination of the
Authorization

SECTION 14.1 Authorization
shall be deemed to be terminated due to disfranchisement, forfeiture, decay, waive
or annulment, as per sections 138 to 144 of the LGT and according to the proceedings
in the regulation.

Single Paragraph.The termination statement shall not elide the application of the adequate
punishments, as per provisions hereof, by the wrongdoings performed by the AUTHORIZED .

Chapter XV

Legal Regime and
Applicable documents

SECTION 15.1 This
Authorization is governed, without detracting the other integrant rules of the
Brazilian Legal Order, by the LGT, and the regulations derived thereof.

SECTION 15.2 In the
exploitation of the services authorized hereby, the regulations of Anatel shall be
complied, as part hereof, specially the documents related with the SMP Regulation.

SECTION 15.4 In the
interpretation of the norms and provisions hereof, shall be taken into
consideration, aside from the documents referred to in this Chapter, the general
hermeneutic rules and the norms and principles contained in the LGT.

Chapter XVI

Transitory Provisions

SECTION 16.1 Until
the Approval or the covenant of the VU-M, as per the option of the SMP provider, shall
be maintained both the value of the Net Compensation , and the criteria for the
processing and values conveyance between the providers of Cellular Mobile Services
and the Fixed Commuted Telephone Service.

Chapter XVII

Venue

SECTION 17.1 -The
Court of the Judiciary Section of the Federal Justice of Brasilia, Federal District ,
is hereby elected to settle any conflicts arising herefrom or relating hereto, to the
exclusion of any other, however privileged.

Chapter XVIII

Final Provisions

SECTION 18.1 This
Authorization Term shall become in force after the disclosure of its extract in the
Federal Official Gazette.

SECTION 18.2 Except
for the provisions herein entrusted, any other provisions of the Substituted
Instrument become null, as per §2o of section 1.1.

IN WITNESS WHEREOF,the parties sign this document in 03 ( three) counterparts of equal tenor and form,
in the presence of witnesses who also sign below, so that it will produce the
due legal effects.

Brasília, the 10th of
December of  2002.

On behalf of ANATEL:

|                                   
|-----------------------------------
|LUIZ GUILHERME SCHYMURA DE OLIVEIRA
|President of the Board             

|                               
|-------------------------------
|ANTÔNIO CARLOS VALENTE DA SILVA
|Counselor                      

On behalf of the
AUTHORIZED :

|                            
|----------------------------
|PAULO CESAR PEREIRA TEIXEIRA
|Executive Vice-President    

|                                           
|-------------------------------------------
|JOSÉ CARLOS DE LA ROSA GUARDIOLA           
|Vice-President for Planning and Cordination

Witnesses:

|                   
|-------------------
|JARBAS JOSÉ VALENTE
|4.346/D CREA-DF    

|                       
|-----------------------
|BRUNO DE CARVALHO RAMOS
|5.060.107.391/D CREA-SP

ATTACHMENT I
STATEMENT OF OPTION

According to what
is provided in item 7 of the ADJUSTMENT RULE, TELEST Celular S.A., General
Taxpayers register - CNPJ N.o 02.325.945/0001-09, herein represented by its Executive
Vice-President, PAULO CESAR PEREIRA TEIXEIRA, Brazilian, married, engineer, ID Card  RG
no 301.540.175-9 SSP/RS, opts for the submission to item 5 and its sub-items of the Norms
of Compensation Criteria by the Use of the Nets of the Providers of Personal Mobile
Service  SMP, approved by the Resolution no 319, of the 27th of September of 2002,
requesting the approval of the TU-M whose maximum value shall be the maximum value
of the initial VU-M of its Service Area.

Brasília, the 10th of
December of 2002.

|                            
|----------------------------
|PAULO CESAR PEREIRA TEIXEIRA
|Executive Vice-President    



EXHIBIT 8.1

LIST OF SUBSIDIARIES AS
OF DECEMBER 31, 2002

1) Direct
interest

|Name of the Company | Place of Incorporation | Country
|------------------- | ---------------------- | -------
|Telerj Celular S.A. | Rio de Janeiro - RJ    | Brazil 
|Telest Celular S.A. | Vitória - ES           | Brazil 



# SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.

| | Tele Sudeste Celular Participações S.A.
| | ---------------------------------------
|
|
| | By:                                    
| | Name:                                  
| | Title:                                 
|
|
| | By:                                    
| | Name:                                  
| | Title:                                 
| |                                        

Date: June 24, 2003



# CERTIFICATION

I, Francisco José Azevedo Padinha, certify that:

| | 1. | I have
reviewed this annual report on Form 20-F of TELE SUDESTE CELULAR PARTICIPAÇÕES
S.A.;                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;
|
| | 3. | Based
on my knowledge, the financial statements, and other financial information
included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this annual report;                   
|
| | 4. | The
registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  

| | (a) | Designed such disclosure controls and procedures to ensure that material information relating to the
 registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | Evaluated
the effectiveness of the registrants disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report (the Evaluation Date); and                                                                                                   
|
| | (c) | Presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;                                                                                                     

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | All
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and                                                                                                                                                            

| | 6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:   June 24, 2003

By:/s/    Francisco José Azevedo Padinha
    Name:  Francisco José Azevedo Padinha
    Title:      Acting Chief Executive Officer



# CERTIFICATION

I, Fernando Abella Garcia, certify that:

| | 1. | I have
reviewed this annual report on Form 20-F of TELE SUDESTE CELULAR           PARTICIPAÇÕES
S.A.;                                                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | Based on my knowledge, this annual report does not contain any untrue statement
          of a material fact or omit to state a material fact necessary to make the
          statements made, in light of the circumstances under which such statements were
          made, not misleading with respect to the period covered by this annual report;
|
| | 3. | Based
on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;                   
|
| | 4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                            

| | (a) | Designed such disclosure controls and procedures to ensure that material information relating to the
 registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being prepared;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | Evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days
 prior to the filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | (c) | Presented in this annual report our conclusions about the effectiveness of the
          disclosure controls and procedures based on our evaluation as of the Evaluation
          Date;                                                                                                     

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        
|

| | 6. | The registrants other certifying officers and I have indicated in this annual report whether or not there
were significant changes in internal controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date:   June 24, 2003

By:/s/    Fernando Abella Garcia
    Name: Fernando Abella Garcia
    Title: Chief Financial Officer and interim Chief Executive Officer



EXHIBIT 12.1

# CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TELE SUDESTE CELULAR PARTICIPAÇÕES S.A. (the Company) on
Form 20-F for the fiscal year ended December 31, 2002, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the Report), I, Francisco José Azevedo Padinha, acting Chief Executive Officer, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:

| | (i)  | the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities
Exchange Act of 1934; and                          
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) | the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|

Date:   June 24, 2003

By:/s/    Francisco José Azevedo Padinha
    Name:  Francisco José Azevedo Padinha
    Title:      Acting Chief Executive Officer



EXHIBIT 12.2

# CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of TELE SUDESTE CELULAR PARTICIPAÇÕES S.A. (the Company) on
Form 20-F for the fiscal year ended December 31, 2002, as filed with the U.S. Securities and Exchange
Commission on the date hereof (the Report), I, Fernando Abella Garcia, Chief Financial Officer and interim Chief Executive Officer, certify, pursuant to 18 U.S.C. section
1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:

| | (i)  | the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities
Exchange Act of 1934; and                          
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) | the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
|

Date:   June 24, 2003

By:/s/    Fernando Abella Garcia
    Name: Fernando Abella Garcia
    Title: Chief Financial Officer and interim Chief Executive Officer



TELE SUDESTE CELULAR PARTICIPAÇÕES S.A.

CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE YEARS ENDED
DECEMBER 31, 2002, 2001 AND 2000

CONTENTS

|Report of Independent Certified Public Accountants         | F-2             
|---------------------------------------------------------- | ----------------
|Consolidated Balance Sheets                                | F-3             
|Consolidated Statements of Income                          | F-4             
|Consolidated Statements of Changes in Financial Position   | F-5             
|Consolidated Statements of Changes in Shareholders Equity | F-6             
|Consolidated Statements of Cash Flows                      | F-7             
|Notes to the Consolidated Financial Statements             | F-8 through F-61



INDEPENDENT AUDITORSREPORT

To the Board of
Directors and Shareholders of

Tele Sudeste Celular
Participações S.A.:Rio de Janeiro, Brazil:

|(1) | We have audited the accompanying consolidated balance sheets of Tele Sudeste Celular Participações S.A. and subsidiaries (the
Company) as of December 31, 2002 and 2001, and the related consolidated statements of income, changes in financial position and
changes in shareholders equity for each of the three years in the period ended December 31, 2002, all adjusted for price level
changes through December 31, 2000. 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 generally accepted auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 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 Sudeste Celular Participações S.A. and subsidiaries as of December 31, 2002 and 2001, the
results of their operations and the changes in their financial position, and in shareholders equity for each of the three years
in the period ended December 31, 2002, in conformity with accounting practices adopted in Brazil.                                                                                                                                                                                                         
|   
|(4) | Accounting practices adopted in Brazil vary in certain respects from accounting principles generally accepted in the United
States of America (U.S. GAAP). Application of U.S. GAAP would have affected the financial position and shareholders equity at
December 31, 2002 and 2001, and the results of operations for each of the three years in the period ended December 31, 2002, to
the extent summarized in Note 31 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 three years in the period ended December 31, 2002 are presented for
purposes of additional analysis and is not a required part of the basic financial statements under accounting practices adopted
in Brazil. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.                                                  

S:/ DELOITTE TOUCHE
TOHMATSURio de Janeiro, BrazilJune 23, 2003.



TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 2002 AND 2001(In
thousands of Brazilian reais)

|                                               |      | December 31,
|---------------------------------------------- | ---- | ------------
|                                               | Note | 2002        
|Current assets:                               
|Cash and cash equivalents                      | 12   | 123,170     
|Trade accounts receivable, net                 | 13   | 272,908     
|Deferred and recoverable taxes                 | 14   | 261,639     
|Other assets                                   | 15   | 190,828     
|                                               |      |             
|Total current assets                           |      | 848,545     
|                                               |      |             
|Noncurrent assets:                            
|Deferred and recoverable taxes                 | 14   | 273,918     
|Other assets                                   | 15   | 104,252     
|                                               |      |             
|Total noncurrent assets                        |      | 378,170     
|                                               |      |             
|Permanent assets:                             
|Investments                                    |      | 369         
|Property, plant and equipment, net             | 16   | 1,750,729   
|                                               |      |             
|Total permanent assets                         |      | 1,751,098   
|                                               |      |             
|Total assets                                   |      | 2,977,813   
|                                               |      |             
|Current liabilities:                          
|Payroll and related accruals                   | 17   | 11,489      
|Accounts payable and accrued expenses          | 18   | 378,575     
|Taxes other than income taxes                  | 19   | 26,239      
|Dividends payable                              | 20   | 17,484      
|Income taxes                                   | 10   | 9,060       
|Loans and financing                            | 22   | 200,922     
|Reserve for contingencies                      | 23   | 26,519      
|Other liabilities                              | 21   | 88,849      
|                                               |      |             
|Total current liabilities                      |      | 759,137     
|                                               |      |             
|Noncurrent liabilities:                       
|Income taxes                                   | 10   | 47,280      
|Loans and financing                            | 22   | 259,597     
|Reserve for contingencies                      | 23   | 21,483      
|Pension and other postretirement benefit plans | 24   | 1,133       
|Other liabilities                              | 21   | -           
|                                               |      |             
|Total noncurrent liabilities                   |      | 329,493     
|                                               |      |             
|Shareholders equity                          
|Share capital                                  | 26a  | 830,309     
|Capital reserves                               | 26b  | 381,632     
|Income reserves                                | 26c  | 85,352      
|Treasury stocks                                |      | -           
|Retained earnings                              |      | 591,716     
|                                               |      |             
|Total shareholders equity                     |      | 1,889,009   
|                                               |      |             
|Funds for capitalization:                     
|Other funds                                    |      | 174         
|                                               |      |             
|Total funds for capitalization                 |      | 174         
|                                               |      |             
|Total liabilities and shareholders equity     |      | 2,977,813   
|                                               |      |             

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


TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS
OF INCOMEFOR THE YEARS ENDED DECEMBER 31, 2002,
2001 AND 2000(In thousands of Brazilian reais, except
earnings per thousand shares)

|                                                                                     |      | Years ended December 31,
|------------------------------------------------------------------------------------ | ---- | ------------------------
|                                                                                     | Note | 2002                    
|Net operating revenue                                                                | 4    | 1,847,631               
|Cost of services and goods                                                           | 5    | (1,110,522)             
|                                                                                     |      |                         
|Gross profit                                                                         |      | 737,109                 
|                                                                                    
|Operating income (expenses):                                                        
|Selling                                                                              | 6,a  | (360,216)               
|General and administrative                                                           | 6,b  | (242,666)               
|Other operating income (expense), net                                                | 7    | (10,037)                
|                                                                                     |      |                         
|Operating income before interest                                                     |      | 124,190                 
|                                                                                    
|Financial expense, net                                                               | 8    | (12,717)                
|                                                                                     |      |                         
|Operating income, net                                                                |      | 111,473                 
|                                                                                    
|Nonoperating expense, net                                                            | 9    | (1,276)                 
|                                                                                     |      |                         
|Income before minority interests and taxes                                           |      | 110,197                 
|                                                                                    
|Income and social contribution taxes                                                 | 10   | (35,819)                
|                                                                                    
|Minority interests                                                                   |      | -                       
|                                                                                     |      |                         
|Net income                                                                           |      | 74,378                  
|                                                                                     |      |                         
|Shares outstanding at the balance sheet date (thousands)                             |      | 414,006,458             
|                                                                                     |      |                         
|Earnings per thousand shares outstanding at the balance sheet date (Brazilian reais) |      | 0.18                    
|                                                                                     |      |                         

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


TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS
OF CHANGES IN FINANCIAL POSITIONFOR THE YEARS
ENDED DECEMBER 31, 2002, 2001 AND 2000

(In thousands of
Brazilian reais-R$)

|                                                                | 2002      | 2001      | 2000     
|--------------------------------------------------------------- | --------- | --------- | ---------
|SOURCES OF FUNDS:                                              
|From operations:                                               
|Net income                                                      | 74,378    | 94,497    | 92,399   
|Items not affecting working capital:                           
|Depreciation                                                    | 477,605   | 386,776   | 320,872  
|Loss from changes in equity holding of subsidiaries             | -         | -         | 4,444    
|Loss (gain) on permanent asset disposals                        | 269       | 534       | (1,332)  
|Minority interests                                              | -         | -         | 12,529   
|Monetary and exchange variations on noncurrent items            | 20,078    | 58,055    | (2,058)  
|Long-term financial interest                                    | 2,379     | 1,942     | 1,090    
|Provision for contingencies                                     | 17,447    | 1,645     | 2,981    
|Pension and other postretirement benefit plans                  | 2,384     | -         | -        
|Other provisions                                                | 4,699     | -         | -        
|                                                                |           |           |          
|Total from operations                                           | 599,239   | 543,449   | 430,925  
|                                                               
|From third parties:                                            
|Transfer from noncurrent assets to current assets               | 132,451   | 1,691     | 7,564    
|Increase in noncurrent liabilities                              | -         | 108,281   | 119,478  
|Prior year adjustments  Pension and other postretirement plans | -         | 839       | -        
|Tax incentives                                                  | 106       | 584       | 4,464    
|Premium reserve                                                 | -         | -         | 468,924  
|Capital increase                                                | -         | -         | 195,181  
|Proceeds from property, plant and equipment disposals           | 339       | 314       | 1,733    
|Unclaimed dividends                                             | 7,333     | -         | -        
|                                                                |           |           |          
|Total sources                                                   | 739,468   | 655,158   | 1,228,269
|                                                                |           |           |          
|USES OF FUNDS:                                                 
|Dividends and interest on shareholders equity                  | 103,879   | 50,297    | 58,387   
|Transfers from noncurrent to current liabilities                | 225,302   | 146,904   | 178,233  
|Increase in noncurrent assets                                   | 31,614    | 2,648     | 355,865  
|Additions to investments                                        | 83        | 67        | 52       
|Merger of minority interest                                     | -         | -         | 195,181  
|Capital decrease                                                | -         | -         | 201      
|Purchase of treasury shares                                     | -         | 764       | -        
|Additions to property, plant and equipment                      | 370,883   | 408,656   | 442,585  
|                                                                |           |           |          
|Total uses                                                      | 731,761   | 609,336   | 1,230,504
|                                                                |           |           |          
|INCREASE (DECREASE) IN WORKING CAPITAL                          | 7,707     | 45,822    | (2,235)  
|                                                                |           |           |          
|REPRESENTED BY:                                                
|CURRENT ASSETS AT YEAR END                                      | 848,545   | 728,317   | 859,588  
|CURRENT LIABILITIES AT YEAR END                                 | (759,137) | (646,616) | (823,709)
|                                                                |           |           |          
|Working capital at year end                                     | 89,408    | 81,701    | 35,879   
|Working capital at beginning of the year                        | 81,701    | 35,879    | 38,114   
|                                                                |           |           |          
|INCREASE (DECREASE) IN WORKING CAPITAL                          | 7,707     | 45,822    | (2,235)  
|                                                                |           |           |          

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


TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS EQUITYFOR THE YEARS
ENDED DECEMBER 31, 2002, 2001 AND 2000(In thousands of Brazilian reais)

|                                                                                 |         | Capital Reserves | Income Reserves
|-------------------------------------------------------------------------------- | ------- | ---------------- | ---------------
|
|                                                                                 |         |                  |                
|Balance at December 31, 1999                                                     | 516,052 | 1,232            |               
|Capital increase  General Extraordinary meeting on March 21, 2000               | 28,885  |                 |               
|Capital decrease  General Extraordinary meeting on November 30, 2000            | (201)   |                 |               
|Capital increase  General Extraordinary meeting on November 30, 2000            | 195,181 |                 |               
|Tax incentives                                                                   |        | 2,530            |               
|Goodwill reserve                                                                 |        |                 | 468,924        
|Deferred tax on full indexation                                                  |        |                 |               
|Consolidation adjustments - tax incentives                                       |        |                 |               
|Reversal of reserves                                                             |        |                 |               
|Net income                                                                       |        |                 |               
|Transfer to reserves                                                             |        |                 |               
|Interest on shareholders equity                                                 |        |                 |               
|Income tax on interest on shareholders equity                                   |        |                 |               
|Dividends                                                                        |        |                 |               
|                                                                                 |         |                  |                
|Balance at December 31, 2000                                                     | 739,917 | 3,762            | 468,924        
|Tax incentives                                                                   |        | 90               |               
|Prior year adjustments  pension and other postretirement benefits               |        |                 |               
|Purchase of treasury shares                                                      |        |                 |               
|Consolidation adjustments - tax incentives                                       |        |                 |               
|Net income                                                                       |        |                 |               
|Transfer to reserves                                                             |        |                 |               
|Interest on shareholders equity                                                 |        |                 |               
|Income tax on interest on shareholders equity                                   |        |                 |               
|                                                                                 |         |                  |                
|Balance at December 31, 2001                                                     | 739,917 | 3,852            | 468,924        
|                                                                                
|Treasury shares canceled  Extraordinary Shareholders' Meeting on April 02, 2002 | (764)   |                 |               
|Capital increase  Board of Directors Meeting on April 29, 2002                  | 91,156  |                 | (91,156)       
|Fiscal incentives                                                                |        | 12               |               
|Unclaimed dividends at holding Company                                           |        |                 |               
|Consolidation adjustments:                                                      
|Tax incentives                                                                   |        |                 |               
|Unclaimed dividends at subsidiaries                                              |        |                 |               
|Net income                                                                       |        |                 |               
|Appropriations:                                                                 
|Transfer to legal reserve                                                        |        |                 |               
|Transfer to expansion reserve                                                    |        |                 |               
|Proposed dividends                                                               |        |                 |               
|Interest on shareholders equity                                                 |        |                 |               
|Income tax on interest on shareholders equity                                   |        |                 |               
|                                                                                 |         |                  |                
|Balance at December 31, 2002                                                     | 830,309 | 3,864            | 377,768        
|                                                                                 |         |                  |                

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


TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS
OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31,
2002, 2001 and 2000  (In thousands of
Brazilian Reais)

|                                                             | Years ended December 31,
|------------------------------------------------------------ | ------------------------
|                                                             | 2002                    
|Operating activities:                                       
|Net income                                                   | 74,378                  
|Adjustments to reconcile net income to cash provided by     
|operating activities:                                       
|Depreciation and amortization                                | 477,605                 
|Minority share of net income                                 | -                       
|Monetary/exchange variation on long-term loans and financing | 189,088                 
|(Gain) loss on permanent asset disposals                     | 269                     
|Losses from changes in equity holding of subsidiaries        | -                       
|Allowance for doubtful accounts                              | 96,810                  
|(Increase) in customer accounts receivable, gross            | (61,938)                
|(Increase) decrease in taxes receivable                      | 39,763                  
|(Increase) decrease in other current assets                  | (69,152)                
|(Increase) decrease in other noncurrent assets               | (63,679)                
|Increase (decrease) in payroll and related accruals          | (1,068)                 
|Increase (decrease) in accounts payable and accrued expenses | 84,222                  
|Increase (decrease) in taxes other than income taxes         | (42,286)                
|Increase (decrease) in other current liabilities             | 36,445                  
|Increase (decrease) in accrued interest                      | 9,669                   
|(Decrease) in income taxes                                   | (34,695)                
|Increase (decrease) in reserve for contingencies             | 28,476                  
|Increase in pension and other post-retirement benefit plans. | 2,101                   
|Increase in other noncurrent liabilities                     | 4,699                   
|                                                             |                         
|Total net cash provided by operating activities              | 770,707                 
|                                                             |                         
|Investing activities:                                       
|Additions to property, plant and equipment                   | (370,883)               
|Proceeds from asset disposals                                | 339                     
|                                                             |                         
|Total net cash used in investing activities                  | (370,544)               
|                                                             |                         
|Financing activities:                                       
|Loans repaid                                                 | (246,502)               
|New loans obtained                                           | -                       
|Purchase of treasury shares                                  | -                       
|Dividends paid                                               | (116,252)               
|                                                             |                         
|Total net cash used in financing activities                  | (362,754)               
|                                                             |                         
|Increase (decrease) in cash and cash equivalents             | 37,409                  
|                                                            
|Cash and cash equivalents at beginning of year               | 85,761                  
|                                                             |                         
|Cash and cash equivalents at end of year                     | 123,170                 
|                                                             |                         

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


TELE SUDESTE CELULAR
PARTICIPAÇÕES S.A.

NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTSFor the years ended December 31, 2002, 2001 and 2000(Amounts expressed in thousands
of Brazilian reais)

1. Operations
and background

Tele
Sudeste Celular Participações S.A. was formed on May 22, 1998, through the spin-off of
certain assets and liabilities of Telebrás, including 70.7% and 85.2% of the share
capital of Telerj Celular S.A. and Telest Celular S.A., respectively. Until August 4,
1998, the Companies were controlled by the Federal Government. On July 29, 1998, the
Federal Government separated Telebrás into twelve newly formed holding companies (the New
Holding Companies) and sold to twelve buyers (the New Controlling Shareholders) its
rights to receive shares of the New Holding Companies. In connection with this sale, the
Federal Government assigned to the New Controlling Shareholders substantially all its
economic and voting rights with respect to the New Holding Companies and, as a
consequence, effective August 4, 1998 the New Controlling Shareholders controlled the New
Holding Companies.

Telerj
Celular S.A. and Telest Celular S.A. (the Subsidiaries) were formed on January 5, 1998
and subsequently received on January 30, 1998 from Telecomunicações do Rio de Janeiro
S.A.  and Telecomunicações do Espírito Santo S.A.  the assets and liabilities comprising
their respective cellular telecommunications services.

On
December 31, 2002, Tele Sudeste Celular Participações S.A (the Holding Company) holds
100% of the capital of Telerj Celular S.A. (Telerj) and Telest Celular S.A (Telest),
and the companies are providers of cellular telecommunications services in the States of
Rio de Janeiro and Espírito Santo, respectively, and are also engaged in related
activities required or useful for the performance of these services, in conformity with
concessions and authorizations granted to them.

The
subsidiaries activities, including the services that they may provide and the tariffs
they may charge, are regulated by Agência Nacional de Telecomunicações(Anatel), the
regulatory authority for the Brazilian telecommunications industry pursuant to Law No.
9,472 of July 16, 1997 and the related regulations, decrees, decisions and plans.

Migration
from SMC to SMP

On
December 10, 2002 ANATEL,  Telerj and Telest signed the Authorization Term for Personal
Cellular Service (SMP), which became effective as of the publication in the Official
Government Daily Newspaper, which occurred on December 12, 2002.

Under
the above-mentioned document, Mobile Cellular Service (SMC), provided under concession,
was replaced by Personal Cellular Service (SMP), provided under authorization, both
granted by the Federal Government.

The
authorizations granted to Telerj and Telest are effective for the remaining period of the
original respective concessions being November 30, 2005 and November 30, 2008,
respectively, renewable for an additional 15-year term.  Any such renewal is subject to a
renewal fee.

The
main alterations occurring from the migration of the SMC to SMP are:

|a. | The consolidation of the joint venture process between Telefónica Móviles and Portugal Telecom, in Brazil;                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | The SMP user will have the right to choose the long distance service provider through the provider selection code (CSP - código de seleção de prestadora) as of May 31, 2003 for calls outside their access areas;
|  
|c. | Stricter quality targets;                                                                                                                                                                                           
|  
|d. | Free negotiation of interconnection tariffs beginning June 2004.                                                                                                                                                    

Joint
Venture

On
December 27, 2002, the assets in the Brazilian mobile telephony market held by the
shareholders PT Móveis - Serviços de Telecomunicações, SGPS (PT Móveis) and Telefónica Móviles
S.A. (TEM), represented by  the direct and indirect equity interests in Telesp Celular
Participações S.A., Tele Sudeste Celular Participações S.A., Tele Leste Celular Participações
S.A., and CRT Celular Participações S.A., were transferred to Brasilcel N.V., to form a
joint venture based in the Netherlands, 50% owned by PT and 50% owned by TEM.

Consequently,
Brasilcel N.V. shareholders are TEM (50% of the total capital), PT Móveis (50% of the
total capital) as of December 31, 2002, Tele Sudeste Celular Participações S.A., a
publicly-traded company,  is owned by Sudestecel Participações S.A. (19.25% of the total
capital), Brasilcel N.V. (13.88% of the total capital) and Tagilo Participações Ltda.
(10.35% of the total capital) in the Brazilian market. Sudestecel Participações S.A. is
controlled by Brasilcel N.V. (89.5% of total capital), NTT Docomo, INC. (7.00% of total
capital) and Itochu Corporation (3.50% of total capital).

The
Senior Management of the companies involved understand that the mentioned process will result in significant
gains for all the corporations, mainly due to the synergies achieved with the operations increase
volume and unification  of operative processes, which may cause systemic adjustments.

2. Presentation
of the financial statements

a. Presentation of
consolidated financial statements as of and for the years ended December 31, 2002, 2001
and 2000

The
accompanying consolidated financial statements present the consolidated balance sheets
and results of operations in cellular telecommunication businesses of the Holding Company
and its subsidiaries(collectively The Company). The portion of net income attributable
to shareholders of the subsidiaries other than the Holding Company as of and for the year
ended December 31, 2000 is reflected as minority interests.  On November 30, 2000, as
part of the corporate restructuring of the Holding Company and its subsidiaries, the
Holding Company acquired all shares issued by  Telerj Celular S.A. and Telest Celular
S.A. that were owned by minority shareholders, therefore converting the Subsidiaries
into wholly-owned subsidiaries of the Holding Company. On that date, before corporate
restructuring, the minority shareholders owned 29.3% and 14.8% of share capital of Telerj
Celular S.A. and Telest Celular S.A., respectively.

The
presentation of the consolidated financial statements is consistent with the presentation
of the published financial statements of the Company and its predecessors, from which the
financial information was extracted, except for certain reclassifications and changes in
terminology within the consolidated balance sheets and the consolidated statements of
income which have been made to conform the previously published financial statements to
the 2002 presentation and for the effects of inflation, as discussed in Note 2(b) and
2(c).

b. Full
indexation to December 31, 2000

As
a result of legislation mandating the discontinuation of the indexation system for
Brazilian corporate law accounting and most fiscal purposes, together with the option
granted by the Brazilian Securities Commission (Comissão de Valores Mobiliários  CVM),
the consolidated financial statements of the Company as of December 31, 2002, 2001 and
2000 and for the years then ended, as published in Brazil, do not recognize the effects
of changes in the purchasing power of the Brazilian currency that would have been
otherwise required under the comprehensive indexation system, which was applied through
December 31, 1995. Nevertheless, as permitted under accounting principles adopted in
Brazil (Brazilian GAAP), the accompanying financial statements have been fully indexed
through December 31, 2000.

In
July 1997, the three-year cumulative inflation rate for Brazil fell below 100%. However,
as permitted by  Brazilian GAAP, the constant currency method continued to be applied
through December 31, 2000. Thus, the financial statements of the Company for the year
ended December 31, 2000 were prepared using the integral restatement method, in order to
express the balances of the Company in the currency of constant purchasing power of
December 31, 2000.

Accordingly,
all relevant nonmonetary assets and liabilities, shareholders equity accounts, and all
components of the statements of income, changes in shareholders equity and changes in
financial position and notes were updated to reflect the changes in the inflation index
to December 31, 2000. Also, the gains and losses on monetary assets and liabilities
attributable to changes in the index, calculated on a monthly basis, were allocated to
the corresponding income or expense items in the statements of income.

The
price-level adjustment to reflect the current purchasing power of the currency do not
purport to change the prior-period financial statements in any way, but only to update
the amounts to a constant currency measurement unit.

For
official purposes, such as providing reports to Brazilian shareholders, filing financial
statements with the CVM, and determining dividend payments and other distributions and
tax liabilities in Brazil, the Company has published, and will continue to publish,  its
consolidated financial statements as of and for the years ended December 31, 2002, 2001
and 2000 prepared in accordance with the Law 6,404 of December 15, 1976, as amended, or
the  Brazilian corporate law method (BR CL), which no longer recognize the effects of
inflation beginning January 1, 1996.

The
principal criteria adopted to prepare the fully indexed consolidated financial statements
for the year ended December 31, 2000, maintained in accordance with the practices
described in Note 3, were as follows:

i.
Inflation restatement index

The
consolidated financial statements of  2000 were indexed and expressed in the currency of
constant purchasing power as of December 31, 2000 by using the monthly average values of
the Índice Geral de Preços-Mercado (the General Prices Index-Market or the IGP-M,
published) by the Fundação Getúlio Vargas, for the year ended December 31, 2000, which
was 9.95%.

ii.
Consolidated statements of income for 2000.

Items
in the consolidated statements of income are adjusted by:

- allocating
inflationary holding gains or losses on interest bearing monetary assets and liabilities
to their corresponding               interest income and expense captions;
- allocating
inflationary holding gains and losses from other monetary items to their corresponding
income or expense captions.               Amounts without a corresponding income or
expense caption were allocated to Other net operating income (expense).

iii.Deferred
income tax effects of indexation adjustments in 2000

As
a result of legislation mandating the discontinuation of the indexation system for
Brazilian corporate law and most fiscal purposes begining January 1, 1996, the indexation
of assets and liabilities for financial reporting purposes herein is not permitted for
tax purposes. Accordingly, a deferred tax liability arises for the excess of net assets
shown for financial reporting purposes over the tax basis of these net assets. The
resulting additional deferred tax liability of R$34,651 was recorded as a charge to
retained earnings in 2000 (see Note 10).

c. Financial
statements as of and for the years ended December 31, 2002 and 2001

As
mentioned above, companies which prepare their financial statements accordance with
Brazilian GAAP (including financial statements prepared using the constant currency
method) should cease to recognize inflationary effects as from January 1, 2001, as the
disclosure of inflationary effects subsequent to that date is permitted only in cases
when the accumulated inflation rate measured by the IGP-M in the latter three years
reaches 100% or more. Accounting differences between the financial statements prepared
using the constant currency method and those in compliance with the BR CL as of December
31, 2000 shall remain registered in the financial statements and shall diminish as a
result of the realization (e.g., depreciation, amortization or write-offs) of the related
assets and liabilities that gave rise to the differences.

Considering
that the annual inflation for 2002 and 2001 was 25.31%and 10.37%, respectively, and that
the inflation for the three-year period ended December 31, 2002 and 2001 was 52.07% and
45.73%, respectively, effects of inflation for the years 2002 and 2001 have not been
recognized for Brazilian GAAP purposes.  However, the effects of inflation recorded under
Brazilian GAAP for the period from January 1, 1996 through December 31, 2000 were
recorded under BR CL and, as such, generated the following effects on net income and
shareholders equity as of December 31, 2002 and 2001 and for the three years in the
period ended December 31, 2002 as follows:

|                                                                      | 2002     | 2001      | 2000    
|--------------------------------------------------------------------- | -------- | --------- | --------
|Net income according to the BR CL                                     | 140,376  | 162,914   | 121,876 
|(-) Realization of assets (depreciation, amortization and write-offs) | (99,997) | (103,664) | (83,385)
|(+) Inflationary gains on monetary items, net                         | -        | -         | 16,648  
|(+) Reversal of deferred taxes                                        | 33,999   | 35,247    | 24,632  
|(+) Minority interest on above adjustments                            | -        | -         | 12,628  
|                                                                      |          |           |         
|(=) Net income according to Brazilian GAAP                            | 74,378   | 94,497    | 92,399  
|                                                                      |          |           |         

|                                                                                       | 2002      | 2001     
|-------------------------------------------------------------------------------------- | --------- | ---------
|Shareholders equity as of December 31 according to the BR CL                          | 1,779,685 | 1,735,749
|(+) Balance remaining from the constant currency appreciation until December 31, 2000. | 165,664   | 265,661  
|(-) Deferred taxes on above balance                                                    | (56,340)  | (90,339) 
|                                                                                       |           |          
|(=) Shareholders equity as of December 31 according to Brazilian GAAP                 | 1,889,009 | 1,911,071
|                                                                                       |           |          

d. Principles of
consolidation

These
consolidated financial statements include the financial records of the Holding Company
and its subsidiaries. All material intercompany accounts and transactions have been
eliminated.

e.
Reclassifications

Certain
reclassifications have been made to the prior periods to conform to the 2002 presentation.

3. Summary of
principal accounting policies

a. Cash and cash
equivalents

Are
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.

b. Trade
accounts receivable

Accounts
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. Allowance for
doubtful accounts

Provision
is made for trade accounts receivable for those receivables whose recoverability is
considered remote.

d. Foreign
currency transactions

Are
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 income.

Exchange
variation and premiums related to derivative contracts are calculated and recorded on an
accrual basis (monthly) regardless of the settlement period.

e. Inventories

Consist
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
expenses

Are
stated at amounts disbursed for expenses yet to be incurred.

h. Property,
plant and equipment

Property,
plant and equipment are stated at acquisition or construction cost less accumulated
depreciation, restated for inflation until December 31, 2000. Cost incurred for
maintenance and repair, which increase installed capacity or useful life are capitalized.
Others maintenance and repaid costs are charged to income as incurred. Depreciation is
calculated under the straight-line method based on the estimated useful lives of the
underlying assets. Depreciation rates are shown in Note 16(b).

Through
1998, interest calculated monthly at a rate of 12% per annum on construction-in-progress
was capitalized as part of property, plant and equipment, until the asset was placed in
service. In 2001 and 2000, the Company did not capitalize interest attributable to
construction-in-progress. However, in 2002 the Company capitalize d interest related to
construction-in-progress based on the actual effective interest related.  Total interest
capitalized in 2002 was R$30,411.

i. Vacation
payable accrual

Cumulative
vacation payable due to employees is accrued as incurred.

j. Accrual for
rewards program

The
Subsidiaries implemented a rewards program that enables users to accumulate points based
on cellular phone calls completed, which may be exchanged in the future for cellular
handsets. An accrual is recorded based on points earned as of the balance sheet date,
considering the cost of the cellular handsets and the expected utilization based on the
registered customers consumption profile.

k. Income and
social contribution taxes

Income
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 income tax and social contribution tax loss carryforwards
are recorded as assets or liabilities, based on the assumption of their future
realization.

k. Loans and
financing

Loans
and financing are updated for monetary and/or exchange variations and include accrued
interest to the balance sheet date.

l. Fistel fee

Fistel
(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
contingencies

Reserves
for loss contingencies are based on legal counsels and managements opinion on the
probable result of pending litigations and updated to the balance sheet date in amounts
considered sufficient to cover probable losses, based on the nature of each contingency.

n. Pension and
postretirement benefits

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. Contributions are
recognized on the accrual basis of accounting. The subsidiaries elected to adopt CVM
Instruction no. 371,and recognized the amounts of their proportionate share of these
pensions and postretirement benefit obligations as a direct charge  to shareholders equity,
net of tax effects as of December 31, 2001 (see Note 24).

o. Revenue
recognition

Revenue
from services is recognized when the services are rendered.  Billing is on a monthly
basis.  Unbilled revenue from the billing date through the end of the month is estimated
and recognized as revenue in the month in which the service is rendered. Revenue from
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 customer.

p. Financial
expense, net

Represents
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. Derivatives

The
Company enters into certain derivative contracts to manage the exposure of its cash flows
in foreign currency to fluctuations in the interest and exchange rates in relation to the
Brazilian real. These derivative contracts are calculated and recorded based on
contractual terms, and the exchange and rates in effect at the balance sheet date.
Premiums, received or paid, are deferred and amortized over the effective period of the
respective contracts. Resulting gains and losses, realized or unrealized, are recorded as
Financial expense, net.

r. Research and
development

Research
and development costs are charged to expense as incurred. (See Note 7).

s. Advertising
expense

Advertising
costs are charged to expense as incurred.

t. Employees profit
sharing

Accruals
are made to recognize the expenses for employees profit sharing, which is subject to
approval at the annual Shareholders Meeting. Until 2001 employee profit sharing was
shown after operating income as an expense at arriving net income. For the 2002
presentation, by recommendation of the CVM, employee profit sharing has been reclassified
to operating income for all years presented.

u. Earnings per
thousand shares

Earnings
per thousand shares are calculated based on the number of shares outstanding at the
balance sheet date.

v. Segment
information

The
Companies 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 Rio de Janeiro and Espírito Santo.

w. Minority
interests

Minority
interests reflected in the consolidated statements of income up to October 31, 2000
relate to the interests of shareholders other than the Holding Company in Telerj Celular
and Telest Celular. On November 30, 2000, as a result of the restructuring process (see
Note 25), Telerj Celular and Telest Celular were converted into wholly owned subsidiaries
of the Holding Company.

x. Use of
estimates

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

4. Net operating
revenue

|                                            | 2002      | 2001      | 2000     
|------------------------------------------- | --------- | --------- | ---------
|Monthly subscription charges                | 281,613   | 367,211   | 424,696  
|Usage charges                               | 874,651   | 742,373   | 685,409  
|Charges for use outside the concession area | 23,950    | 25,267    | 22,904   
|Additional charges per call                 | 43,146    | 53,423    | 48,810   
|Network usage charges                       | 795,067   | 702,049   | 551,538  
|Goods sold (handsets and others)            | 348,635   | 283,244   | 289,116  
|Other                                       | 15,579    | 13,071    | 10,001   
|                                            |           |           |          
|Total gross operating revenue               | 2,382,641 | 2,186,638 | 2,032,474
|Value-added and other indirect taxes        | (535,010) | (483,339) | (471,000)
|                                            |           |           |          
|Net operating revenue                       | 1,847,631 | 1,703,299 | 1,561,474
|                                            |           |           |          

There
were no customers who contribute more than 5% of total gross operating revenues of the
Company in 2002, 2001and 2000, except for TELEMAR, the fixed service provider for the
area that contributed approximately 26% of total gross operating revenues in 2002 (25%
and 22% in 2001 and 2000, respectively), mainly in relation to network usage charges.

5. Cost of
services and goods

|                                 | 2002      | 2001    | 2000   
|-------------------------------- | --------- | ------- | -------
|Depreciation and amortization    | 407,908   | 321,389 | 276,391
|Goods sold (handsets and others) | 334,853   | 289,154 | 336,950
|Usage charge                     | 130,846   | 125,685 | 115,849
|Interconnection fee              | 84,332    | 76,051  | 63,701 
|Materials and services           | 36,602    | 34,301  | 34,752 
|Fistel tax and other             | 60,624    | 63,373  | 54,106 
|Rental fees and insurance        | 40,493    | 39,909  | 27,773 
|Personnel                        | 14,713    | 13,283  | 8,900  
|Other supplies                   | 151       | 66      | 2,063  
|                                 |           |         |        
|                                 | 1,110,522 | 963,211 | 920,485
|                                 |           |         |        

6. Operating
expenses:

a. Selling

|                                | 2002    | 2001    | 2000   
|------------------------------- | ------- | ------- | -------
|Outsourced services (i)         | 188,893 | 156,611 | 124,865
|Allowance for doubtful accounts | 96,810  | 71,847  | 69,774 
|Personnel                       | 44,333  | 31,069  | 21,084 
|Depreciation                    | 16,546  | 12,725  | 10,028 
|Rental and insurance            | 9,789   | 8,610   | 7,901  
|Materials                       | 3,211   | 3,120   | 2,908  
|Taxes other than income taxes   | 360     | 357     | 436    
|Other supplies                  | 274     | 2,842   | 11,894 
|                                |         |         |        
|                                | 360,216 | 287,181 | 248,890
|                                |         |         |        

(i)
Outsourced services include advertising expenses amounting to 53,821, 42,024, 43,766, for
the years ended December 31, 2002, 2001 and 2000.

b. General and
administrative

|                              | 2002    | 2001    | 2000   
|----------------------------- | ------- | ------- | -------
|Outsourced services           | 123,399 | 121,469 | 107,143
|Depreciation                  | 53,151  | 52,662  | 34,453 
|Personnel                     | 38,696  | 58,472  | 46,012 
|Rental and insurance          | 11,408  | 18,563  | 19,365 
|Taxes other than income taxes | 8,057   | 12,790  | 1,341  
|Materials                     | 3,837   | 3,365   | 3,938  
|Others                        | 4,118   | 1,698   | 4,868  
|                              |         |         |        
|                              | 242,666 | 269,019 | 217,120
|                              |         |         |        

7. Other
operating income (expense), net

|                                                | 2002     | 2001     | 2000   
|----------------------------------------------- | -------- | -------- | -------
|Other operating income                         
|Services rendered to third parties              | 76       | 15,793   | 10,629 
|Fines                                           | 10,175   | 9,905    | 10,347 
|Recovered expenses                              | 16,191   | 5,859    | 6,339  
|Other operating expense                        
|Provision for contingencies                     | (30,768) | (10,290) | (3,908)
|Taxes other than income taxes                   | (2,200)  | (3,805)  | (3,830)
|Donations and sponsorships                      | (703)    | (1,820)  | (3,303)
|Research and development                        | -        | (790)    | (1,149)
|Net inflationary losses on non-interest-bearing
|assets/liabilities                              | -        | -        | (9,662)
|Other                                           | (2,808)  | 2.333    | 81     
|                                                |          |          |        
|                                                | (10,037) | 17,185   | 5,544  
|                                                |          |          |        

8. Financial
expense, net

|                                          | 2002      | 2001      | 2000    
|----------------------------------------- | --------- | --------- | --------
|Interest income on short-term investments | 19,524    | 20,809    | 22,755  
|Interest expense on loans and financing   | (23,303)  | (56,656)  | (70,911)
|Monetary/exchange variation               | (237,603) | (113,266) | 4,478   
|Derivative transactions                   | 221,010   | 76,807    | 13,969  
|Other, net                                | 7,655     | (10,916)  | (5,893) 
|                                          |           |           |         
|                                          | (12,717)  | (83,222)  | (35,602)
|                                          |           |           |         

In
2002, financial expense is presented net of capitalized interest during the year in the
aggregate amount of R$30,411. No interest was capitalized during the years ended December
31, 2001 and 2000.

9. Nonoperating
expense, net

|                                                   | 2002    | 2001    | 2000   
|-------------------------------------------------- | ------- | ------- | -------
|Gain (loss) on permanent asset disposals           | (269)   | (534)   | 1,332  
|Loss from changes in shareholdings in subsidiaries | -       | -       | (4,444)
|Other                                              | (1,007) | (662)   | (103)  
|                                                   |         |         |        
|                                                   | (1,276) | (1,196) | (3,215)
|                                                   |         |         |        

10. Income and
social contribution taxes

Brazilian
income taxes comprise federal income tax and the social contribution tax. For the
three-year period ended December 2002, the income tax rate was 25% and the social
contribution tax rates were 12% from May 1999 to January 2000, and 9% from February 2000
to December 2002. 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%.

The
composition of income tax expense is as follows:

|                                           | 2002   | 2001   | 2000  
|------------------------------------------ | ------ | ------ | ------
|Current                                   
|Income tax                                 | 2,117  | 97     | 11,757
|Social contribution charge                 | 683    | 30     | 5,071 
|Deferred                                   | 33,019 | 22,031 | 19,950
|                                           |        |        |       
|Total income and social contribution taxes | 35,819 | 22,158 | 36,778
|                                           |        |        |       

Supplementary
information regarding taxes posted directly to shareholders equity:

|                                  | 2002 | 2001 | 2000    
|--------------------------------- | ---- | ---- | --------
|Deferred taxes on full indexation | -    | -    | (34,651)
|                                  |      |      |         
|                                  | -    | -    | (34,651)
|                                  |      |      |         

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 2002, 2001 and 2000:

|                                                        | 2002    | 2001     | 2000    
|------------------------------------------------------- | ------- | -------- | --------
|Income before taxes as reported in the accompanying    
|financial statements                                    | 110,197 | 116,655  | 141,706 
|                                                        |         |          |         
|Taxes charged at the combined statutory rate            | 37,467  | 39,662   | 48,180  
|Permanent additions:                                   
|Non-deductible expenses                                 | 2,999   | 739      | 4,144   
|Permanent exclusions:                                  
|Interest on shareholders equity (Note 26)              | (4,590) | (17,101) | (15,275)
|Other                                                   | (57)    | (1,142)  | (271)   
|                                                        |         |          |         
|Income and social contribution taxes as reported in the
|accompanying financial statements                       | 35,819  | 22,158   | 36,778  
|                                                        |         |          |         
|Effective rate                                          | 32.5%   | 19.0%    | 26.0%   
|                                                        |         |          |         

The
composition of deferred tax assets and liabilities is as follows:

|                                                           | 2002    | 2001   
|---------------------------------------------------------- | ------- | -------
|Deferred tax assets:                                      
|Tax credit on amortization of goodwill (Note 25)           | 254,222 | 348,964
|Allowance for:                                            
|Inventory obsolescence                                     | 5,564   | 120    
|Contingencies                                              | 16,321  | 6,638  
|Doubtful accounts                                          | 10,835  | 12,793 
|Rewards program                                            | 7,813   | 3,613  
|Income tax and social contribution tax losses carryfowards | 32,670  | 39,804 
|Accelerated depreciation                                   | 9,164   | -      
|Other                                                      | 8,444   | 815    
|                                                           |         |        
|Total (see Note 14)                                        | 345,033 | 412,747
|                                                           |         |        
|Current                                                    | 109,240 | 104,941
|Noncurrent                                                 | 235,793 | 307,806
|                                                           |         |        
|Deferred tax liabilities:                                 
|                                                          
|Deferred tax on full indexation                            | 56,340  | 90,339 
|Other                                                      | -       | 697    
|                                                           |         |        
|                                                           | 56,340  | 91,036 
|                                                           |         |        
|Current                                                    | 9,060   | 13,468 
|Noncurrent                                                 | 47,280  | 77,568 
|                                                           |         |        

Deferred
taxes are provided for income tax and social contribution tax loss carryforwards and
temporary differences, which include the effects of indexation adjustments that will not
give rise to deductions when subsequently depreciated or amortized, have been recognized
on the assumption of future realization as follows:

|a. | Income tax and social contribution tax loss carryforwards have no expiration, but are generally limited to be used to
compensate up to 30% of taxable income for each year. The Subsidiaries, based on the future projected results, estimate to fully
realize the tax loss carryforwards in no more than five years.                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | Tax credits from the corporate restructuring, which represent the balance of goodwill, net of the equity maintenance reserve
(see Note 25),are expected to be realized in the same proportion as the amortization of goodwill recognized by the Subsidiaries.
Studies by external consultants used in the restructuring process support the realization of the credits in five years.
|  
|c. | Temporary differences will realized by the payment of the related accrued liabilities and by the actual realization of losses
related to the allowance for doubtful accounts and provision for inventory obsolescence.                                                                                                                                                               

Based on managements
estimates of future taxable income that were approved by the Board of Directors, the
Company believes that it is more likely than not that the amounts recorded as of December
31, 2002 will be realized by the Company.

11. Supplemental
cash flow information

|                                        | 2002   | 2001   | 2000  
|--------------------------------------- | ------ | ------ | ------
|Income and social contribution tax paid | 37,740 | 41,651 | 38,530
|Interest paid                           | 47,651 | 72,519 | 55,088
|Contingencies paid                      | 2,292  | 1,524  | 12,597

Non-cash
transactions:

|                                          | 2002 | 2001 | 2000 
|----------------------------------------- | ---- | ---- | -----
|Tax incentive investment credits received | 106  | 584  | 4,471

12. Cash and cash
equivalents

|                       | 2002    | 2001  
|---------------------- | ------- | ------
|Cash and banks         | 16,704  | 17,888
|Short-term investments | 106,466 | 67,873
|                       |         |       
|                       | 123,170 | 85,761
|                       |         |       

All
cash and cash equivalents are denominated in Brazilian reais. Short-term investments are
represented principally by fixed-income instruments (Bank Deposit Certificates), which
have maturities of ninety days or less.

13. Trade
accounts receivable, net

|                                           | 2002     | 2001    
|------------------------------------------ | -------- | --------
|Billed services                            | 68,894   | 84,377  
|Interconnection (i)                        | 96,070   | 116,417 
|Unbilled services                          | 50,308   | 71,151  
|Receivables from sale of cellular handsets | 89,503   | 73,461  
|Allowance for doubtful accounts            | (31,867) | (37,626)
|                                           |          |         
|                                           | 272,908  | 307,780 
|                                           |          |         

(i)
At December 31, 2002, R$ 66,048 of the total of interconnection amount receivable is due
from Telecomunicações do Espírito Santo e Telecomunicações do Rio de Janeiro  Telemar .
This amount represents receivables related to services rendered during the period from
June 2002 to December 2002. Currently, Telest is negotiating the settlement of these
receivables. The amount recognized in these financial statements represents managements
estimate of the amount that will be received from Telemar.

The
changes in the allowance for doubtful accounts were as follows:

|                                     | 2002      | 2001     | 2000    
|------------------------------------ | --------- | -------- | --------
|Beginning balance                    | 37,626    | 22,261   | 46,092  
|Allowance charged to selling expense | 96,810    | 71,847   | 69,774  
|Write-offs                           | (102,569) | (56,482) | (93,605)
|                                     |           |          |         
|Ending balance                       | 31,867    | 37,626   | 22,261  
|                                     |           |          |         

14. Deferred and
recoverable taxes

|                        | 2002    | 2001   
|----------------------- | ------- | -------
|Federal income tax      | 86,556  | 51,340 
|Social contribution tax | 13,752  | 13,099 
|Deferred tax assets     | 345,033 | 412,747
|Withholding tax         | 21,656  | 24,610 
|Sales and other taxes   | 68,560  | 61,923 
|                        |         |        
|                        | 535,557 | 563,719
|                        |         |        
|Current                 | 261,639 | 213,100
|Noncurrent              | 273,918 | 350,619
|                        |         |        

15. Other assets

|                                                     | 2002     | 2001   
|---------------------------------------------------- | -------- | -------
|Prepayments                                          | 59,777   | 32,752 
|Inventories:                                        
|Cellular handsets and accessories                    | 70,625   | 60,145 
|Supplies                                             | 5,001    | 5,959  
|Reserve for obsolescence                             | (16,366) | (350)  
|Recoverable advances                                 | 42,958   | 26,755 
|Tax incentive investments                            | 9,184    | 9,161  
|Unrealized gains on derivative contracts (Note 22.e) | 123,901  | 4,205  
|Prepaid pension cost (Note 24)                       | -        | 2,110  
|                                                     |          |        
|                                                     | 295,080  | 140,737
|                                                     |          |        
|Current                                              | 190,828  | 121,676
|Noncurrent                                           | 104,252  | 19,061 
|                                                     |          |        

Reserve
for obsolescence is calculated on the costs of those cellular handsets considered
obsolete, or for which quantities are in excess of those usually sold by the Company in a
reasonable period of time.

16. Property,
plant and equipment, net

a. Composition

|                              | 2002      | 2001                   
|----------------------------- | --------- | -----------------------
|                              | Cost      | AccumulatedDepreciation
|Construction-in-progress      | 213,722   | -                      
|Automatic switching equipment | 806,636   | (450,800)              
|Transmission equipment        | 1,707,218 | (1,099,642)            
|Terminal equipment            | 98,956    | (59,158)               
|Buildings                     | 84,253    | (10,596)               
|Infrastructure                | 360,338   | (164,108)              
|Software                      | 229,542   | (66,111)               
|Other assets (i)              | 152,126   | (51,647)               
|                              |           |                        
|                              | 3,652,791 | (1,902,062)            
|                              |           |                        

(i)
Other assets balance includes the book value of land of R$4,350 and R$4,305 as of
December 31, 2002 and 2001, respectively.

b. Depreciation
rates

The
annual depreciation rates applied to property, plant and equipment for the years ended
December 31, 2002, 2001 and 2000, except for terminal equipment, are as follows:

|                              | %            
|----------------------------- | -------------
|Automatic switching equipment | 14.29        
|Transmission equipment        | 14.29        
|Terminal equipment (i)        | 50.00        
|Buildings                     | 4.00         
|Infrastructure                | 5.00 - 20.00 
|Software                      | 20.00        
|Other assets (excluding land) | 10.00 - 20.00

(i)
As from January 1, 2002, the depreciation rate related to terminal equipment was
increased from 33.33% to 50%, based on studies made by the companys internal technical
group. This change resulted in the increase of depreciation charge for the year 2002 of
approximately R$14,563 in relation to the prior year charge.

c. Rentals

The
Companies rent equipment and premises through a number of operating agreements that
expire at different dates. Total annual rent expense under these agreements was R$55,565,
R$60,679 and R$55,039 for the years ended December 31, 2002, 2001 and 2000, respectively.
The leases are renewable automatically each year.

Rental
commitments relate primarily to facilities. The future minimum rental payments under
non-cancelable leases are as follows:

|                         | (Unaudited)
|------------------------ | -----------
|Year ending December 31, | Amount     
|2003                     | 18,484     
|2004                     | 8,902      
|2005                     | 5,365      
|2006                     | 3,862      
|2007                     | 2,955      
|2008 and thereafter      | 4,385      
|                         |            
|Total minimum payments   | 43,953     
|                         |            

# 17. Payroll and related
accruals

|                                | 2002   | 2001  
|------------------------------- | ------ | ------
|                                |        |       
|Wages and salaries              | -      | 18    
|Accrued social security charges | 10,264 | 9,089 
|Accrued benefits                | 22     | 1,558 
|Payroll withholdings            | 1,203  | 1,892 
|                                |        |       
|                                | 11,489 | 12,557
|                                |        |       

# 18. Accounts payable and
accrued expenses

|                              | 2002    | 2001   
|----------------------------- | ------- | -------
|                              |         |        
|Suppliers                     | 324,953 | 247,117
|Consignments to third parties | -       | 33,895 
|Interconnection and interlink | 53,622  | 9,456  
|Other                         | -       | 1,860  
|                              |         |        
|                              | 378,575 | 292,328
|                              |         |        

# 19. Taxes other than
income taxes

|                                         | 2002   | 2001  
|---------------------------------------- | ------ | ------
|                                         |        |       
|ICMS (State VAT)                         | 13,998 | 45,099
|PIS/COFINS (taxes on operating revenues) | 8,280  | 8,563 
|FISTEL fee                               | 2,726  | 2,353 
|FUST and FUNTTEL (regulatory charges)    | 1,235  | 1,178 
|Other                                    | -      | 14    
|                                         |        |       
|                                         | 26,239 | 57,207
|                                         |        |       

# 20. Dividends payable

|                           | 2002   | 2001  
|-------------------------- | ------ | ------
|                           |        |       
|Payable by the Company to:
|Common shareholders        | 4,280  | 14,731
|Preferred shareholders     | 13,204 | 28,021
|                           |        |       
|                           | 17,484 | 42,752
|                           |        |       

Dividends payable as of December 31,
2002 include interest on shareholders ́ equity in the amount of R$11,475 (net of
withholding income tax) and proposed dividends of R$6,009, which payments are subject to
approval at the annual shareholders ́ meeting.

# 21. Other liabilities

|                                               | 2002   | 2001  
|---------------------------------------------- | ------ | ------
|                                               |        |       
|Employee profit sharing                        | 11,400 | 9,395 
|Prior year dividends not claimed               | 14,441 | 10,904
|Derivative transactions                        | -      | 13,244
|Accrual for rewards program(i)                 | 22,980 | 10,625
|Advances from customers-prepaid recharge cards | 37,998 | 7,792 
|Others                                         | 2,030  | -     
|                                               |        |       
|                                               | 88,849 | 51,960
|                                               |        |       
|Current                                        | 88,849 | 31,470
|Noncurrent                                     | -      | 20,490
|                                               |        |       

In accordance with the Company Social
Article and in conformity to the Corporate Law 6.404/76, unclaimed dividends prescribe
after 3 years as of the date payments commence.

(i) In July 2001, the subsidiaries implemented a rewards program that enables users
          to accumulate points based on minutes of usage that may be exchanged for
          cellular handsets. An accrual is recorded based on points earned as of the
          balance sheet date, considering the cost of the cellular handsets and the
          expected utilization based on the registered customers consumption
          profile.

22.
          Loans and financing

a. Composition of Debt at December 31:

|                                   | Currency | Annual charges        | 2002    | 2001   
|---------------------------------- | -------- | --------------------- | ------- | -------
|                                   |          |                       |         |        
|                                   | (1)      |                       |         |        
|Financial institutions-           
|Citibank - OPIC                    | US$      | 5,20% p.a. + Libor    | 88,332  | 87,015 
|Several - Resolution no. 63 (ii)   | US$      | 7,59% to 14,00% p.a.  | 192,564 | 210,386
|Several - Assumption of debt (iii) | US$      | 8,61% to 10,707% p.a. | 133,353 | 144,732
|NEC do Brasil S.A.                 | US$      | 7,30% p.a. + Libor    | 33,087  | 28,972 
|Export Devel. Corpor. - EDC -     
|Telest Celular                     | US$      | 1,00% + Libor         | -       | 898    
|Accrued interest                   |          |                       | 13,183  | 12,662 
|                                   |          |                       |         |        
|                                   |          |                       | 460,519 | 484,665
|                                   |          |                       |         |        
|Current                            |          |                       | 200,922 | 189,726
|Noncurrent                         |          |                       | 259,597 | 294,939
|                                   |          |                       |         |        

(1)
          At December 31, 2002 and 2001, 1(one) US dollar is equivalent to R$3.5333 and R$
          2.3204, respectively.

(i)
          Loans from Citibank-OPIC  refers to financing obtained for the expansion
          and modernization of the cellular network.

(ii)
          Resolution 63 issued by Central Bank of Brazil  enables Brazilian
          financial institutions to re-lend loan proceeds from international borrowings to
          local borrowers.

(iii)
          Assumption of debt  represents the assumption of debt originally
          contracted by an unrelated party and receipt of the corresponding proceeds
          thereof, intermediated by a Brazilian financial institution.

(iv)
          Loans from Nec do Brasil supplier and Export Development Corporation of Japan
          refer to supplier credit for the financing of fixed assets purchased from Nec do
          Brasil.

b.
          Repayment schedule

The noncurrent portion as of December
31, 2002 matures as follows:

|2004 | 194,594
|---- | -------
|2005 | 65,003 
|     |        
|     | 259,597
|     |        

# c. Restrictive covenants

The financing from Citibank 
OPIC has restrictive covenants, which include restrictions as to debt levels, EBITDA
(Earnings Before Taxes, Interest, Depreciation and Amortization) and financial expenses.
The Company was in compliance with all such covenants at December 31, 2002. Further more,
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
needs as of the date of this annual report.

# d. Guarantees

|Creditors                            | Guarantee                                                                         
|------------------------------------ | ----------------------------------------------------------------------------------
|                                     |                                                                                   
|Citibank                             | Overseas Private Investment Corporation (OPIC) - guarantee only for political risk
|Resolution No. 63                    | Promissory notes                                                                  
|Assumption of debt                   | Promissory notes                                                                  
|NEC do Brasil S.A.                   | Tele Sudeste guarantee (Aval)                                                     
|Export Development Corporation - EDC | Tele Sudeste guarantee (Aval)                                                     

# e. Derivatives

In connection with its foreign
currency debt, at December 31, 2002 and 2001, Telerj Celular had outstanding currency swap
contracts with notional amounts of US$139,433 and US$281,249, respectively. The swap
contracts mature on different dates until November 28, 2005.

Under the terms of the swap
arrangements, the subsidiaries are required to pay the counter parties the amounts, if
any, that the variation of the CDI (Brazilian bank certificates of deposit rate) on the
notional value exceeds the variation of the U.S. dollar exchange rate. If the inverse
occurs, the subsidiaries are entitled to receive the difference from the counter parties.
The gains and losses attributable to these instruments are calculated as if the contract
were settled on the balance sheet date and accrued and recognized as an adjustment to
financial income or expense in the period in which the change occurs. During 2002, the
Subsidiaries recorded a net gains of R$221,010 (R$76,807 at December 31, 2001) on its
derivatives operations and had recorded an asset amounting to R$123,901, representing the
unrealized gains on unsettled contracts at December 31, 2002 (a net liability of R$9,039
at December 31, 2001, representing the net unrealized losses), of which R$43,956 is
classified as a current (an asset of R$4,205 at December 31, 2001) and R$79,945 is
classified as noncurrent (a liability of R$13,244 at December 31, 2001).

# 23. Reserve for
contingencies

The Company and the Subsidiaries are
parties to certain lawsuits involving labor, tax and civil matters. Management has
recorded reserves for loss contingencies related to cases in which the likelihood of an
unfavorable outcome is considered probable by its legal counsel.

Components of the reserves are as
follows:

|               | 2002   | 2001  
|-------------- | ------ | ------
|               |        |       
|Labor claims   | 7,848  | 3,169 
|Civil claims   | 4,944  | 4,262 
|Disputed taxes | 35,210 | 12,095
|               |        |       
|               | 48,002 | 19,526
|               |        |       
|Current        | 26,519 | 14,900
|Noncurrent     | 21,483 | 4,626 
|               |        |       

Labor and civil claims

The provisions for labor and civil
claims refer to claims for indemnity for moral damages and several demands by employees,
and the Company has been recognized for cover probable losses on these lawsuits in the
amount of R$12,792 as of December 31, 2002 (R$7,431 as of December 31, 2001).

Litigation related to the
Application of the ICMS (state value-added tax)

In June 1998, certain Brazilian state
governments agreed to apply, effective July 1st of the same year, the ICMS tax
to certain service revenues, such as activation fees, and to further make the application
to such activation fees retroactive for the five years preceding June 30, 1998. The
Companys management and legal counsel believe the extension of the ICMS tax to
non-basic telecommunications services such as cellular activation, is unlawful because:

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

The Subsidiaries filed suit with the
Justice Court (Tribunal de Justiça do Estado) of the state in which they are
located seeking injunctive relief from retroactive and prospective application of the ICMS
tax to cellular activation fees, and each subsidiary obtained a temporary injunction
relieving it from payment during the duration of the lawsuits. In April 2000, Telerj
Celular obtained a favorable judicial decision and an important precedent from the Lower
Justice Court of the state of Rio de Janeiro on this matter, prohibiting the assessment of
ICMS tax on cellular activation fees. This decision was later confirmed by the court of
appeals (Tribunal de Segunda Instância).

In the event of an unfavorable
outcome, a five-year retroactive application of the ICMS cellular activation, would have a
maximum material adverse impact of R$114.5 million on the Companys financial
condition and results of operations. In a recent decision in an action filed by Teleamazon
Celular, another wireless operating company, the Higher Justice Court (Superior
Tribunal de Justiça) determined that the ICMS tax could not be assessed on
activation fees. The Companys management, based upon advice from external legal
counsel, believes that an unfavorable outcome related to this case is possible and
therefore, has not made provisions for the application of the ICMS tax on cellular
activation.

Telerj and Telest received tax
assessments totaling R$49,467, referring to: (i) R$3,657  recording of ICMS credit
on the acquisition of permanent assets, which were recognized in the referred tax
assessment as items not directly related to the companys activity; (ii) R$25,460
 nonpayment of ICMS on eventual or supplementary services that are not considered
telecommunications services; (iii) R$1,087  nonpayment of ICMS on calls originating
from administrative terminals and tests used by the employees; and (iv) R$4,064 
social contribution underpayment; (v)R$8,089  ICMS assessments that are on
administrative level; and (vi) R$7,110 miscellaneous. The Company, based on the opinion of
its lawyers and tax advisors, believes that an unfavorable outcome related to this case is
possible and consequently, did not recognize a provision for these tax assessments.

Telest, based on legal counsels
opinion, recognized a provision in the amount of R$12,132 regarding fiscal assessments of
ICMS that occurred in 2002 due to a non-compliance with accessory obligations, for which
an unfavorable outcome is probable.

Litigation relating to
the application of COFINS and PIS

On November 27, 1998, the Brazilian
government, through Law No. 9,718 (the Law), altered the COFINS and PIS social
contributions to increase the COFINS rate from 2% to 3% and allowed an offset of up to 1/3
of the COFINS amount with the amount owed as a result of the Contribuição
Social Sobre Lucro Liquido (CSLL). As the Subsidiaries had a negative CSLL calculation
base and thus could not benefit from such offsetting, they obtained injunctions allowing
them to continue paying COFINS at the 2% rate, applied retroactively to February 1999.

The Law also indirectly raised the
PIS contribution owed by the subsidiaries by widening its calculation basis. Article 195
of the Brazilian Federal Constitution, which was in effect at the time the Law was
enacted, provided for the payment of the PIS contribution based on revenue. However, the
Law widened the calculation basis for the PIS contribution by determining that it be paid
over the totality of revenues earned by companies, including revenues from investments,
securitizations and monetary and exchange rate variations.

In August 2000, the injunction
obtained by Telerj Celular, which permitted the payment of COFINS at the rate of 2%, was
partially revoked. As a consequence, the amount of R$12,473 was paid in September 2000.
However, this injunction remains valid for the financial income exclusion from PIS and
COFINS calculation basis, and the amount of R$20,931 remains accrued as of December 31,
2002 (R$10,065 as of December 31, 2001), related to the amounts not paid based on the
above injunction.

On June 7, 1999, Telest obtained an
injunction supporting the unconstitutionality of the increase in COFINS rate and change in
COFINS and PIS calculation basis, and the future nonpayment of these taxes, as well as the
offsetting of the respective amount of R$609 already paid. The Company has recorded an
accrual for R$2,147, related to the difference between the unpaid rate through December
31, 2002, related to the amounts not paid based on the above injunction (R$2,030 as of
December 31, 2002).

Litigation Related to Tax
Credits

Under certain conditions, Brazilian
law permits companies to benefit from tax credits related to the amortization of goodwill.
Despite this fact, an action was filed on December 16, 1999 against Anatel and the
Company, related to the corporate restructuring described in Note 25, the resulted in the
recognition of tax credits to offset premiums paid by the controlling shareholders at the
time of the acquisition of the Company. The Company filed an answer to this case in April,
2002. The Companys management, based on the opinion of external legal counsel,
believes that an unfavorable outcome related to this case is possible and consequently,
did not recognize a provision related to this item. In the event of an unfavorable
outcome, the amount of potential loss in connection with this action will be determined in
a separate but related lawsuit known as the calculation of the award.
Consequently, the Company is unable to estimate a range of potential loss as of the date
of these financial statements.

Litigation Related to the
Ownership of Caller ID

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

The amount of the indemnification
allegedly due by the mobile telecommunication operators has not been calculated yet and,
therefore, the Company is unable to determine a range of potential loss related to this
case. Based on the opinion of external legal counsel, the Companys management
believes that the chances of an unfavorable outcome are possible and consequently, did not
recognize a provision related to this lawsuit.

Litigation Related to the
Validity of the Minutes in the Prepaid Plans

The Company is a defendant in a
lawsuit brought by the federal public prosecutors office and an association for
consumers protection which challenged the imposition of a deadline for the use of
purchased prepaid minutes. The plaintiffs allege that any purchased prepaid minutes should
not have a time limitation for usage.

This lawsuit is still in its initial
stages, but, based on external counsels opinion, the Companys management
believes that the chances of an unfavorable outcome are possible and consequently, did not
recognize a provision related to this lawsuit.

Potential litigation

Telebrás, Telerj and Telest,
the legal predecessors of the Holding Company and Telerj Celular S.A. and Telest Celular
S.A., respectively, are defendants in a number of legal proceedings and subject to certain
other claims and contingencies. Liability for any claims arising out of acts committed by
Telerj and Telest prior to the effective date of the spin-off of Telerjs and
Telests cellular assets and liabilities to Telerj Celular S.A. and Telest Celular
S.A. remains with Telerj and Telest, except for those liabilities for which specific
accounting provisions have been assigned to Telerj Celular S.A. and Telest Celular S.A.
Any claims against Telerj and Telest which are not met by Telerj and Telest could result
in claims against Telerj Celular S.A. and Telest Celular S.A. to the extent that Telerj
Celular S.A. and Telest Celular S.A. have received assets which might have been used to
settle those claims had they not been spun off from Telerj and Telest. Under the terms of
the breakup of Telebrás, liability for any claims arising out of acts committed by
Telebrás prior to the effective date of the breakup remains with Telebrás,
except for labor and tax claims (in which case Telebrás and the new Holding Company
are jointly and severally liable) and any liability for which specific accounting
provisions have been assigned to the Holding Company. Creditors of Telebrás may
challenge this allocation of liability. Management believes that the chances of any claims
materializing and having a material adverse financial effect on the Companies and/or the
Holding Company are remote and, therefore, no provision was made.

Subsidiaries of the Company have
assets pledged for civil claims in the amount of R$1,212.

# 24. Pension and other
postretirement benefit plans

The Subsidiaries, together with other
companies of the former Telebrás System, sponsor private pension and health care
plans for retired employees, managed by Fundação Sistel de Seguridade
Social  (SISTEL).

Until December 1999, all sponsors of
the plans managed by SISTEL were joint and severally liable participants in relation to
all plans then existent. On December 28, 1999, a single-employer sponsored pension plan
for active employees was created (PBS  Tele Sudeste Celular Plan). Pension benefits
for retired employees (PBS-A) and postretirement health care benefits (PAMA) remained as
part of the multiemployer plans. The implementation of the restructuring was approved by
the Secretaria de Previdência Complementar (Secretariat for Social Security and
Supplementary Benefits) on January 31, 2000.

Due to the separation of active
participants in December 1999, the Subsidiaries individually now sponsor a single-employer
defined benefit pension plan (PBS Tele Sudeste Celular Plan), which covers approximately
1% of the Companys employees. In addition to the supplementary pension benefit, a
multiemployer-sponsored health care plan (PAMA) is provided for retired employees and
their dependents, at shared costs. Contributions to the PBS Tele Sudeste Celular Plan are
determined based on actuarial valuations prepared by independent actuaries, in accordance
with the standards applicable in Brazil. The method used for cost determination is the
capitalization method and the sponsors contribution represents 13.5% of the
participating employees payroll, 12% of which is earmarked for PBS Tele Sudeste
Celular Plan and 1.5 % for the PAMA Plan.

For the other 83% of the
subsidiaries employees, there is an individual defined contribution plan 
Visão Celular Benefit Plan, established by SISTEL in August 2000. The Visão
Celular Plan is supported by contributions made by the participants (employees) and by the
sponsor, which are credited to participants individual accounts. The subsidiaries
are responsible for all administrative and maintenance expenses, including risks of death
and disability of participants. The employees participating in the defined benefit plan
(PBS Tele Sudeste Celular) were granted the option of migrating to the Visão
Celular Plan. This option was extended to employees who did not participate in the PBS
Tele Sudeste Celular Plan, as well as to all new hires. The Companys matching
contributions to the Visão Celular Plan are similar to those of the participants,
varying from 2% to 9% of the contribution salary, according to the percentage opted for by
the participant.

During 2002, the subsidiaries
contributed the amount of R$210 (R$116 in 2001) to PBS Tele Sudeste Celular Plan and
R$3,111 (R$1,720 in 2001) to Visão Celular Plan.

As permitted by CVM Instruction No.
371, of December 13, 2000, the Company chose to recognize the accrued (prepaid) pension
and postretirement benefit cost of its defined benefit plans directly in
shareholders equity as of December 31, 2001, net of related income tax effects. On
December 31, 2002, the Company recognized the changes in the actuarial liabilities of its
benefit plans as expense for the year. Regarding the actuarial valuation of the plans, the
Company established the projected unit credit method for the plans positions as well
as plan assets, as of November 30, 2002 and November 30, 2001. For multi-sponsored plans
(PAMA and PBS-A), the apportionment of the plans assets was made in accordance with
the Companys Accumulated Benefit Obligation  ABO and Projected Benefit
Obligation  PBO, respectively, proportionally to the total plans ABO and PBO.

For the year ended December 31, 2002,
the Company recognized the actuarial cost estimated for the year 2002 amounting to
R$2,471.

As of December 31, 2002 and 2001, the
composition of the accrued (prepaid) pension and postretirement benefit cost for the
defined benefit plans, and the retirees health care plans, as well as further
information required by CVM on these plans, are shown below:

|Plan                                                                 | 2002  | 2001   
|-------------------------------------------------------------------- | ----- | -------
|                                                                     |       |        
|(Prepaid) pension cost - PBS/Visão Telerj Celular                    | -     | (2,110)
|                                                                     |       |        
|Total (prepaid) pension cost - noncurrent assets                     | -     | (2,110)
|Accrued pension cost - PBS/Visão Tele Sudeste                        | 406   | 147    
|PAMA Telerj / Telest                                                 | 727   | 711    
|                                                                     |       |        
|Accrued pension and postretirement benefits - noncurrent liabilities | 1,133 | 858    
|                                                                     |       |        

a)  Reconciliation
between assets and liabilities

|                                                      | 2002         
|----------------------------------------------------- | -------------
|                                                      |              
|                                                      | PBS/Visão(i) 
|                                                      | Telerj/Telest
|                                                      |              
|Projected/Accumulated benefit obligation              | 10,955       
|Fair value of plan assets                             | (10,549)     
|                                                      |              
|Accrued (prepaid) pension and postretirement benefits | 406          
|                                                      |              

|                                         | 2001         
|---------------------------------------- | -------------
|                                         |              
|                                         | PBS/Visão(i) 
|                                         | Telerj/Telest
|                                         |              
|Projected/Accumulated benefit obligation | 9,351        
|Fair value of plan assets                | (11,314)     
|                                         |              
|Accrued (prepaid) pension cost           | (1,963)      
|                                         |              

(i)
          Even though the Visão Telerj and Telest plans are defined contribution
          plans, there is an actuarial risk of death and disability of participants, which
          is born by the sponsor, requiring an actuarial estimate of those risks.

(ii)
          Refers to proportional participation of Telerj and Telest in assets and
          liabilities of the multi-employer plan  PAMA and PBS-A, based on actuarial
          calculations.

(iii)
          Even though PBS  A has a surplus as of December 31, 2002 and 2001, no
          assets were recognized by the sponsor, due to the legal impossibility of
          reimbursement of this surplus, in addition to the fact that the plan is
          non-contributory, which precludes a reduction of contributions by the sponsor in
          the future.

b) Total expenses recognized in the statement of income

|                          | 2002      
|------------------------- | ----------
|                          |           
|                          | PBS/Visão 
|                          | Telerj/Tel
|                          |           
|Cost of service           | 643       
|Cost of interest          | 927       
|Expected return on assets | (1,162)   
|Employees' contributions  | (110)     
|                          |           
|                          | 298       
|                          |           

c) Changes on the
accrued pension /postretirement costs

|                                                                       | 2002      
|---------------------------------------------------------------------- | ----------
|                                                                       |           
|                                                                       | PBS/Visão 
|                                                                       | Telerj/Tel
|                                                                       |           
|Accrued (prepaid) pension/postretirement costs as of December 31, 2001 | (1,963)   
|Expenses in 2002                                                       | 298       
|Employers' contributions in 2002                                       | (613)     
|Actuarial (gains) losses during the year                               | 2,684     
|                                                                       |           
|Accrued pension/postretirement cost as of December 31, 2002            | 406       
|                                                                       |           

d) Changes on
Projected/accumulated benefit obligation - PBO/ABO

|                                      | 2002         
|------------------------------------- | -------------
|                                      |              
|                                      | PBS/Visão    
|                                      | Telerj/Telest
|                                      | PBO          
|                                      |              
|PBO/ABO as of December 31, 2001       | 9,351        
|Cost of service                       | 643          
|Cost of interest                      | 927          
|Benefits paid in the year             | (158)        
|Actuarial (gains) losses for the year | 192          
|                                      |              
|PBO/ABO as of December 31, 2002       | 10,955       
|                                      |              

e) Changes on plan
assets

|                                                  | 2002                  
|------------------------------------------------- | ----------------------
|                                                  |                       
|                                                  | PBS/VisãoTelerj/Telest
|                                                  |                       
|Fair value of plan assets as of December 31, 2001 | 11,314                
|Benefits paid in the year                         | (158)                 
|Contributions in the year                         | 716                   
|Return on plan assets in the year                 | (1,323)               
|                                                  |                       
|Fair value of plan assets as of December 31, 2002 | 10,549                
|                                                  |                       

f) Actuarial
Assumptions

|                                                           | December 31, 2002 (*)  
|---------------------------------------------------------- | -----------------------
|                                                           |                        
|                                                           | PBS/Visão Telerj/Telest
|                                                           |                        
|Discount rate for determining projected benefit obligation | 10.24% p.a.            
|Plan assets expected return rate                           | 10.24% p.a.            
|Salary increase rate                                       | 6.08% p.a.             
|Long term inflation rate                                   | 4.00% p.a.             
|Medical costs increase rate                                | Not applicable         
|Benefits increase rate                                     | 4.00% p.a.             
|Mortality rate                                             | GAM-71                 
|Disability mortality rate                                  | RRB1944                
|Disability rate                                            | RRB1944                
|% of married active participants on retirement date        | 95%                    
|Number of retired participants                             | -                      
|Telerj/Telest                                             
|Number of PBS Plan active                                  |                        
|participants Telerj/Telest                                 | 14                     
|Number of PBS Plan retired                                 |                        
|participants Telerj/Telest                                 | 20                     
|Number of Visão Plan active                                |                        
|participants Telerj/Telest                                 | 1,626                  

(*) Nominal rates
were used in 2002

|                                        | December 31, 2001 (*)  
|--------------------------------------- | -----------------------
|                                        |                        
|                                        | PBS/Visão Telerj/Telest
|                                        |                        
|Discount rate for determining projected |                        
|benefit obligation                      | 6.00% p.a.             
|Plan assets expected return rate        | 6.00% p.a.             
|Salary increase rate                    | 2.00% p.a.             
|Medical cost increase rate              | Not applicable         
|Benefits increase rate                  | 0.00% p.a.             
|Mortality rate                          | GAM-71                 
|Disability mortality rate               | RRB1944                
|Disability rate                         | RRB1944                
|% of married active participants on    
|retirement date                         | 95                     
|Number of PBS Plan active participants 
|Telerj/Telest                           | 29                     
|Number of PBS Plan retired participants | 5                      
|Telerj/Telest                          
|Number of Visão Plan retired            | 14                     
|participants Telerj/Telest             
|Number of Visão Plan active             | 1,514                  
|participants Telerj/Telest             
|Number of PAMA Plan retired             | -                      
|participants Telerj/Telest             
|Number of dependents                    | -                      

# 25. Corporate
restructuring

On November 30, 2000, a corporate
restructuring was completed to transfer the goodwill recorded by the Holding Company as a
result of the privatization process to the Subsidiaries, to ensure their realization. The
restructuring was in essence a transfer of the tax benefits associated with the goodwill
amortization; however, for local tax purposes it involved a series of spin-offs and
mergers.

For the Companys corporate and
tax purposes, the tax benefit is recorded in two separate components, comprised of the
related goodwill transferred and the related reserve for the maintenance and integrity of
the merged companys equity. These amounts are recorded net in the balance sheet as a
deferred tax asset, presented as part of deferred and recoverable taxes as follows:

|                                            |           | At December 31,
|------------------------------------------- | --------- | ---------------
|                                            | Original  |                
|                                            | Balances  | 2001           
|                                            |           |                
|Balance sheets:                            
|Goodwill - spun-off                         | 1,393,279 | 1,052,459      
|Reserves - spun-off                         | (928,437) | (703,495)      
|Net tax credit from corporate restructuring | 464,842   | 348,964        
|                                            |           |                

Statements of income:

|Goodwill amortization | 278,656   | 278,656  
|--------------------- | --------- | ---------
|Reversal of reserve   | (183,913) | (183,913)
|Tax credit            | (94,743)  | (94,743) 
|Net effect on income 
|                      |           |          

As shown above, the amortization of
goodwill, net of the reversal of the reserve and of the corresponding tax credit, does not
affect net income and, consequently, has no effect on the basis for calculating the
minimum mandatory dividend. The net amount of R$254,222 as of December 31, 2002 (R$348,964
as of December 31, 2001), which, represents the merged tax benefit resulting from the
corporate restructuring, was classified in the balance sheet  deferred and
recoverable taxes (see Note 10).

The capital reserve amounting to
R$374,480 at December 31, 2002 will result in the issuance of shares in future years as
the related tax benefits are realized. The number of shares issued will be determined at
each issuance date based on the market value of the shares. All of Companys
shareholders have preemptive rights to subscribe for additional shares at the current
market price. On April 29, 2002, the Company capitalized R$90,363 for corporate law
(R$91,156 restated for inflation), representing 17,964,822,249 common shares, and at
December 31, 2002, was waiting approval by the Board of Directors to capitalize an
additional R$93,516, representing 18,591,761,155 common shares. The difference of R$94,743
corresponds to partial realization of tax credits generated by Telest. Additionally
R$19,613 and R$7,129 was converted to income tax and social contribution tax loss
carryforwards, respectively, since the amortization of goodwill exceeded taxable income.

# 26 Shareholders
equity

As of December 30, 2002, the
Extraordinary Shareholders General Meeting approved the adaptation of the Company
Bylaws to the new conditions described in the Law 10,303 of October 31, 2001. The
principle modification was to entitle preferred shareholders to a 10% higher dividend than
common shareholders. Preferred shareholders were previously entitled to 6% higher
dividends than common shareholders.

# a Share capital

The Companys authorized capital
at December 31, 2002 was 700 billion shares. Capital subscribed and paid-up at thebalance sheet date was represented by the following shares, without par value:

|Number of shares(in thousands)                              | Total outstanding on Dec, 31,2001 | Capital increase (a) | Cancellation of treasury shares (b) | Total oustanding on Dec, 31,2002
|----------------------------------------------------------- | --------------------------------- | -------------------- | ----------------------------------- | --------------------------------
|                                                            |                                   |                      |                                     |                                 
|Common shares                                               | 136,466,598                       | 17,964,823           | -                                   | 154,431,421                     
|Preferred shares                                            | 259,575,037                       | -                    | -                                   | 259,575,037                     
|Total outstanding                                           | 396,041,635                       | 17,964,823           | -                                   | 414,006,458                     
|In thousand of Brazilian reais - Corporate law (historical) | 595,722                           | 90,363               | (764)                               | 685,321                         
|In thousand of Brazilian reais - Price-level adjusted       | 739,917                           | 91,156               | (764)                               | 830,309                         

________________
(a) Capitalization of tax credit approved by Board of Directors Meeting on April 29, 2002
(b) Extraordinary Shareholders' Meeting on April 2, 2002

The capital may be increased only by
a decision taken at a shareholders meeting or by the Board of Directors in
connection with the capitalization of profits or reserves previously allocated to capital
increases at a shareholders meeting.

The preferred shares are non-voting
except under limited circumstances and are entitled to receive cash dividends 10% higher
than those attributed to common shares and have priority over the common shares in the
case of liquidation of the Company.

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

# b. Capital reserves

Premium reserve

This reserve represents the formation
of a special reserve for goodwill as a result of the corporate restructuring (see Note
25). According to CVM Instruction No. 319, of December 3, 1999, this reserve shall be used
in future capital increases on behalf of the controlling shareholder (Sudestecel
Participaç&otidle;es S.A and Tagilo Participaç&otidle;es S.A.) whenever the
amortization of the goodwill paid in the acquisition of the Company results in a reduction
of income tax and social contribution tax payable.

Fiscal Incentive

Comprised of income tax reduction
incentives, which are converted into investment certificates.

# c. Income reserves

Legal reserve

Brazilian corporations are required
to appropriate 5% of annual net income to a legal reserve until that reserve reaches 20%
of paid-in share capital, or 30% of nominal paid-in share capital plus capital reserves;
thereafter, appropriations to this reserve are not mandatory. This reserve can be used
only to increase share capital or offset accumulated losses.

e. Reserve for Expansion
and Modernization

Based on the budget approved by the
Board of Directors, which describes the resource needs for future investment projects, the
balance of retained earnings was transferred to the special reserve for expansion and
modernization, after distributions determined by Brazilian Corporate Law and the dividends
prescribed.

# d. Dividends

Pursuant to its by-laws, the Company
is required to distribute as dividends in respect of each fiscal year ending on December
31, to the extent amounts are available for distribution, an aggregate amount equal to at
least 25% of Adjusted Net Income (as defined below) on such date. The annual dividend
distributed to holders of preferred shares (the preferred dividend) has
priority in the allocation of Adjusted Net Income. Remaining amounts to be distributed are
allocated first to the payment of a dividend to holders of common shares in an amount
equal to the preferred dividend and the remainder is distributed equally among holders of
preferred shares and common shares. Preferred shares have no voting right, but have
priority in the reimbursement of capital, without premium, and are entitled to receive
cash dividends 10% higher than those attributed to common shares.

For purposes of Brazilian Corporate
Law, and in accordance with the Companys by-laws, the Adjusted Net
Income is an amount equal to the Companys net income adjusted to reflect
allocations to or from (i) the legal reserve; (ii) the statutory reserve; (iii) a
contingency reserve for anticipated losses, if any; and (iv) an unrealized income reserve,
if any.

The proposed dividend was calculated
as follows:

|                                                                                                                      | 2002    | 2001    | 2000      
|--------------------------------------------------------------------------------------------------------------------- | ------- | ------- | ----------
|                                                                                                                      |         |         |           
|Consolidated net income                                                                                               | 74,378  | 94,497  | 92,399    
|Add:                                                                                                                 
|Consolidation adjustments                                                                                             | 3,240   | 494     | 1,941     
|Adjustments required to arrive
at distributable income in accordance with Brazilian Corporate Law                     | 65,998  | 68,417  | 29,406    
|                                                                                                                      |         |         |           
|Net income at Holding Company level in accordance with Brazilian Corporate Law                                        | 143,616 | 163,408 | 123,746   
|                                                                                                                      |         |         |           
|Add:                                                                                                                 
|Realization of unrealized income reserve                                                                              | -       | -       | 51,757    
|Deduct:                                                                                                              
|Adjustments required to arrive at realization of unrealized
income reserve in accordance with Brazilian Corporate Law | -       | -       | (4,684)   
|Appropriation to legal reserve                                                                                        | (7,181) | (8,170) | (6,187)   
|                                                                                                                      |         |         |           
|Adjusted net income                                                                                                   | 136,435 | 155,238 | 164,632   
|                                                                                                                      |         |         |           
|Minimum dividend (25% on adjusted net income)                                                                         | 34,109  | 38,809  | 41,159    
|Proposed dividend and interest on shareholders' equity:                                                              
|Common shares                                                                                                         | 35,751  | 14,731  | 14,188    
|Preferred shares                                                                                                      | 66,103  | 28,021  | 26,971    
|                                                                                                                      |         |         |           
|Total                                                                                                                 | 101,854 | 42,752  | (a) 41,159
|                                                                                                                      |         |         |           

(a) R$41,459
price-level adjusted to December 31, 2000,

|Dividend and interest on equity per thousand shares (Brazilian reais) | 2002     | 2001    
|--------------------------------------------------------------------- | -------- | --------
|                                                                      |          |         
|Common shares                                                         | 0.231506 | 0.107946
|Preferred shares                                                      | 0.254657 | 0.107949

|Dividend and interest on
equity per thousand shares (Brazilian reais) - additional | 2000                            
|---------------------------------------------------------------------------------- | --------------------------------
|                                                                                   |                                 
|                                                                                   | Interest on shareholders' equity
|                                                                                   |                                 
|                                                                                   | Including withholding tax       
|                                                                                   |                                 
|Common and preferred shares before the Company's new structure                     | 0.114615                        
|Common and preferred shares issued from merger                                     | -                               

The Company has an option to pay
interest on shareholders equity, deductible for tax purposes, in lieu of paying
dividends, which are not tax deductible.

In 2002, 2001 and 2000 the Company
decided to pay interest on shareholders equity, which is subject to a 15%
withholding tax. The amount of dividends declared, for payment as interest on
shareholders equity, included applicable withholding tax. Interest on
shareholders equity proposed by the Companys management was accounted for
considering its approval by the Shareholders Meeting.

Management proposed for the year
ended December 31, 2002 that interest on shareholders ́ equity, net of withholding
tax, in the amount of R$11,475 (R$0.027717 per thousand shares) payable to common and
preferred shares. This interest on shareholders equity was approved by Ordinary
Shareholders Meeting held on March 25,2003. For the year ended December 31, 2001,
interest on shareholders equity, net of withholding tax, in the amount of R$42,752,
equivalent to R$0.107949 per thousand shares of common and preferred shares, were approved
by Ordinary Shareholders ́ Meeting held on April 2, 2002.

At the 56th. Extraordinary Meeting of
the Board of Directors held on September 18, 2002 the proposal and payment of interim
dividends was approved based on the financial statements as of June 30, 2002, to the
holders of common and preferred shares, in the amount of R$84,370, corresponding to
R$0.203789 per thousand shares. The payment was made on September 27, 2002. These
dividends were approved by Ordinary Shareholders Meeting held on March 25, 2003.

Also, management proposed
supplementary dividends for the year ended December 31, 2002 of R$6,009 (R$0.023149 per
thousand shares) exclusively to preferred shares. These dividends were approved by
Ordinary Shareholders Meeting held on March 25, 2003.

Dividends are calculated on the
Holding Companys adjusted net income for the year, which is determined using the
equity method to account for the Subsidiaries. Consequently, the items shown as
Consolidation adjustments in the consolidated statements of changes in
shareholders equity, which are required to reconcile consolidated net income to the
Holding Companys net income, become part of the basis for calculating dividends.
Additionally, from 1996 on, due to the cessation of the price level restatement
adjustments in the corporate law basic financial statements, the effect of those
adjustments on consolidated net income in the accompanying financial statements must be
eliminated to arrive at distributable income on a corporate law basis.

# 27. Transactions with
related parties

The principal transactions with
unconsolidated related parties are as follows:

|a. | Use of Network and Long-distance (Roaming) Cellular Communication  These
          transactions involve the companies owned by the same group as follows: Telergipe
          Celular S.A., Telebahia Celular S.A., Telecomunicaç&otidle;es de
          São Paulo S.A  Telesp, Celular CRT S.A, Telefónica Móviles de España,
          Telesp Celular S.A and Global Telecom S.A. This group became a
          related party on December 27, 2002 as a result of the joint venture described in
          Note 1. The table below includes balances and transactions with these companies
          for all periods presented. The terms of these transactions are regulated by
          ANATEL.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|b. | Technical Assistance  Approximately 1% of net revenues from
          telecommunication services is due to Telefónica Móviles. The
          amount of R$17,367, R$30,251 and R$26,785 was allocated in operating expenses
          for the years ended December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                             
|  
|c. | Rendering of Services  The following services are rendered to/by companies
          under common control:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

- Corporate
services centralized at Telerj Celular S.A. and Telecomunicaç&otidle;es de São
Paulo S.A. Telesp, transferred to Tele Sudeste and Subsidiaries and costs
effectively incurred with administrative expenses and other related cost related to the
companies which participates of the Joint Venture.
- Call center
services rendered by Atento Brasil S.A. to users of telecommunications services of Telerj
Celular and Telest      Celular.
- Services for
implementation and maintenance of profitability and cost control system by Telefónica
Móbile Solutions.
- Services for
implementation of a facilities security system rendered by Telefónica
Engenharia.

The commercial conditions of these services
are based on the usual market practices applied to the contracts with other Companies.

A summary of the balances and
transactions with unconsolidated related parties, made under usual market conditions for
these types of operations, is as follows:

|                                      | 2002      | 2001    
|------------------------------------- | --------- | --------
|                                      |           |         
|Current assets:                      
|Trade accounts receivable             | 946       | 932     
|Other                                 | 47,974    | 7,507   
|Current liabilities:                 
|Accounts payable and accrued expenses | (137,176) | (72,375)
|Other liabilities                     | (2,340)   | (1,185) 

|                                    | 2002     | 2001     | 2000    
|----------------------------------- | -------- | -------- | --------
|                                    |          |          |         
|Net operating revenue from services | 42,838   | 12,430   | 3,848   
|Cost of services rendered           | (10,763) | (4,739)  | (1,657) 
|Selling expense                     | (35,319) | (31,509) | -       
|General and administrative expense  | (28,680) | (17,808) | (25,128)
|Financial expense, net (i)          | (48,515) | -        | -       

(i)
          Financial expenses, net represent the exchange variation recognized on the
          technical assistance due to Telefónica Móviles.

28.
          Commitments (unaudited)

a.
          Capital expenditures

At December 31, 2002 the Companies
had the following capital expenditure commitments:

|Expected year of expenditure | Contracted | Not contracted | Total  
|---------------------------- | ---------- | -------------- | -------
|                             |            |                |        
|2003                         | 11,481     | 213,519        | 225,000

These commitments relate to the
continuing expansion and modernization of the cellular system, information technology,
transmission equipment and the messaging system.

# b. Commitments to Anatel
Goals

The Company is subject to obligations
concerning quality of services, network expansion and modernization. Failure to meet these
obligations may result in fines and penalties up to 0.05% of net operating revenues per
day until the Company complies with its obligations, as well as potential revocation of
the concession.

The Company believes that it is
currently in compliance with its quality of service and expansion obligations.

# 29. Insurance

The Holding Company and the
Subsidiaries have established policies to monitor inherent risks on its operations. As of
December 31, 2002, the Holding Company and the Subsidiaries have contracted insurance to
cover operational risks, loss of income, civil liabilities, heath etc. Management believes
that the insurance coverage is sufficient to cover contingent losses. The following is
information related to the Companys insurance coverage:

|Classification  | Coverage      
|--------------- | --------------
|                |               
|Operating risks | US$600 million
|Vehicle fleet   | R$1,000       

30.
          Financial instruments and management risk

a. Risks considerations

Telerj and Telest provide cellular
communications services in the States of Rio de Janeiro and Espírito Santo under
concessions from the Federal Government. Both of them are also engaged in activities of
purchasing and distribution of cellular handsets through their own distribution network in
order to increase their business operations.

The main market risks that Telerj and
Telest are exposed to in their activities are:

- Credit Risk: originates
from the difficulties in which these companies have in collecting the service charges for
services rendered to their clients, including the sales of cellular handsets to the
distribution networks.
- Interest Rate
Risk:originates from a portion of the debt and the derivative premium contracted in
floating rates, and involves the risk of unfavorable fluctuations in interest rates
(principally Libor and CDI).
- Exchange Rate
Risk:originates from the debt and derivatives contracted in foreign currencies
(primarily US$) and are related to potential losses on unfavorable movement on exchange
rates.

Since their incorporation, Telerj and
Telest have established policies and procedures to pro-actively manage the above risks.

Credit Risk

Credit risk from providing
telecommunication services is minimized by strictly monitoring the Subsidiaries
customer portfolio and actively addressing delinquent receivables by means of clear
policies relating to the concession of post-paid services. Tele Sudeste has 68.55% of its
client basis participating in prepaid plans, which do not represent a credit risk.
Customers indebtedness represented 3.72% of gross revenue in 2002 (3.53% in 2001).

The credit risk related to cellular
handsets sales is managed by maintaining conservative credit policies and procedures,
which include credit scoring, technical application, balance analysis and
commercial data basis consultation as well as the automatic control for sales
authorization integrated within the distribution system. Network distributions
indebtedness represented 1.57% of cellular handsets sales during the year of 2002 (1.79%
in 2001).

Interest Rate Risk

The Company monitors market interest
rates, with the objective of evaluating the settlement of derivative agreements in order
to protect itself against the risk of volatility of these rates.

As of December 31, 2002, the Company
had R$460,519 in loans and financing, of which R$325,917 bore interest at fixed rates, and
R$134,602 bore interest at floating rates (Libor-based). Although part of the debt had
been contracted at fixed rates, all of the debt was swapped under derivative contracts for
variable rate realdenominated obligations based indexed to CDI. The Company
invests its excess cash (R$106,466 as of December 31, 2002) mainly in short-term
instruments that earn interest based on CDI. But its debt is not protected through hedging
or other transactions against the potential adverse effects of variations in the CDI
rates. The carrying values of these temporary and cash investments approximates market
value, due to their short-term maturity.

Another risk to which the Company is
exposed is the nonmatching of the monetary restatement indices for its debts and accounts
receivable. Tariff adjustment does not necessarily follow the increase in local interest
rates, which affect the Companys debt.

Exchange Rate Risk

The Companys indebtedness and
the results of operations are significantly affected by foreign exchange rate risk
(primarily U.S. dollar). As of December 31, 2002, all the Companys debt and
suppliers in the amounts of R$606,431 was denominated in U.S. dollars, and 98.8% of the
indebtedness was covered by derivative operations (swaps for CDI). Derivative operations
have been entered into to partially cover the future maturities of the debts in U.S.
dollars, subject to Libor, and other fixed or variable interest instruments. Gains or
losses on these operations are recorded in the income statement.

At December 31, 2002, Telerj Celular
had outstanding currency swap contracts in the notional amount of US$139,433, with
maturity until November, 2005 to cover its foreign currency debt exposure.

As of December 31, 2002, the
Companys net exposure to exchange rate risk, at book value, is as follows:

|                                                  | US$      
|------------------------------------------------- | ---------
|                                                  |          
|Loans and financing                               | (130,337)
|Other liabilities                                 | (41,296) 
|Derivative instruments - nominal value contracted | 169,611  
|                                                  |          
|Net exposure                                      | (2,022)  
|                                                  |          

b.
          Fair value of derivative operations and debt

The table below shows an estimation
of book value evaluation and market value of loans and financing and foreign currency
liabilities, as well as derivative operations:

|                     | 2002      
|-------------------- | ----------
|                     |           
|                     | Book value
|                     |           
|Loans and financing  | (460,519) 
|Other liabilities    | (145,912) 
|Derivative contracts | 599,287   
|                     |           
|Total                | (7,144)   
|                     |           

|                                     | 2001      
|------------------------------------ | ----------
|                                     |           
|                                     | Book value
|                                     |           
|Loans and financing                  | (484,665) 
|Derivative contracts (exchange swap) | 486,053   
|                                     |           
|Total                                | 1,388     
|                                     |           

The market value of loans and
financing, as well as derivatives were determined using discounted cash flows, based on
available interest rate projections.

The market values were calculated in
a specific moment, based on management best estimates, assumptions and available
information. As such, the indicated fair values may not necessarily represent what these
transactions could be settled for in the market. The use of different assumptions could
significantly change the estimates.

c.
          Fair value of other financial instruments

The Company and its subsidiaries have
evaluated the book value of their other assets and liabilities in relation to market
values, and concluded that no significant difference in values is believed to exist.

31.
          Summary of the differences between Brazilian and US GAAP

The Companies accounting
policies comply with accounting pratices adopted in Brazil (Brazilian GAAP).
Accounting pratices which differ significantly from accounting principles generally
accepted in the United States of America (US GAAP) are described below:

a.
          Different criteria for capitalizing and amortizing capitalized interest

Until December 31, 1993 capitalized
interest was not added to the individual assets in property, plant and equipment, instead
it was capitalized separately and amortized over a time period different from the useful
lives of the related assets. Under US GAAP, capitalized interest is added to the
individual assets and is amortized over their useful lives. Also, until December 31, 1998,
under Brazilian GAAP as applied to companies in the telecommunications industry, interest
attributable to construction-in-progress was computed at the rate of 12% per annum of the
balance of construction-in-progress and that part which 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, 2002, the Company did not capitalize interest attributable to
construction-in-progress at the rate of 12%; the actual effective interest related to
construction was capitalized as from January 1, 2002.

Under US GAAP, in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 34,
Capitalization of Interest Costs, interest incurred on borrowings is
capitalized to the extent that borrowings do not exceed construction-in-progress. The
credit is a reduction of interest expense. Under US GAAP, the amount of interest
capitalized excludes the monetary gain associated with local currency borrowings and 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:

|                                                | 2002     | 2001     | 2000    
|----------------------------------------------- | -------- | -------- | --------
|                                                |          |          |         
|Capitalized interest difference                
|US GAAP capitalized interest:                  
|Interest capitalized during the period          | 17,736   | 26,088   | 30,289  
|Capitalized interest on disposals               | (108)    | (121)    | (40)    
|                                                |          |          |         
|                                                | 17,628   | 25,967   | 30,249  
|Less Brazilian GAAP capitalized interest:      
|Interest capitalized during the period          | (30,411) | -        | -       
|Capitalized interest on disposals               | 78       | 99       | 40      
|                                                |          |          |         
|US GAAP difference                              | (12,705) | 26,066   | 30,289  
|                                                |          |          |         
|Amortization of capitalized interest difference
|Amortization under Brazilian GAAP               | 24,645   | 21,953   | 21,630  
|Capitalized interest on disposals               | (48)     | (56)     | (16)    
|                                                |          |          |         
|                                                | 24,597   | 21,897   | 21,614  
|Less amortization under US GAAP                 | (33,572) | (27,562) | (22,862)
|Capitalized interest on disposals               | 66       | 69       | 16      
|                                                |          |          |         
|                                                | (33,506) | (27,493) | (22,846)
|                                                |          |          |         
|US GAAP difference                              | (8,909)  | (5,596)  | (1,232) 
|                                                |          |          |         

# b. Reversal of proposed
dividends

Under Brazilian GAAP proposed
dividends are accrued for in the financial statements in anticipation of their approval at
the shareholders meeting. Under US GAAP, dividends are not accrued until they are
formally declared.

The interest on shareholders
equity is a legal liability from the date it is declared, therefore, these amounts are
included as dividends in the year they are proposed for US GAAP purposes.

# c. Pension and other
postretirement benefits

The Subsidiaries participate in two
multiemployer benefit plans (PBS-A and PAMA) that are operated and administered by Sistel,
and provide for the costs of pension and other postretirement benefits based on a fixed
percentage of remuneration, as recommended annually by independent actuaries. For purposes
of US GAAP, the Company is considered to contribute to multiemployer plans and
consequently is required to disclose its annual contributions and the funded status of
those plans. The Subsidiaries also sponsor a single-employer defined pension benefit plan
(PBS-Tele Sudeste). The provisions of SFAS No. 87, Employers Accounting for
Pensions, for the purposes of calculating the funded status, were applied with
effect from January 1, 1992, because it was not feasible to apply them from the effective
date specified in the standard. (See Note 32).

On December 13, 2000, CVM issued
Instruction No. 371, which provisions are very similar to SFAS No. 87 and SFAS No. 106,
except for the following major aspects:

- A company that
participates in a multiemployer defined benefit pension or postretirement benefit plan 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. (See Note 24). Under SFAS No. 87, the
unrecognized net obligation existing at the date of its initial application is being
amortized over the remaining service period.

The effects of these different
criteria for recognition of pension and other postretirement benefits on accrued pension
(postretirement) benefit as of December 31, 2002 and 2001, are presented below:

|                           | 2002  | 2001 
|-------------------------- | ----- | -----
|                           |      
|                           | US    | BR   
|                           | GAAP  | GAAP 
|Active employees defined   |       |      
|pension - PBS Tele Sudeste | 1,642 | 406  
|Multiemployer health care 
|plan - PAMA                | -     | 727  
|Accrued pension           
|(postretirement) benefit   | 1,642 | 1,133

# d. Interest income
(expense)

Brazilian GAAP requires interest to
be shown as part of operating income. Under US GAAP interest income (expense) would be
shown after operating income.

# e. Permanent assets

Brazilian GAAP has a class of assets
called permanent assets. This is the collective name for all assets on which indexation
adjustments were calculated until December 31, 1995 in the corporate and fiscal law
accounts of Brazilian companies. Under US GAAP the assets in this classification would be
noncurrent assets.

# f. Price-level
adjustments and US GAAP presentation

The effects of price-level
adjustments until 2000 have not been eliminated in the reconciliation to US GAAP, nor are
the monetary gains or losses associated with the various US GAAP adjustments separately
identified, because the application of inflation restatement as measured by the IGP-M
represents a comprehensive measure of the effects of price level changes in the Brazilian
economy. For information regarding the 2002 and 2001 presentation of financial statements
see Note 2 (c).

# g. Items posted directly
to shareholders equity

Under Brazilian GAAP various items
are posted directly to shareholders equity, which under US GAAP would be posted to
the consolidated statements of operations. The posting of such items to shareholders
equity gives rise to adjustments in the consolidated statement of changes in
shareholders equity. Since the original postings to the equity accounts would, under
US GAAP, be made directly to the consolidated statements of income, the adjustment is
included in the reconciliation of the income differences between US and Brazilian GAAP.
Deferred income taxes effects of indexation adjustments and fiscal incentives are adjusted
in the Companys financial statements for US GAAP purposes.

# h. Income taxes

The 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, except with respect to the deferred
income tax effects of indexation adjustments of R$ 34,651 in 2000 (see Note 2(b)(iii))
that were recorded directly against shareholders equity, and for the social
contribution rate adopted, as explained below:

- Under US GAAP the deferred tax effect
of the 2000 indexation for financial reporting purposes would be charged to income and
social contribution taxes in the consolidated statement of income. Additionally, for US
GAAP purposes the deferred tax assets and liabilities are classified as current or
noncurrent based on the classification of the asset or liability generating the temporary
difference.
- Under Brazilian GAAP, at December
31,1999 the Company recognized a change in the combined tax rate from 33% to 34% based on
a provisional measure for an increase in the social contribution rate from 8% to 9%
effective January 1, 2000. Provisional measures are temporary and must be re-approved
every 30 days or they lapse. Under SFAS 109, the provisional measures discussed are not
considered to be enacted law. Therefore, for 2000 and 2001 the combined deferred tax
effect calculated on temporary differences would be 33%, not 34%. For 2002, no difference
related to the social contribution tax rate was consideredas the provisional
measure was approved in Law 10,637, as of December 30, 2002.

# i. Earnings per share

Under Brazilian GAAP, net income per
share is calculated based on the number of shares outstanding at the balance sheet date.
In these consolidated financial statements, information is disclosed per lot of one
thousand shares, because this is the minimum number of shares that can be traded on the
Brazilian stock exchanges. Each American Depositary Share (ADS) is equivalent
to five thousand shares.

In February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, Earnings per Share. This
statement became effective December 15, 1997, and provides computation, presentation and
disclosure requirements for earnings per share.

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

Basic earnings per common share is
computed by reducing net income by distributable and undistributable net income available
to preferred shareholders and dividing net income available to common shareholders by the
number of common shares outstanding. Net income available to preferred shareholders is the
sum of the preferred stock dividends (10% higher than those attributed to common shares,
as defined in the Companys by-laws for the year ended December 31, 2002) and the
preferred shareholders portion of undistributed net income. Undistributed net income
is computed by deducting total dividends (the sum of preferred and common stock dividends)
from net income. Undistributed net income is allocated to preferred shares 10% higher than
that attributed to common shares on a pro rata basis. Total dividends are calculated as
described in Note 26. At December 31, 2001 and 2002, the Company was obligated to issue
shares to the controlling shareholder for the amount of the tax benefit realized on the
amortization of the intangible related to concession transferred in the merger (See Note
26b). The number of shares issuable are considered dilutive as defined in SFAS No. 128 and
have been included in the weighted average common shares  diluted presented below.
The number of shares issuable was computed considering the balance of the goodwill reserve
(R$374,480 in 2002, R$464,843 in 2001 and 2000) by corporate law) by the average price of
common shares traded on the São Paulo Stock Exchange (Bovespa) on the
last 20 trading days of each year. However, these potentially dilutive shares were not
used in the calculation of diluted earnings per share for 2002 as their effects would have
been anti-dilutive.

The weighted-average number of common
and preferred shares used in computing basic and diluted earnings per share for 2002, 2001
and 2000 was as follows (in thousands):

|                                   | 2002        | 2001        | 2000       
|---------------------------------- | ----------- | ----------- | -----------
|Common shares - basic              | 148,443,147 | 136,479,679 | 125,390,242
|Common shares - diluted            | 222,297,796 | 225,110,055 | 221,471,887
|Preferred shares basic and diluted | 259,575,037 | 259,587,240 | 214,170,953

The Companys preferred shares
are non-voting, except under certain limited circumstances and are entitled to a
preferential, noncumulative dividend and to priority over the common shares in the event
of liquidation of the Company. For 2002, the Company paid dividends of R$0.254657 per
thousand preferred shares (R$0.231506 per thousand common shares). For 2001 and 2000, the
amount of dividends per share paid to the preferred shareholders was equal to the amount
per share paid to the common shareholders (see Note 26).

# j. Retained earnings

For Brazilian GAAP, a company formed
as a result of a spin-off may have retained earnings in its balance sheet if the parent
company shareholder resolution adopting the spin-off allocates retained earnings from the
parent company to the new company. Under US GAAP, retained earnings allocated
in the spin-off would not be considered historical retained earnings as such amount would
represent capital allocated from the parent company and would be described as
distributable capital. As a result of the May 22, 1998 spin-off, the Company
had US GAAP distributable capital of R$493,022 on May 22, 1998.

# k. Revenue recognition

Under Brazilian GAAP, revenues and
costs from sales of handsets, including applicable value-added and other sales taxes, are
recognized at the moment of sale to the customer. Under U.S. GAAP, in accordance with
Staff Accounting Bulletin no. 101 (SAB 101), revenues from sales of handsets along with
the related costs, including applicable value-added and other sales taxes, are deferred
and amortized based on the expected useful life of the handset, estimated by management to
be 24 months. Any excess of the cost over the amount of deferred revenue related to
handset sales is recognized on the date of sale (see below discussion under Negative
margins on sale of prepaid handsets). As substantially all of the Companys
handsets are sold below cost, this difference in accounting policy had no impact on net
income nor in shareholders equity. The amount of unamortized deferred revenue and
the related amounts of unamortized deferred costs was R$321,518, R$276,730 and R$196,558
at December 31, 2002, 2001 and 2000, respectively. The impact of this difference under US
GAAP was to decrease both net revenues and cost of services and goods by R$44,788,
R$80,172 and R$195,558 in 2002, 2001 and 2000, respectively.

# l. Negative margins on
sale of prepaid handsets

Until December 31, 1999, under
Brazilian GAAP negative margins on sale of prepaid handsets were deferred for amortization
over the estimated minimum period of the subscriber contract. As of January 2000 the
Company no longer defers the negative margin on the sale of handsets. For US GAAP
purposes, the Companys policy is to charge these costs directly to the statement of
income. Therefore, the net amount unamortized at December 31, 1999 is being adjusted in
the reconciliation of the income differences between US GAAP and Brazilian GAAP.

# m. Value-added and other
sales taxes

Under Brazilian GAAP, these taxes are
recorded as a reduction to revenues. Under US GAAP, these taxes are recorded gross as
revenue and related costs of services and goods. Accordingly, this difference in
accounting policy has no impact in net income (loss) nor in shareholders equity. The
impact of this difference under US GAAP was to increase both net revenues and cost of
services and goods by R$417,648, R$394,517 and R$409,249 for 2002, 2001 and 2000,
respectively.

# n. Fistel tax on
activation fee

Beginning in 1999, under Brazilian
GAAP, 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 US GAAP purposes, this tax would be charged directly to the
consolidated statement of operations. Therefore, the deferred Fistel taxes on activation
fees at December 31, 2002, 2001 and 1999 is being adjusted in the reconciliation of the
income differences between US and Brazilian GAAP.

# o. Derivative instruments

As mentioned in Note 22.e., the
Subsidiaries have entered into foreign currency swap and option contracts for long-term
agreements at various exchange rates, in the notional amount of US$139,433 (US$281,249 at
December 31, 2001). Under Brazilian GAAP, foreign currency swap contracts are recorded at
the notional amount multiplied by the terms of the contract as if they had been settled at
the balance sheet date. Premiums paid or received from option contracts are recorded at
cost, less allowance for losses as necessary.

In 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was subsequently amended by SFAS Nos. 137 and 138.
SFAS No. 133 must be applied to all derivative instruments and certain derivative
instruments embedded in hybrid instruments and requires that such instruments be recorded
in the balance sheet either as an asset or liability measured at its fair value. Changes
in the derivatives fair value are recognized currently in earnings unless specific
hedge accounting criteria are met.

If the derivative is designated as a
hedge, depending on the nature of the hedge, changes in the fair value of derivatives that
are considered to be effective, as defined, will either offset the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or will be recorded
in other comprehensive income until the hedged item is recorded in earnings. Any portion
of a change in a derivatives fair value that is considered to be ineffective, as
defined, must be immediately recorded in earnings. Any portion of a change in a
derivatives fair value that the Company has elected to exclude from its measurement
of effectiveness, such as the change in time value of option contracts, will also be
recorded in earnings.

For US GAAP purposes, as defined in
SFAS No. 133., US GAAP requires that financial instruments of this nature be recorded at
fair value with resulting changes in fair value recorded through earnings.

The effect of adopting SFAS No. 133
as of January 1, 2001 was a gain of R$2,081 (net of income tax effects of R$1,025), and is
presented as Cumulative effect of a change in accounting principle in the
reconciliation of net income for the year ended December 31, 2001.

# p. Purchase Accounting

On November 30, 2000, in connection
with the corporate restructuring described in Note 25, the Holding Company acquired the
minority interests in the Subsidiaries in a transaction involving the exchange of shares.
Under Brazilian GAAP, this transaction was recorded at the book value of the minority
interests acquired. Under US GAAP, the acquisition of minority interests was recorded
using the purchase method of accounting pursuant to APB 16, Business
Combinations, and the related interpretations. Under US GAAP, the purchase price was
determined based on the market price of the Holding Companys shares for a reasonable
period before and after the date the terms of the acquisition were agreed to and announced
publicly. The excess purchase price over the book value of the minority interests acquired
was recorded based on managements estimate of the fair values of the underlying
assets and liabilities as follows:

|Fixed assets                        | (50,925) 
|----------------------------------- | ---------
|Subscriber base intangible asset    | 135,518  
|Concession                          | 257,573  
|Deferred income tax effect          | (112,914)
|Excess purchase price under US GAAP | 229,252  

The subscriber base intangible asset
is being amortized over the estimated contractual relationship with subscribers,
representing a period of 48 months.

Concession is being amortized over
the remaining concession period of each operating Company (until November 2005 for Telerj
Celular S.A. and November 2008 for Telest Celular S.A.).

# Reconciliation of the
income differences between US and Brazilian GAAP

|                                                                  | 2002     | 2001     | 2000    
|----------------------------------------------------------------- | -------- | -------- | --------
|Consolidated net income under Brazilian GAAP                      | 74,378   | 94,497   | 92,399  
|Add (deduct):                                                    
|Different accounting criteria for:                               
|Capitalized interest                                              | (12,705) | 26,066   | 30,289  
|Amortization of capitalized interest                              | (8,909)  | (5,596)  | (1,232) 
|Purchase accounting -                                            
|Depreciation of fixed assets adjustment                           | 11,752   | 11,752   | 979     
|Amortization of subscriber base intangible asset                  | (33,880) | (33,880) | (2,823) 
|Amortization of concession                                        | (48,661) | (48,661) | (4,055) 
|Deferred Fistel tax on activation fee                             | 5,943    | 12,675   | (1,180) 
|Deferred negative margins on sale of handsets                     | -        | -        | 38,698  
|Pension and other postretirement benefits                         | 2,858    | (998)    | 30,150  
|Derivative instruments                                            | (87,527) | 21,522   | -       
|Items posted directly to shareholders' equity:                   
|Tax incentive investment credits                                  | 106      | 584      | 4,471   
|Deferred tax on full indexation                                   | -        | -        | (34,651)
|Pension plan, net of income tax                                   | -        | 839      | -       
|Deferred tax effect on GAAP adjustments                           | 54,957   | 5,549    | (29,971)
|Reversal of deferred social contribution tax (Notes 10 and 32)    | (786)    | (945)    | (163)   
|Effect of minority interests on GAAP adjustments                  | -        | -        | (7,777) 
|US GAAP net income (loss) before cumulative effect of adoption of
|accounting principle                                              | (42,474) | 83,404   | 115,134 
|Cumulative effect of adoption of accounting principle, net of    
|income and social contribution effects of R$1,025                 | -        | 2,081    | -       
|US GAAP net income (loss)                                         | (42,474) | 85,485   | 115,134 

|Net income (loss) per thousand shares in accordance with US 
|------------------------------------------------------------
|GAAP (in thousands)                                         
|Common shares--Basic                                        
|Before cumulative effect of adoption of accounting principle
|Cumulative effect of adoption of accounting principle       
|US GAAP net income (loss)                                   
|Weighted average common shares outstanding                  
|Common shares--Diluted.                                     
|Before cumulative effect of adoption of accounting principle
|Cumulative effect of adoption of accounting principle       
|US GAAP net income (loss)                                   
|Weighted average (thousand) common shares outstanding       
|Preferred shares--Basic                                     
|Before cumulative effect of adoption of accounting principle
|Cumulative effect of adoption of accounting principle       
|US GAAP net income (loss)                                   
|Weighted average (thousand) preferred shares outstanding    
|Preferred shares--Diluted.                                  
|Before cumulative effect of adoption of accounting principle
|Cumulative effect of adoption of accounting principle       
|US GAAP net income (loss)                                   
|Weighted average (thousand) preferred shares outstanding    

# 

|                                                                | 2002      | 2001     
|--------------------------------------------------------------- | --------- | ---------
|Total shareholders' equity under Brazilian GAAP                 | 1,889,009 | 1,911,071
|Add (deduct):                                                  
|Different accounting criteria for:                             
|Capitalized interest                                            | 44,476    | 57,181   
|Amortization of capitalized interest                            | (2,026)   | 6,883    
|Purchase accounting                                            
|Fixed assets adjustment                                         | (50,925)  | (50,925) 
|Accumulated depreciation                                        | 24,483    | 12,731   
|Subscriber base intangible asset                                | 135,518   | 135,518  
|Accumulated amortization of subscriber base intangible asset    | (70,583)  | (36,703) 
|Concession                                                      | 257,573   | 257,573  
|Accumulated amortization of concession                          | (101,377) | (52,716) 
|Deferred tax (Fistel) on activation fees                        | (12,251)  | (18,194) 
|Pension and other postretirement benefits                       | (509)     | (3,367)  
|Derivative instruments                                          | (62,899)  | 24,628   
|Reversal of proposed dividends                                  | 6,009     | --       
|Deferred tax effects of GAAP adjustments                        | (54,903)  | (109,860)
|Reversal of deferred social contribution tax (Note 10 and 32.h) | -         | 786      
|Total shareholders' equity under US GAAP                        | 2,001,595 | 2,134,606

# Changes in
shareholders equity under US GAAP

|Balance at December 31, 1999                            | 1,163,862
|------------------------------------------------------- | ---------
|                                                       
|                                                       
|Capital decrease - November 30, 2000                    | (201)    
|Capital increase - minority interest, November 30, 2000 | 418,484  
|Contribution of deferred tax benefit                    | 468,924  
|Net income for the year                                 | 115,134  
|Dividends paid                                          | (57,441) 
|Balance at December 31, 2000                            | 2,108,762
|                                                       
|Acquisition of treasury shares                          | (764)    
|Net income for the year                                 | 85,485   
|Dividends paid                                          | (58,877) 
|Balance at December 31, 2001                            | 2,134,606
|                                                       
|                                                       
|Net loss                                                | (42,474) 
|Dividends paid                                          | (97,870) 
|Unclaimed dividends                                     | 7,333    
|Balance at December 31, 2002                            | 2,001,595

US GAAP supplementary information-

|Reconciliation of operating income
     under Brazilian GAAP
|------------------------------------------------------------
|to operating income under US GAAP-                          
|Brazilian GAAP operating income as reported                 
|Reversal of financial expense, net                          

|US GAAP adjustments                              |          |          |        
|------------------------------------------------ | -------- | -------- | -------
|Amortization of capitalized interest             | (8,909)  | (5,596)  | (1,232)
|Purchase accounting-                            
|Depreciation of fixed assets adjustment          | 11,752   | 11,752   | 979    
|Amortization of subscriber base intangible asset | (33,880) | (33,880) | (2,823)
|Amortization of concession                       | (48,661) | (48,661) | (4,055)
|Deferred Fistel tax on activation fee            | 5,943    | 12,675   | (1,180)
|Deferred negative margins on sale of handsets    | -        | -        | 38,698 
|Pension and other postretirement benefits        | 2,858    | 254      | 30,150 
|US GAAP operating income                         | 53,293   | 137,617  | 241,060

|Reconciliation of net revenue and costs under Brazilian GAAP |             |             |            
|------------------------------------------------------------ | ----------- | ----------- | -----------
|to net revenue and costs under US GAAP-                      | 2002        | 2001        | 2000       
|                                                             |            
|Brazilian GAAP net revenues                                  | 1,847,631   | 1,703,299   | 1,561,474  
|                                                            
|Reclassification to cost of services and goods              
|Taxes on sales                                               | 417,648     | 394,517     | 409,249    
|US GAAP adjustments-                                        
|Deferred revenues on handset sales, net of amortization      | (44,788)    | (80,172)    | (196,558)  
|US GAAP net revenues.                                        | 2,220,491   | 2,017,644   | 1,774,165  
|                                                            
|Brazilian GAAP cost of services and goods                    | (1,110,522) | (963,211)   | (920,485)  
|                                                            
|Reclassification from net revenues                          
|Taxes on sales                                               | (417,648)   | (394,517)   | (409,249)  
|Reclassification from sales expense                         
|Rewards program expenses                                     | (14,127)    | (10,625)    | -          
|US GAAP adjustments-                                        
|Amortization of capitalized interest.                        | (8,909)     | (5,596)     | (1,232)    
|Depreciation of fixed assets adjustment                      | 11,752      | 11,752      | 979        
|Deferred Fistel tax on activation fee                        | 5,943       | 12,675      | (1,180)    
|Deferred negative margins on sale of handsets.               | -           | -           | 38,698     
|Deferred costs on handset sales, including taxes            
|on sales, net of amortization                                | 44,788      | 80,172      | 196,558    
|US GAAP cost of services                                     | (1,488,723) | (1,269,350) | (1,095,911)
|US GAAP gross profit                                         | 731,768     | 748,294     | 678,254    

|                                  | 2002        | 2001       
|--------------------------------- | ----------- | -----------
|Total assets as of December 31    | 3,085,047   | 3,181,281  
|Property, plant and equipment     | 3,646,340   | 3,289,718  
|Accumulated depreciation          | (1,879,603) | (1,405,789)
|Net property, plant and equipment | 1,766,737   | 1,883,929  

32.    
          Additional disclosures required by US GAAP

# a. Pension and
postretirement benefits

A summary of the liability as of
December 31, 2002 and 2001 for the Companys active employees defined benefit pension
plan (PBS-Tele Sudeste) is as follows:

Reconciliation of Funded
Status

|PBS- Tele Sudeste                        | 2002   | 2001   
|---------------------------------------- | ------ | -------
|Accumulated benefit obligation:         
|Vested                                   | 4,842  | 1,451  
|Nonvested                                | 4,748  | 4,492  
|Total                                    | 9,590  | 5,943  
|                                        
|Projected benefit obligation             | 10,955 | 9,351  
|Fair value of plan assets                | 10,549 | 11,315 
|Projected obligation in excess of assets | 406    | (1,964)
|Unrecognized gains                       | 1,401  | 4,267  
|Unrecognized net transition obligation   | (165)  | (188)  
|Accrued pension cost                     | 1,642  | 2,115  

Disclosure of net
periodic pension cost for 2002 and 2001

|                                              | 2002    | 2001 
|--------------------------------------------- | ------- | -----
|Service cost (net of employee contributions)  | 532     | 622  
|Interest cost on PBO                          | 927     | 609  
|Expected return on assets                     | (1,161) | (949)
|Amortization of initial transition obligation | 23      | 23   
|Amortization of gains                         | (182)   | (161)
|Net periodic pension cost                     | 139     | 144  

Change in accrued pension
cost as of December 31, 2002 and 2001

|                                          | 2002  | 2001 
|----------------------------------------- | ----- | -----
|Accrued pension cost at beginning of year | 2,115 | 2,369
|Net periodic pension cost                 | 139   | 144  
|Actual contributions                      | (612) | (608)
|Adjustments (i)                           | -     | 210  
|Accrued pension cost at end of year.      | 1,642 | 2,115

(i)    
          Change in functional currency from UMC (Constant Purchase Power Index) to
          real.

Change in benefit
obligation

|                                        | PBO     | Unrec.G/(L) | Unrec. ITO
|--------------------------------------- | ------- | ----------- | ----------
|Benefit obligation at December 31, 2000 | 6,424   | 2,612       | (191)     
|Visao Plan (i)                          | 3,420   | -           | -         
|Service cost                            | 747     | -           | -         
|Interest cost                           | 609     | -           | -         
|Amortization                            | -       | (161)       | 23        
|Benefits payments and expenses          | (151)   | -           | -         
|Liability experience loss (gain)        | (2,776) | 2,776       | -         
|Asset experience                        | -       | (1,165)     | -         
|Adjustments (ii)                        | 1,078   | 205         | (20)      
|Benefit obligation at December 31, 2001 | 9,351   | 4,267       | (188)     
|Service cost                            | 643     | -           | -         
|Interest cost                           | 927     | -           | -         
|Amortization                            | (182)   | 23         
|Benefits payments and expenses          | (158)   | -           | -         
|Liability experience loss (gain)        | 192     | (192)       | -         
|Asset experience                        | -       | (2,492)     | -         
|Benefit obligation at December 31, 2002 | 10,955  | 1,401       | (165)     

(i) inclusion of risks
of death and disability of participants in  the defined contribution plan ("Visao Plan").

(ii) Change in
functional currency from UMC (Constant Purchase Power Index) to real.

Change in plan assets

|                                  | 2002    | 2001  
|--------------------------------- | ------- | ------
|Plan assets at beginning of year  | 11,315  | 6,476 
|Visao Plan (i)                    | -       | 3,420 
|Actual contributions              | 716     | 742   
|Actual distributions and expenses | (158)   | (151) 
|Actual return on plan assets      | (1,324) | (225) 
|Adjustments (ii)                  | -       | 1,053 
|Plan assets at end of year        | 10,549  | 11,315

(i)    
          inclusion of risks of death and disability of participants in the defined
          contribution plan (Visão Plan).

(ii)    
          Change in functional currency from UMC (Constant Purchase Power Index) to
          real.

The actuarial assumptions used in
2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|                                                            |        | (i)   
|Discount rate for determining projected benefit obligations | 10.24% | 10.24%
|Rate of increase in compensation levels                     | 6.08%  | 6.08% 
|Benefit adjustments                                         | 4.00%  | 4.00% 
|Expected long-term rate of return on plan assets            | 10.24% | 10.24%
|Inflation                                                   | 4.00%  | 4.00% 
|Number of active participants - PBS - Tele Sudeste          | 14     | 28    
|Number of retirees and beneficiaries - PBS - Tele Sudeste   | 20     | 7     

A summary of the Sistel pension plan
as of December 31, 2002 and 2001 for the multiemployer portion (inactive employees pension
plan)  PBS-A, is as follows:

# Pension benefit plan
 PBS-A

|                               | 2002      | 2001     
|------------------------------ | --------- | ---------
|Funded status:                 |           |          
|Accumulated benefit obligation
|Vested                         | 2,922,542 | 2,809,643
|Projected benefit obligation   | 2,922,542 | 2,809,643
|Fair value of plan assets      | 3,650,789 | 3,214,439
|Funded status                  | (728,247) | (404,796)

Change in benefit
obligation

|                                        | 2002      | 2001     
|--------------------------------------- | --------- | ---------
|Benefit obligation at beginning of year | 2,809,643 | 2,377,565
|Interest cost                           | 305,036   | 268,665  
|Benefits payments and expenses          | (253,628) | (231,996)
|Liability experience loss               | 61,491    | 395,409  
|Benefit obligation at end of year       | 2,922,542 | 2,809,643

Change in plan assets

|                                  | 2002      | 2001     
|--------------------------------- | --------- | ---------
|Plan assets at beginning of year  | 3,214,439 | 3,012,773
|Actual distributions and expenses | (253,628) | (231,996)
|Actual return on plan assets      | 689,978   | 433,662  
|Plan assets at end of year        | 3,650,789 | 3,214,439

The actuarial assumptions used in
2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|Discount rate for determining projected benefit obligations | 11.30% | 11.30%
|Rate of increase in compensation levels                     | 8.15%  | 8.15% 
|Benefit adjustments                                         | 5.00%  | 5.00% 
|Expected long-term rate of return on plan assets            | 14.45% | 14.45%
|Inflation                                                   | 5.00%  | 5.00% 
|Number of retirees and beneficiaries                        | 25,224 | 25,270

A summary of the postretirement
benefits plan (health care plan  PAMA), which remains as multiemployer plan, is as
follows:

# Health Care Plan 
PAMA

|                                               | 2002    | 2001   
|---------------------------------------------- | ------- | -------
|Funded Status:                                
|Accumulated postretirement benefit obligation:
|Active participants                            | 46,107  | 69,212 
|Inactive participants                          | 867,041 | 812,148
|                                               | 913,148 | 881,360
|Fair value of plan assets                      | 405,732 | 358,619
|Obligations in excess of plan assets           | 507,416 | 522,741

Change in benefit
obligation

|                                        | 2002     | 2001    
|--------------------------------------- | -------- | --------
|Benefit obligation at beginning of year | 881,360  | 859,342 
|Service cost                            | 3,852    | 5,322   
|Interest cost                           | 97,985   | 96,478  
|Benefits payments and expenses          | (32,881) | (25,143)
|Actuarial (gain)                        | (37,168) | (54,639)
|Benefit obligation at end of year       | 913,148  | 881,360 

Change in plan assets

|                                  | 2002     | 2001    
|--------------------------------- | -------- | --------
|Plan assets at beginning of year  | 358,619  | 352,373 
|Employer contributions            | 1,071    | 10,101  
|Actual distributions and expenses | (32,881) | (25,143)
|Actual return on plan assets      | 78,923   | 21,288  
|Plan assets at end of year        | 405,732  | 358,619 

The actuarial assumptions used in
2002 and 2001 were as follows:

|                                                            | 2002   | 2001  
|----------------------------------------------------------- | ------ | ------
|Discount rate for determining projected benefit obligations | 11.30% | 11.30%
|Rate of increase in compensation levels                     | 8.15%  | 8.15% 
|Expected long-Term rate of return on plan assets            | 14.45% | 14.45%
|Increase in utilization                                     | 10.62% | 9.20% 
|Inflation                                                   | 5.00%  | 5.00% 
|Number of active participants                               | 2,614  | 3,676 
|Number of retirees and beneficiaries                        | 27,125 | 23,607

Health care trend rates of increase
were projected at annual rates including inflation ranging from 10.62% in 2002 decreasing
to 7.8% after 45 years (5.0% inflation). The effect of a one percent annual increase in
the assumed health care cost trend rates would increase the accumulated postretirement
benefits obligation at December 31, 2002 by R$148,571 (R$128,414 in 2001). The effect of a
one percent annual decrease in the assumed health care cost trend rates would decrease the
accumulated postretirement benefits obligation at December 31, 2002 by R$119,485
(R$104,970 in 2001).

b.    
          Intangible assets subject to amortization

Following is a summary of the
Companys intangible assets subject to amortization under US GAAP:

|                         | 2002     | 2001       
|------------------------ | -------- | -----------
|                         |          |            
|                         | Software | Concession 
|Gross                    | 229,542  | 257,573    
|Accumulated amortization | (66,111) | (101,377)  
|Net                      | 163,431  | (1,902,062)

Aggregate amortization expense for
the above intangible assets amounted to R$116,995, R$101,035 and R$20,042 for the years
ended December 31, 2002, 2001 and 2000, respectively.

The estimated aggregate amortization
expense for the next five years is as follows:

|     | Amount 
|---- | -------
|2003 | 128,449
|2004 | 125,624
|2005 | 81,405 
|2006 | 37,627 
|2007 | 11,454 

# c. Concentration of risks

The credit risk with respect to trade
accounts receivable is diversified. The Companies continually monitor the level of trade
accounts receivable and limit the exposure to bad debts by cutting access to the handset
network if any invoice is 20 days past due. Exceptions comprise handset services that must
be maintained for reasons of safety or national security.

In conducting their businesses,
Telerj Celular S.A. and Telest Celular S.A. are fully dependent upon the cellular
telecommunications concession as granted by the Federal Government.

Approximately 16% of all employees
are members of state labor unions associated with either the Federação
Nacional dos Trabalhadores em Telecomunicaç&otidle;es (Fenattel),
or with theFederação Interestadual dos Trabalhadores em
Telecomunicaç&otidle;es (Fittel). The Companies negotiate new
collective labor agreements every year with the local union. The collective agreements
currently in force expire in December 2003.

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

# d. Telefónica
Móviles Stock Plan

In May, 2001, Telefónica
Móviles, S.A. (Telefónica Móviles) launched a stock
option plan based on Telefónica Móviles stock (the Plan)
that covered the employees of the Company. Pursuant to the Plan, between May 20 and July
20, 2002, Telefónica Móviles granted a total of 983,392 stock options to the
Companys employees, vesting over a four-year period. The options were granted in
Series A, B and C, with exercise prices of 11.00 Euros, 16.50 Euros and 7.23 Euros,
respectively. The total options granted to each employee consisted of 25% Series A
options, 25% Series B options, and 50% Series C options. The market price of
Telefónica Móviles stock as traded at the Madrid Stock Exchange was
6.20 Euros on December 31, 2002. The Plan also gives the Companys employees the
option to receive in cash, the appreciation in the market price of Telefónica
Móviles stock over the respective exercise price.

Under Brazilian GAAP, the Company
does not account for the effect of the Plan. Under US GAAP, equity instruments granted to
an employee by a principal stockholder are considered stock-based employee compensation.
Since the Plan gives the Companys employees the option to settle in cash,
compensation expense, if any, is recorded based on the market price of Telefónica
Móviles stock compared to the respective exercise prices at period end. Since
the market price of Telefónica Móviles stock at December 31, 2002 did
not exceed the exercise prices of the options, no compensation expense was recognized
under US GAAP during the year ended December 31, 2002.

e.    
          New accounting pronouncements

SFAS No. 141 
Business Combinations

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

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

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

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

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

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

In August 2001, the FASB issued
Statement of Financial Accounting Standards No. 144 (SFAS No. 144), Accounting for
the Impairment or Disposal of Long-Lived Assets supersedes Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of but retains SFAS No.
121 fundamental provisions for (a) recognition/measurement of impairment of long-lived
assets to be held and used and (b) measurement of long-lived assets to be disposed of by
sale. SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion
No. 30 (APB No. 30), Reporting the Results of Operations for segments of a
business to be disposed of but retains APB No. 30s requirement to report
discontinued operations separately from continuing operations and extends that reporting
to a component of an entity that either has been disposed of or is classified as
held for sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 and interim periods within those years, with early application
encouraged. The adoption of SFAS No. 144 on January 1, 2002, did not have any impact on
the Companys financial position, cash flows or results of operations. SFAS No. 145
 Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical
Corrections as of April 2002 of SFAS 145"

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

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

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

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

Others

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

EITF 00-21 Revenue
Arrangements with Multiple Deliverables

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

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

The guidance in EITF 00-21 is
effective prospectively for revenue arrangements entered into in fiscal years beginning
after December 15, 2002. Alternatively, entities may elect to report the change in
accounting as a cumulative-effect adjustment in accordance with Accounting Principles
Board Opinion 20, Accounting Changes. We are currently evaluating the impact of EITF 00-21
in our financial statements, specifically including our treatment of revenue from handset
sales under US GAAP. The Company currently cannot reasonably estimate the impact of
adopting the new rule.