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|SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
|-------------------------------------------------------
|                                                       

|ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002Commission file number: 001-14477 | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

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BRASIL TELECOM PARTICIPAÇÕES S.A.(F/K/A (TELE CENTRO SUL PARTICIPAÇÕES S.A.))(Exact Name of Registrant as Specified in Its Charter)

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|Brazil Telecom Holding Company(Translation of Registrants Name into English) | The Federative Republic of Brazil(Jurisdiction of Incorporation or Organization)
|----------------------------------------------------------------------------- | --------------------------------------------------------------------------------

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SIA/Sul, ASP, Lote D, Bloco B - 71215-000 - Setor de Indústria, Brasília, DF, Brazil(Adress of Principal Executive Offices)

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

|Title of each class                                                                                                                        | Name of each exchange on which registered
|------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------
|Preferred Shares, without par value represented byAmerican Depositary Shares*                                                              | New York Stock Exchange                  
|* American Depositary Shares issuable upon deposit of Preferred Shares were registered under a separate registration statement on
Form F-6

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

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

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock
as of the close of the period covered by this Annual Report:

At December 31, 2002 there were outstanding:
132,355,516,131 Common Shares, without par value
219,863,510,944 Preferred Shares, without par valueIndicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes         
         No

Indicate by check mark which financial
statement item the registrant has elected to follow:

Item 17  
         Item 18

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TABLE OF CONTENTS

|                                      | Page
|------------------------------------- | ----
|                                     
|PRESENTATION OF FINANCIAL INFORMATION | 1   
|PART I                                | 2   

| | Item 1.  | Identity of Directors, Senior Management and Advisors      | 2  
| | -------- | ---------------------------------------------------------- | ---
| | Item 2.  | Offer Statistics and Expected Timetable                    | 2  
| | Item 3.  | Key Information                                            | 2  
| |          | Selected Financial Data                                    | 2  
| |          | Risk Factors                                               | 7  
| |          | Forward-Looking Information                                | 20 
| | Item 4.  | Information on the Company                                 | 21 
| |          | History and Development of the Company                     | 21 
| |          | Business Overview                                          | 34 
| |          | Organizational Structure                                   | 55 
| |          | Property, Plant and Equipment                              | 55 
| | Item 5   | Operating and Financial Review and Prospects               | 56 
| |          | Operating Results                                          | 56 
| |          | Liquidity and Capital Resources                            | 75 
| |          | Research and Development                                   | 82 
| |          | Trend Information                                          | 82 
| | Item 6.  | Directors, Senior Management and Employees                 | 83 
| |          | Board of Directors and Senior Management                   | 83 
| |          | Compensation                                               | 86 
| |          | Employees                                                  | 88 
| |          | Share Ownership                                            | 89 
| | Item 7.  | Major Shareholders and Related Party Transactions          | 89 
| |          | Major Shareholders                                         | 89 
| |          | Related Party Transactions                                 | 92 
| | Item 8.  | Financial Information                                      | 92 
| |          | Consolidated Statements and Other Financial Information    | 92 
| | Item 9.  | The Offer and Listing                                      | 101
| |          | Offer and Listing Details                                  | 101
| |          | Markets                                                    | 104
| | Item 10. | Additional Information                                     | 106
| |          | Memorandum and Articles of Association                     | 106
| |          | Material Contracts                                         | 107
| |          | Exchange Controls                                          | 109
| |          | Taxation                                                   | 110
| |          | Independent Auditors                                       | 116
| |          | Documents on Display                                       | 117
| | Item 11. | Quantitative and Qualitative Disclosures About Market Risk | 117
| |          | Quantitative Information About Market Risk                 | 117
| |          | Exchange Rate Risk                                         | 118
| |          | Interest Rate Risk                                         | 118
| | Item 12. | Description of Securities Other than Equity Securities     | 119

|PART II | 120
|------- | ---

| | Item 13. | Defaults, Dividend Arrearages and Delinquencies                              | 120
| | -------- | ---------------------------------------------------------------------------- | ---
| | Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 120
| | Item 15. | Controls and Procedures                                                      | 120
| | Item 16. | Reserved                                                                     | 120

|PART III | 121
|-------- | ---

| | Item 17. | Financial Statements | 121
| | -------- | -------------------- | ---
| | Item 18. | Financial Statements | 121
| | Item 19. | Exhibits             | 121

|INDEX OF DEFINED TERMS | 122
|---------------------- | ---
|TECHNICAL GLOSSARY     | 124
|SIGNATURES             | 128
|CERTIFICATIONS         | 128
|INDEX TO EXHIBITS      | 133
|FINANCIAL STATEMENTS   | F-1



# PRESENTATION OF
FINANCIAL INFORMATION

In
this Annual Report, Brasil Telecom Participações S.A. (previously Tele Centro
Sul Participações S.A.), a corporation organized under the laws of the
Federative Republic of Brazil and its subsidiaries are referred to collectively as our
company, we or the Registrant. References to our companys
businesses and operations are references to the businesses and operations of our company
on a combined consolidated basis for the year 2000 and on a consolidated basis for the
years 2001 and 2002, as if the merger of our operating subsidiary, Brasil Telecom S.A.
with each of Telesc, Telegoiás, Telebrasília, Telemat, Telems, Teleron,
Teleacre and CTMR (as defined below) had occurred as of January 1, 1996 and as if the
merger of Companhia Riograndese de Telecomunicações  CRT (CRT)
with and into Brasil Telecom S.A. had occurred as of July 31, 2000. See Item 4 Information
on the CompanyHistory and Development of the CompanyHistorical Background.

References
to (i) the real reais or R$ are to
Brazilian reais (plural) and the Brazilian real (singular) and (ii) U.S.
dollars, dollars or U.S.$ are to United States dollars. All
amounts in Brazilian currencies that existed prior to the adoption of the real as
the Brazilian currency on July 1, 1994 have been restated in reais. At May 30,
2003, the Commercial Market selling rate (as defined in Item 3 Key InformationSelected
Financial DataExchange Rates) was R$2.9656 to U.S.$1.00. The exchange rate
information in this Annual Report should not be construed as a representation that any
such amounts have been, would have been or could be converted at this or any other
exchange rate.

Our
audited financial statements as of December 31, 2000 and for the year then ended
contained in this Annual Report are presented in constant reais of December 31,
2000. Pursuant to Brazilian GAAP (as defined below), our audited financial statements as
of and for the years ended December 31, 2001 and December 31, 2002 contained in this
Annual Report, no longer recognize the effects of inflation and are not restated in
constant reais. These audited financial statements, together with the audited
financial statements as of December 31, 2000 and for the year then ended, are referred to
herein as the Financial Statements.

Our
audited financial information is presented on a combined consolidated basis for the year
2000 and on a consolidated basis for the years 2001 and 2002, as if Brasil Telecom S.A.s
merger with Telesc, Telegoiás, Telebrasília, Telemat, Telems, Teleron,
Teleacre and CTMR had occurred as of January 1, 1996 and as if the merger of CRT with and
into Brasil Telecom S.A. had occurred as of July 31, 2000. See Item 3 Key
InformationSelected Financial Data.

The
audit report for 2000 and 2001 of our Financial Statements included in this Annual Report
was issued by Deloitte Touche Tohmatsu. The audit report for 2002 of our Financial
Statements included in this Annual Report was issued by KPMG Auditores Independentes.

The
Index of Defined Terms that begins on page 121 lists the page where each
defined term is defined within this document. Technical terms are defined in the
Technical Glossary on page 123.

Certain
figures included in this Annual Report have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not be an arithmetic
aggregation of the figures that precede them.



# PART I

# ITEM1. Identity of Directors,
Senior Management and Advisors

We
are filing an Annual Report under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Accordingly, this item does not apply to us.

# ITEM2. Offer Statistics and
Expected Timetable

We
are filing an Annual Report under the Exchange Act. Accordingly, this item does not apply
to us.

# ITEM3. Key Information

Selected Financial Data

Background

The
selected financial information presented herein should be read in conjunction with our
Financial Statements and notes, which appear elsewhere in this Annual Report. Our
selected financial information is presented on a combined consolidated basis for the year
2000 and on a consolidated basis for the years 2001 and 2002, as if Brasil Telecom S.A.s
merger with Telesc, Telegoiás, Telebrasília, Telemat, Telems, Teleron,
Teleacre and CTMR had occurred as of January 1, 1996 and the merger of CRT with and into
Brasil Telecom S.A. had occurred on July 31, 2000.

The
following paragraphs discuss some important features of the presentation of the selected
financial information and our Financial Statements. These features should be considered
when evaluating the selected financial information.

Brazilian GAAP and U.S.
GAAP

Our
Financial Statements are prepared in accordance with generally accepted accounting
principles in Brazil (Brazilian GAAP), which differ in certain significant
respects from generally accepted accounting principles in the United States (U.S.
GAAP). See Note 30 to our Financial Statements for (i) a summary of the principal
differences between Brazilian GAAP and U.S. GAAP as they relate to us, and (ii) a
reconciliation to U.S. GAAP of shareholders equity as of December 31, 2001 and 2002
and net income (loss) for each of the years ended December 31, 2000, 2001 and 2002.

Effects of Inflation

Our
financial statements for the year 2000, and unless otherwise specified, all financial
information included in this Annual Report for the year 2000, recognize certain effects
of inflation and are restated in constant reais of December 31, 2000, all in
accordance with Brazilian GAAP. We used the General Market Price Index, Índice
Geral de Preços de Mercado(IGP-M), published by Fundação
Getúlio Vargas for purposes of preparing our Financial Statements.
Inflationary gains or losses on monetary assets and liabilities were allocated to their
corresponding income or expense caption in our combined statements of income. However,
pursuant to Brazilian GAAP, our audited financial statements as of and for the years
ended December 31, 2001 and 2002, do not recognize the effects of inflation and are not
restated in constant reais.

Change in Accounting
Methodology

Depreciation

During
our fiscal year 1999, we shortened our depreciation schedule for our automatic switching
and transmission equipment from thirteen years and ten years, respectively, to five years
in order to better reflect the estimated useful life of this equipment in light of
rapidly changing technology and industry practices. See Item 4 Information on the
CompanyProperty, Plant and Equipment  and Item 5 Operating and
Financial Review and ProspectsOperating ResultsResults of Operations for the
Years Ended December 31, 2000, 2001 and 2002Cost of ServicesDepreciation and
Amortization.

Accounting Consequences
of the Breakup of Telebrás

Our
financial statements for the fiscal years prior to 2000 are not necessarily indicative of
what our financial condition or results of operations would have been if Brasil Telecom
S.A. had merged with Telesc, Telegoiás, Telebrasília, Telemat, Telems,
Teleron, Teleacre and CTMR before February 2000.

Difference from Financial
Statements Published in Brazil

Our
statutory financial statements prepared in accordance with the Brazilian Corporation Law
(the Statutory Financial Statements) are the basis for dividend and tax
determinations. Our audited financial statements for the year 2000 include the effects of
inflation through December 31, 2000, while our Statutory Financial Statements include the
effects of inflation only through December 31, 1995. In addition, pursuant to Brazilian
GAAP, our audited financial statements as of December 31, 2001 and 2002 and for the years
ended December 31, 2001 and 2002, do not recognize the effects of inflation and are not
restated in constant reais. As a result, differences between financial statements
prepared in accordance with Brazilian GAAP and Statutory Financial Statements as of
December 31, 2000, will continue to be reflected in the Brazilian GAAP financial
statements until they become moot through the depreciation or amortization of the
permanent assets to which they relate. Our Statutory Financial Statements also differ
from our Financial Statements in respect of certain reclassifications and presentation of
comparative information.

Selected Financial
Information

|                                                  | Year ended December 31,                   
|------------------------------------------------- | ------------------------------------------
|Income Statement Data:                            | 1998(1)                                   
|                                                  | (thousands ofreais, except per share data)
|Brazilian GAAP:                                  
|Net operating revenue                             | 3,439,967                                 
|Cost of services                                  | 1,930,094                                 
|Gross profit                                      | 1,509,873                                 
|Operating expenses                                | 837,700                                   
|Operating income (loss) before net financial     
|expense                                           | 672,173                                   
|Net financial expense                             | (125,340)                                 
|Operating income (loss)                           | 797,513                                   
|Net non-operating expenses (income)               | 92,194                                    
|Employee's profit share                           | 24,895                                    
|Income (loss) before taxes and minority interests | 680,424                                   
|                                                 
|Income and social contribution taxes (credits)    | 205,316                                   
|Income (loss) before minority interests           | 475,108                                   
|                                                 
|Minority interests                                | (112,987)                                 
|                                                 
|Net income (loss)                                 | 362,121                                   
|Number of Common Shares (millions)                | 124,369,031                               
|Number of Preferred Shares (millions)             | 210,029,997                               
|Operating Income (loss) per thousand Common      
|Shares (reais)                                    | 6.41                                      
|Net income (loss) per thousand Common Shares     
|(reais)                                           | 2.91                                      
|Dividends per thousand Common                    
|Shares (reais)                                    | -                                         
|Dividends per thousand Common Shares (U.S.       
|dollars)(3)                                       | -                                         
|Dividends per thousand Preferred Shares          
|(reais)(3)                                        | 0.35                                      
|Dividends per thousand Preferred Shares          
|(U.S. dollars)(3)                                 | 0.29                                      

---

(1)    
          Presented in constant reais of December 31, 2000.
(2)    
          Pursuant to Brazilian GAAP, our audited financial statements for the years ended
          December 31, 2001 and 2002 no longer recognize the effects of inflation and are
          not restated in constant reais.
(3)    
          Dividends per thousand shares for 2000 and 2001 changed from those published in
          our Annual Report for 2001 because last year they were calculated based on gross
          dividends, but instead should have been calculated based on net dividends.
          Dividends per thousand shares were converted into dollars at the Commercial
          Market selling rate of R$1.955 per U.S. dollar on December 31, 2000, of R$2.32
          per U.S. dollar on December 31, 2001, and of R$3.5333 per U.S. dollar on
          December 31, 2002, respectively.

Selected Financial
Information (continued)

|                                                  | Year ended December 31,                   
|------------------------------------------------- | ------------------------------------------
|Income Statement Data:(continued)                 | 1998(1)                                   
|                                                  | (thousands ofreais, except per share data)
|U.S. GAAP:                                       
|Net income (loss)                                 | 501,342                                   
|Net income (loss) per thousand shares (reais)(6):
|Common Shares-Basic                               | 1.52                                      
|Common Shares-Diluted                             | 1.52                                      
|Preferred Shares-Basic                            | 1.52                                      
|Preferred Shares-Diluted                          | 1.52                                      

---

(6)    
          In accordance with Statement of Financial Accounting Standards
          (SFAS) No. 128 Earnings Per Share, basic and diluted
          earnings per share have been calculated, for U.S. GAAP purposes, using the
          two class method. See Note 30e to our Financial Statements.

|                                          | Year ended December 31,
|----------------------------------------- | -----------------------
|                                          | 1998(1)                
|                                          | (thousands ofreais)    
|Balance Sheet Data:                       |                        
|Brazilian GAAP:                          
|Intangibles(3)                            | -                      
|Property, plant and equipment, net(4)     | 9,248,235              
|Total assets                              | 11,098,322             
|Loans and financing - current            
|portion                                   | 13,423                 
|Loans and financing - non-current portion | 24,912                 
|Total liabilities (including funds for   
|capitalization)                           | 3,893,919              
|Shareholders' equity                      | 7,204,403              
|U.S. GAAP:                               
|Intangibles(5)                            | -                      
|Property, plant and equipment, net        | 8,657,212              
|Total assets                              | 10,887,338             
|Loans and financing - current portion     | 12,601                 
|Loans and financing - non-current portion | 24,912                 
|Total liabilities (including funds for   
|capitalization)                           | 4,199,473              
|Shareholders' equity                      | 6,687,865              

---

(1)     
          Presented in constant reais of December 31, 2000.
 (2)     
          Pursuant to Brazilian GAAP, our audited financial statements at December 31,
          2001 and 2002 do not recognize the effects of inflation and are not restated in
          constant reais. 
 (3)     
          Includes the goodwill from our acquisition of a controlling stake in CRT, which
          was calculated based on book value.
 (4)      Stated at indexed cost up to
          December 31, 2000, less accumulated depreciation. See Note 3g to our Financial
          Statements. 
 (5)      Intangibles under U.S. GAAP at December 31, 1998 and
          1999, include the step-up goodwill paid by Solpart as a consequence of the
          exchange of shares between companies under our common control pursuant to our
          merger with Telesc, Telegoiás, Telebrasília, Telemat, Telems,
          Teleron, Teleacre and CTMR. Intangibles under U.S. GAAP at December 31, 2000,
          2001 and 2002 also include the goodwill from our merger with Telesc,
          Telegoiás, Telebrasília, Telemat, Telems, Teleron, Teleacre and
          CTMR and our merger with CRT. See Note 31o to our Financial Statements.

Exchange Rates

There
are two principal foreign exchange markets in Brazil: the commercial rate exchange market
(the Commercial Market) and the floating rate exchange market (the Floating
Market). Most foreign trade and financial foreign currency exchange transactions
are carried out on the Commercial Market. Purchases of foreign exchange in the Commercial
Market may be carried out only through a financial institution authorized to buy and sell
currency in that market. The Floating Market rate generally applies to transactions to
which the Commercial Market rate does not apply. Prior to February 1, 1999, the
exchange rate in each market was established independently, resulting in different rates
during some periods. Since February 1, 1999, banks operating in the Commercial Market
have been allowed to unify their positions in the two different markets. These markets
are now differentiated solely for regulatory purposes and offer similar pricing and
liquidity, despite the potential for distinct treatment for regulatory purposes in the
future.

Under
the Real Plan (Plano Real), on July 1, 1994, the real was introduced
as the official unit of Brazilian currency, with each real having an exchange rate
of R$l.00 to U.S.$1.00. The issuance of reais was initially subject to
quantitative limits backed by a corresponding amount of U.S. dollars in reserves, but the
government subsequently expanded those quantitative limits and allowed the real to
float, with parity between the real/U.S. dollar (R$l.00 to U.S.$1.00) as a
ceiling.

From
its introduction in 1994 through March 1995, thereal appreciated against the U.S.
dollar. On March 6, 1995, in an effort to address concerns about the overvaluation of the
real relative to the U.S. dollar, the Brazilian Central Bank introduced new
exchange rate policies that established a band within which the real/U.S. dollar
exchange rate could fluctuate. The Brazilian Central Bank initially set the exchange rate
band with a floor of R$0.86 per U.S.$1.00 and a ceiling of R$0.90 per U.S.$1.00 and
provided that, after March 10, 1995, the exchange rate band would be between R$0.88 and
R$0.93 per U.S.$1.00. Thereafter, the Brazilian Central Bank periodically adjusted the
exchange rate band to permit the gradual devaluation of the real against the U.S.
dollar. On January 13, 1999, the Brazilian Central Bank widened the exchange rate
fluctuation band in which the real was allowed to trade from between R$l.12 and
R$l.22 per U.S.$1.00 to a new band of between R$1.20 and R$1.32 per U.S.$1.00. This
resulted in an immediate devaluation of the real to R$1.32 per U.S.$1.00.

Since
January 15, 1999 the real has been allowed to float freely. Until 2002, the real has
depreciated against the U.S. dollar as a result of a slowdown in the global economy and
the financial instability in the region. During the first four months of 2003, the real has
appreciated approximately 18.2% as a result of the policies of the new administration. We
cannot assure you that the realwill not substantially devalue again in the
future. See Risk FactorsRisks Relating to Brazil.

As
of May 30, 2003, the Commercial Market selling rate published by the Brazilian Central
Bank was R$2.9656 per U.S.$1.00.

Commercial Market Selling
Rate for U.S. Dollars

The
following table sets forth the reported high and low Commercial Market selling rates for
U.S. dollars for the months indicated.

|              | High     | Low     
|------------- | -------- | --------
|December 2002 | R$3.7980 | R$3.4278
|January 2003  | 3.6623   | 3.2758  
|February 2003 | 3.6580   | 3.4930  
|March 2003    | 3.5637   | 3.3531  
|April 2003    | 3.3359   | 2.8898  
|May 2003      | 3.0277   | 2.8653  

_______________
Source: Brazilian Central Bank

The
following table sets forth the reported high and low, average and period-end Commercial
Market selling rates for U.S. dollars for the annual periods indicated. The average
Commercial Market selling rates represent the average of the month-end commercial market
selling rates (R$/U.S.$) during the relevant period.

|For the Year Ended December 31, | High    | Low     | Average | Period End
|------------------------------- | ------- | ------- | ------- | ----------
|1998                            | R$1.209 | R$1.117 | R$1.161 | R$1.209   
|1999                            | 2.165   | 1.208   | 1.816   | 1.789     
|2000                            | 1.985   | 1.723   | 1.835   | 1.955     
|2001                            | 2.801   | 1.936   | 2.352   | 2.320     
|2002                            | 3.955   | 2.271   | 2.915   | 3.533     

_______________Source: Brazilian Central
Bank

Brazilian
law provides that, whenever there is a serious imbalance in Brazils balance of
payments or reliable information to foresee such an imbalance, temporary restrictions may
be imposed on remittances of foreign capital abroad. We cannot assure you that these
types of measures will not be taken by the Brazilian government in the future. See Risk
FactorsRisks Relating to Brazil.

Risk Factors

The
following are risk factors that relate materially to our company and to an investment in
our Preferred Shares or ADRs. Our business, results of operations or financial condition
could be harmed if any of these risks materialize and, as a result, the trading price of
our Preferred Shares or ADRs could decline.

The
information included in this Annual Report concerning Brazil and the ownership of Techold
Participações S.A. (Techold), Timepart Participações
Ltda. (Timepart), and Telecom Italia International N.V. (TII),
the current name of STET International Netherlands N.V., through Solpart Participações
S.A. (Solpart), has been included herein to the extent publicly available. We
have assumed such information to be correct and have not independently verified such
information.

Risks Relating to Our
Company

Regulatory
developments could affect our services, including the rates we charge for our services,
which could impact our business.

We
operate under concessions that authorize us to provide local fixed-line and certain
regional long-distance telecommunications in our region, and require us to comply with
certain obligations related to tariffs, quality of service, network expansion and
modernization, and interconnection of our network. See Item 4 Information on the
CompanyHistory and Development of the CompanyRegulation of the Brazilian
Telecommunications IndustryConcessions and Licenses. Our business, including
the services that we provide and the rates that we charge, is subject to comprehensive
regulation under Brazilian law. See Item 4 Information on the CompanyHistory
and Development of the CompanyRegulation of the Brazilian Telecommunications
IndustryRate Regulation. Under Brazilian law, public regime companies, like
us, need to have the rates that they charge approved by the Agência Nacional de
Telecomunicações (Anatel). For example, in December 2002,
Anatel submitted new proposals regarding the concession agreements under which we
operate. The proposals are currently under discussion and are scheduled to be effective
from January 1, 2006 until 2025 upon Anatels approval. These proposals could affect
the way in which we provide our services and may impact our business. Private regime
companies, like Global Village Telecom, Ltda. (Global Village Telecom)
or Intelig Telecomunicações Ltda. (Intelig), do not require
Anatel approval and may unilaterally determine the prices that they charge for their
services. As a result, adverse changes in Brazilian telecommunications regulations and
even delays in the approval of rate changes by Anatel, could adversely impact our
operations and competitive position.

We may need additional third party
financing which may not be available in the future acceptable to us.

We
may require additional third party financing in 2003, other than our existing credit
facility with BNDES, to finance potential strategic acquisitions and to commence new
operations. See Item 10 Additional InformationMaterial ContractsBNDES
Loan Agreements.

During
2002, our net debt decreased approximately 3.8%, from approximately R$2.68 billion at
December 31, 2001 to approximately R$2.58 billion at December 31, 2002. See Item 5 Operating
and Financial Review and ProspectsLiquidity and Capital ResourcesIndebtedness.

We
cannot assure you that should we require additional third party financing in the future,
any such financing will be available on terms acceptable to us.

We may not be timely certified by
Anatel regarding the accomplishment of certain targets relating to the universalization,
expansion and modernization of our network.

On
February 28, 2003, we met the targets relating to the universalization, expansion and
modernization of our network, in advance of the December 31, 2003 deadline. See Item 4
Information on the CompanyBusiness OverviewTargets Imposed by AnatelUniversalization
Network Expansion and Item 4 Information on the CompanyHistory
and Development of the CompanyRegulation of the Brazilian Telecommunications
IndustryObligations of Telecommunications Companies and Network Expansion General
Plan on Universal Service.

The
independent auditing company PricewaterhouseCoopers attested in its report, dated March 28,
2003, that no differences were found between our declaration regarding the accomplishment
of our targets and the targets appraised and reviewed in their report. Anatel is
currently in the process of verifying whether all the targets imposed have been met
accordingly. This process, which began in February 2003, is expected to be concluded in
six months.

Although
we expect that the certification will be provided within the expected time frame, we
cannot assure you whether Anatel will question the accomplishment of any of the imposed
universalization, expansion and modernization targets, or whether any consumer will
present complaints regarding our services to Anatel and, thus, delay the certification
process, which may delay the implementation of certain new services we planned to roll
out until December 31, 2003.

We depend on sophisticated
information and processing systems to operate our company, the failure of which could
affect our financial condition and results of operations.

Sophisticated
information and processing systems are vital to our growth and our ability to monitor
costs, bill customers, detect fraud, provide customer service, achieve operating
efficiencies and meet our service targets. Our billing and information systems are
currently being upgraded and modernized by both in-house technicians and outside service
providers. However, the failure of these technicians and service providers to
successfully integrate and upgrade our systems as necessary or the failure of any of
those systems to operate properly, could have a material adverse effect on our ability to
monitor costs, bill customers, detect fraud, provide customer service and achieve
operating efficiencies. This could have a material adverse effect on our financial
condition and results of operations.

Our existing principal beneficial
shareholders are expected to continue to control a large percentage of our voting shares
and their interests may conflict with your interests as a minority shareholder.

We
are controlled by Solpart Participações S.A. (Solpart), which is
controlled by Techold and Timepart.

In
August 2002, TII, which was one of our indirect controlling shareholders, reduced its
participation in the voting capital of Solpart by transferring 18.29% of the common
shares to Techold and Timepart. Changes have been made to the Solpart Shareholders Agreement,
and some of TIIs political rights have been suspended until the earlier of (i)
January 1, 2004, (ii) the publication date of the certification by Anatel that our
2003 universalization targets have been met or (iii) if, at any time after Anatels
approval of the August 27, 2002 amendment to the shareholders agreement, (a)
Portale Rio Norte S.A. (TIM) is prevented from providing services to PCS due
to TIIs participation in Solpart or (b) the transfer of TIIs shares to
Timepart and Techold are considered invalid or ineffective. As part of the amendment,
Timepart and Techold granted a call option to TII for the acquisition of the transferred
18.29% of Solparts common shares and TII granted a put option to Timepart and
Techold for the sale of the mentioned shares. However, these options may not be exercised
if their exercise would result in the non-compliance with the terms of certain licenses
and other requirements, which may lead to certain actions by our shareholders that could
have a material adverse effect on our operations. A description of our ownership
structure can be found in the shareholder chart in Item 7 Major Shareholders and
Related Party TransactionsMajor Shareholders.

- Techold is a
company controlled by Invitel S.A.
- Invitel
S.A. is a company controlled by Opportunity Zain S.A. and also has the following
Brazilian pension funds as shareholders: SISTEL  Fundação Sistel de
Seguridade Social; TELOS  Fundação Embratel de Seguridade Social;
FUNCEF Fundação dos Economiários Federais; PETROS Fundação
Petrobrás de Seguridade Social; and PREVI  Caixa de Previdência dos
Funcionários do Banco do Brasil.


*
Opportunity ZainS.A. is a company controlled by CVC/Opportunity Equity Partners
F.I.A. and CVC/Opportunity Equity Partners L.P.


*
       CVC/Opportunity Equity Partners F.I.A. is an investment fund managed by
CVC/Opportunity Equity Partners                   Administradora de Recursos Limitada.


*
       CVC/Opportunity Equity Partners L.P. is an investment fund managed by
CVC/Opportunity Equity Partners, Inc.
- TIIis a company
controlled by Telecom Italia Spa.("TI").
- Timepart is a
company owned by Telecom Holding S.A., Privtel Investimentos S.A. and Teleunion S.A.



*
Telecom Holding S.A. is, to the best of our knowledge, and based upon publicly
available information, controlled by CHS LLC and CSH Units. CSH LLC and CSH Units are
controlled by members of the Woog family.


*
Privtel Investimentos S.A.is owned by Eduardo Cintra Santos, who serves on our
board of directors.


*
Teleunion S.A.is owned by Luiz Raymundo Tourinho Dantas, who is related to the
controlling shareholders of the Opportunity Group. As of April 30, 2003, Solpart owned
approximately 53.59% of our common stock.

As a result, at April 30, 2003, Techold, TII
and Timepart, if considered together, to the best of our knowledge and based upon
publicly available information, owned approximately 96.81% of our Common Shares. See Item
7 Major Shareholders and Related Party TransactionsMajor Shareholders.Thus,
Techold, TII and Timepart, subject to the conditions of the amendment to the Solpart
Shareholders Agreement, could result in certain actions that could adversely affect
your interests as a minority shareholder.

Disputes among our controlling
shareholders could have a material adverse effect on our management and operations.

Under
the Solpart ShareholdersAgreement, dated July 19, 1998, amended as of August 27,
2002, among Techold, TII, Timepart, Solpart and others, Solpart has agreed to vote its
shares in our company to cause the nomination and election, by Techold and TII of our
Board of Directors (Conselho de Administração) and of our Senior Management
(Diretoria). In addition, under the shareholders agreement, the parties thereto
have agreed, among other things, that the:

- modification of
our business plan, dividend policy and Bylaws;
- sale of any of our
material assets;
- issuance by our
company of additional securities;
- increase or
reduction of our capital;
- incurrence by our
company of additional indebtedness; and
- merger
of our company with another entity, require the prior approval of the absolute majority
of the voting capital of Solpart. However, according to the August 27, 2002 amendment to
the shareholders agreement, these provisions have been suspended until the earlier
of: (i) January 1, 2004; (ii) the publication date of the certification by Anatel that
our 2003 universalization targets have been met; or (iii) if, at any time after Anatels
approval of the August 27, 2002 amendment to the shareholders agreement, (a)
TIM is prevented from providing services to PCS due to TIIs participation in
Solpart; or (b) the transfer of TIIs shares to Timepart and Techold are considered
invalid or ineffective.

Consequently, subject to the conditions of the amendment to the
Solpart Shareholders Agreement, disputes among our controlling shareholders could,
among other things, adversely affect the ability of our board of directors and executive
officers to:

- modify our
business plan, dividend policy or Bylaws;
- sell any of our
material assets;
- issue additional
securities;
- increase or reduce
our capital;
- incur additional
indebtedness; or
- merge with another
entity.

This
could affect our financial condition and results of operations.

We may be liable for pre-existing
labor liabilities of the companies that Brasil Telecom S.A. merged with, which could have
an adverse effect on our results of operations.

Under
Brazilian labor law, a change of control, corporate structure or ownership does not
affect the applicability of pre-existing employment contracts of an entity. Brazilian
labor courts take the position that any entity that acquires the control of a
manufacturing or commercial establishment becomes liable for the labor liabilities of its
target even when such liabilities originated prior to the date of the acquisition. As of
February 28, 2003, contingent liabilities for labor proceedings in which the risk of loss
was considered probable amounted to approximately R$321 million and
contingent liabilities for which the risk was considered possible amounted to
approximately R$466 million. As of February 28, 2003, we were involved in approximately
14,054 labor proceedings, which includes pre-existing labor liabilities of the companies
we merged with. The estimated total amount involved in these proceedings is approximately
R$979 million. Contingencies classified as having a probable risk of loss are recorded
under liabilities. See Item 8 Financial InformationConsolidated Statements
and Other Financial InformationLegal ProceedingsLabor Proceedings. Although
we believe that there are no other material pre-existing labor liabilities, there can be
no assurances that additional material labor proceedings for actions undertaken by the
companies Brasil Telecom S.A. merged with, prior to its merger with them, will not be
brought in the future, or if they are, that an adverse judgment regarding the same would
not have a material adverse effect on our results of operations or financial condition.

It may be difficult to effect
service of process upon, or to enforce foreign judgements upon, us, our directors and our
officers.

We
are organized under the laws of Brazil, and all of our directors and officers reside
outside the United States. In addition, a substantial portion of our assets, and most or
all of the assets of our directors and officers are located in Brazil. As a result, it
may be difficult for you to effect service of process within the United States or other
jurisdictions outside of Brazil upon our company or such persons, or to enforce against
them judgments of courts in the United States, predicated upon the civil liability
provisions of the federal securities or other laws of the United States.

Risks Relating to the
Brazilian Telecommunications Industry

We face increasing
competition in the Brazilian telecommunications industry. This may have a material adverse
effect on our market share, margins, results of operations and financial condition.

The
telecommunications industry in Brazil is becoming increasingly competitive. We compete
primarily on the basis of features, pricing and customer service. We currently face
competition from Global Village Telecom in providing local fixed-line telecommunication
services in our region, and from Global Village Telecom, Intelig and Embratel Participações
S.A.Embratel(Embratel) in providing intraregional
long-distance telecommunications services in our region.

The
Brazilian government has granted the following companies public regime concessions in
certain cities in our region in which we do not currently operate:

- Sercomtel
S.A. Telecomunicações (Sercomtel), has been
granted a public regime concession to provide fixed-line telecommunications services in
the cities of Londrina and Tamarana, located in the state of Paraná; and
- Companhia de
Telecomunicações do Brasil Central S.A. (CTBC), has been
granted a public regime concession to provide fixed-line telecommunications services in
the cities of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara,
Paranaiguara and São Simão, located in the state of Goiás, and Paranaíba,
located in the state of Mato Grosso do Sul. Recently, CTBC was granted permission by
Anatel to provide interregional and international telecommunications services in each of
the above cities located in our region.

Also,
to date, Telecomunicações de São Paulo S.A.(Telesp),
Tele Norte Leste S.A.(Telemar),Embrateland Intelighave
been granted permission by Anatel to provide local telecommunications services in our
region. Telesp,Albra Telecomunicações Ltda, TIM andGlobal
Village Telecomhave been granted permission by Anatel to provide intraregional,
interregional and international telecommunications services in our region. TNL PCS S.A. has
been granted permission by Anatel to provide intraregional and interregional
telecommunications services in our region.

Because
we currently do not offer interregional or international long-distance telecommunications
services or any other telecommunication services outside of our region, although we
expect to provide such services in the future, we may have to compete in our region
against competitors from outside of our region offering a more extensive array of
fixed-line, cellular, local and/or long-distance telecommunications services throughout
Brazil.

This
increased competition may adversely affect our market share and our margins. Until now,
we have been able to maintain our market share in our region, which we estimate to be
approximately 96.5% for local fixed-line telecommunication services, approximately 86.5%
for intrastate and approximately 73.0% for interstate fixed-line telecommunication
services. However, the cost of maintaining our market share has increased and our margins
have decreased due to higher interconnection costs, as well as the effect of competition
on pricing. See Item 4 Information on the CompanyHistory and Development of
the CompanyHistorical Background  and Item 4 Information on the CompanyHistory
and Development of the CompanyHistory of Our Company. For example, during the
fiscal year ended December 31, 2002, interconnection costs increased approximately 21.1%,
from approximately 14.9% of gross revenues in 2001, to approximately 15.5% of gross
revenues in 2002. See Item 5 Operating and Financial Review and ProspectsOperating
ResultsResults of Operations for the Years Ended December 31, 2000, 2001 and 2002.

Our
ability to compete successfully will depend on the success of our marketing, our
financial and other resources (including our access to capital) and on our ability to
anticipate and respond to competitive factors affecting the industry, including the
introduction of new services, changes in consumer preferences, demographic trends,
economic conditions and discount pricing strategies by competitors. Currently, we compete
with our competitors primarily on the basis of features, pricing and customer service.
However, we cannot predict exactly which factors in the future will be important in
maintaining our competitive position or what expenditures will be required to develop and
provide the necessary technologies, products and services to remain competitive in the
future.

As
a result, the expected increase in competition in our region may have a material adverse
effect on our market share, margins, results of operations and financial condition.

If the Brazilian government grants
more concessions in our region, the value of our concessions could be impaired.

The
telecommunications industry is regulated by the Brazilian government. Our public regime
fixed-line concessions are not exclusive and the Brazilian government could grant
additional public regime fixed-line concessions, as well as private regime local and
intraregional long-distance authorizations, covering the same geographic regions in which
we operate.

To
date, the Brazilian government has granted public regime concessions to Sercomtel and to
CTBC to provide fixed-line telecommunications services within our region in certain
cities located in the states of Paraná and Mato Grosso do Sul, and Goiás,
respectively, in which we do not operate. Recently, Anatel granted permission to CTBC to
provide interregional and international telecommunications services in each of the above
cities located in our region. Also, to date, Telesp, Telemar, Embratel and Intelig have
been granted permission by Anatel to provide local telecommunications services in our
region. Telesp, Albra Telecommunicações Ltda., TIM and Global Village Telecom
have been granted permission by Anatel to provide intraregional, interregional and
international telecommunications services in our region. TNL PCS S.A. has been granted
permission by Anatel to provide intraregional and interregional telecommunications
services in our region. See Item 4 Information on the CompanyBusiness OverviewCompetition.

Anatel
may grant private additional regime authorizations to other companies to provide local,
intraregional, interregional and international long-distance services throughout Brazil.
See Item 4 Information on the CompanyHistory and Development of the CompanyRegulation
of the Brazilian Telecommunications IndustryConcessions and Licenses.

As
a result, the value of our concessions could be adversely affected if the Brazilian
government were to grant additional public regime fixed-line concessions or private
regime local and/or intraregional long-distance authorizations to new entrants to provide
services similar to those that we currently provide.

We could lose our concessions if
we do not comply fully with the terms of our concessions. This could have a material
adverse impact on our financial condition and results of operations.

The
terms of our concessions require us to satisfy a number of service, quality, technical,
buildout and financial purpose conditions. See Item 4 Information on the CompanyBusiness
OverviewTargets Imposed by Anatel  and see Item 4 Information on the
CompanyHistory and Development of the CompanyRegulation of the Brazilian
Telecommunications IndustryObligations of Telecommunications Companies.

We
believe that we are currently in material compliance with all of these terms. However, we
cannot assure you that we will be able to comply with all of them in the future. A
failure to comply with them could subject us to fines by Anatel or even the potential
termination of some of our concessions without compensation. If any of our concessions
were to be terminated, our financial condition and results of operations would be
adversely affected.

The failure to develop and
implement the technology necessary to quantify and combat fraud on our network could
adversely affect our results of operations.

The
fraudulent use of telecommunications networks imposes a significant cost upon service
providers, who must bear the cost of services provided to fraudulent users. We suffer
loss of revenue as a result of fraudulent use, and also cash costs due to our obligation
to reimburse carriers for the cost of services provided to fraudulent users. During 2002,
we continued to improve our systems in order to implement an on-line fraud
management system. See Risks Relating to Our CompanyWe depend on
sophisticated information and processing systems to operate our company, the failure of
which could affect our financial condition and results of operations.

In
addition, we rely on other long-distance carriers for interconnection, some of whom do
not have anti-fraud technology in their network. In 2001, we created a fraud management
department to provide specialized customer service to customers affected by fraud. During
2002, several automated procedures were created and placed in various parts of our
operations to detect and control possible abnormalities that could represent fraudulent
activities. These control points have a preventive function, and work both pro-actively
and, should a fraud occur, reactively. Should we not be able to develop and implement the
technology necessary to quantify and combat fraud on our network, our results of
operations could be adversely affected.

The failure to develop and
implement the technology necessary to extract, analyze, monitor and take actions upon
revenue leakage present in our revenue stream could adversely affect our results of
operations in a competitive environment.

Revenue
assurance, which consists in seeking out the sources of lost income from network and
system inefficiencies from operations, is an area that was nearly unexplored two years
ago. Todays economic pressure to maximize profitability and reduce costs resulted
in a shift in focus by nearly all service providers. The high costs associated with
capturing new market share also drive the providers to optimize profitability within its
existing market and infrastructure. Revenue leaks occur at different stages of the
billing process, from ordering the new service to the provider making network switch
changes and establishing accurate billing records reflecting the change.

In
2002, the revenue assurance area introduced two systems and processes, which are
currently being implemented: The first one is the Test Call Generators (TCG), which are
designed to verify if services are being correctly billed, and the second one is the Call
Detail Record (CDR) monitoring and Volume Control, which is a manual attempt to reconcile
CDRs within the production chain, accounting for CDR traffic from its creation at the
switch until it reaches the billing engine.

We
face several challenges in finding and preventing revenue leakage, including the
gathering of data from multiple sources within our complex network/IT platforms and the
reconciliation of such data in order to identify the root cause(s) of leakage. The
identification, prevention, and correction process typically involves multiple
operational functions throughout the organization.

If
we are not able to develop and implement the technology necessary to detect, quantify,
and prevent revenue leakage in our network, our results of operations could be adversely
affected.

As a result of new developments in
the global telecommunications industry, the technology that we use may be made obsolete by
technological change, which could adversely affect our competitive position, require
substantial new capital expenditures and/or require write-offs of obsolete technology.
This would have a material adverse effect on our financial condition and results of
operations.

All
companies in the global telecommunications industry must adapt to rapid and significant
changes in technology. While we have been upgrading our network with technologically
advanced fiber-optic cable with a microwave overlay, we cannot assure you that our
network will not be challenged by competition from new or improved technologies in the
future. Technological changes may adversely affect our competitive position, require
substantial new capital expenditures and/or require write-offs of obsolete technology.
This would have a material adverse effect on our financial condition and results of
operations.

In the event of national disaster,
war, significant public disturbance, threats to internal peace or for economic reasons,
the Brazilian government could temporarily seize or permanently expropriate our assets
under certain circumstances, which could have a material adverse effect on our financial
condition and results of operations.

The
Brazilian government has the authority to temporarily seize all assets related to
telecommunications concession in the event of natural disaster, war, significant public
disturbance, threats to internal peace or for economic reasons, and for other reasons
related to national security. In addition, the Brazilian government has the statutory
right to permanently expropriate any telecommunications concession and claim any related
assets for reasons of public interest. Brazilian law provides for compensation in
connection with losses and damages related to temporary seizure or expropriation.
However, in the event of a temporary seizure or expropriation of any of our assets we
cannot assure you that the actual compensation paid would be adequate or that such
payment would be timely. This would have a material adverse effect on our financial
condition and results of operations.

Retroactive application of certain
state taxes to cellular activation and other fees could have an adverse effect on our
results of operations.

In
June 1998, the governments of Brazilian states approved an agreement (Convênio
69/98) to interpret existing Brazilian tax law to broaden the application of the
state value-added tax (ICMS) effective July 1, 1998, to certain services,
including cellular activation and installation services, to which the ICMS had not
previously been applied. The administrative tax authorities in the Federal District and
in the State of Santa Catarina have assessed us on this issue regarding the five years
preceding June 30, 1998. We have filed administrative defenses against these states
in connection with the retroactive application of this tax.

Moreover,
there is a risk that other states will seek to apply this interpretation retroactively to
services rendered during the six months preceding June 30, 1998. We believe that any such
attempt by other states to apply the ICMS retroactively to activation and installation
services that are supplementary to basic telecommunications services would also be
illegal and unconstitutional because:

- their
interpretation would subject certain services which are not telecommunications services
to taxation; and
- taxes may not be
applied retroactively.

Nevertheless,
there can be no assurance that we would prevail in our position that the interpretation
by the state governments is illegal. If the ICMS were to be applied retroactively in the
activation fees earned by the discontinued cellular operations for the six months prior
to June 30, 1998 under the statute of limitations, this would have a material adverse
impact on our financial condition and results of operations. It would give rise to a
liability estimated at approximately R$20 million in back taxes. See Item 8 Financial
InformationConsolidated Statements and Other Financial InformationLegal
ProceedingsRetroactive Application of Certain Taxes to Cellular Activation and
Other Fees.

Risks Relating to Brazil

Brazilian political
and economic conditions have a direct impact on our business and the market price of the
Preferred Shares underlying the ADSs.

Substantially
all of our operations and customers are located in Brazil. Accordingly, our financial
condition and results of operations are substantially dependent on Brazils economy,
which has been characterized by frequent and occasionally drastic intervention by the
Brazilian government and volatile economic cycles in the past. In 2002 the real declined
in value by 52.3% against the U.S. dollar, from 2.3204 reais per U.S. dollar at
December 31, 2001 to 3.5333 reais per U.S. dollar at December 31, 2002, as a
result of the economic crisis in Argentina, one of Brazils primary trading
partners, the lower level of growth of the world economy, and the economic instability
caused by the Brazilian presidential elections. During the year ended December 31, 2002,
the Central Bank raised Brazils base interest rate by a total of 6.0 percentage
points in an effort to stabilize the currency and decrease inflationary pressures. In the
past, the Brazilian government has often changed monetary, fiscal, taxation and other
policies to influence the course of Brazils economy. We have no control over, and
cannot predict, what measures or policies the Brazilian government may take in response
to the current Brazilian economic situation or how Brazilian government intervention and
government policies will affect the Brazilian economy and, both directly and indirectly,
our operations and revenues.

Our
operations, financial condition and the market price of our Preferred Shares and ADSs may
be adversely affected by changes in policy involving exchange controls, tax and other
matters, as well as factors such as:

- base interest rate
fluctuations;
- inflation;
- fluctuations in
exchange rates; and
- other political,
diplomatic, social and economic developments within and outside Brazil that affect the
country.

On
January 1, 2003, Luis Inácio Lula da Silva, from the Labor Party, took office as
the new President of Brazil. Until now, the economic policies of former president Cardoso
have been continued by the current administration of the Brazilian government. However,
there can be no certainty that the current administration will continue these policies in
the future. The uncertainty over what policies the current Brazilian government will
adopt may have an impact in our business and may contribute to economic uncertainty in
Brazil and to heightened volatility in the Brazilian securities markets and securities
issued abroad by Brazilian issuers.

If Brazil experiences substantial
inflation in the future, our revenues and the market price of the Preferred Shares and
ADSs may be reduced.

Brazil
has in the past experienced extremely high rates of inflation, with annual rates of
inflation reaching as high as 2,489.1% in 1993 (according to the Brazilian National
Consumer Price Index (Índice Nacional de Preços ao Consumidor)
published by the IBGE). Inflation itself and governmental measures to combat inflation
have in the past had significant negative effects on the Brazilian economy. Inflation,
actions taken to combat inflation and public speculation about possible future actions
have also contributed to economic uncertainty in Brazil and to heightened volatility in
the Brazilian securities markets. If Brazil experiences substantial inflation in the
future our costs may increase, and our gross profit may be affected (to the extent that
our tariff increases and consequently our net operating revenues do not keep up with the
rate of inflation) and, if investor confidence lags, the price of the Preferred Shares
underlying the ADSs may fall.

Inflationary
pressures may also curtail our ability to access foreign financial markets and may lead
to further government intervention in the economy, including the introduction of
government policies that may adversely affect the overall performance of the Brazilian
economy.

Adverse changes in Brazilian
economic conditions, beyond our control, could cause an increase in bad debt provisions
for doubtful accounts, which could materially reduce our earnings.

Our
business is affected by customers ability to pay their bills. If the Brazilian
economy worsens because of, among other factors:

- the level of
economic activity;
- devaluation of the
real;
- inflation; or
- an increase in
domestic interest rates,

a greater portion of our customers
may not be able to pay their bills, which would increase our bad debts and provisions for
doubtful accounts. Losses from accounts receivables decreased by approximately 30.0%
during the year ended on December 31, 2002, from approximately 3.8% of gross revenues in
2001 to approximately 2.7% of gross revenues in 2002. Should economic conditions worsen in
Brazil and bad debts increase, this could have a material adverse effect on our financial
condition and results of operations.

Restrictions on the movement of
capital out of Brazil may hinder your ability to receive dividends and distributions on,
and the proceeds from any sale of, the Preferred Shares.

The
Brazilian government may impose restrictions on capital outflow that would hinder or
prevent the custodian in Brazil, or you if you have exchanged your ADRs for the
underlying Preferred Shares, from converting the proceeds relating to the Preferred
Shares into U.S. dollars and remitting those proceeds abroad. Brazilian law permits the
government to impose these restrictions whenever there is a serious imbalance in Brazils
balance of payments or reasons to foresee such a serious imbalance. Although, there is no
current material imbalance in Brazils balance of payments, there can be no
assurance that such an imbalance may not arise in the future or that the Brazilian
government will not institute more restrictive exchange control policies in the future. See Item 10 Additional
InformationTaxationBrazilian tax considerations.

As a holder of ADSs you may have
fewer and less well-defined shareholders rights than in the United States.

Our
corporate affairs are governed by our Bylaws and Brazilian Corporate Law, which may
differ from the legal principles that would apply if we were incorporated in a
jurisdiction in the United States. Under Brazilian Corporate Law, you and the holders of
our Preferred Shares may have fewer and less well defined rights to protect your
interests relative to actions taken by our board of directors or the holders of our
Common Shares than under the laws of other jurisdictions outside Brazil.

Restrictions
on insider trading and price manipulation, rules and policies against self-dealing and
regarding the preservation of shareholder interests may not be as detailed,
well-established and enforced in Brazil as in the United States, which could potentially
disadvantage you as a holder of our Preferred Shares and/or ADSs. We have a manual for
the disclosure and use of information and the trading of securities, that (i) defines the
policy for the disclosure and use of information and contains the rules for disclosing
relevant facts to the market and (ii) defines the standards that regulate the trading of
shares by our controlling shareholders, advisors, and executives. We also release
material contracts between our company and related parties.

When
compared to Delaware general corporation law, Brazilian corporate law and practice has
less detailed and well-established rules and judicial precedents relating to the review
of management decisions involving duty of care and duty of loyalty standards in the
context of corporate restructurings, transactions with related parties, and
sale-of-business transactions. In addition, shareholders in Brazilian companies must hold
at least 5% of the outstanding share capital of a corporation in order to have standing
to bring shareholdersderivative suits, and shareholders in Brazilian companies
ordinarily do not have standing to bring class action suits.

Risks Associated with Our
Preferred Shares or American Depositary Shares

The Brazilian
securities markets are smaller, more volatile and less liquid than the major U.S. and
European securities markets and therefore may limit your ability to sell the Preferred
Shares underlying the American Depositary Shares.

The
Brazilian securities markets are smaller, more volatile and less liquid than the major
securities markets in the U.S. and other jurisdictions. For example, the value of the
average number of shares traded daily on the New York Stock Exchange for 2002 was
approximately U.S.$40.9 billion compared to the São Paulo Stock Exchange, where
the value of the average number of shares traded daily for 2002 was approximately R$558.1
million (approximately U.S.$158.0 million). The relatively small capitalization and
liquidity of the Brazilian equity markets may substantially limit your ability to sell
the Preferred Shares underlying the ADSs at the price and time that you desire. These
markets may also be substantially affected by economic circumstances unique to Brazil,
such as currency devaluations.

Developments in other countries,
including Argentina, may affect the Brazilian economy, market price of the Preferred
Shares and your American Depositary Shares.

Securities
of Brazilian companies have been influenced by economic and market conditions in other
countries to varying degrees. Although economic conditions are different in each country,
investorsreactions to developments in one country may affect the securities of
issuers in other countries, including Brazil. Since the fourth quarter of 1997, the
international financial markets have experienced significant volatility, and a large
number of market indices, including those in Brazil, have declined significantly.
Developments in other countries have also at times adversely affected the market price of
our and other Brazilian companies securities. Argentina, after prolonged periods of
recession followed by political instability, announced in 2001 that it would not service
its public sector debt. If the current economic situation in Argentina, an important
trade partner of Brazil, and Latin America continues to deteriorate, or if similar
developments occur in the international financial markets in the future, the Brazilian
economy and the market price of Brazilian securities may be adversely affected. See Item
9 The Offer and ListingOffer and Listing Details. There can be no
assurances that future events elsewhere, especially in emerging market countries, will
not have an adverse effect on the market value of our Preferred Shares and our ADRs.

Holding your Preferred Shares in
ADS form will subject you to several risks and may jeopardize certain rights relating to
voting, dividends and distributions, and preemptive rights, among others, that you would
otherwise enjoy as a holder of Preferred Shares.

- In the limited
circumstances where holders of Preferred Shares are able to vote, you will be able to
exercise your voting rights with respect to the Preferred Shares represented by ADSs only
in accordance with the provisions of the deposit agreement relating to the ADSs. There
are practical limitations upon your ability, as an ADS holder, to exercise your voting
rights due to the additional procedural steps involved in communicating with such
holders. See Item 7 Major Shareholders and Related Party TransactionsMajor
shareholders.
- If you are a
resident of the United States you may not be able to exercise your preemptive rights, or
exercise other types of rights, with respect to our Preferred Shares. Your ability to
exercise preemptive rights is not assured unless a registration statement is effective
with respect to those rights or an exemption from the registration requirements of the
U.S. Securities Act of 1933, as amended (the Securities Act) is available. We
are not obligated to file a registration statement relating to preemptive rights with
respect to our Preferred Shares. Moreover, there can be no assurance that we will file
any such registration statement. If a registration statement is not filed and an
exemption from registration does not exist, Citibank, N.A., as depositary (the Depositary),
will attempt to sell the preemptive rights, and you will be entitled to receive your
share of the proceeds of the sale. However, the preemptive rights will expire if the
Depositary cannot sell them. For a more complete description of preemptive rights with
respect to our Preferred Shares, see Item 10 Additional InformationMemorandum
and Articles of Association.
- Payments of cash
dividends and distributions, if any, will be made in Brazilian currency to Banco Itaú S.A.,
as custodian for your Preferred Shares represented by the ADSs, on behalf of the
Depositary, which will then convert such proceeds into U.S. dollars and will cause such
U.S. dollars to be delivered to the Depositary for distribution to you, as a holder of
ADSs. Holders of ADSs could be adversely affected by devaluations of the Brazilian
currency that may occur due to delays in, or a refusal to grant any, required government
approval for conversions of Brazilian currency payments and remittances abroad of the
Preferred Shares underlying our ADSs. See Item 8 Financial InformationConsolidated
Statements and Other Financial InformationDividend Policy.
- As an ADS holder,
you will be required to pay certain fees to the Depositary in connection with certain
events, such as exercising your rights to purchase additional ADSs and redemption of your
ADSs by our company, among others.
- We may agree with
the Depositary to modify the deposit agreement at any time without your consent. We
undertake to give holders of ADRs 30 days prior notice of any modifications that
would materially prejudice any of their substantial rights under the deposit agreement.
You will be bound by the modifications to the deposit agreement if you continue to hold
your ADSs after the modifications to the deposit agreement become effective.

Forward-Looking
Information

This
Annual Report contains forward-looking statements. We may also make forward-looking
statements in press releases and oral statements. Forward-looking statements are not
statements of historical fact and involve known and unknown risks and uncertainties. The
words anticipates,believes, estimates, expects, forecasts,intends, plans, predicts, projects,targets and
similar words are intended to identify these forward-looking statements.

In
this Annual Report, we have made forward-looking statements that address, among other
things:

- our regional
marketing strategy;
- our ability to
meet our network expansion, service quality and modernization obligations;
- our market share;
- our compliance
with International Commission for Non-Ionizing Radiation Protection ("ICNIRP") standards;
- the reduction of
our labor force;
- the payment of our
debt;
- the material
adverse financial effect of any labor or tax claims arising out of acts committed by
Telebrás prior to the          effective date of the breakup of Telebrás;
- the retroactive
application of state value-added taxes to certain services, including installation
services, rendered during the six months preceding June 30, 1998;
- the growth in
demand for cable television services in our region;
- our projected
capital expenditures;
- our projected
subsidies and financings; and
- our liquidity.

Because these forward-looking
statements involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements. These factors include:

- the performance of
the Brazilian economy generally;
- the levels of
exchange rates between Brazilian and foreign currencies;
- the
telecommunications policy of Brazil's federal government;
- the growth of the
Brazilian telecommunications industry as a whole;
- the introduction
of competition to the Brazilian telecommunications industry in general and our region in
particular;
- the receipt of
additional, and/or the revocation of our existing, governmental approvals and licenses;
- the availability
of the necessary equipment to maintain, operate and improve our network;
- the existence of
difficulties in the operation of our equipment and/or the provision of our services;
- the availability
of financing;
- the availability
of qualified personnel;
- the business
abilities and judgment of our personnel; and
- other factors
discussed under "-Risk Factors."

The
reader should not place undue reliance on any forward-looking statement. Forward-looking
statements speak only as of the date they are made, and we do not undertake any
obligation to update them in light of new information or future developments. Neither our
independent auditors, nor any other independent accountants, have compiled, examined, or
performed any procedures, with respect to the prospective financial information contained
herein, nor have they expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility for, and disclaim any
association with, the prospective financial information.

# ITEM4. Information on the
Company

History and Development
of the Company

We
are one of the fixed-line telecommunications companies that resulted from the breakup and
privatization of Telecomunicações Brasileiras S.A.  Telebrás(Telebrás)
by the Brazilian Federal Government in 1998. We are an amalgamation of the following
operating companies formerly controlled by Telebrás: Telecomunicações
de Santa Catarina S.A. Telesc (Telesc), Telecomunicações
de Goiás S.A.  Telegoiás (Telegoiás), Telecomunicações
de Brasília S.A.  Telebrasília(Telebrasília),
Telecomunicações do Mato Grosso S.A.  Telemat (Telemat),
Telecomunicações do Mato Grosso do Sul S.A.  Telems (Telems),
Telecomunicações de Rondônia S.A.  Teleron(Teleron),
Telecomunicações do Acre S.A.  Teleacre(Teleacre), Companhia
Telefônica Melhoramento e Resistência  CTMR(CTMR) and
our predecessor, Telecomunicações do ParanáS.A.  Telepar (Telepar)
and CRT, a company formerly controlled by Telefônica S.A.

Our
principal executive office is located at SIA/Sul, ASP, Lote D, Bloco B  71215-000
 Setor de Indústria, Brasilia, DF, Brazil, and our telephone number is
(55-61) 415-1414. Our agent in the United States is CT Corporation System, located at 111
Eighth Avenue, 13th floor, New York, New York 10011.

Historical Background

Prior
to the incorporation of Telebrás in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and 1975, Telebrás
acquired almost all the other telephone companies in Brazil and thus came to have a
monopoly over the provision of public telecommunications services in almost all areas of
the country. Beginning in 1995, the Federal Government undertook a comprehensive reform
of Brazils telecommunications regulatory system. In July 1997, Brazils
National Congress adopted the Lei Geral de Telecomunicações (the General
Telecommunications Law, and together with the regulations, decrees, orders and
plans on telecommunications issued by Brazils Executive Branch, the Telecommunications
Regulations), which provided for the establishment of a new regulatory framework,
the introduction of competition and the privatization of Telebrás.

The
General Telecommunications Law established Anatel as the regulator of the
telecommunication industry in Brazil. Anatel is administratively independent from the
Brazilian Government and financially autonomous. Anatel is required to report on its
activities to the Ministry of Communications and to the Brazilian Congress. In addition,
any proposed regulation of Anatel is subject to a period of public comment, including
public hearings. Anatels decisions may be challenged in the Brazilian courts. Among
its functions are the following:

- to propose the
implementation or elimination of services in the public regime;
- to manage the
spectrum of radio frequency and the use of orbits;
- to settle
conflicts of interest among the companies that render telecommunication services;
- to protect and
defend the users' rights;
- to prevent,
control and punish penalties of the economic order, in the telecommunication industry;
- to establish
restrictions, limits or conditions to corporate groups in obtaining or transferring the
concessions,          permissions and authorizations, in order to assure the competition;
and
- to establish the
tariff structure for each kind of services rendered in the public regime.

On
January 30, 1998, in preparation for the restructuring and privatization of Telebrás,
the cellular telecommunications operations of Telebrás operating
subsidiaries were spun off into separate companies. On May 22, 1998, Telebrás was
restructured to form, in addition to Telebrás, 12 new holding companies by means
of a procedure under Brazilian Corporate Law called cisão, or split-up.
These new holding companies were allocated virtually all the assets and liabilities of
Telebrás, including the shares held by Telebrás in its operating companies.
The split-up of Telebrás into 12 new holding companies is referred to herein as
the breakup of Telebrás.

These
holding companies, together with their respective subsidiaries, consisted of (a) eight
cellular service providers, each operating in one of the regions into which Brazil has
been divided for purposes of cellular telecommunications services in the frequency range
formerly used by each of the former operating companies of Telebrás, (b) three
regional fixed-line service providers, each providing local and intraregional
long-distance service in one of the three regions into which Brazil has been divided for
purposes of fixed-line telecommunications, and (c) Embratel, which provides domestic
(including intraregional and interregional) long-distance telephone service and
international telephone service throughout Brazil.

Set
forth below are maps of Brazil showing the locations of the fixed line, long-distance
regions and cellular regions into which the country was split-up following the breakup of
Telebrás:

We
are one of the three new holding companies providing local and intraregional
long-distance services in Brazil. See Item 7 Major Shareholders and Related Party
TransactionsMajor Shareholders. In the breakup of Telebrás, we were
allocated all the share capital held by Telebrás in Telesc, Telegoiás,
Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR; companies which
provided fixed-line telecommunications service in the western, central and southern
regions of Brazil. See Business OverviewOur Region. In July 1998,
the Federal Government sold all its voting shares of these new holding companies,
including the shares it held in Brasil Telecom Participações to private sector
buyers. The sale of all of the Federal Governments voting shares in the new holding
companies to private sector buyers is referred to herein as the privatization of
Telebrás.

History of Our Company

The
following overview illustrates a brief history of our company:

- November 27, 1963:
We were incorporated as a corporation under the laws of Brazil.
- May 22, 1998: The
Brazilian government transferred the ownership of each of Telepar (currently Brasil
Telecom S.A.), Telesc, Telegoiás, Telebrasília, Telemat, Telems,
Teleron, Teleacre and CTMR, to us.
- July 29, 1998:
Solpart acquired a controlling interest in our company from the Brazilian government
pursuant to the privatization of Telebrás.
- November 16, 1998:
 We listed ADRs evidencing our Preferred Shares on the New York Stock Exchange.
- February 28, 2000:
 Our subsidiary, Brasil Telecom S.A., was reorganized and merged with and into Telesc,
Telegoias,          Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR.
- April 28, 2000: In
accordance with our strategy of becoming a national telecommunications company, we
changed our corporate name from Tele Centro Sul Participações S.A to Brasil
Telecom Participações S.A.
- July 31, 2000: We
acquired 98.83% of the corporate capital of TBS Participações S.A.(TBS),
a company controlled by Telefônica S.A., which held 85.19% of the voting
capital of CRT, representing 31.56% of the total share capital of CRT, for approximately
R$1.50 billion. CRT was the dominant fixed-line telecommunications service company in the
state of Rio Grande do Sul.
- December 28, 2000:
TBS was merged into CRT, and immediately afterwards CRT was merged with and into Brasil
Telecom S.A. Pursuant to our merger with CRT, minority shareholders of CRT were given the
right to exchange their CRT shares for preferred shares and common shares of Brasil
Telecom S.A. The exchange of shares was made based on the market value of Brasil Telecom
S.A.s shares compared to those of CRT.
- November 16, 2001:
 Our subsidiary Brasil Telecom S.A. listed ADRs evidencing its Preferred Shares on the
New York Stock          Exchange.
- February 22, 2002:
BrT Serviços de Internet S.A. (BrTi) acquired 15.4% of the total capital
stock of Ibest Holding Corporation which controls Ibest S.A., for approximately R$10
million. The equity on Ibest Holding Corporation was reduced to 12.8% by the acquisition
of Lokau by Ibest Holding Corporation, which paid Lokau Shareholders with its shares. BrT
Serviços de Internet S.A. also entered into a partnership agreement with Ibest S.A.
to provide internet dial access to Ibest S.A.s users, in return for which Ibest
S.A. encourages its users to access the internet through our services.
- May 9, 2002:  We
and our subsidiary Brasil Telecom S.A. joined the Special Corporate Governance Level 1 of
the Sao Paulo Stock ExchangeBOVESPA;
- June 3, 2002: Our
subsidiary Brasil Telecom S.A.s shares were listed on the São Paulo Stock
ExchangeBOVESPA started trading under new symbols: BRT03 for common
shares and BRT04 for preferred shares.
- November 15, 2002:
We signed, through our indirect subsidiary BrT Serviços de Internet S.A. a
stock and asset purchase and sale contract with the affiliated companies of GlobeNet
Communications Group Ltd., setting forth our intention to acquire their entire system
of submarine fiber-optic cables for US$48 million, of which US$28.8 million was payable
on the closing date, June 11, 2003, and the remaining US$19.2 million within 18 months
after the payment of the first installment.
- December 19, 2002:
Brasil Telecom S.A. acquired licenses for the Personal Communication System  (PCS)
for R$191.5 million through an auction held on November 19, 2002. The minimum price was
R$182.9 million and we paid a premium of 3.6%.
- February 17, 2003:
Brasil Telecom S.A. announced the acquisition of 19.9% of the capital of MTH do Brasil
Ltda., a company that holds 99.99% of the capital of MetroRED Telecomunicações
Ltda.(MetroRED), for US$17.0 million. In addition, we hold an option to
purchase the remaining 80.1% of the capital of MTHat the price of US$51.0 million,
which can only be exercised after certification by Anatel of compliance with the 2003
targets stipulated in our concession contracts.

As
a result of Brasil Telecom S.A.s merger with Telesc, Telegoiás, Telebrasília,
Telemat, Telems, Teleron, Teleacre, CTMR and CRT, we became the dominant local,
interstate and intrastate fixed-line telecommunication service provider in our region.
The only other fixed-line telecommunications service provider in our region is Global
Village Telecom (Sercomtel and CTBC also operate partially in our region but we do not
service the same cities). For intrastate and interstate long-distance telecommunications
services, Intelig and Embratel are the other providers that are authorized to provide
long-distance services in our region.

Our
average market share for local fixed-line telecommunication services in our region for
the year 2002 was approximately 96.5%. This estimate is based on outside consultants statistical
estimates using the volume of outgoing and incoming local calls of our competitors that
interconnect through our network. Our dominant position in the local fixed-line
telecommunications market is due, among other things, to the fact that we did not face
any competition in this market until the entry of Global Village Telecom in November of
2000.

Our
average market share for intrastate and interstate fixed-line telecommunication services
for the year 2002 was approximately 86.5% and 73.0%, respectively. These estimates are
based on the volume of outgoing and incoming long-distance calls that select us to carry
such calls by imputing our carrier selection code.

Notwithstanding
our dominant position in our region, the cost of maintaining our market share has
increased and our margins have decreased due to higher subscriber acquisition costs in
the form of advertising and discounts, as well as the effect of increased competition on
pricing. We currently face competition in the local fixed-line telecommunications market
from Global Village Telecom, and in the interstate and intrastate long-distance
telecommunications market from Intelig, Embratel and Global Village Telecom. See Business
OverviewCompetition. In addition, we could face increased competition if the
Brazilian government grants more private regime authorizations in our region, as it is
expected to do, or if new or competing technologies are developed. As a result, there can
be no assurance that increased competition will not have a material adverse effect on our
results of operations and financial condition. See Item 3 Key InformationRisk
FactorsRisks Relating to the Brazilian Telecommunications IndustryWe face
increasing competition in the Brazilian telecommunications industry. This may have a
material adverse effect on our market share, margins, results of operations and financial
condition.

Regulation of the
Brazilian Telecommunications Industry

General

Our
business, including the services we provide and the rates we charge, are subject to
comprehensive regulation under the General Telecommunications Law and various
administrative enactments thereunder. We operate in each of the states in our region
based on the concessions that were granted to each of Telepar, Telesc, Telegoiás,
Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR. These concessions
authorize us to provide specified services and set forth certain obligations that we need
to comply with (the List of Obligations).

Anatel
is the regulatory agency for telecommunications under the Regulamento da Agência
Nacional de Telecomunicações(the Anatel Decree). Anatel is
administratively independent from the Government and financially autonomous. Anatel is
required to report on its activities to the Ministry of Communications and to the
Brazilian Congress. In addition, any proposed regulation of Anatel is subject to a period
of public comment, including public hearings, and Anatels decisions may be
challenged in the Brazilian courts.

Concessions and Licenses

The
concessions and authorizations for supplying telecommunications services in Brazil are
granted under the public and private regimes. Services under the public regime are
supplied through concessions while services under the private regime are supplied through
authorizations granted by Anatel.

Companies
under the public regime, like our company, are subject to certain special obligations
regarding tariffs established by Anatel, which is also responsible for supervising the
tariffs charged by such companies. On the other hand, the prices charged by the companies
under the private regime, like Global Village Telecom and Intelig in our region, are
freely set, and only subject to general policies and legislation which aim at protecting
competition from any harm, as well as from the abuse of economic power.

The
obligations in respect to the quality of services, interconnection and payment for the
use of networks are applicable to companies that render telecommunications services under
both the public and private regimes.

Until
the earlier of December 31, 2003, or until all of the public regime concessionaires
operating in their region have fulfilled certain year 2003 universalization and network
expansion obligations, public regime companies, such as our company, that render
fixed-line telephone services are prohibited from offering interregional and
international long-distance services. Such obligations include universalization and
network expansion targets set by the respective concessions and the General Plans of
Concession and Licenses.

Because
we have no control over when the other public regime concessionaires in our region will
meet their year 2003 universalization and network expansion obligations, we cannot
guarantee that we will be able to offer interregional and international long-distance
telecommunication services prior to December 31, 2003. As a result, until we and the
other concessionaires in our region have met our year 2003 universalization and network
expansion obligations, or until December 31, 2003, whichever is earlier, we may face
competition from other entrants in our region offering a wide array of fixed-line,
cellular, local and long-distance telecommunications services throughout Brazil. This
could have a material adverse effect on our market share, margins, results of operations
and financial condition. See Item 3 Key InformationRisk FactorsRisks
Relating to the Brazilian Telecommunications Industry We face increasing
competition in the Brazilian telecommunications industry. This may have a material
adverse effect on our market share, margins, results of operations and financial
condition.

Fixed-Line Services
 Public Regime

Each
public regime company, like our company, operates under concessions that expire in 2005
but are renewable for an additional 20-year period, subject to the meeting of certain
obligations. The concessions may be revoked prior to expiration. See Obligations
of Telecommunications CompaniesPublic RegimeService Restrictions. Every
second year during the 20-year renewal period, public regime companies will be required
to pay renewal fees equal to 2% of the annual net revenues from the provision of
telecommunications services (excluding taxes and social contributions) during the
immediately preceding year, beginning April 30, 2006.

Our
company, like the other regional fixed-line companies, is generally not permitted to
offer interregional, international long-distance service or other specified
telecommunications services until after December 31, 2003. However, if all of the
operating concessionaires providing telecommunications services in our region meet their
network expansion and universal service targets on an accelerated basis, we would qualify
to receive authorization to offer any sort of telecommunications services, including
interregional and international long-distance services, in our region and elsewhere,
prior to December 31, 2003. See Obligations of Telecommunications CompaniesPublic
RegimeService Restrictions.

Fixed-Line Services
 Private Regime

The
Telecommunications Regulations provide for the introduction of competition in
telecommunications services in Brazil by requiring the Federal Government to authorize
four private regime companies: one to provide local fixed-line and intraregional
long-distance telecommunications services in each of the three fixed-line regions and one
to provide interregional and international long-distance telecommunication services
throughout Brazil. In November of 2000, Global Village Telecom began providing local
fixed-line and intraregional long-distance telecommunications services in our region,
thereby increasing competition for us. Since January 1, 2002, Anatel has had the
authority to authorize additional private regime companies to provide intraregional,
interregional and international telephone long-distance services.See Business
OverviewCompetition.

Obligations of
Telecommunications Companies

Our
company, like other telecommunications service providers, is subject to obligations
concerning quality of service and network expansion and modernization. The other public
regime companies are also subject to a set of special restrictions regarding the services
they may offer contained in the Plano Geral de Outorgas(General Plan of
Concessions and Licenses) and special obligations regarding network expansion,
modernization and service quality contained in the Plano Geral de Metas de Universalização(General Plan on Universal Service) and the Plano Geral de Metas de
Qualidade(General Plan on Quality).

Public Regime 
Service Restrictions

The
General Plan of Concessions and Licenses prohibits regional fixed-line service providers
such as our company from offering cellular, interregional long-distance or international
long-distance services and prohibits Embratel from offering local or cellular services
until after December 31, 2003.

Anatel
is expected to monitor the progress of Embratel and the regional fixed-line service
providers, like our company, towards meeting their respective Lists of Obligations. See
Network ExpansionGeneral Plan on Universal Service and Quality
of ServiceGeneral Plan on Quality. Each public regime fixed-line provider
will be authorized to provide all other telecommunication services (except for fixed-line
services in the private regime within their region and cable television services) either
(i) after December 31, 2003; or (ii) after all of the public regime concessionaires
operating in their respective region have met their respective universalization and
network expansion targets.

Public
regime companies are also subject to certain restrictions on alliances, joint ventures,
mergers and acquisitions, including the following:

- a public regime
company is prohibited from holding more than 20 percent of the voting stock in any other
public regime company for a five-year period beginning in July 1998 (following such
period the prohibition is suspended, provided that the acquisition is not deemed
detrimental to the implementation of the General Plan of Concessions and Licenses);
- mergers between
regional fixed-line service providers and cellular service providers are prohibited; and
- companies offering
telephony services are prohibited from offering cable television (unless a public auction
to provide such services in the relevant region is held and no one appears).

Network Expansion 
General Plan on Universal Service

Under
the General Plan on Universal Service, each regional fixed-line service provider is
required to expand fixed-line service within its region in accordance with the List of
Obligations, and Embratel is required to expand access to long-distance service by
installing public telephones in remote regions. No subsidies or other supplemental
financings are anticipated to finance the network expansion obligations of the public
regime companies. If a public regime company fails to meet its obligations in a
particular fixed-line region, Anatel may apply the penalties established by the terms and
conditions of the concessions.

Quality of Services
 General Plan on Quality

The
providers of fixed-line services, either in the private or in the public regime, shall
comply with the provisions of the General Plan on Quality and with the terms of their
respective concessions, licenses and authorizations, as the case may be. All costs
related to the fulfillment of the quality goals established by the General Plan on
Quality shall be exclusively held by the respective telephone service provider.

The
General Plan on Quality establishes the minimum quality standards for the services in
regard to:

- quality of phone
calls;
- attendance to
repair requests;
- phone services to
the user;
- quality of public
phones;
- supply of access
code to users;
- personal services
to users;
- issuance of bills;
- attendance to
requests of address changes; and
- modernization of
the network.

The
providers of fixed-line services are obliged to supply Anatel with specific data
containing their achievement of the minimum quality set forth in the General Plan on
Quality on a monthly basis. However, Anatel may collect such data itself at any time and
without any previous warning.

The
provider of fixed-line telephone service who does not achieve, in due time, the quality
targets established, may be subject to general punitive measures selected by Anatel. Such
measures are: warning, fine, temporary suspension, issuance of a bad repute statement,
and termination of such concession, permission or authorization. Fines applicable due to
an act or omission contrary to the terms of the respective concession, permission or
authorization and which causes damages to the quality of the fixed-line telephone
services can be up to R$50 million. Such fines shall be imposed pursuant to the terms of
article 179 of Law 9,472/97 and the respective concession, permission or authorization.

Fines and Penalties

Failure
to meet the network expansion and modernization obligations in the List of Obligations
may result in fines and penalties of up to R$50 million as well as potential revocation
of the concession. Failure to meet the quality of services obligations in the List of
Obligations may result in fines and penalties of up to R$40 million. Although we believe
that we will be able to meet these requirements; our ability to meet the quality of
service obligations in the List of Obligations will depend upon certain factors outside
of our control. See Business OverviewNetwork and FacilitiesNetwork
Expansion and Business OverviewServices.

Interconnection

All
public regime companies are required to provide interconnection upon request to any
provider of public telecommunications services when technically possible. The terms and
conditions of interconnection are freely negotiated between parties, subject to Anatels
approval. If the parties do not reach agreement on the terms of their interconnection,
Anatel may act as their arbitrator. If a company offers any party a tariff below the
price cap, it must offer that tariff to any other requesting party on a nondiscriminatory
basis. Fixed-line service providers are required to meet certain targets for the number
of interconnection points available.

Rate Regulation

Our
concessions provide for a price-cap mechanism to set and adjust rates on an annual basis.
The price-cap mechanism consists of an upper limit placed on a weighted average rate for
two baskets of services, one local and one long-distance. The local basket includes
installation charges, monthly subscription fees and measured usage fees. The
long-distance basket includes four rates for calls of varying distances. The caps for
local and long-distance interconnection services are equal to the caps for the respective
baskets.

The
initial price caps in our concessions were based on the previously existing tariffs,
which were developed based on our fully allocated costs. The price caps are adjusted by
Anatel on an annual basis under a formula set forth in our respective concessions, which
provides for two types of adjustments. One adjustment reflects the rate of deflation or
inflation during the relevant period, as measured by the General Price Index  Internal
Availability, Índice Geral de Preços  Disponibilidade Interna,
published by the Fundação Getúlio Vargas, a private Brazilian
economic research organization. The other adjustment is a reduction in the price-level
adjustment determined in accordance with a table of deemed productivity gains that are
phased in during 1998-2005 for some caps and 2001-2005 for others.

Subject
to certain limits, the tariffs for individual services within each basket may be
increased without pre-defined limits, as long as the weighted average tariff for the
entire basket does not exceed the price cap. Subject to approval by Anatel, we may also
offer alternative plans that are not subject to the price cap. For instance, customers
might be permitted to select a plan that allows unlimited calling for a set fee rather
than paying the per-minute fee under our basic service plan.

Other
telecommunications companies wishing to interconnect with and use our network must pay
certain fees, primarily a flat network usage fee charged per minute of use, which
represents an average charge for a basket of network elements and services. The flat
network usage fee is subject to a price cap that varies from company to company based on
the underlying cost characteristics of that companys network. For a breakdown of
our past network usage charges, see Business OverviewRatesNetwork
Usage Charges.

Three
years from the date of grant of our concessions, Anatel may permit us to set our own
tariffs, provided that there is effective competition in our region. Excessive increases
in earnings or anti-competitive practices may cause Anatel to re-institute the price-cap
mechanism.

For
information on our current tariffs and service plans, see Business OverviewRates.

Concessions
Termination

Under
the terms of our respective concessions, a concession can be terminated under any of the
following circumstances:

- upon expiration of
such concession;
- by the Federal
Government under extraordinary circumstances in which the public interest is jeopardized
and the Federal Government decides to operate the services that we provide, under the
understanding that such termination by the Federal Government shall only be valid as long
as a law declaring the existence of such situation is enacted and the relevant
indemnification is paid to our company;
- by amicable or
judicial termination by our company as a consequence of an act or omission by the Federal
Government if the rendering of our services becomes an excessive burden to our company;
- upon the
occurrence of an annulment, determined in the sole discretion of Anatel, which shall only
occur when Anatel believes that we are guilty of an irreversible and serious
irregularity;
- in the event that
we enter into a split-up, spin-off, amalgamation or merger process, capital reduction or
a transfer of our corporate power without Anatels authorization;
- by the transfer of
such concession without Anatel's authorization; and
- in the event of an
intervention by Anatel in our operations that causes us to receive unfair benefits.

In
the event that any of our concessions are terminated, Anatel may, without prejudice,
preemptively occupy all of our properties and use our employees in order to continue
rendering services, on the terms and conditions previously established.

Capital Expenditures

Before
the breakup of Telebrás, our capital expenditures were planned and allocated by
Telebrás on a system-wide basis and subject to approval by the Federal Government.
These constraints on capital expenditures prevented us from making certain investments
that otherwise would have been made to improve telecommunications service in our region.
Since the breakup of Telebrás, we are no longer subject to these restrictions. We
are now permitted to determine our own capital expenditure budget, subject to compliance
with certain obligations under our concessions. See Regulation of the
Brazilian Telecommunications IndustryObligations of Telecommunications Companies.

The
following table sets forth our capital expenditures on plant expansion and modernization
for each of the years ended December 31, 2000, 2001 and 2002.

|                           | Year ended December 31,
|-------------------------- | -----------------------
|                           | 2000(1)                
|                           | (millions ofreais)     
|Switching                  | 515.8                  
|Transmission               | 212.8                  
|Access Network             | 595.3                  
|Data Network               | 72.9                   
|Infrastructure             | 243.5                  
|Other investments(3)       | 443.7                  
|Total capital expenditures | 2,084.0(4)             

_______________
 (1)     
          In constant reais of December 31, 2000. Presented on a combined
          consolidated basis for the year 2000. 
 (2)     
          Pursuant to Brazilian GAAP, 2001 and 2002 financial information is not restated
          in constant reais. Presented on a consolidated basis for the years 2001
          and 2002.
 (3)     
          Other investments include investments to replace plant equipment and other fixed
          assets generally without altering the capacity of the assets replaced and
          certain investments in operational and technical support such as
          telecommunications management network systems.
 (4)     
          Does not include any capital expenditures made by CRT on its network prior to
          our merger with CRT, which is deemed to have occurred on July 31, 2000.

Acquisition of CRT

In
addition to the expenditures on plant expansion and modernization, we invested
approximately R$1.50 billion on the acquisition of CRT in 2000.

On
July 31, 2000, we acquired 98.83% of the corporate capital of TBS, the holder of 85.19%
of the voting capital of CRT, for approximately R$1.50 billion. The acquisition of CRT
was financed partly through the use of our own cash reserves, as well as through the
domestic placement of commercial paper worth approximately R$900 million.

Acquisition of Ibest
Holding Corporation

On
February 22, 2002, BrT Serviços de Internet S.A. acquired 15.4% of the total capital
stock of Ibest Holding Corporation, which controls Ibest S.A., for approximately R$10
million. The equity interest in Ibest Holding Corporation was reduced to 12.8% by the
acquisition of Lokau by Ibest Holding Corporation, which paid Lokaus shareholders
with its shares. BrT Serviços de Internet S.A. also entered into a partnership
agreement with Ibest S.A. to provide internet dial access to Ibest S.A.s users, in
return for which Ibest S.A. encourages its users to access the internet through our
services.

Acquisition of
Globenets Submarine Fiber-Optic Cable System

On
November 15, 2002, our subsidiary Brasil Telecom S.A. signed an agreement with the
affiliate companies of GlobeNet Communications Group Ltd., through a Sales and Purchase
Contract of Shares and Assets (Contrato de Compra e Venda de Ações e Ativos),
for the acquisition of the entire submarine fiber-optic cable system of the GlobeNet
Group, interlinking connection points in New York and Florida (United States), St. Davids
(Bermuda Islands), Fortaleza and Rio de Janeiro (Brazil) and Maiquetia (Venezuela). The
transaction will consist of the acquisition of assets located in the United States, in
the Bermuda Islands, in Brazil and in Venezuela.

The
transaction was implemented by our subsidiary Brasil Telecom S.A. through its
wholly-owned subsidiary BrTi, which in turn will be able to form subsidiaries outside
Brazil for the acquisition of assets and the purchase of shareholding stakes outside
Brazil.

The
value of the transaction is equivalent to US$48.0 million, of which US$28.8 million was
paid on the closing date, June 11, 2003. The remaining US$19.2 million will be paid over
a period of 18 months after the payment of the first installment.

The
GlobeNet Group was formed in 1998 to provide fiber-optic communication services in the
United States and internationally between the United States and South America. The Groups
system is composed of two armored submarine cable rings, representing approximately
22,000 kilometers of the best fiber-optic technology cable, linking Brazil to the United
States, passing through Venezuela and the Bermuda Islands, with an installed capacity of
80Gbps, and with the potential to increase this to 1,360Gbps. With this installed
capacity, we do not anticipate the need for additional investment in fixed assets in the
short-term.

Through
this transaction, we are following our strategy of consolidation and expansion, as a
provider of IP wideband broadband services for the residential and corporate segments, as
well as becoming the owner of an important fiber-optic connection between Brazil and the
United States, which is important to both our interests and those of Brazil.

Acquisition of PCS
Licenses

In
line with the strategy of operating integrated solutions to our clients, we acquired
licenses for Personal Communication Services (PCS) for R$191.5 million, at an auction
held on November 19, 2002. Brasil Telecom paid a premium of 3.6% over the reserve price
of R$184.9 million.

Our
subsidiary Brasil Telecom S.A. signed the Term of Authorization on December 19, 2002,
when it paid the equivalent of 10% of the total bid amount at auction. The remaining 90%
will be paid in six equal installments annually, respectively due 36, 48, 60, 72, 84 and
96 months after the date of the signing of the Term of Authorization. These installments
will be corrected by the IGP-DI index.

Compared
to the amounts paid for the same licenses at the auction held on February 13, 2001, the
situation was favorable for us, since we acquired our licenses for approximately R$350
million less than the price paid at that time.

Acquisition of MetroRED

On
February 17, 2003, we announced the acquisition of a 19.9% stake in MTH do Brasil Ltda.,
the holder of 99.99% of the capital of MetroRED, for US$17.0 million. In addition to
this, we have a purchase option on the remaining 80.1% stake in MTH for US$51.0 million,
which can only be exercised after we obtain certification by Anatel and the fulfillment
of the 2003 targets set out in our concession contracts.

MetroRED
will allow Brasil Telecom S.A. to continue its strategy of positioning itself as a market
leader in the corporate data transmission services segment. MetroREDs data
transport network is complementary to ours and has significant network capillarity in the
three principal corporate markets outside Region 2  São Paulo, Rio de
Janeiro and Belo Horizonte. The system has 331 kilometers of local network and 1,486
kilometers of long-distance network, connecting these cities.

MetroRED
also has an Internet Solutions Center occupying 3,500 square meters in São Paulo,
which offers co-location and hosting services, among others. In addition to this, it has
a management team with a wide and in-depth knowledge of the markets of São Paulo,
Rio de Janeiro and Belo Horizonte.

Research and Development

We
conduct research and development in the areas of telecommunications services, but do not
independently seek to develop any new telecommunications technology. Since prior to the
breakup of Telebrás, we have contributed to the Fundação CPqD  Centro
de Pesquisa e Desenvolvimento em Telecomunicações (the Center),
a research and development center formerly operated by Telebrás that develops
telecommunications technology for application in Brazil.

Our
aggregate expenditures on research and development, including our contribution to the
Center and expenditures relating to our own independent research and development
activities, were approximately R$24.7 million, R$8.0 million and R$3.8 million for 2000,
2001 and 2002, respectively.

Expected Capital
Expenditures on Plant Expansion and Modernization

We
currently expect to invest approximately R$1.82 billion in the expansion and
modernization of our network during the fiscal year 2003. For the three months ended
March 31, 2003, we had invested approximately R$381 million in the expansion and
modernization of our network. See Item 5 Operating and Financial Review and
ProspectsLiquidity and Capital ResourcesCapital Expenditures.

We
expect to finance our remaining expected 2003 capital expenditures with internal funds
generated primarily from our operations.

Business Overview

We
provide fixed-line telecommunications services in Brazil under concessions which we
assumed from each of Telesc, Telegoiás, Telebrasília, Telemat, Telems,
Teleron, Teleacre, CTMR and CRT for each of the states in our region. These concessions
were granted by the Brazilian government to us and to each of these companies prior to
our merger with them. These concessions authorize us to provide local and intrastate
fixed-line telecommunications services in nine states located in the western, central and
southern regions of Brazil and in the Federal District. These concession areas constitute
our region. See Our Region. We are the dominant provider of local
fixed-line telecommunications services and intrastate fixed-line telecommunications
services in our region. Local fixed-line telecommunications services include all calls
that originate and terminate within a single local area in our region, as well as,
installation, monthly subscription, public telephones and supplemental local services.
Intrastate fixed-line telecommunications services include all calls between local areas
within a state in our region.

Prior
to the year 2000, we did not provide interstate long-distance fixed-line
telecommunications services between the states in our region. Since July 1999, we have
been authorized to provide interstate long-distance services between the states in our
region, thereby competing against Embratel, Intelig and Global Village Telecom.

In
local fixed-line services, our sole competitor is Global Village Telecom. See Competition. As
of December 31, 2002, we had approximately 9.5 million lines in service.

Services

The
fixed-line telecommunications services that we offer to our customers consist of (i)
local services, including all calls that originate and terminate within a single local
area in the region, as well as, installation, monthly subscription, public telephones and
supplemental local services, (ii) intrastate long-distance services, including calls
between local areas within a state in our region, (iii) interstate long-distance
services, which are limited to calls between states in our region, (iv) network services,
including interconnection, leasing of facilities and fixed-to-mobile services, (v) data
transmission services, and (vi) other services. We do not sell, rent or otherwise
provide telephone equipment such as handsets or switchboards. Pursuant to the terms of
our respective concessions, we are not authorized to provide interregional and
international long-distance services. See History and Development of the
CompanyHistorical Background and Item 5 Operating and Financial Review
and Prospects. We are waiting for Anatels certification of the accomplishment
of the 2003 targets, so we can request this authorization to provide interregional and
international long-distance and certain other telecommunications services.

The
following table sets forth our revenue by type of service for the indicated years. Our
tariffs for each category of service are discussed below under Rates. Trends
and events affecting our operating revenue are discussed under Item 5 Operating and
Financial Review and Prospects.

|                                                         | Year ended December 31,
|-------------------------------------------------------- | -----------------------
|                                                         | 2000(1)(2)             
|                                                         | (millions ofreais)     
|Local services                                           | 3,889                  
|Non-local services                                      
|Intraregional (intrastate and interstate) long-distance 
|service                                                  | 987                    
|Interregional and international long-distance service(4) | 1                      
|Network services                                         | 915                    
|Data transmission                                        | 241                    
|Other                                                    | 202                    
|Gross operating revenues                                 | 6,235                  
|Taxes and discounts                                      | (1,583)                
|Net operating revenues                                   | 4,652                  

_______________
 (1)     
          In constant reais of December 31, 2000. Presented on a combined
          consolidated basis for the year 2000. 
 (2)     
          Does not include any revenue generated by CRT prior to our merger with CRT,
          which is deemed to have occurred on July 31, 2000. 
 (3)      Pursuant to
          Brazilian GAAP, 2001 and 2002 financial information is not restated in constant
          reais. Presented on a consolidated basis for the years 2001 and 2002.
 (4)     
          These services are limited to interregional long-distance calls to bordering
          cities adjacent to our region.

Local Services

We
are the dominant provider of local telecommunications services in our region. Local
services include all calls that originate and terminate within a single local area in our
region, as well as, installation, monthly subscription, public telephones, and
supplemental local services.

We
own and operate public telephones throughout our region. At December 31, 2002, we had
approximately 293.3 thousand public telephones. Anatels service targets required us
to have 216.3 thousand public telephones by year-end 2001, a goal which we met. No
target was set by Anatel for the year ended December 31, 2002. By December 31, 2003 we
have to meet the goal of 7.5 public telephones for each 1,000 inhabitants and a ratio of
public telephones/lines installed equal to 2.5%. See Network and FacilitiesNetwork
Expansion and Regulation of the Brazilian Telecommunications IndustryObligations
of Telecommunications CompaniesNetwork ExpansionGeneral Plan on Universal
Service.

We
provide a variety of other supplemental local services that include voice mail, call
waiting, call forwarding, conferencing, speed dialing and caller ID.

Intraregional (Intrastate
and Interstate) Long-Distance Service

We
are the dominant provider of intrastate fixed-line telecommunication services in our
region. Since July 1999, we have also been providing interstate fixed-line
telecommunications services in our region. Calls from one local area in a region to
another local area in a region are referred to as intraregional long-distance calls.
Intraregional long-distance service includes intrastate long-distance calls (calls within
a given state in a region) and interstate long-distance calls (calls between states in a
region). Prior to the breakup of Telebrás, each of Telepar, Telesc, Telegoiás,
Telebrasília, Telemat, Telems, Teleron, Teleacre, CTMR and CRT was the exclusive
provider of long-distance service that originated and terminated within its concession
area. Each concession area coincided roughly with a state, so, generally speaking, each
of Telepar, Telesc, Telegoiás, Telebrasília, Telemat, Telems, Teleron,
Teleacre, CTMR and CRT (excluding CTMR, which is related to the municipality of Pelotas)
was the exclusive provider of intrastate long-distance service in its state. Embratel was
the exclusive provider of long-distance service between states.

As
of July 1999, Embratel and Intelig were authorized to begin to provide intrastate
long-distance services within the states in our region, and we were authorized to begin
to provide interstate long-distance services between the states in our region. See Competition. As
a result we have been expanding our network to provide interstate long-distance service
in our region, and Embratel and Intelig have been expanding their networks to provide
intrastate long-distance service. Until we complete this expansion, we may lease
transmission facilities from other carriers to complete interstate long-distance calls
between states in our region. To date, Telemar, Embratel and Intelig have been granted
permission by Anatel to provide local telecommunications services in our region. Telesp,
Albra Telecomunicações Ltda., TIM and Global Village Telecom Ltda. have been
granted permission by Anatel to provide intraregional, interregional and international
telecommunications services in our region. TNL PCS S.A. has been granted permission by
Anatel to provide intraregional and interregional telecommunications services in our
region. CTBC has been granted permission by Anatel to provide interregional and
international telecommunications services in certain cities located in our region.

Anatel
approved a numbering plan for fixed-line service providers in Brazil. The numbering plan
created the so-called carrier selection code, whereby callers are able to choose a
service provider for each long-distance call with numbers that identify the carrier. Our
carrier selection code is 14. Since June 1999, we have been providing
intraregional long-distance service in our region, thereby competing against Embratel and
Intelig. Similarly, Embratel and Intelig have been approved to provide intraregional
long-distance service, thereby competing against our company. We are trying to increase
our market share of the intraregional (intrastate and interstate) long-distance service
market and consolidate our brand, in preparation of our entry into other regions after
December 31, 2003.

Interregional and
International Service

We
are currently not authorized to provide interregional or international long-distance
services. Interregional long-distance service consists of calls between a point within
our region and a point in Brazil outside our region. International long-distance service
consists of calls between a point within our region and a point outside Brazil. Since
2002, we are eligible to obtain authorization to provide interregional and international
long-distance service provided that all of the other public regime concessionaires
providing telecommunications services in our region have met the universalization and
network expansion targets set forth in our respective concessions. See Targets
Imposed by Anatel,Competition, and History and
Development of the CompanyRegulation of the Brazilian Telecommunications IndustryObligations
of Telecommunications Companies.

Network Services

Network
services consist of Interconnection, Lease of Facilities and Fixed-to-Mobile Services.

Interconnection

Interconnection
services consist of the use of our network by other telecommunication providers in order
to:

- receive calls that
originate on our network;
- complete calls
that terminate on our network; and
- connect switching
stations to our network.


Use of our interconnection services has
grown substantially since they were introduced in April 1998, as a result of:
- the spin-off of
the cellular telecommunications businesses of each of Telepar, Telesc, Telegoias,
Telebrasília, Telemat,          Telems, Teleron, Teleacre and CTMR;
- the breakup of
Telebrás; and
- the advent of
competition in the telecommunications sector in Brazil.

Telecommunications
service providers are required to provide interconnection services on a nondiscriminatory
basis. Subject to certain requirements, they are free to negotiate the terms of their
interconnection agreements, but if the parties fail to reach an agreement, Anatel will
arbitrate the controversy and establish the terms and conditions of interconnection. See
History and Development of the CompanyRegulation of the Brazilian
Telecommunications IndustryObligations of Telecommunications CompaniesInterconnection and
Rate Regulation. The terms of our interconnection services,
particularly the pricing and technical requirements of these services, may affect our
results of operations, competitive environment and capital expenditure requirements.

We
provide interconnection services to long-distance providers (Embratel and Intelig), and
certain operators of trunking services. We also provide interconnection services to the
cellular service providers that were spun off from each of Telepar, Telesc, Telegoiás,
Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR as well as all Band B
cellular service providers in our region.

Lease
of Facilities

Other
telecommunications service providers, particularly cellular service providers, lease
trunk lines from our company for use within their stand-alone networks. Large corporate
customers lease lines from our company for use in private networks connecting different
corporate sites.

We
also lease our telecommunications facilities to Embratel and Intelig in order to provide
access to our network.

Fixed-to-Mobile
Services

Fixed-to-mobile
services consist of calls that originate in a fixed-line terminal and terminate in a
cellular terminal. The use of our fixed-to-mobile services has grown since the spin-off
of the cellular telecommunications businesses of each of Telepar, Telesc, Telegoiás,
Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR.

Data Transmission Services

We
provide data transmission services through various technologies and means of access.
Since 1999, we have invested in data transmission capacity in response to the growing
demand in Brazil for data, image and text transmission services, mainly for corporate
networks and internet access.

We
offer various data transmission services such as:

- SLDD (Digital
Dedicated Line Service - leased lines);
- Turbo / Turbo
Empresas (xDSL - Digital Subscriber Line);
- ATM (Asynchronous
Transfer Mode) / Frame Relay (FR);
- Dedicated IP
(Internet Protocol - corporate internet access);
- DialNet (DialNet
service to corporate networks and public internet access); and
- Vetor (IP-VPNs,
Virtual Private Networks based on Internet Protocol).

We
intend to continue to invest in data networks in order to better serve the expected
increase in demand for this type of services.

In
2002, we installed 124,700 new ADSL (Asymmetric Digital Subscriber Line) portals,
resulting in a total of 225,300 ADSL installed portals, in 172 localities. The ADSL plant
in service reached 140,690 accesses, representing a growth of 318% compared to 2001
(33,670 accesses). At the end of 2002, we had sold 168,601 ADSL accesses. ADSL technology
allows normal telephone services, as well as the delivery of high-speed data transmission
to virtual private networks or to public internet over existing copper lines.

|                  | Year ended December 31, |        
|----------------- | ----------------------- | -------
|                  | 2001                    | 2002   
|ADSL             
|Installed Portals | 100,600                 | 225,300
|Access in Service | 33,670                  | 140,690
|Access Sold       | 40,640                  | 168,601

The
other data transmission services (ATM, FR, IP) expanded by 24.4% in 2002 compared to
2001. As of December 31, 2002, we had installed 8,232 ATM / FR / IP gateways, in 87
localities. The DialNet service increased from 47,520 gateways installed at the end of
2001, to 89,020 gateways installed in 180 localities at the end of 2002, representing an
increase of 87.3%.

|              | Year ended December 31, |       
|------------- | ----------------------- | ------
|              | 2001                    | 2002  
|DialNet       | 47,520                  | 89,020
|ATM / FR / IP | 6,618                   | 8,232 

In
the last quarter of 2002, we implemented the Multi Protocol Label Switching (MPLS) on the
IP Network. This technology allows us to provide IP-VPN services (virtual private
networks based on IP) associated with different classes of service, guaranteeing
differentiated treatment of traffic to each application. It also allows the formation of
virtual private networks independent on the clients access form (SLDD, FR, ATM,
DialNet).

In
2001, we continued implementing a Signaling Network through common channel seven, based
on four dedicated Signal Transfer Points (STP) which made it possible to begin to provide
additional services such as call screening (a service that allows for the identification
of clients, allowing for differential treatment of them), improved accounting and black
and white lists (data banks that allow the identification and service of clients in
default), in certain markets.

Other Services

We
provide telecommunications services beyond local, intraregional, network and data
transmission services including value-added services (900, follow-me, voice mail, call
waiting) and advertising in the Yellow Pages and advertising on public telephone cards.
However, in accordance with our concessions, we are prohibited from providing cable
television services, but we may lease our network to providers of such services.

Our Region

We
are authorized by our concessions to provide fixed-line telecommunications service in
nine states of Brazil located in the western, central and southern regions of Brazil, and
in the Federal District, as listed in the chart below, excluding small areas in the
States of Goiás, Mato Grosso do Sul and Paraná.

The
states in our region cover an area of approximately 2.85 million square kilometers,
representing approximately 33.4% of the countrys total area and generating
approximately 25% of Brazils Gross Domestic Product (GDP) in 2002. At
December 31, 2002, the estimated population of our region was approximately 41 million,
representing approximately 24% of the population of Brazil. Our region has four
metropolitan areas with populations in excess of one million inhabitants, including
Brasilia, the capital of Brazil.

The
following table sets forth certain key economic data for the states in which we operate.

|                   |               | Population   | Percentage of | Per capita  
|------------------ | ------------- | ------------ | ------------- | ------------
|                   | Population    | per square   | Brazil's GDP  | income (US$)
|State              | (millions)(1) | kilometer(1) | for 2000(2)   | for 2000(3) 
|Parana             | 9.6           | 47.96        | 5.99          | 12,628      
|Santa Catarina     | 5.4           | 56.14        | 3.85          | 14,500      
|Distrito Federal   | 2.1           | 352.16       | 2.69          | 26,433      
|Tocantins          | 1.2           | 4.17         | 0.22          | 3,872       
|Mato Grosso        | 2.5           | 2.77         | 1.22          | 9,803       
|Mato Grosso do Sul | 2.1           | 5.81         | 1.08          | 10,454      
|Rondonia           | 1.4           | 5.80         | 0.51          | 7,459       
|Rio Grande do Sul  | 10.2          | 36.14        | 7.73          | 15,306      
|Acre               | 0.6           | 3.65         | 0.15          | 5,573       
|Goias              | 5.0           | 14.69        | 1.97          | 7,920       

_______________
 (1)     
          Source: Instituto Brasileiro de Geografia e Estatistica 
          IBGE (IBGE) pursuant to the 2000 national demographic census.
          
 (2)      Source: IBGE.  
(3)      Per capita income was converted into
          dollars for presentation purposes at the average Commercial Market selling rate
          of 1999, $1.835 per U.S.$1.00.

Set
forth below is a map of Brazil showing the location of our region.

Our
business, financial condition, results of operations and prospects depend in part on the
performance of the Brazilian economy and the economy of our region, in particular.

The
following table sets forth a breakdown of our approximate revenues in each of the states
in which we operate for the year ended December 31, 2001.

|                                |      |          |        | Mato   |          |       |           |          |        | Rio    |        
|------------------------------- | ---- | -------- | ------ | ------ | -------- | ----- | --------- | -------- | ------ | ------ | -------
|                                |      |          | Mato   | Grosso |          |       |           | Santa    |        | Grande |        
|R$ millions (1)                 | Acre | Rondonia | Grosso | do Sul | Brasilia | Goias | Tocantins | Catarina | Paraná | do Sul | Total  
|Local service                   | 44   | 110      | 290    | 282    | 691      | 574   | 57        | 680      | 1,233  | 1,587  | 5,548  
|Intraregional and interregional | 9    | 35       | 95     | 71     | 51       | 138   | 28        | 266      | 319    | 329    | 1,341  
|International                   | 0    | 0        | 0      | 0      | 0        | 0     | 0         | 0        | 1      | 0      | 1      
|Network services                | 6    | 28       | 54     | 58     | 103      | 101   | 18        | 133      | 241    | 252    | 994    
|Data transmission               | 0    | 2        | 9      | 12     | 50       | 24    | 0         | 88       | 80     | 59     | 324    
|Other                           | 1    | 3        | 10     | 8      | 52       | 28    | 3         | 34       | 64     | 47     | 250    
|Gross operating revenues        | 60   | 178      | 458    | 431    | 947      | 865   | 106       | 1,201    | 1,938  | 2,274  | 8,458  
|Taxes and discounts             | (12) | (46)     | (143)  | (115)  | (262)    | (243) | (26)      | (326)    | (522)  | (605)  | (2,300)
|Net operating revenues          | 48   | 132      | 315    | 316    | 685      | 622   | 80        | 875      | 1,416  | 1,669  | 6,158  

_______________
 (1)    
          Pursuant to Brazilian GAAP, presented financial information for 2001 is not
          restated in constant reais.

The following table sets forth a
breakdown of our approximate revenues in each of the states in which we operate for the
year ended December 31, 2002.

|                                |      |          |        | Mato   |          |       |           |          |        | Rio    |        
|------------------------------- | ---- | -------- | ------ | ------ | -------- | ----- | --------- | -------- | ------ | ------ | -------
|                                |      |          | Mato   | Grosso |          |       |           | Santa    |        | Grande |        
|R$ millions (1)(2)              | Acre | Rondonia | Grosso | do Sul | Brasilia | Goias | Tocantins | Catarina | Paraná | do Sul | Total  
|Local service                   | 53   | 134      | 338    | 303    | 747      | 663   | 83        | 853      | 1,406  | 1,675  | 6,255  
|Intraregional and interregional | 12   | 51       | 129    | 88     | 62       | 175   | 39        | 329      | 398    | 465    | 1,748  
|International                   | 0    | 0        | 0      | 0      | 0        | 0     | 0         | 0        | 1      | 0      | 1      
|Network services                | 7    | 26       | 66     | 62     | 114      | 101   | 29        | 131      | 239    | 246    | 1,021  
|Data transmission               | 3    | 8        | 19     | 20     | 94       | 39    | 6         | 126      | 112    | 102    | 529    
|Other                           | 2    | 5        | 11     | 12     | 62       | 36    | 4         | 40       | 74     | 60     | 306    
|Gross operating revenues..      | 77   | 224      | 563    | 485    | 1,079    | 1,014 | 161       | 1,479    | 2,230  | 2,548  | 9,860  
|Taxes and discounts             | (21) | (71)     | (177)  | (130)  | (294)    | (294) | (34)      | (411)    | (646)  | (683)  | (2,761)
|Net operating revenues          | 56   | 153      | 386    | 355    | 785      | 720   | 127       | 1,068    | 1,584  | 1,865  | 7,099  

_______________
 (1)     
          Pursuant to Brazilian GAAP, the financial information presented for 2002 is not
          restated in constant reais. 
 (2)      Since 2002, our revenues also
          include BrT Serviços de Internets revenues, which are not broken
          down per state.

Targets Imposed by Anatel

We
are required to achieve certain targets imposed by Anatel and the terms and conditions of
our concessions in connection with the quality and universalization of our services.

Quality Targets

We
are required, pursuant to the Telecommunications Regulations and our concessions, to meet
certain service quality targets relating to call completion rates, repair requests, rate
of response to repair request, operator response periods and other aspects of
telecommunications services. Noncompliance with these quality targets can result in
certain fines. See History and Development of the CompanyRegulation of
the Brazilian Telecommunications IndustryObligations of Telecommunications CompaniesQuality
of ServiceGeneral Plan on Quality.

The
following table summarizes our obligations relating to quality of service from 1999 to
2005. Our quality of service targets are set by the concessions originally granted to
each of Telepar, Teleacre, Teleron, Telemat, Telegoiás, Telebrasília,
Telems, Telesc, CRT and CTMR, as well as the Telecommunications Regulations.

|                                                                                                     | Quality of Service Targets beginning
|---------------------------------------------------------------------------------------------------- | ------------------------------------
|                                                                                                     | on December 31,                     
|                                                                                                     | 1999                                
|                                                                                                     | (%)                                 
|Dial tone within 3 seconds (% of cases):                                                             | 98                                  
|Call completion rate during peak periods (% of calls attempted) - Local:                             | 60                                  
|Call completion rate during peak periods (% of calls attempted) - Long Distance:                     | 60                                  
|Maximum monthly repair requests (% of lines in service)                                              | 3                                   
|Maximum monthly public telephone repair requests (% of public telephones in service)                 | 15                                  
|Operator availability during peak periods (%response within 10 seconds)                              | 92                                  
|Billing inaccuracy (per 1,000 bills issued)(1)                                                       | 4                                   
|Credit issued within one billing cycle for claimed inaccuracies (% of cases)                         | 95                                  
|Maximum number of uncompleted calls due to network congestion - Long Distance (% of calls attempted) | 6                                   
|Residential repair response speed (% within 24 hours)(2)                                             | 95                                  
|Nonresidential repair response speed (% within 8 hours)(3)                                           | 95                                  
|Public telephone repair response speed (% within 8 hours)                                            | 95                                  

_______________
 (1)     
          A bill is considered inaccurate for this purpose if a customer claims it is
          inaccurate.
  (2)      Must always be within 48 hours.
  (3)      Must always be within 24 hours.

The
following table indicates the individual performance of each of our concessions in
accomplishing their respective quality of service obligations as of December 31, 2002.

|                                                                                                     | Quality of Service Performance measured as of
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------
|                                                                                                     | December 31, 2002(2)                         
|                                                                                                     | AC                                           
|                                                                                                     | Branch                                       
|                                                                                                     | (%)                                          
|Dial tone within 3 seconds (% of cases):                                                            
|Morning                                                                                              | 99.93                                        
|Afternoon                                                                                            | 99.91                                        
|Night                                                                                                | 99.92                                        
|Call completion rate (% of calls attempted) - Local:                                                
|Morning                                                                                              | 75.95                                        
|Afternoon                                                                                            | 76.14                                        
|Night                                                                                                | 72.85                                        
|Call completion rate (% of calls attempted) - Long Distance:                                        
|Morning                                                                                              | 72.51                                        
|Afternoon                                                                                            | 71.45                                        
|Night                                                                                                | 75.10                                        
|Maximum monthly repair requests (% of lines in service)                                              | 1.57                                         
|Maximum monthly public telephone repair requests (% of public telephones in service)                 | 10.92                                        
|Operator availability during peak periods (% response within 10 seconds)                            
|Morning                                                                                              | 99.13                                        
|Afternoon                                                                                            | 93.53                                        
|Night                                                                                                | 96.79                                        
|Billing inaccuracy (per 1,000 local bills issued)(1)                                                 | 2.20                                         
|Billing inaccuracy (per 1,000 long-distance bills issued)(1)                                         | 0.64                                         
|Credit issued within one billing cycle for claimed inaccuracies (% of cases)                         | 100.00                                       
|Maximum number of uncompleted calls due to network congestion - Long Distance (% of calls attempted)
|Morning                                                                                              | 3.57                                         
|Afternoon                                                                                            | 2.63                                         
|Night                                                                                                | 2.38                                         
|Maximum number of uncompleted calls due to network congestion - Local (% of calls attempted)        
|Morning                                                                                              | 0.30                                         
|Afternoon                                                                                            | 0.44                                         
|Night                                                                                                | 0.61                                         
|Residential repair response speed (% within 24 hours)(3)                                             | 98.83                                        
|Nonresidential repair response speed (% within 8 hours)(4)                                           | 97.93                                        
|Public telephone repair response speed (% within 8 hours)(4)                                         | 96.52                                        

_______________
 (1)     
          A bill is considered inaccurate for this purpose if a customer claims it is
          inaccurate.
 (2)      Quality of Service performance targets that have not
          been met by us are highlighted in gray.
 (3)      Must always be within 48
          hours. 
 (4)     
          Must always be within 24 hours.

Universalization 
Network Expansion

We
are also required under the Telecommunications Regulations and our concessions, to meet
certain targets relating to network expansion and modernization. See History
and Development of the CompanyRegulation of the Brazilian Telecommunications
IndustryObligations of Telecommunications CompaniesNetwork ExpansionGeneral
Plan on Universal Service.

As
of February 28, 2003, we had met all of the expansion and modernization requirements for
the year ended 2003. The table below indicates certain of our obligations relating to the
expansion and modernization of our network from 2000 to 2005, and our performance in
accomplishing those obligations at December 31, 2002.

|                                                                                       | Company status at December 31, |       | By December 31,(2) |      |     
|-------------------------------------------------------------------------------------- | ------------------------------ | ----- | ------------------ | ---- | ----
|                                                                                       | 2002                           | 2002  | 2003               | 2004 | 2005
|Minimum number of installed lines (millions)                                           | 10.55                          | 8.1   | 8.1                | 8.1  | 8.1 
|Fixed-line service available to all communities larger than (thousands of inhabitants) | --                             | 1,000 | 600                | 600  | 300 
|Maximum waiting time for installation of a line (weeks)(1)                             | --                             | 4     | 2                  | 1    | 1   
|Minimum number of public telephones in service (thousands)                             | 293                            | 216   | 216                | 216  | 216 
|Minimum number of public telephones (per 1,000 inhabitants)                            | 7.2                            | --    | 7.5                | 7.5  | 8.0 
|Minimum public telephones as a percentage of fixed lines                               | 2.8                            | --    | 2.5                | 2.5  | 3.0 
|Minimum digitalization level of network (%)                                            | 99%                            | 85%   | 95%                | 95%  | 99% 

_______________
 (1)     
          Applies only to areas where fixed-line service is fully available.
 (2)     
          These expansion and modernization requirements are inclusive of the requirements
          for the CRT concession.

Rates

Our
telecommunications service rates are subject to comprehensive regulation. See History
and Development of the CompanyRegulation of the Brazilian Telecommunications
IndustryRate Regulation. Since the relative stabilization of the Brazilian
economy in mid-1994, there have been two major changes in rates for local and
long-distance services. Effective in January 1996, rates for all services were increased,
primarily to compensate for accumulated effects of inflation. Effective in May 1997,
the rate structure was modified through a tariff rebalancing that resulted in higher
charges for measured service and monthly subscription and lower charges for
intraregional, interregional and international long-distance services.

Our
concessions establish a price-cap mechanism for annual rate adjustments, which places an
upper limit on a weighted average of the rates for a basket of local and long-distance
service and for interconnection. The basket includes activation and subscription fees and
measured usage fees for local, long-distance and public telephone service. Subject to
certain limits, the rates for individual services within the basket may be increased by
up to 9% above the limit, as long as the weighted average rate for the entire basket does
not exceed the limit. Our concessions provide for the price cap to be adjusted
periodically by Anatel in order to take account of inflation, as measured by the IGP-DI.
In 2000, 2001 and 2002 the basket of local services was adjusted, on average, by
approximately 13%, 10% and 8%, respectively.

Local Rates

Our
revenue from local service consists principally of activation and installation charges,
monthly subscription charges, measured service charges and public telephone charges.

The
monthly subscription charge is the amount paid for the availability of fixed switched
telephony service, regardless of utilization. Payment of this charge includes 100 free
pulses per month for residential clients and 90 free pulses per month for non-residential
clients. Any pulses in excess of such amounts are billed to the customer as a measured
service.

Since
June 28, 2002, the date of the last tariff adjustment, monthly subscription charges (net
of taxes) have been R$18.92 for residential customers and R$24.80 for commercial
customers.

Users
of measured service, both residential and nonresidential, pay for local calls depending
on usage. Usage is measured in pulses. Pulses occur system-wide every four minutes for
most local calls and every sixty seconds for local calls made between certain
municipalities. These system-wide pulses are recorded independently of when individual
calls are actually made. In addition to system-wide pulses, the system records one pulse
for every call when the call is connected. After the first pulse, only system-wide pulses
are used in determining the charge for a call. As a result, the time between the first
pulse and the second (system-wide) pulse may vary. For example, for a call being charged
using four-minute pulse increments, the time between the first pulse and the second
(system-wide) pulse may vary between one second and four minutes.

Local
call charges for calls made on weekdays from 6:00 a.m. to 12:00 a.m. and on Saturdays
from 6:00 a.m. to 2:00 p.m., are determined by multiplying the number of pulses by the
charge per pulse. For calls being made any weekday between midnight and 6:00 a.m., on
Saturdays between 2:00 p.m. and midnight and all day on Sundays and holidays, a caller is
charged for only one pulse regardless of the duration of a call.

The
following table sets forth selected information regarding our subscription charges and
measured service charges for local telephone service for the periods indicated.

|                                              | Year ended December 31,
|--------------------------------------------- | -----------------------
|                                              | 2000 (1)(3)(4)         
|Average rates for local telephone service(2): | (reais)(1)             
|Monthly subscription:                        
|Residential                                   | 14.11                  
|Commercial                                    | 21.97                  
|Measured service (per local pulse)            | 0.0708                 

_______________
 (1)     
          In constant reais of December 31, 2000.
  (2)      Average rates, net
          of value-added taxes.
 (3)     
          Average rates for local telephone service decreased slightly in 2000 mostly due
          to the monetary restatement into constant reais of December 31, 2000.
 (4)     
          Year 2000 information includes the rates of CRT. 
 (5)     
          Pursuant to Brazilian GAAP, 2001 and 2002 financial information is not restated
          in constant reais.

As
of June 28, 2002, the date of the last tariff adjustment, we charged an installation fee
ranging from R$12.63 to R$69.70 (depending on the state) for the installation of a new
line and a fee of R$81.74 when a customer changes addresses.

Intraregional
Long-Distance Rates

Rates
for intraregional long-distance calls are computed on the basis of the time of day, and
day of the week, duration and distance of the call and also vary depending on whether
special services, such as operator assistance, are used. The following table sets forth
selected information regarding our domestic long-distance rates during the periods
indicated.

|                                 | Year ended December 31,
|-------------------------------- | -----------------------
|                                 | 2000 (1)(3)(4)         
|Domestic long-distance rates(2): | (reais)(1)             
|0 to 50 km                       | 0.39                   
|50 to 100 km                     | 0.59                   
|100 to 300 km                    | 0.90                   
|Over 300 km                      | 0.96                   

_______________
 (1)     
          In constant reais of December 31, 2000. 
 (2)     
          Average rates for a domestic long-distance call (interstate), three minutes in
          duration between the hours of 9 a.m. and noon and 2 p.m. and 6 p.m. (peak
          hours) on weekdays, net of value-added taxes.
 (3)     
          Rates for intraregional long-distance decreased slightly in 2000 mostly due to
          the monetary restatement into constant reais of December 31, 2000.
 (4)     
          Year 2000 information includes the rates of CRT. 
 (5)     
          Pursuant to Brazilian GAAP, 2001 and 2002 financial information is not restated
          in constant reais.

Network Usage Charges

Our
revenue from network services consists primarily of two basic categories: (1) payments
from other telecommunications service providers on a per-minute basis to complete calls
using our network, and (2) fixed payments from other telecommunications service providers
on a contractual basis to use part of our network. The network usage charge varies
depending on whether the telecommunications service provider uses our local or
long-distance network. Similarly, we pay other fixed-line and cellular service providers
a network usage charge to complete calls on their networks. The terms and conditions of
interconnection are freely negotiated between the parties, subject to approval by Anatel.
We are required to make our network available for interconnection whenever demanded by
any other telecommunications provider, if technically possible, on an equal and
non-discriminatory basis.

Cellular
telecommunications service in Brazil, unlike in North America, is offered on a calling
party pays basis. Under the policy of calling party pays, a cellular service
subscriber generally pays cellular usage charges only for calls made by the cellular
service subscriber and not for calls received. In addition, a subscriber pays roaming
charges on calls made or received outside his or her home registration area. Calls
received by a cellular service subscriber are paid for by the party that places the call
in accordance with a rate based on cellular per-minute charges. For example, a fixed-line
service customer pays a rate based on cellular per-minute charges for calls made to a
cellular service subscriber. The cellular base rate per-minute charges are generally VC1
for local calls, VC2 for calls outside the cellular subscribers registration area
but inside the region where the respective cellular provider provides service, and VC3
for calls outside the subscribers registration area and outside the region where
the respective cellular provider provides service. We charge our fixed-line service
customers per-minute charges based on either VC1, VC2, or VC3 rates when a fixed-line
service customer calls a cellular subscriber. In turn, we pay the cellular service
provider a mobile network usage charge for such calls.

Our
revenue from network services also includes payments from other telecommunications
service providers arranged on a contractual basis to use part of our network. Other
telecommunications service providers, such as providers of trunking and paging services,
may use our network to connect a central switching station to our network. Some cellular
service providers use our network to connect cellular central switching stations to the
cellular radio base stations. We also lease transmission lines, certain infrastructure
and other equipment to other providers of telecommunications services.

The
following table sets forth the average per-minute rates that we charged for network
services during the indicated years.

|                                                           | Year ended December 31,
|---------------------------------------------------------- | -----------------------
|                                                           | 2000 (1)(3)(4)         
|                                                           | (reais)(2)             
|Network usage rate (local)                                 | 0.044                  
|Network usage rate (long-distance )                        | 0.078                  
|Per minute charges for calls made to the cellular network:
|VC1                                                        | 0.287                  
|VC2                                                        | 0.546                  
|VC3                                                        | 0.585                  

_______________
(1)    
          In constant reais of December 31, 2000. 
(2)    
          Net of Value added taxes. Network usage rates (local and long-distance) refer to
          the rates that we charged.
(3)     Average rates in 2000 decreased
          slightly, mostly due to the monetary restatement into constant reais of
          December 31, 2000.
(4)     Year 2000 information includes the information
          of CRT. 
(5)    
          Pursuant to Brazilian GAAP, 2001 and 2002 financial information is not restated
          in constant reais.

As
of June 24, 2001, the date of the last tariff adjustment, network usage rates for local
and long-distance services were approximately R$0.0482 and R$0.0838, respectively. In
December 2002, network usage rates for local services were adjusted by 1.65% and for
long-distance services by 5.02%.

In
June 2001, Anatel authorized an average increase of approximately 10% for the TU-M
(fixed-mobile interconnection tariff) throughout our region. In January 2002, the TU-M
was adjusted, on average, by 10.6% in our concession area.In February 2003, the
TU-M was adjusted, on average, by 21.99% in our concession area.

On February 14, 2001, Anatel
established new price caps for VC-1, VC-2 and VC-3 tariffs. The VC-1 tariff increased by
9.5% while the VC-2 and VC-3 tariffs each increased by approximately 7.5%, all net of
value added taxes. In January 2002, the VC-1 tariff was adjusted by 9.9% and the VC-2 and
VC-3 tariffs were adjusted by 8.8%. In February 2003, the VC-1 tariff was adjusted by
23.5% and the VC-2 and VC-3 tariffs were adjusted by 22%.

Data Transmission Rates

The majority of revenue from data
transmission services is generated by monthly line rental charges for private leased
circuits. The balance consists mainly of nominal charges for access to the data
transmission network and measured service charges based on the amount of data transmitted.
The following table sets forth selected information about our average monthly line rental
charges for private leased circuits service during the indicated years.

|                                                          | Year ended December 31,
|--------------------------------------------------------- | -----------------------
|                                                          |                        
|                                                          | 2000(1)(3)             
|                                                          |                        
|                                                          |                        
|Average rates for monthly line rental per leased circuit: |                        
|Local circuit                                            
|4.8 Kbps                                                  | 174.49                 
|9.6 Kbps                                                  | 174.49                 
|64Kbps                                                    | 358.75                 
|2Mbps                                                     | 4,545.10               
|Long-distance circuit(2)                                 
|4.8 Kbps                                                  | 750.00                 
|9.6 Kbps                                                  | 750.00                 
|64Kbps                                                    | 2,028.76               
|2Mbps                                                     | 25,731.20              

|_________ | _________                                                                                                                             
|--------- | --------------------------------------------------------------------------------------------------------------------------------------
|(1)       | In constant reais of December 31, 2000.                                                                                               
|(2)       | Average of rates, net of
value-added taxes, assuming a transmission distance between 300 and 500 kilometers and a three-year contract.
|(3)       | Average rates
decreased slightly in 2000 mostly due to the monetary restatement into constant reais of December 31, 2000.             
|(4)       | Pursuant to Brazilian GAAP, 2001 and 2002 financial information is not restated in constant reais.                                    

The table below sets
forth the rates that we charged for ADSL services.  These costs do not include the fees
normally paid by customers to their internet service providers.

|Residential Plans | Downstream/Upstream Speed     | Monthly Subscription(1)
|----------------- | ----------------------------- | -----------------------
|                  |                               |                        
|Turbo 300         | Up to 300 Kbps/Up to 150 Kbps | 71.92                  
|Turbo 600         | Up to 600 Kbps/Up to 300 Kbps | 101.86                 
|Mega Turbo        | Up to 1.0 Mbps/Up to 300 Kbps | 184.16                 

|Corporate Plans | Downstream/Upstream Speed     | Monthly Subscription(1)
|--------------- | ----------------------------- | -----------------------
|                |                               |                        
|Corporate Plans | Downstream/Upstream Speed     | Monthly                
|Rápido          | Up to 256 Kbps/Up to 128 Kbps | 101.86                 
|Super Rápido    | Up to 768 Kbps/Up to 128 Kbps | 215.03                 
|Profissional    | Up to 1.5 Mbps/Up to 256 Kbps | 504.13                 

__________________
(1) Monthly rates in
reais, including value-added taxes.

Taxes on
Telecommunications Services

The cost of telecommunications
services in Brazil includes a variety of taxes. The principal tax is a state value-added
tax, the Imposto sobre Circulação Mercadorias e Serviços(ICMS), which Brazilian states impose at varying rates on the prices of
telecommunications services. The current average ICMS tax rate for telecommunications
services is 25%. However, the ICMS tax rate varies in some states. In the State of Acre,
for example, the ICMS tax rate is 25%, while in the State of Mato Grosso the ICMS tax rate
is 30%. In the State of Mato Grosso do Sul, the ICMS tax rate is 27%, in the State of
Goiás 26%, in the State of Paraná 27% and in the State of Rondônia
35%.

The telecommunications tax burden
also includes four other federal taxes. The Social Contributions on Gross Revenue
(PIS  Programa de Integração Social; and
COFINS  Contribuição para Financiamento da Seguridade
Social) are based on the companys gross revenues. COFINS applies at a 3% tax
rate and PIS applies at a 0.65% rate.

The Company may be subject to PIS at
a 1.65% rate for services other than telecommunications services, and it may be entitled
to PIS credits calculated on its costs and expenses to offset the PIS due on its gross
revenue.

The FUST and FUNTTEL are imposed on
certain telecommunications services at the rates of 1% and 0.5%, respectively, of gross
operating revenues net of certain deductions. See Item 10 Additional
InformationTaxationBrazilian Tax ConsiderationsOther Brazilian
Taxes.

In 2002, taxes on telecommunications
services represented approximately 27.1% of our annual operating revenues.

Public Compromise for
Tariff Reduction

We have undertaken to make our best
efforts to offer to our customers the lowest tariff available in our area of service, by
offering either the lowest individual tariffs available for long-distance calls, or by
offering tariff baskets providing greater savings for customers who choose our carrier
selection code (14).

Billing and Collection

We send each customer of local
services, intraregional long-distance services and other services a monthly bill covering
all the services provided during the prior period. We group our customers into six
different cycles per month with six different payment dates. The telephone bill separately
itemizes long-distance calls, calls made on a cellular telecommunications network, 800 and
900 services and other services such as call waiting, voice mail and call forwarding.

For interregional and international
long-distance services, customers receive separate monthly bills from each company that
they choose to carry their long-distance call. Customer payments are effected under
agreements with various banks or other alternative agents by debiting the customers
checking account or by direct payment to a bank or an alternative agent.

Pursuant to Brazilian law,
subscribers must receive a bill at least five days before the due date. When a payment is
not made by the due date, we must send to the customer a notice informing the customer
that if payment is not made within 15 days after the due date outgoing service will be
partially suspended and if payment is not made within 30 days after the due date all
outgoing service will be suspended, and the customer will only be able to receive calls.
If payment is not made within 45 days after the due date we will send another notice
informing the customer that, if payment is not made within 60 days after the due date, all
service will be suspended, the contract will be cancelled and the customers lack of
payment will be notified to a credit agency.

At December 31, 2002, approximately
7.1% of our customers account receivables were outstanding for more than 30 days,
4.0% of our customers account receivables were outstanding for more than 60 days,
and 13.3% of our customers account receivables were outstanding for more than 90
days. For a discussion of provisions for past due accounts, See Item 5 Operating and
Financial Review and ProspectsOperating results.

Network and Facilities

General

Our network includes installed lines
and exchanges, a network of access lines connecting customers to exchanges, trunk lines
connecting exchanges and long-distance transmission equipment. At December 31, 2002,
our regional telephone network included approximately 10.5 million installed lines, of
which 9.5 million lines were in service. Of the lines in service at that time,
approximately 72.5% were residential lines, 16.3% were commercial lines, 3.1% were public
telephone lines and 8.1% were other. Intraregional long-distance transmission is provided
by a microwave network and by fiber-optic cable.

The following table sets forth
combined information about our network for the periods indicated.

|                                                                    | At and for the year ended December 31,
|------------------------------------------------------------------- | --------------------------------------
|                                                                    |                                       
|                                                                    | 2000(1)                               
|                                                                    |                                       
|Installed access lines (millions)                                   | 9.0                                   
|Access lines in service (millions)                                  | 7.4                                   
|Average access lines in service for year ended (millions)           | 7.3                                   
|Lines in service per 100 inhabitants                                | 19.2                                  
|Percentage of installed access lines connected to digital exchanges | 93.1                                  
|Employees per 1,000 access lines installed                          | 1.2                                   
|Number of public telephones (thousands)                             | 219.5                                 

_______________
(1)   The year 2000 figures include the combined consolidated information of CRT, as if the merger had
     occurred on July 31, 2000.

We are required, under the
Telecommunications Regulations and our concessions, to meet certain targets relating to
network expansion and modernization. See History and Development of the
CompanyRegulation of the Brazilian Telecommunications IndustryObligations of
Telecommunications CompaniesNetwork ExpansionGeneral Plan on Universal
Service.

Network Expansion

During the fiscal year 2000, we
embarked on an aggressive network expansion program, increasing lines in service by
approximately 57.8% during this period from 4.2 million lines in service in 1999 to 7.4
million lines in service in 2000. During the fiscal year 2001, we slowed our aggressive
network expansion program, only increasing lines in service by approximately 16%, from
approximately 7.4 million in 2000 to 8.6 million in 2001, thereby increasing the telephone
density in our region to 21.5 lines in service per 100 inhabitants. During the fiscal
year 2002, we increased lines in service by approximately 10%, from approximately 8.6
million in 2001 to 9.5 million in 2002, thereby increasing the telephone density in our
region to 23.1 lines in service per 100 inhabitants.

Network
Modernization

As part of our network modernization
program, we have continued to install digital exchanges throughout our network. Compared
to the older analog technology, digital systems improve the quality and efficiency of the
network, accommodate higher traffic levels, require less maintenance and permit us to
offer a broad range of value added services, such as voice, text and data applications. At
December 31, 2002, approximately 99.0% of our installed lines were connected to digital
exchanges. Under the Telecommunications Regulations, our local network must be 99% digital
by year-end 2005.

In addition, as part of our network
modernization program, we have continued to install fiber-optic cable throughout our
network, completing the construction of our 11,000 kilometer fiber-optic backbone network,
or Super Via Digital on December 31, 2000. At the end of 2003, we expect to have a
total fiber-optic backbone network of 12,200 kilometers. Our backbone, which started
operations on January 7, 2000, is based on Synchronous Digital Hierarchy (SDH)
(digital communication through fiber-optics) and interconnects nine Brazilian states in
our region (Rio Grande do Sul, Santa Catarina, Paraná, Mato Grosso, Mato Grosso do
Sul, Acre, Rondônia, Tocantins and Goiás), besides the Federal District. Our
backbone is available for the transmission of voice, data, internet, high definition
pictures at a speed of 2.5 Gbps, and supports about 540,000 simultaneous transmissions.
The SDH has a back up and redundancy in the transmissions. In case of interruptions in a
certain sector, the calls are automatically diverted to an alternate route. We have a
centralized manager system to monitor failures, performance and configuration of the
network. The database also has a surplus of servers in order to assure the backup of the
equipment (Service Guard).

Competition

We operate in the local, intrastate
and interstate fixed-line telecommunications as well as in the data communication markets
in our region. We are not authorized to operate in the interregional or international
long-distance markets, nor in the cellular market. However, we are authorized to complete
calls from long-distance and cellular providers to our fixed line subscribers.

Local Services

Currently, we are the dominant local
fixed-line telecommunication services provider in our region, with an estimated 96.5%
market share. Global Village Telecom is our sole competitor in providing local fixed-line
telecommunications services in our region. Global Village Telecom is a newly created
telecommunications company that began operating in November of 2000.

In the short-term, we could lose
market share in the provision of local fixed-line telecommunications services as
additional competitors are allowed to enter the fixed-line market in our region. See
History and Development of the CompanyRegulation of the Brazilian
Telecommunications Industry. To date, Telesp, Telemar, Embratel and
Intelig have been granted permission by Anatel to provide local telecommunications
services in our region.

After December 31, 2003, we expect to
be able to counteract losses in market share in the local fixed-line market by providing
telecommunication services in other regions. See History and Development of
the CompanyRegulation of the Brazilian Telecommunications IndustryConcessions
and Licenses. However, since we have no control over when the other public regime
concessionaires in our region will meet their year 2003 universalization and network
expansion obligations, we cannot guarantee that we will be able to offer interregional and
international long-distance telecommunication services prior to December 31, 2003. This
could have a material adverse effect on our market share, margins, results of operations
and financial condition. See Item 3 Key InformationRisk FactorsRisks
Relating to Our CompanyWe may not be timely certified by Anatel regarding the
accomplishment of certain targets relating to the universalization, expansion and
modernization of our network.

Intraregional
(Intrastate and Interstate) Long-Distance Service

We are currently the dominant
intrastate and interstate long-distance telecommunication services provider in our region,
with an estimated 86.5% intrastate and an estimated 73.0% interstate market share. See
Item 4 Information on the CompanyHistory and Development of the
CompanyHistorical BackgroundHistory of Our Company. Global Village
Telecom, Intelig and Embratel are our competitors in providing intrastate and interstate
long-distance telecommunication services in our region. The licenses awarded to Embratel,
Intelig and Global Village Telecom are not subject to the same service quality and network
expansion and modernization obligations that we are subject to under our concessions.

In the short-term, we expect to lose
market share in the provision of intraregional long-distance telecommunications services
as additional competitors are allowed to enter the market. To date, Telesp, Albra
Telecomunicações Ltda, TIM and Global Village Telecom Ltda. have been
granted permission by Anatel to provide intraregional, interregional and international
telecommunications services in our region. TNL PCS S.A. has been granted permission by
Anatel to provide intraregional and interregional telecommunications services in our
region. See Item 3 Key InformationRisk FactorsRisks Relating to the
Brazilian Telecommunications IndustryWe face increasing competition in the Brazilian
telecommunications industry. This may have a material adverse effect on our market share,
margins, results of operations and financial condition.

After December 31, 2003, we expect to
be able to counteract losses in market share in the intraregional market by providing
telecommunication services in other regions. See History and Development of
the CompanyRegulation of the Brazilian Telecommunications IndustryConcessions
and Licenses. However, since we have no control over when the other public regime
concessionaires in our region will meet their year 2003 universalization and network
expansion obligations, we cannot guarantee that we will be able to offer interregional and
international long-distance telecommunication services prior to December 31, 2003. This
could have a material adverse effect on our market share, margins, results of operations
and financial condition. See Item 3 Key InformationRisk FactorsRisks
Relating to Our CompanyWe may not be timely certified by Anatel regarding the
accomplishment of certain targets relating to the universalization, expansion and
modernization of our network.

Interregional and
International Service

We are currently not authorized to
provide interregional or international long-distance services. Interregional long-distance
service consists of calls between a point within our region and a point in Brazil outside
of our region. International long-distance service consists of calls between a point
within a region and a point outside of Brazil. We could obtain authorization to provide
interregional and international long-distance service, provided that we and all of the
other public regime concessionaires providing telecommunications services in our region
have met the universalization and network expansion targets set forth in our respective
concessions. See History and Development of the CompanyRegulation of the
Brazilian Telecommunications IndustryObligations of Telecommunications
Companies.

However, since we have no control
over when the other public regime concessionaires in our region will meet their year 2003
universalization and network expansion obligations, we cannot guarantee that we will be
able to offer interregional and international long-distance telecommunication services
prior to December 31, 2003. In addition, Telesp, Albra Telecomunicações
Ltda, TIM andGlobal VillageTelecom Ltda. have been granted permission by
Anatel to provide intraregional, interregional and international telecommunications
services in our region. TNL PCS S.A. has been granted permission by Anatel to
provide intraregional and interregional telecommunications services in our region.
CTBC has been granted permission by Anatel to provide interregional and
international telecommunications services in certain cities located in our region. This
could have a material adverse effect on our market share, margins, results of operations
and financial condition. See Item 3 Key InformationRisk FactorsRisks
Relating to Our CompanyWe may not be timely certified by Anatel regarding the
accomplishment of certain targets relating to the universalization, expansion and
modernization of our network.

Data
Communications Services

The Latin American data market is
currently benefiting from a technological gap that has helped Latin American operators to
provide the latest technologies that have evolved in mature markets such as Europe and the
United States.

In the short-term, we expect demand
for high speed data transmission services in Brazil to increase marginally. In the
medium-term, we expect demand for high speed data transmission in Brazil to increase
substantially, due in large part to the technological gap existing in Brazil, increased
demand for bandwidth and lower prices per Mbps. In the short-term, we expect to
maintain our market position in the high-speed data transmission market, by leveraging our
existing infrastructure, which includes an 11,000 km fiber-optic backbone network. In
the medium-term, we expect to increase our revenues from high-speed data transmission,
once the existing glut of capacity diminishes and demand for bandwidth expands.

In 2001, we sought to offer our
customers secure and reliable data transmission services at increased speeds by offering a
broad range of IP, Frame Relay, ATM and VPN services. Currently, we provide high-speed
data transmission services to large financial institutions such as Banco do Brasil,
S.A., Banco Bradesco S.A., Caixa Econômica Federal and internet
service providers such as IG.

In March 2001 we introduced Turbo
ADSL internet services in 18 cities throughout Brazil, for high-speed-controlled quality
internet access. This service allows for a simultaneous access to data and voice
transmissions at speeds 30 times faster than a conventional modem. As of the end of 2001,
over 40 thousand of our customers had subscribed to Turbo ADSL internet services.

In 2001, we also set up Cyber Data
Centers (CyDC), in order to offer secure data storage services to our customers. Our first
Cyber Data Center was opened in the city of Curitiba on December 18, 2001, followed by
Cyber Data Centers in the cities of Porto Alegre and Brasilia. Our Cyber Data Centers are
designed to provide uninterrupted hosting, collocation, data storage and connectivity
services 365 days a year.

In January 2002, we linked two
Brazilian Central Bank data centers through our network in partnership with Adva
Optical of Germany thereby increasing our data transmission volume. This was the first
time in Brazil that a storage networking project of this size was undertaken in Brazil.
Our successful completion of this project has helped us to further increase our data
transmission volume, as well as gain additional government customers like DataPrev,
BR Distribuidora, Petrobras, Eletrosul, Eletronorte,
Agência Nacional de Águas(Ana), theNational Electrical Energy
Agency(Aneel), the Chamber of Deputies, Prodasen, the Federal Senate
of Brazil, Serpro, the Office of the President of the Republic of Brazil, and
the Industry and Commerce, Defense, Treasury, Labor and Employment, Communications,
Environment, Foreign Affairs and Aeronautic ministries.

In 2002, the operation of BrTurbo was
divided into two main phases: (i) the consolidation of the brand and introduction of a
100% broadband portal; and (ii) the redesign of the website portal and the introduction of
new broadband content, with contents such as live transmission of news, entertainment
channels, video channels with short-length feature films and documentaries and an
exclusive on-line games channel. In November, BrTurbo launched TurboMeeting service, which
allows two-line video-conferences. As a result, the average daily audience increased from
1.5 million hits in January 2002 to 7.5 million hits in December 2002.

BrTurbo was the leader in terms of
number of active clients among the providers operating high-speed access services based on
ADSL technology in Brasil Telecoms concession area. At December 31, 2002, it had
54,700 clients. About 39% of Brasil Telecoms Turbo clients use BrTurbo as an
internet access provider.

In 2002, BrTurbo also implemented a
strategy aimed at catering to corporate clients, particularly small and medium-sized
companies and SOHO. As part of this strategy, it launched BrTData, a portal which offers
space for backup and storage of information, e-mail accounts and publication of internet
sites. We also won the bid by the Post Office (ECT) to provide permanent electronic
addresses, a project to supply of 4.2 million e-mail addresses on a free basis within four
years. Once implemented, it will be the largest electronic mailbox system in Latin
America.

Internet Services

In October 2001, we formed BrT
Serviços de Internet S.A. (a wholly-owned subsidiary of Brasil Telecom S.A.) in
order to centralize the provision of our internet services into one entity. Through BrT we
launched BrTurbo.com, a broadband internet portal based on ADSL technology. In the fourth
quarter of 2001, BrTurbo.com attracted approximately 35% of all new broadband internet
subscribers within our region. In addition to multi-player online games, videos, and live
and recorded sports and social events, BrTurbo.com offers one (1) gigabyte personal data
backup services, 3D on-line chat services and other internet services. In 2001, for
example, BrTurbo.com established a partnership with Globo.com for the live internet
broadcast of the reality show, Big Brother Brasil. This was the first transmission
of a mass audience television program through the World Wide Web in Brazil.

In January 2002, BrTurbo.com began
offering, in partnership with Microsoft, a new type of internet service aimed at the
corporate market: the Office XP on-line application, designed to satisfy the needs of both
small offices and large companies.

On November 15, 2002 we entered into
a Share Purchase Agreement with certain affiliates of GlobeNet Communications Group Ltd.
for the acquisition of the Globenet Cable System, interlinking connection points in the
New York and Florida areas to connection points in Fortaleza and Rio de Janeiro (Brazil),
St Davids (Bermuda) and Caracas (Venezuela) through fiber-optic submarine cables.
The acquisition is being carried out by BrTi. The value of the transaction is US$48.0
million of which US$28.8 million was paid on the closing date, June 11, 2003, and the
balance of US$19.2 million will be paid in eighteen monthly installments following the
initial payment.

On February 17, 2003, we announced
the acquisition of 19.9% of the capital of MTH do Brasil Ltda., a company that holds
99.99% of the capital of MetroRED, for US$17.0 million. In addition, we hold an option to
purchase the remaining 80.1% of the capital of MTH for US$51.0 million, which can only be
exercised after certification by Anatel of compliance with the 2003 targets stipulated in
our concession contracts. MetroRED will allow Brasil Telecom to continue its strategy of
positioning itself as market leader in the corporate date transmission services segment.
MetroREDs data transport network is complementary to that of Brasil Telecom and has
significant network capillarity in the three principal corporate markets outside Region 2
 São Paulo, Rio de Janeiro and Belo Horizonte. The system has 331 kilometers
of local network and 1,486 kilometers of long-distance network, connecting these cities.
MetroRED also has an Internet Solutions Center occupying 3,500 square meters in São
Paulo, which offers co-location and hosting services, among others. In addition to this,
it has a management team with a wide and in-depth knowledge of the markets of São
Paulo, Rio de Janeiro and Belo Horizonte.

Sales
Channels and Marketing

We have improved our sales channels
in order to render specialized customer services in different niches and sectors of our
market, but primarily in the corporate market.

We have increased our use of direct
marketing in conjunction with active and receptive telemarketing as a way of targeting our
market sectors (residential, commercial and corporate). At the same time, we have
developed a complete portfolio of products and services, such as SLDD, Frame Relay, ATM,
IP WAN, Dedicated IP, Light IP and DialNet, to meet the needs of our customers.

We have rationalized our call center
structure, by merging our 30 pre-existing sites into four sites (Goiânia, Campo
Grande, Florianópolis and Curitiba) while improving the level of service. In order
to reduce further overlapping costs, we have closed most of our stores and centralized our
customer service into the call centers.

In an effort to improve service to
our corporate customers, we have created a corporate call center to service corporate
customers. In addition, we have increased use of third party providers, accredited by us,
as a way of reducing overhead costs and targeting small and medium-sized companies, in
order to render more specialized customer services to them.

We have also developed and improved
our website, in an effort to deliver some of our services online. Currently, customers are
able to access over 16 different types of services online, including: registration for the
purchase of a telephone line, issuance of a second copy of a bill, consultation of a
detailed and summarized bill, download of a bill, verification of receipt of payment, and
requests for repairs.

Intellectual
Property

Our business is not heavily dependent
on the development and exploitation of proprietary technology. We conduct research and
development in the areas of telecommunications services, but do not independently develop
any new telecommunications technology.

Since prior to the breakup of
Telebrás, our company, as well as each of the other operating subsidiaries of
Telebrás, have contributed to the Center, a research and development center
formerly operated by Telebrás which develops telecommunications technology in
Brazil. Pursuant to our arrangement with the Center, we have access to telecommunications
software developed by the Center and other technological services provided by the Center,
such as equipment testing and consulting and training services. In addition to the Center,
we also depend on manufacturers of telecommunications products for the development of new
hardware and new telecommunications technologies. See Item 5 Operating and Financial
Review and ProspectsResearch and Development and History and
Development of the CompanyCapital ExpendituresResearch and Development.

Organizational
Structure

We are structured as a holding
company with only one subsidiary, Brasil Telecom S.A. Brasil Telecom S.A. has two
wholly-owned subsidiaries, BrT Serviços de Internet S.A. and Brasil
Telecom Celular S.A. At the Brasil Telecom S.A. level, we are subdivided into ten
operational branches, one for each of the states of Tocantins, Goiás, Acre,
Rondônia, Mato Grosso, Mato Grosso do Sul, Paraná, Santa Catarina, Rio Grande
do Sul, and the Federal District.

These branches provide the following
fixed-line telecommunications services: (i) local services, including all calls that
originate and terminate within a single local area in our region, as well as,
installation, monthly subscription, public telephones and supplemental local services,
(ii) intrastate long-distance services, including calls between local areas within a state
in our region, (iii) interstate long-distance services, which are limited to calls between
states in our region, (iv) network services, including interconnection, leasing of
facilities and fixed-to-mobile services, (v) data transmission services, and (vi) other
services.

BrT Serviços de Internet
S.A., one of Brasil Telecom S.A.s subsidiaries, provides a variety of broadband
internet services through BrTurbo.com, a broadband internet portal based on ADSL
technology. See Item 4 Information on the CompanyBusiness
OverviewCompetitionInternet Services. Brasil Telecom Celular
S.A., Brasil Telecom S.A.s other subsidiary, will only be able to be operational
after we receive certification from Anatel regarding the fulfillment of the 2003 targets
set out in our PCS authorization contracts.

Property,
Plant and Equipment

Our principal properties consist of
transmission equipment (including outside plant and trunk lines), exchange equipment and
switching equipment. Our land and buildings consist principally of our telephone exchanges
and other technical, administrative and commercial properties. Exchanges include local
exchanges, toll exchanges that connect local exchanges to long-distance
transmission facilities and tandem exchanges that connect local exchanges with
each other and with toll exchanges. Since we are a holding company, our property is owned
by our subsidiary Brasil Telecom S.A.

Our properties are located in the
states of Acre, Rondônia, Goiás, Tocantins, Mato Grosso, Mato Grosso do Sul,
Paraná, Santa Catarina, and Rio Grande do Sul, as well as in the Federal District.
The buildings used by our management are primarily located in the capital cities of these
states. At December 31, 2002, we made use of approximately 4,574 properties, which
3,428 were owned by our company and 1,146 were leased from third parties.

As of December 31, 2002, the net book
value of our property, plants and equipment was approximately R$11,460 million (which
includes automatic switching, transmission and other equipment, buildings and other fixed
assets net of accumulated depreciation and work-in-progress regarding the same).

Environmental
and Other Regulatory Matters

We, like other Brazilian telephone
companies, are subject to federal, state and municipal environmental legislation and
regulation. Our failure to comply with applicable environmental laws could result in
administrative, civil and criminal sanctions against us.

As part of our day-to-day operations,
we regularly install ducts for wires and cables and erect towers for transmission
antennae. We may be subject to federal, state and/or municipal environmental licensing
requirements due to our installation of cables along highways and railroads, over bridges,
rivers and marshes, and through farms, conservation units and environmental preservation
areas, among other places. Currently, state and municipal environmental agencies in the
states within the region have not demanded that we obtain environmental licenses for the
installation of transmission towers and antennae. However, there can be no assurances that
state and municipal environmental agencies will not require us to obtain environmental
licenses for the installation of transmission towers and antennae in the future and that
such a requirement would not have a material adverse effect on the installation costs of
our network or on the speed with which we can expand and modernize our network.

We also have to comply with
environmental legislation regarding the management of solid wastes. According to CONAMA
Resolution No. 237 of 1997, companies responsible for the treatment and final disposal of
solid industrial wastes, special wastes and solid urban wastes are subject to
environmental licensing. Should the waste not be disposed of in accordance with standards
established by environmental legislation, the company generating such waste may be held
jointly liable for any damage caused with the company responsible for treatment of the
waste. In the states of Santa Catarina, Paraná e Mato Grosso, we have already
implemented management procedures aimed at the recycling of batteries, transformers and
fluorescent lamps. During the current year those management practices will also be
implemented in the other states.

In addition, since July 1999 we have
been subject, on a provisional basis, to the ICNIRP, which imposes limits on the levels
and frequency of the electromagnetic fields originating from our telecommunications
transmissions stations.

Notwithstanding the foregoing, we
believe that we are in compliance with ICNIRP standards as well as with all applicable
environmental legislation and regulations. We are currently not involved in any
administrative or judicial proceeding involving material liability for environmental
damage.

ITEM 5. Operating
and Financial Review and Prospects

Operating Results

The following discussion should be
read in conjunction with our Financial Statements and notes, which are included elsewhere
in this Annual Report. Certain important features of the presentation of our Financial
Statements are described in the introduction to Selected Financial Data. See
Item 3 Key InformationSelected Financial Data.

Effects of Changes
in Rates and Changes in Revenue Sharing

There were several major changes in
the structure of telecommunications rates that affected our results in 2000, 2001 and
2002.

Rate Rebalancing

Charges for local and non-local
services changed substantially from 2000 to 2002. In 2000, Anatel authorized us to adjust
the tariffs for our basket of local services, on average, by approximately 13%. In June
2001, Anatel authorized us to adjust the tariffs for our basket of local services, on
average, by approximately 10%. In June 2002, Anatel again authorized us to adjust the
tariffs for our basket of local services, on average, by approximately 8%. These rate
changes had a positive effect on revenues from local service due to an increase in tariffs
for our local basket of services.

Elimination of
Embratel Revenue-Sharing

Since July 13, 1998, we have been
receiving interconnection fees from Embratel on a per-minute basis for interregional and
international calls carried by Embratel that are initiated or completed on our fixed-line
network. We also receive a supplemental per-minute charge from Embratel in order to reduce
the impact of the discontinuation of the revenue-sharing arrangement (Parcela Adicional
de Transição the PAT). From April 1998 through
December 1998, the fixed PAT amount was R$0.025 per minute, including PIS and COFINS. The
PAT was completely phased out in 2001. See Item 4 Information on the
CompanyBusiness OverviewServicesInterregional and International
Service. These changes had an adverse impact on our revenues in 2001.

Interconnection
Fees

With respect to revenues, we receive
interconnection fees from mobile, local and long-distance operators that use our network
to complete their calls. Interconnection fees are set by Anatel. The interconnection rate
for the use of local networks (Tarifa de Uso de Rede Local  TU-RL) increased
by 8.58% and 1.65% in 2001 and 2002, respectively, while the interconnection rate for the
use of long-distance network (Tarifa de Uso de Rede Interurbana  TU-RIU)
increased by 7.76% and 5.02% in 2001 and 2002, respectively. In December 2002 Anatel
approved the 5.02% increase, retroactive to June 2002.

With respect to costs, we pay
interconnection fees for using other companies networks to complete our
clients calls. To complete a fixed-to-mobile call, we pay an interconnection fee
for the use of the mobile network (Tarifa de Uso Móvel  TU-M / Valor de
Uso Móvel  VU-M), which fee increased by 13% and 11.0% in 2001 and 2002. To
complete a fixed-to-fixed call, we also pay an interconnection fee for the use of local
networks (TU-RL), and an interconnection fee for the use of long distance networks
(TU-RIU).

Effects of Changes
in Presentation of Our Financial Statements in 2000

There are significant differences in
presentation between our Financial Statements for the year 2000 and those of prior years.
Each of these differences should be taken into account in comparing our financial
condition and results of operations for the year 2000 and prior years.

Merger of the
Operating Subsidiaries of Telebrás

On February 28, 2000, Brasil Telecom
S.A., our subsidiary, reorganized its corporate structure and merged with Telesc,
Telegoiás, Telebrasília, Telemat, Telems, Teleron, Teleacre and CTMR. This
reorganization was accounted for as a pooling of interest, since all of the entities with
which Brasil Telecom S.A. merged were under our control. As a result, our financial
information, for the periods before the merger, is presented on a combined basis as if
Brasil Telecom S.A.s merger with these entities had occurred as of January 1,
1996.

Acquisition and
Merger of CRT

On July 31, 2000, we signed a
contract for the purchase of all of the shares of TBS, a company that held 85.19% of the
voting capital of CRT, representing 31.56% of the share capital of CRT. Under such
agreement, we agreed to acquire 1.17% and Brasil Telecom S.A. agreed to acquire 98.83% of
the share capital of TBS.

On August 4, 2000, the acquisition of
CRT took place and we and Brasil Telecom S.A. paid approximately R$17.8 million and R$1.50
billion, respectively, for the share capital of TBS. The aggregate purchase price for CRT
included goodwill of approximately R$820.5 million, at the time of the acquisition.

On December 28, 2000, Brasil Telecom
S.A. merged with CRT. Brasil Telecom S.A.s merger with CRT was not accounted for as
a pooling of interest. As a result, our financial information for the year 2000 is
presented on a combined consolidated basis as if the merger of CRT into Brasil Telecom
S.A. had occurred on July 31, 2000.

Reduction of
Depreciation Schedules for Telecommunication Equipment

During our fiscal year 1999, we
shortened our depreciation schedule for our automatic switching and transmission equipment
from thirteen years and ten years, respectively, to five years, in order to reflect better
the estimated useful life of this equipment in light of rapidly changing technology and
industry practices. See Results of Operations for the Years Ended December 31,
2000, 2001 and 2002 Cost of ServicesDepreciation and Amortization.

Indexation for
Inflation

Our financial statements for the year
2000 are prepared on a fully indexed basis to recognize the effects of inflation, and are
presented in constant reais of December 31, 2000. Pursuant to Brazilian GAAP, our
audited financial statements for the years 2001 and 2002 do not recognize the effects of
inflation and are not presented in constant reais. See Note 2b to our Financial
Statements.

Effects of Changes
in Presentation of Our Financial Information for 2001 and 2002

There are significant differences in
presentation between our Financial Statements for the years 2001 and 2002 and that of
prior years. Each of these differences should be taken into account in comparing our
financial condition and results of operations for the years 2001 and 2002 and prior years.

Allowance for
Doubtful Accounts

Our company provides an allowance for
doubtful accounts for accounts receivable for which recoverability is considered doubtful.
Through 2000, we calculated the allowance by applying the ratio of actual losses during
the previous year (write-offs to gross revenues) to amounts overdue up to 90 days. For
accounts over 90 days, we determined the allowance based on our historical experience on
such accounts. As of 2001, we based our estimate on our historical collection
experience and a review of the current status of all trade accounts receivable. This
estimate considers the ratio of historical losses applied to the different categories of
all outstanding amounts due from our customers.

Political,
Economic, Regulatory and Competitive Factors

The following discussion should be
read in conjunction with the Business Overview section included in Item 4
Information on the Company. As set forth in greater detail below, our
financial condition and results of operations are significantly affected by Brazilian
telecommunications regulations, including the regulation of tariffs. See Item 4
Information on the CompanyHistory and Development of the
CompanyRegulation of the Brazilian Telecommunications Industry and Item 4
Information on the CompanyBusiness Overview. Our financial condition and
net income have also been, and are expected to continue to be, affected by the political
and economic environment in Brazil. In particular, our financial performance will be
affected by:

- economic growth
in our region and its impact on demand for telecommunications services;
- the cost and
availability of financing; and
- the exchange
rates between Brazilian and foreign currencies.

We are the dominant provider of local
fixed-line telecommunications services and intrastate fixed-line telecommunications
services in our region. As of July 1999, Embratel and Intelig were authorized to and began
to provide intrastate long-distance services in our region, thereby increasing competition
for us. In 2000, Global Village Telecom began to provide local and intrastate fixed-line
telecommunications services in our region. To date, Telemar, Embratel and Intelig have
been granted permission by Anatel to provide local telecommunications services in our
region. Telesp, Albra Telecomunicações Ltda., TIM and Global Village Telecom
have been granted permission by Anatel to provide intraregional, interregional and
international telecommunications services in our region. TNL PCS S.A. has been granted
permission by Anatel to provide intraregional and interregional telecommunications
services in our region. CTBC has been granted permission by Anatel to provide
interregional and international telecommunications services in certain cities located in
our region. See Item 3 Key InformationRisk FactorsRisks Relating to the
Brazilian Telecommunications IndustryWe face increasing competition in the Brazilian
telecommunications industry. This may have a material adverse effect on our market share,
results of operations and financial condition.

Foreign
Exchange and Interest Rate Exposure

We face foreign exchange risk because
most of our equipment costs are denominated in U.S. dollars. Our current cost of
financing, however, is not materially exposed to exchange rate risk. At December 31,
2002, approximately 5.4% of our indebtedness, or approximately R$224.6 million, was
denominated in U.S. dollars. At December 31, 2002, we hedged approximately 38.1% of our
indebtedness in foreign currency. The remaining balance, which is not hedged, represented
approximately 61.9% (R$139.0 million) of our indebtedness. For the year ended December 31,
2002, losses on foreign currency and monetary restatement amounted to approximately
R$102.3 million. See Item 11 Quantitative and Qualitative Disclosures About Market
RiskQuantitative Information About Market RiskExchange Rate Risk.

We are exposed to interest rate risk
as a consequence of our floating rate debt. At December 31, 2002, 94.6% of our
reais-denominated interest-bearing liabilities bore interest at floating rates. We
have not entered into derivative contracts or made other arrangements to hedge against
this risk. Accordingly, if market interest rates (principally the TJLP (the Brazilian
federal long-term interest rate (the TJLP)), and the CDI (the Brazilian
interbank deposit rate (the CDI)) rise, our financing expenses will increase.
Furthermore, at December 31, 2002, approximately 4.9% of our total debt bore interest at
floating rates based on LIBOR.

U.S.
          GAAP Reconciliation

We prepare our Financial Statements
in accordance with Brazilian GAAP, which differ in certain significant respects from U.S.
GAAP. The following table sets forth a comparison of our net income (loss) and
shareholders equity in accordance with Brazilian GAAP and U.S. GAAP as of the dates
and for the periods indicated:

|                                         | At and for the year ended December 31,
|---------------------------------------- | --------------------------------------
|                                         |                                       
|                                         | 2000(1)                               
|                                         |                                       
|                                         | (thousands ofreais)                   
|Net income (loss) in accordance with:    |                                       
|Brazilian GAAP                           | 152,312                               
|U.S. GAAP                                | 117,722                               
|Shareholders' equity in accordance with:
|Brazilian GAAP                           | 7,145,094                             
|U.S. GAAP                                | 7,126,919                             

|_________ | _________                                                                                                                                                                                    
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000.                                                                                                                                            
|(2)       | Pursuant to Brazilian GAAP, our audited financial statements for the years ended December 31, 2001 and
2002 do not recognize the effects of inflation and are not restated in constant reais.

See Note 31 to our Financial
Statements for a description of the principal differences between Brazilian GAAP and U.S.
GAAP as they relate to us, and a reconciliation of net income (loss) and
shareholders equity for the dates and periods indicated therein.

Critical
Accounting Policies

We prepare our Financial Statements
in accordance with Brazilian GAAP reconciled to U.S. GAAP. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable based
upon the information available. These estimates, judgments and assumptions affect the
reported amounts of assets and liabilities at the dates of the Financial Statements and
the reported amounts of revenues and expenses during the periods presented. The
significant accounting policies which we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include the following:

Goodwill Impairment

Under Brazilian GAAP, goodwill
represents the difference between historical book value of the assets acquired and
liabilities assumed and the purchase price, and it is amortized over the estimated period
over which the company expects to benefit from the goodwill. The length of this period is determined
based on the value attributed by management for the payment of goodwill. Any impairment, is measured to the extent that the unamortized balance of goodwill exceeds the
expected future profits of the business.

Under US GAAP, goodwill represents
the excess of costs over fair value of assets of businesses acquired. The company adopted
the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1,
2002. Goodwill and intangible assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No.
142 also requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and reviewed
for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets.

In connection with SFAS No.
142s transitional goodwill impairment evaluation, the Statement required the company
to perform an assessment of whether there was an indication that goodwill is impaired as
of the date of adoption. To accomplish this, we were required to identify our
reporting units and determine the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. We were required to determine the fair
value of each reporting unit and compare it to the carrying amount of the reporting unit
within six months of January 1, 2002. To the extent the carrying amount of a reporting
unit exceeded the fair value of the reporting unit, we would be required to
perform the second step of the transitional impairment test, as this would be an
indication that the reporting unit goodwill may be impaired.

Under the terms of the operating
concessions granted by the Federal Government, we are obliged to provide a certain
minimum level of services over the entire area covered by our operating licenses. Also,
we do not possess specific financial information to determine an allocation of assets and liabilities (and goodwill) in a level below the
consolidated business nor do we manage different areas of the concession as if they
were separate businesses and we have therefore considered the entire business to be one reporting
unit. In viewing all of our assets and liabilities as one reporting unit and
performing an initial assessment on this reporting unit as to whether there was an
indication that goodwill is impaired (based on a valuation performed by an independent
third party), the second step of the transitional impairment test was not required.
Consequently, we were not required to recognize an impairment loss.

Prior to the adoption of SFAS No.
142, for US GAAP purposes goodwill was amortized on a straight-line basis over the
expected periods to be benefited, and assessed for recoverability by determining whether
the amortization of the goodwill balance over its remaining life could be recovered
through undiscounted future operating cash flows of the acquired operation. All other
intangible assets were amortized on a straight-line basis. The amount of goodwill and
other intangible asset impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting our average
cost of funds.

Revenue Recognition

Under Brazilian GAAP and U.S. GAAP,
revenues from customer calls are based on time used, according to Brazilian law, and
recognized when services are provided. Considering their high turnover and average short
life, under Brazilian GAAP revenues from pre-paid phone cards for public telephones are
recorded as the cards are sold. Under U.S. GAAP, revenues from sales of such pre-paid
phone cards are recognized as the cards are used. Deferred revenues are determined based
upon estimates of sold but unused public phone card credits outstanding as of each balance
sheet date. Under Brazilian GAAP, revenues from activation and installation fees are
recognized upon activation of customer services. Under U.S. GAAP, revenues and related
taxes from activation and installation fees are deferred and amortized over five years,
the estimated average customer life. Should changes in conditions cause management to
determine these criteria are not met for certain future transactions, revenue recognized
for any reporting period could be adversely affected.

Allowance for
Doubtful Accounts

Under Brazilian GAAP and U.S. GAAP,
we provide an allowance for doubtful accounts for accounts receivables for which
recoverability is considered doubtful. Through 2000, we calculated the allowance by
applying the ratio of actual losses during the previous year (write-offs to gross
revenues) to amounts overdue up to 90 days. For accounts over 90 days, we determined the
allowance based on our historical experience on such accounts. Effective as from 2001, we
based our estimate on our historical collection experience and a review of the current
status of all trade accounts receivable. This estimate considers the ratio of historical
losses applied to the different categories of all outstanding amounts due from our
customers. If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be required.

Depreciation of
Property, Plant and Equipment

Under Brazilian GAAP and U.S. GAAP,
depreciation of property, plant and equipment is provided using the straight-line method
based on the estimated useful lives of the underlying assets and in accordance with tax
rules. The principal depreciation rates are shown in Note 16 to the Financial Statements.
Beginning in 1999, we shortened our depreciation schedule for our automatic switching and
transmission equipment from thirteen years and ten years, respectively, to five years, in
order to reflect better the estimated useful life of this equipment in light of rapidly
changing technology and industry practices. Given the complex nature of our property,
plant and equipment, the estimates of useful lives require considerable judgment and are
inherently uncertain. If we materially changed our assumptions of useful lives, our
depreciation expense and net book value of our property, plant and equipment could be
materially different.

Provisions for
Contingencies

Under Brazilian GAAP and U.S. GAAP,
provisions for contingencies are recognized for the amounts of probable losses based on
legal advice and managements opinion of the outstanding matters at the balance sheet
date. We continually evaluate the provision for contingencies based on changes in the
relevant facts and circumstances and events that may impact the estimates. While
management believes that the current provision for contingencies is adequate, there can be
no assurance that these factors will not change in future periods.

Deferred Income
Taxes

Under Brazilian GAAP and U.S. GAAP,
we recognized deferred tax assets and liabilities based on the differences between the
financial statement carrying amounts and the tax bases of assets and liabilities. We
regularly review the deferred tax assets for recoverability and establish a valuation
allowance if it is more likely than not that the deferred tax assets will not be realized,
based on historical taxable income, projected future taxable income, and the expected
timing of the reversals of existing temporary differences. If we continue to operate at a
loss or are unable to generate sufficient future taxable income, or if there is a material
change in the actual effective tax rates or time period within which the underlying
temporary differences become taxable or deductible, we could be required to establish a
valuation allowance against all or a significant portion of our deferred tax assets
resulting in a substantial increase in our effective tax rate and a material adverse
impact on our operating results.

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No.
146 addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS No. 146 is not expected to have a material effect on the
companys financial statements.

In November 2002, the FASB issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of
FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are applicable to guarantees
issued or modified after December 31, 2002 and are not expected to have a material effect
on the companys financial statements. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15, 2002.

Results of
Operations for the Years Ended December 31, 2000, 2001 and 2002

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

|                                                              | Year ended December
31,                 | Percentage change
|------------------------------------------------------------- | --------------------------------------- | -----------------
|                                                              |                                         |                  
|                                                              | 2000(1)                                 | 2001(2)(3)       
|                                                              |                                         |                  
|                                                              | (thousands ofreais, except percentages)
|Net operating revenues                                        | 4,652,184                               | 6,158,408        
|Cost of services                                              | 3,768,699                               | 4,765,593        
|                                                              |                                         |                  
|Gross profit                                                  | 883,485                                 | 1,392,815        
|Operating expenses                                            | 856,960                                 | 1,410,133        
|Operating income (loss) before net financial expense (income) | 26,525                                  | (17,318)         
|Net financial expense                                         | (20,480)                                | 47,051           
|                                                              |                                         |                  
|Operating income (loss)                                       | 47,005                                  | (64,369)         
|Net non-operating expenses (income)                           | (166,753)                               | 85,167           
|Employees' profit share                                       | 18,516                                  | 52,783           
|                                                              |                                         |                  
|Income (loss) before taxes and minority interests             | 195,242                                 | (202,319)        
|Income and social contribution taxes (credits)..              | 74,386                                  | (87,347)         
|                                                              |                                         |                  
|Income (loss) before minority interests                       | 120,856                                 | (114,972)        
|Minority interests                                            | 31,456                                  | 75,720           
|                                                              |                                         |                  
|Net income (loss)                                             | 152,312                                 | (39,252)         
|                                                              |                                         |                  

|_________ | _________                                                                                                                                                                                                                                                                                                                                   
|--------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000, on a combined consolidated basis for the year 2000,
as if Brasil Telecom S.A.'s merger with Telesc, Telegoias, Telebrasília, Telemat, Telems, Teleron,
Teleacre and CTMR had occurred as of January 1, 1996 and as if Brasil Telecom S.A.'s merger with CRT
had occurred on July 31, 2000.
|(2)       | Pursuant to Brazilian GAAP our audited financial statements for the years ended December 31, 2001 and
2002 no longer recognize the effects of inflation and are not restated in constant reais. Presented
on a consolidated basis for the years 2001 and 2002.                                                                              
|(3)       | Certain amounts were reclassified to conform to the current year's presentation.                                                                                                                                                                                                                                                            

Net Operating Revenues

We generate operating revenues from:

- local services,
including monthly charges, measured service, public telephones and additional
         services;
- intrastate
long-distance services;
- interstate
long-distance services;
- data transmission;
- network services,
including interconnection and leasing high-capacity lines; and
- other services.

Gross operating revenues are offset
by value-added and other indirect taxes and discounts to customers. The composition of
operating revenues by category of service is presented in our Financial Statements and
discussed below before deduction of value-added and other indirect taxes. We do not
determine net operating revenues for each category of revenue.

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

|                                     | Year ended December
31,                 | Percentage change
|------------------------------------ | --------------------------------------- | -----------------
|                                     |                                         |                  
|                                     | 2000(1)                                 | 2001(2)          
|                                     |                                         |                  
|                                     | (thousands ofreais, except percentages)
|Local services:                      |                                         |                  
|Monthly charges                      | 1,425,256                               | 2,218,784        
|Measured service charges             | 2,024,423                               | 2,863,073        
|Public telephones                    | 283,485                                 | 274,218          
|Other                                | 156,120                                 | 191,679          
|                                     |                                         |                  
|Total local services                 | 3,889,284                               | 5,547,754        
|Non-local services:                 
|Intrastate and interstate            | 986,863                                 | 1,341,288        
|Interregional and International      | 662                                     | 718              
|                                     |                                         |                  
|Total non-local services             | 987,525                                 | 1,342,006        
|Data transmission                    | 241,216                                 | 324,690          
|Network services                     | 914,850                                 | 994,343          
|Other                                | 201,851                                 | 249,703          
|                                     |                                         |                  
|Gross operating revenues             | 6,234,726                               | 8,458,496        
|Value added and other indirect taxes | (1,519,260)                             | (2,200,580)      
|Discounts                            | (63,282)                                | (99,508)         
|                                     |                                         |                  
|Net operating revenues               | 4,652,184                               | 6,158,408        

|_________ | _________                                                                                                                                                                                       
|--------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000.                                                                                                                                               
|(2)       | Pursuant to Brazilian GAAP, our audited financial statements for the years ended December 31, 2001 and
2002 no longer recognize the effects of inflation and are not restated in constant reais.

Net operating revenues increased by
approximately 14.8% in 2002 compared to an increase of approximately 32.4% in 2001. The
growth in revenues in 2002 was principally due to: (i) an increase in revenues from data
transmission resulting from a 309% increase in our ADSL lines in service, a 116.2%
increase in our IP accesses in service, a 83.8% increase in the number of frame relays in
service and a 192.4% increase in the number of DialNet accesses in service; (ii) an
increase in revenues from local services resulting from a 13% increase in our average
lines in service, to 9.3 million at the end of 2002, higher service charges for the basket
of local services, and an increase in fixed-to-mobile revenues; and (iii) an increase in
intrastate and interstate long-distance services resulting from an increase in
fixed-to-mobile revenues. The increase in revenues in 2002 was lower than in 2001
primarily due to a smaller increase of average lines in service in 2002 of 9.6%, compared
to 16.0% in 2001, once the company has already met the pent-up demand. In addition, 2001
was the first full year in which net operating revenues reflected our increased telephone
network from our acquisition of CRT.

Net operating revenues increased by
approximately 32.4% in 2001 compared to an increase of approximately 29.5% in 2000. The
growth in revenues in 2001 was principally due to (i) an increase in revenues from local
services resulting from an increase in our average lines in service (which increased by
16% to 8.5 million at the end of 2001), higher service charges for the basket of local
services, and an increase in VC-1 fixed-to-mobile revenues, and (ii) an increase in
intrastate and interstate long-distance services resulting from an increase in
fixed-to-mobile revenues. The growth in revenues was larger in 2001 than in 2000 partially
due to the fact that it was the first full year in which net operating revenues reflected
our increased telephone network from our acquisition of CRT.

Revenues
from Local Service

Total revenues from local services
increased by approximately 12.7% in 2002. The growth of revenues from local service in
2002 primarily reflects the annual tariff increases of the basket of local services, and
the increasing penetration of telecommunications services in our concession area. In 2002,
the basket of local services was adjusted, on average, by approximately 8.3%. In addition
to the tariff increases, revenues from local service increased due to an increase in
telephone density in our region of 7.5%, from 21.5 lines in service per 100 inhabitants at
the end of 2001 to 23.1 lines in service per 100 inhabitants by the end of 2002.

Total revenues from local services
increased by approximately 42.6% in 2001. The growth of revenues from local service in
2001 primarily reflects the annual tariff increases of the basket of local services, and
the increasing penetration of telecommunications services in our concession area. In 2001,
the basket of local services was adjusted, on average, by approximately 10.4%. In addition
to the tariff increase, revenues from local service increased due to an increase in
telephone density in our region from 19.2 lines in service per 100 inhabitants at the end
of 2000 to 21.5 lines in service per 100 inhabitants by the end of 2001 (an increase of
approximately 16.0% in the number of lines in service year-over-year).

Monthly Subscription
Charges

Revenues from monthly subscription
charges increased by 19.7% in 2002. This growth can be traced primarily to an increase in
the number of average lines in service (which increased approximately 12.6% in 2002,
representing an addition of approximately 1,010,000 lines), as well as to the annual price
adjustment of the basket of local services, which was highly concentrated on the monthly
charge. Effective June 28, 2002, Anatel authorized an increase (net of taxes) in monthly
subscription charges of 14% for residential customers and of 0.6% for nonresidential
customers.

Revenues from monthly subscription
charges increased by approximately 55.7% in 2001. This rate of growth of revenues from
monthly subscription charges was fueled by increasing telephone density in our region, as
well as by higher monthly subscription charges that resulted from the annual price
adjustment of the basket of local services. Effective June 2001, Anatel authorized an
increase (net of taxes) in monthly subscription charges of 18% for residential customers
and of 16.4% for nonresidential customers.

Measured Service Charges

Revenues from measured service
charges increased approximately 8.5% in 2002. This growth resulted from the increase in
telephone density and the growth of the mobile plant in our region. Total registered
pulses decreased by 0.2% to approximately 19.6 billion in 2002. Total billed pulses in
2002 (the number of pulses that exceed the amount of monthly free pulses  100 free
pulses for residential customers and 90 free monthly pulses for non-residential customers)
decreased by 3.3% to approximately 13 billion. Another source of measured service
revenues was local fixed-mobile revenues (i.e., VC-1 calls), which increased approximately
15.7% in 2002, due to the growth of the mobile plant in our region, which is estimated
by Anatel to have grown 24.9% in 2002. VC-1 minutes represented approximately 82% of the
total fixed-mobile minutes in 2002. Despite the increase in telephone density, the number
of billed pulses/average lines in service/month has decreased to 119.9 in 2002, compared
to 139.5 in 2001, reflecting our increasing penetration into lower income households.

Revenues from measured service
charges increased approximately 41.4% in 2001. This growth resulted from the increase in
telephone density and the growth of the mobile plant in our region. Total registered
pulses increased by 19% to approximately 19.7 billion in 2001. Total billed pulses in 2001
increased by 25.9% to approximately 13.5 billion. Another source of measured service
revenues was local fixed-mobile revenues, which increased approximately 47.2% in 2001,
fueled by the growth of the mobile plant in our region, which is estimated by Anatel to
have grown 33.9% in 2001. VC-1 minutes represented approximately 92% of the total
fixed-mobile minutes in 2001. Despite the increase in telephone density, the number of
billed pulses/average lines in service/month has decreased to 139.5 in 2001, compared to
146.5 in 2000, reflecting our increasing penetration into lower income households.

Public Telephones

Revenues from public telephones
increased approximately 24.6%, or R$67.5 million, to approximately R$341.8 million in
2002, from approximately R$274.2 million in 2001. The increase over the period was due to
the 8.4% tariff readjustment approved by Anatel from June 28, 2002. In 2002, the number of
public telephones in service increased by 2.5% compared to a 30.2% increase in 2001. This
difference was primarily due to the fulfillment of the universalization targets for 2001
that required maintaining all localities with over 600 inhabitants that are not served by
fixed telephony, with at least one public telephone accessible 24 hours a day and capable
of making and receiving local, domestic long distance and international long distance
calls; and at least one public telephone available every 500 meters at all localities
served by fixed telephony. In 2002 there is no universalization target related to public
telephony.

Revenues from public telephones
decreased approximately 3.3% in 2001, from approximately R$283.5 million in 2000 to
approximately R$274.2 million in 2001. The decrease over the period was due to a change in
the accounting treatment of a portion of public telephony revenues owed by us to other
carriers. Prior to and including the second quarter of 2001, we recognized revenue from
the portion of the sale of our prepaid phone cards allocated to other carriers, as
Subcontracted Costs. As of the third quarter of 2001, we began to recognize revenue from
the portion of the sale of prepaid phone cards allocated to other carriers as a reduction
of public telephony revenue.

In 2001, the decrease in public
telephone revenues was partly offset by the increased revenues from our larger public
telephone plan. In 2001, the number of public telephones in service increased by 30.2%
compared to an 81.6% increase in 2000. This difference was primarily due to the
acquisition of CRT in July 2000, which by itself increased our number of public telephones
by approximately 32.5% in 2001.

Other Local Services

Gross revenue from other local
services decreased approximately 21.9% in 2002 compared to an increase of approximately
22.8% in 2001 primarily as a result of a decrease in line rental revenues combined with a
decrease in installation revenues. The major accounts that make up other local services
are installation fees and line rentals. Installation fees in 2002 generated revenues that
were 53.7% lower than in 2001, principally due to the sale of promotional plans with the
waiver of installation fee for lines in service, while line rental revenues decreased
approximately 38.8% in 2002 compared to 2001 levels, as a result of the strong line
expansion observed in prior years.

Gross revenue from other local
services increased approximately 22.8% in 2001 compared to a decrease of approximately
12.9% in 2000 primarily as a result of a larger decrease in line rental revenue in 2001
compared to 2000. Installation fees in 2001 generated revenues that were 73.9% higher than
in 2000, fueled by the growth in average lines in service, while line rental revenues
dropped approximately 67.9% in 2001 over 2000 levels, mostly due to the decrease on rental
of regular lines as a result of the strong line expansion observed in prior years.

Revenues from Non-Local
Services

Non-local services consist of
intrastate and interstate (i.e., intraregional) long-distance calls (both fixed-fixed and
fixed-mobile) as well as international long-distance calls.

Intrastate and Interstate
Long-Distance

Revenues from non-local services
(intrastate and interstate long-distance services) increased by 30.3%, or R$406.9 million
in 2002 to approximately R$1.7 billion, from approximately R$1.3 billion in 2001. This
increase can be traced to: (i) a 12.6% increase in the number of average lines in service
in 2002; (ii) a 34.5% and 30.6% increase in the number of VC-2 and VC-3 fixed-mobile
minutes respectively fueled by the growth of the mobile plant in our region, which
resulted in an increase in VC-2 and VC-3 fixed-mobile revenues, from approximately R$257
million in 2001 to approximately R$385 million in 2002; (iii) an average tariff
readjustment of 4.97% in the basket of long-distance services, implemented on June 28,
2002; and (iv) the increase in our average market share from 82.2% to 86.5% in the
intrastate segment, and from 67.0% to 73.0% in the interstate segment.

Revenues from non-local services
(intrastate and interstate long-distance services) increased by 35.9% in 2001, from
approximately R$986.9 million in 2000 to approximately R$1.3 billion in 2001. The increase
in revenues in 2001, resulted from (i) a 17.1% increase in the number of average lines in
service in 2001; (ii) a 35% and 27% increase in the number of VC-2 and VC-3 fixed-mobile
minutes respectively fueled by the growth of the mobile plant in our region, which
resulted in an increase in VC-2 and VC-3 fixed-mobile revenues, which increased from
approximately R$66 million in 2000 to approximately R$257 million in 2001; and (iii) a
stable average market share in the intrastate long distance segment and a slight gain in
interstate long distance segment.

Interregional and
International Long-Distance

Revenues from interregional and
international long-distance services decreased by 17.3% or R$124 thousand in 2002 to
approximately R$594 thousand, from approximately R$718 thousand in 2001. The decrease in
2002 was primarily due to the 15.6% decrease in borderline traffic. Revenues from
interregional and international long-distance calls decreased in 2002 because the services
rendered in this segment are limited to interregional long-distance calls to bordering
cities adjacent to our region.

Revenues from interregional and
international long-distance services increased by 8.5% in 2001, from approximately R$662
thousand in 2000 to approximately R$718 thousand in 2001. The increase in 2001 was fueled
by a growth in average lines in service, a gain in interstate market share, and a 16%
increase in the traffic per average line in service per month. Revenues from interregional
and international long-distance calls increased in 2001 despite the fact that the services
rendered in this segment are limited to interregional long-distance calls to bordering
cities adjacent to our region.

Revenues from Data
Transmission

Revenues from data transmission,
which include revenues from ADSL, ATM, DialNet, Frame Relay, dedicated IP, IP light, IP
Wan, dedicated line, internet services and package switching, increased by approximately
55.5% or R$180.3 million in 2002 to R$505 million, from approximately R$324.7 million in
2001. This growth was due to the increase of 309% in number of ADSL accesses in service
during 2002, totaling 141,000 ADSL accesses in service at year-end. In addition, the
116.2% expansion in the number of IP accesses in service, the increase of 83.8% in the
number of frame relays accesses in service, the 192.4% expansion in the number of dialnet
accesses in service contributed to the increase in consolidated revenue from data
transmission, partially offset by the reduction of 8.7% in the number of SLDD accesses in
service.

Revenues from data transmission
increased by approximately 34.6% in 2001, from approximately R$241.2 million in 2000 to
approximately R$324.7 million in 2001 due to the completion of our digital backbone in
2001, which enabled us to begin providing a broad range of data transmission services and
to launch several new products such as Cyber Data Centers and the BrTurbo.com portal.

Revenues from Network
Services

We provide access to our network and
lease certain network facilities to other telecommunications companies as part of our
network service business. This primarily generates:

- interconnection
fees paid by Embratel, Intelig and cellular service providers for the use of our network;
- fees from
cellular companies for the leasing of transmission facilities, certain infrastructure and
other equipment used in transporting cellular calls within their own internal networks;
and
- fees from the
rental of assets (e.g., points of presence) to long-distance and mobile companies.

Gross revenues from network services
increased by 2.7% or R$27.0 million in 2002 to approximately R$1.0 billion, from
approximately R$994.3 million in 2001, due to the growth of the mobile plant in our region
and, consequently, higher mobile traffic on our network. Gross revenues from network
services grew at a slower pace in 2002 compared to 2001 as a result of the expansion of
other operators networks.

Gross revenues from network services
increased by 8.7% in 2001, from approximately R$914.9 million in 2000 to
approximately R$994.3 million in 2001 due to (i) the growth of the mobile plant in our
region and, consequently, higher mobile traffic into our network and higher
interconnection fees, and (ii) the growth in fees from the rental of assets. Gross
revenues grew at a slower pace in 2001 compared to 2000 as a result of a stable market
share (interconnection revenues tend to be higher as a market share drops, since the
Company would interconnect more calls from third parties) and to the discontinuation of
the PAT.

Gross Operating Revenues

Value-Added and Other
Indirect Taxes

The principal taxes deducted from
gross operating revenue are state value-added taxes (ICMS), Federal Social Contribution
taxes, including PIS, COFINS and telecommunications contributions, including FUST and
FUNTTEL. We collect these taxes from our customers and transfer them to the appropriate
governmental entities. The current average rate of ICMS is 25%. PIS and COFINS are
currently imposed at a combined rate of 3.65% of gross operating revenues, net of certain
deductions. FUST and FUNTTEL are currently imposed at a combined rate of 1.5% of gross
operating revenues, net of certain deductions.

In 2002, the total amount of
value-added and other taxes increased by 21.4% or R$470.3 million to approximately R$2.7
billion in 2002, from approximately R$2.2 billion in 2001. In 2001, the total amount of
value-added and other taxes increased by 44.8%, from approximately R$1.5 billion in 2000
to approximately R$2.2 billion in 2001. The lower rate of growth in value-added and other
taxes reflects the lower rate of growth in our gross operating revenue during the period
and the change in revenue mix, as there is less tax on certain services.

Discounts

Discounts are generally divided into
rebates on: (1) pre-paid telephone cards (commissions of approximately 10% over the total
amount sold), (2) local wireline calls, (3) long-distance calls, and (4) intelligent
network services. Discounts decreased by approximately 2.1% or R$2.1 million to
approximately R$97.4 million in 2002, from approximately R$99.5 million in 2001. The
decrease in 2002 compared to 2001 was due to the slower pace of the plant expansion in
2002, reflecting the fact that we did not anticipate achieving the universalization goals
established for 2003. Discounts increased by 57.2% in 2001, from approximately R$63.3
million in 2000 to approximately R$99.5 million in 2001. The lower increase in 2001
compared to 2000 reflects the weaker pace of plant expansion in 2001.

Cost of Services

In 2002, cost of services increased
by approximately 7.9% or R$377.8 million to approximately R$5.1 billion, from
approximately R$4.8 billion in 2001. This increase was lower than the increase in net
operating revenues of 14.8%. Our cost of services increased primarily as a result of an
increase in interconnection costs.

In 2001, cost of services increased
by approximately 26.5%, from approximately R$3.8 billion in 2000 to approximately R$4.8
billion in 2001. Our cost of services increased primarily as a result of (i) an increase
in our service costs resulting from an increase in interconnection costs and (ii) an
increase in our depreciation and amortization costs, but was tempered by a reduction in
the size of our labor force in 2001.

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

|                              | Year ended December
31,                  | Percentage change
|----------------------------- | ---------------------------------------- | -----------------
|                              |                                          |                  
|                              | 2000(1)                                  | 2001(2)          
|                              |                                          |                  
|                              | (thousands of reais, except percentages)
|Cost of Services:             |                                          |                  
|Depreciation and amortization | 2,303,458                                | 2,597,160        
|Personnel                     | 155,953                                  | 185,843          
|Materials                     | 24,269                                   | 91,746           
|Services                      | 1,146,006                                | 1,689,287        
|Other                         | 139,013                                  | 201,557          
|                              |                                          |                  
|Total cost of services        | 3,768,699                                | 4,765,593        
|                              |                                          |                  

|_________ | _________                                                                                                                                                                                    
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000.                                                                                                                                            
|(2)       | Pursuant to Brazilian GAAP, our audited financial statements for the years ended December 31, 2001 and
2002 do not recognize the effects of inflation and are not restated in constant reais.

Depreciation and
Amortization

In 2002, depreciation and
amortization costs increased by approximately 0.7% or R$17.4 million to R$2.61 billion,
from approximately R$2.60 billion in 2001, due to the expansion of our plant in 2002
(lines installed increased by approximately 5.3% in 2002). Depreciation and amortization
costs grew at a slower pace in 2002 due to the slower expansion of our plant during this
period.

Depreciation and amortization costs
increased by approximately 12.8% in 2001, from approximately R$2.3 billion in 2000 to
R$2.6 billion in 2001 due to an increase in growth of our plant in 2001 (lines installed
increased by approximately 11.8% in 2001). Depreciation and amortization costs grew at a
slower pace in 2001 due to a smaller plant growth in 2001 compared to 2000 and to the fact
that 2000 figures were inflated by the acquisition of CRT in July 2000.

Personnel

In 2002, personnel costs decreased by
approximately 22.2% or R$41.3 million to R$144.6 million, from approximately R$185.8
million in 2001. The decrease in personnel costs in 2002 was primarily due to the
outsourcing of technical and operational services for our network, which resulted in a
reduction in our labor force of approximately 3,006 employees in 2002. At December 31,
2002, we had approximately 5,571 employees.

Personnel costs increased by
approximately 19.2% in 2001, from approximately R$156 million in 2000 to approximately
R$186 million in 2001. Personnel costs increased in 2001 despite the continued
rationalization of our operations after the merger with CRT and the outsourcing of
technical and operational services for our network, which resulted in a reduction in our
labor force of approximately 2,752 employees in 2001. The increase in personnel costs in
2001 resulted primarily from the higher salaries awarded to new and remaining employees.
At December 31, 2001, we had approximately 7,890 employees.

Materials

Costs related to materials decreased
by approximately 14.2% or R$13 million in 2002. The decrease in material costs was
primarily due to the outsourcing of technical and operational services for our network.

Costs related to materials increased
by approximately 278.0% in 2001. The increase in material costs was primarily due to the
fact that 2001 was our first full fiscal year after the acquisition of CRT, as well as to
our continued network expansion.

Services

In 2002, the cost of third party
services, which include subcontracted services and interconnection costs, increased by
approximately 21.8% or R$368.6 million to approximately R$2.1 billion, from approximately
R$1.7 billion in 2001.

The increase in the cost of third
party services in 2002 was primarily due to an increase in fixed-to-mobile interconnection
costs, and to a lesser extent, by the outsourcing of technical and operational services
for our network. In 2002, interconnection costs increased approximately 21.1%, from
approximately 14.9% of gross revenues in 2001 to approximately 15.5% of gross revenues in
2002. The increase in interconnection costs was directly related to an increase in
fixed-to-mobile telephone traffic, which increased as a result of the increase in the
amount of pre-paid mobile phones in our region. Pre-paid mobile phones allow the mobile
customer to receive calls from fixed-line telephones free of charge in return for a flat
monthly fee. Consequently, the expansion of the mobile plant in our region (which is
estimated by Anatel to have grown 24.9% in 2002) has lead to an increase in
fixed-to-mobile telephone traffic. In 2002, fixed-to-mobile traffic expanded approximately
10.1%, from approximately 3.9 billion minutes in 2001 to approximately 4.4 billion minutes
in 2002. Increased costs of third party services contributed significantly to the increase
in costs of services in 2002. We expect that fixed-to-mobile telephone traffic will
continue to expand in 2003, leading to higher interconnection costs in 2003.

The increase in the cost of third
party services in 2001 was caused primarily by an increase in fixed-to-mobile
interconnection costs, and to a lesser extent by the outsourcing of technical and
operational services for our network. In 2001, interconnection costs increased
approximately 67.7%, from approximately 12.4% of gross revenues in 2000 to approximately
14.9% of gross revenues in 2001. The increase in interconnection costs was directly
related to an increase in fixed-to-mobile telephone traffic, which increased as a result
of the increase in the amount of pre-paid mobile phones in our region. Pre-paid mobile
phones allow the mobile customer to receive calls from fixed-line telephones free of
charge in return for a flat monthly fee. Consequently, the expansion of the mobile plant
in our region (which is estimated by Anatel to have grown 33.9% in 2001) has lead to an
increase in fixed-to-mobile telephone traffic. In 2001, fixed-to-mobile traffic expanded
approximately 47%, from approximately 2.7 billion minutes in 2000 to approximately
3.9 billion million minutes in 2001. Increased costs of third party services contributed
significantly to the increase in costs of services in 2001. We expect that fixed-to-mobile
telephone traffic will continue to expand in 2002, leading to higher interconnection costs
in 2002.

Other

Other costs of service, which
primarily includes fees paid for the rental of equipment and infrastructure, insurance and
other taxes and contribution, increased by 22.9% in 2002 compared to 45.0% in 2001. The
lower increase in 2002 compared to 2001 was due to the slower pace of network expansion in
2002.

Gross Profit

Our gross profit increased in 2002 by
approximately 38.4% or R$535.2 million to R$1.93 billion, from approximately R$1.39
billion in 2001 as a result of a larger increase in net operating revenues in 2002 (a
14.8% increase in 2002, compared to a 32.4% increase in 2001), associated with a smaller
increase in cost of services in 2002 (a 7.9% increase in 2002, compared to a 26.5%
increase in 2001).

Operating Expenses

Operating expenses, which include
selling expenses, general administrative expenses and other net operating expenses,
decreased by 5.7% or R$80.5 million in 2002, primarily as a result of the reduction in the
provision for the retirement incentive plan and the reduction in the write-off of
interconnection accounts receivable. In 2001, operating expenses increased by
64.6%, primarily as a result of an increase of customer accounts in default.

The following table sets forth
certain components of our operating expenses, as well as the percentage change from the
prior year, for 2000, 2001 and 2002.

|                                      | Year ended December
31,                  | Percentage change
|------------------------------------- | ---------------------------------------- | -----------------
|                                      |                                          |                  
|                                      | 2000(1)                                  | 2001(2)          
|                                      |                                          |                  
|                                      | (thousands of reais, except percentages)
|Operating expenses:                   |                                          |                  
|Selling expenses                      | 379,235                                  | 724,507          
|General and administrative expenses   | 534,624                                  | 624,751          
|Other net operating expenses (income) | (56,899)                                 | 60,875           
|                                      |                                          |                  
|Total operating expenses              | 856,960                                  | 1,410,133        
|                                      |                                          |                  

|_________ | _________                                                                                                                                                                                    
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000.                                                                                                                                            
|(2)       | Pursuant to Brazilian GAAP, our audited financial statements for the years ended December 31, 2001 and
2002 do not recognize the effects of inflation and are not restated in constant reais.

Selling Expenses

In 2002, selling expenses increased
by 5.4% or R$38.8 million to R$763.3 million, from approximately R$724.5 million in 2001,
as a result of higher expenses of services primarily due to the outsourcing of call center
services, despite of the reduction in bad debts and provisions for doubtful accounts.

In 2002, bad debts and provisions for
doubtful accounts, decreased approximately 18.6%, from 3.8% of gross revenues in 2001 to
approximately 2.7% of gross revenues in 2002. During 2002, we implemented certain
successful strategies in order to reduce bad debt levels, including (i) the
teleaviso service in February, which involves sending a warning message to
previously delinquent clients before their payment date, in order to ensure that they will
pay their bills on time and (ii) sending a collection agreement letter to warn of final
disconnections, offering the customers the option to pay their past-due bills in
installments before their lines are cut off.

In 2001, selling expenses increased
by more than 90%, from approximately R$379.2 million in 2000 to approximately R$724.5
million in 2001, primarily as a result of an increase in allowance for doubtful accounts
(due to a change in 2001 in the way we calculate our allowance for doubtful accounts). See
Item 5 Operating and Financial Review and ProspectsOperating
ResultsEffects of Changes in Presentation of our Financial Information for 2001 and
2002Allowance for Doubtful Accounts, and Note 6 to our Financial Statements.
In 2001, bad debts and provisions for doubtful accounts, increased approximately 159.7%,
from 2.3% of gross revenues in 2000 to approximately 3.8% of gross revenues in 2001.
Increased selling expenses contributed significantly to the increase in our operating
expenses, as well as to our operating loss in 2001.

General and
Administrative Expenses

In 2002, general and administrative
expenses increased by approximately 10.0% or R$62.7 million to R$687.5 million, primarily
due to an increase in expenses from IT equipment depreciation and in expenses for regular
services, such as surveillance, cleaning and conservation.

In 2001, general and administrative
expenses increased by approximately 16.9% due to higher management consulting and other
third party and administrative costs associated with merging CRTs operation and
personnel into our Company and rationalizing our joint operations.

Other Net Operating
Expenses (Income)

In 2002, other net operating expenses
decreased by R$182.1 million to an income of R$121.2 million, from an expense of
R$60.9 million in 2001. This decrease was due to the reduction in the provision for the
retirement incentive plan (in 2002 we accounted lay-off expenses only until March 2002)
and the reduction in the write-off of interconnection accounts receivable (recognized in
2001 as other operating expenses and no longer recognized in 2002). See note 6 to our
Financial Statements.

In 2001, other net operating expenses
increased by more than R$117.8 million. This large increase was primarily due to increased
provisions for our retirement incentive plan and severance payments associated with the
reduction in the number of our employees by more than 2,752 employees.

Operating Income Before
Net Financial Expense (Income)

In 2002, our operating income before
net financial expense increased by R$615.7 million to an income of approximately R$598.4
million, from a loss of approximately R$17.3 million in 2001, primarily as a result of an
increase in gross profits combined with a decrease in operating expenses. In 2001, as a
result of a larger increase in operating expenses than in gross profits, our operating
income before net financial expense decreased by more than R$43.8 million to a loss of
approximately R$17.3 million from income of approximately R$26.5 million in 2000.

Net Financial Expense

Net financial expense represents the
net effect of interest income, interest expense and exchange rate and monetary restatement
gain and loss. In 2002, our net financial expense increased by more than 602.3% or R$283.4
million to approximately R$330.5 million, from approximately R$47.1 million in 2001
primarily as a result of:

- a 120.2% increase
in our interest expenses, from approximately R$246.1 million in 2001 to approximately
R$541.9 million in 2002 as a result of:

a 32.7% increase
in our indebtedness, from approximately R$3.15 billion at the end of
                  2001 to approximately R$4.18 billion at the end of 2002;an increase in
our interest expense from our U.S. dollar denominated indebtedness, due to
                  a devaluation of the real during 2002;an increase in
our interest expense from our real denominated indebtedness, due to an
                  increase in Brazilian interest rates; and
- a 32.7% increase
in our indebtedness, from approximately R$3.15 billion at the end of
                  2001 to approximately R$4.18 billion at the end of 2002;
- an increase in
our interest expense from our U.S. dollar denominated indebtedness, due to
                  a devaluation of the real during 2002;
- an increase in
our interest expense from our real denominated indebtedness, due to an
                  increase in Brazilian interest rates; and
- a decrease in the
losses from the monetary restatement of gains and losses in foreign currency financing
and monetary variations, from a loss of approximately R$54.0 million in 2001 to a loss of
R$17.1 million in 2002.

In 2001, our net financial expense
increased by more than 329.8%, from an income of approximately R$20.5 million in 2000
to a loss of approximately R$47.1 million in 2001, due to:

- a 82.2% increase
in our interest expenses, from approximately R$135.1 million in 2000 to approximately
R$246.1 million in 2001 as a result of:

an increase in
our interest expense from our U.S. dollar denominated indebtedness, due to
                  a devaluation of the real during 2001;an increase in
our interest expense from our real denominated indebtedness, due to an
                  increase in Brazilian interest rates; and
- an increase in
our interest expense from our U.S. dollar denominated indebtedness, due to
                  a devaluation of the real during 2001;
- an increase in
our interest expense from our real denominated indebtedness, due to an
                  increase in Brazilian interest rates; and
- an increase in
the losses from the monetary restatement of gains and losses in foreign currency
financing and monetary variations, from a gain of approximately R$15.8 million in 2000 to
a loss of R$54.0 million in 2001.

Operating Income (Loss)

In 2002, our operating income
increased by 516.2%, or R$332.3 million to a credit of approximately R$267.9 million, from
a loss of R$64.4 million in 2001, primarily as a result of the decrease in operating
income before net financial expense, and the increase in net financial expense. In 2001,
our operating income decreased by more than R$111.4 million to an operating loss of
approximately R$64.4 million from operating income of approximately R$47.0 million in 2000
due to the decrease in operating income before net financial expense, and the increase in
net financial expense.

Net Non-Operating
Expenses (Income)

In 2002, net non-operating expenses
decreased by 8.0% or approximately R$6.9 million to an expense of approximately R$78.3
million, from an expense of approximately R$85.2 million in 2001. In 2002, net
non-operating expenses decreased primarily as a result of the credit for forfeited
dividends in 2001 and an increase in gains on disposal of permanent assets.

In 2001, net non-operating expenses
increased by approximately R$251.9 million, from a credit of approximately R$166.8 million
in 2000 to an expense of approximately R$85.2 million in 2001. In 2001, net non-operating
expenses increased as a result of the amortization of the goodwill from our acquisition of
CRT, the assessment of contractual fines and the gain on the REFIS program in 2000. See
Note 8 to our Financial Statements and Item 8 Financial
InformationConsolidated Statements and Other Financial InformationLegal
ProceedingsTax Proceedings.

Employees Profit
Share

All Brazilian companies may
compensate employees, in addition to their salary and benefits, with profit sharing. The
amount of such profit sharing is generally determined by negotiations between our company
and the labor unions that represent our employees.

In 2002, our employees profit
share decreased by 19.3% or R$10.2 million to approximately R$$42.6 million, from
approximately R$52.8 million in 2001. During 2002, we decreased the number of our
employees by approximately 29.4%. At December 31, 2002, we had 5,571 employees.

In 2001, our employees profit
share increased by 185.1%, from approximately R$18.5 million in 2000 to approximately
R$52.8 million in 2001, due to our voluntary increase in profit sharing resulting from our
decision not to try to meet our 2003 universalization and network expansion by the end of
2001. This increase in profit sharing, was slightly tempered by a decrease in the number
of our employees in 2001.

Income (Loss) Before
Taxes and Minority Interests

In 2002, we had an income before
taxes and minority interests of approximately R$147.0 million primarily as a result of an
increase in our operating income and a decrease in our net non-operating expenses and
employees profit share.

Income and Social
Contribution Taxes (Credits)

In 2002, income and social
contribution taxes (credits) increased by approximately 101.0% or R$88.3 million to an
expense of approximately R$916.000, from a credit of approximately R$87.3 million in 2001.
This decrease in income and social contribution credits was primarily due to a 67.8%
decrease in deferred tax credits, which decreased from a credit of approximately R$206.3
million in 2001 to a credit of approximately R$66.3 million in 2002.

In 2001, income and social
contribution taxes (credits) decreased by approximately 217.3%, from an expense of
approximately R$74.4 million in 2000 to a credit of approximately R$87.3 million in 2001.
This increase in income and social contribution credits was primarily due to a 2,433.4%
increase in deferred tax credits, which increased from a credit of approximately R$8.1
million in 2000 to a credit of approximately R$206.3 million in 2001. See Note 9 to our
Financial Statements. In 2001, the increase in our deferred tax credits was due to our
increased losses before taxes and minority interest, which increased from a gain of
R$195.2 million in 2000 to a loss of approximately R$202.3 million in 2001, as well as the
reconciliation of our financial statements to Brazilian GAAP from Brazilian corporate law,
and the fact that in 2001 we ceased recognizing the effects of inflation on our financial
statements. See Note 2b to our Financial Statements.

Minority Interests

Minority interests reflect the
participation of our minority shareholders in the net income/loss, as in the case of
Brasil Telecom S.A., our subsidiary. In 2002, minority interests reflected the allocation
of a loss of approximately R$2.4 million to the minority shareholders of Brasil Telecom
S.A. relating to their participation in Brasil Telecom S.A.s income in 2002.

In 2001, minority interests reflected
the allocation of a loss of approximately R$75.7 million to the minority shareholders of
Brasil Telecom S.A. relating to their participation in Brasil Telecom S.A.s losses
in 2001.

Net Income (Loss)

In 2002, our net income was
approximately R$148.5 million as a result of the increase in our operating income combined
with the decrease in our net non-operating expenses and employees profit share.

In 2001, despite the decrease in our
operating income and the increase in our net non-operating expenses and employees
profit share, our losses were tempered by the deferred tax credits that we accrued in
2001. As a result, in 2001 we only suffered a net loss of approximately R$39.3 million.

Liquidity and Capital
Resources

Cash Flow

The following table sets forth
certain components of our cash flows for 2000, 2001 and 2002.

|                                                 | Year ended December 31,
|------------------------------------------------ | -----------------------
|                                                 |                        
|                                                 | 2000(1)                
|                                                 |                        
|                                                 | (millions of reais)    
|Cash flows provided by (used in):                |                        
|Operating activities                             | 2,069.8                
|Investing activities                             | (3,433.7)              
|Financing activities                             | 2,235.5                
|                                                 |                        
|Increase (decrease) in cash and cash equivalents | 871.6                  
|                                                 |                        

|_________ | _________                                                                                                                                                                                    
|--------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)       | Presented in constant reais of December 31, 2000.                                                                                                                                            
|(2)       | Pursuant to Brazilian GAAP, our audited financial statements for the years ended December 31, 2001 and
2002 do not recognize the effects of inflation and are not restated in constant reais.

We use the net cash generated from
our operations and from external financing to fund capital expenditures for our network
expansion and modernization, to pay dividends, and to invest in new businesses. While
current liabilities exceeded current assets at December 31, 2001 and 2000, our sources of
funds, primarily from operations and from external financing arrangements, were sufficient
to meet operating and investing requirements in 2002. However, there can be no assurances
that during 2003 and after we will not need additional third party financing in order to
cover our network expansion and modernization, our debt service or future potential
strategic acquisitions. See Item 3 Key Information  Risk Factors  Risks
Relating to Our Company  We May Need Additional Third Party Financing Which May Not
Be Available in the Future or on Terms Acceptable to Us.

Cash Flows
Provided by Operating Activities

Our primary source of funds continues
to be cash generated from operations. In 2002 our cash flow from operating activities
increased by 8.7% or R$196.7 million to approximately R$2.5 billion, from approximately
R$2.3 billion in 2001. In 2002, the increase in cash from operations primarily reflects
the increase of 14.8% in the net operating revenues, the renegotiation of subcontracted
services and internal campaigns aimed at cost reduction.

In 2001 our cash flow from operating
activities increased by approximately 9.7% from approximately R$2.1 billion in 2000 to
approximately R$2.3 billion in 2001. In 2001, the increase in cash from operations
primarily reflects the adjustments to cash provided by our depreciation and amortization.
This increase was partially offset by the increase in the net losses in 2001, which were
approximately R$39.3 million.

Cash Flows Used in
Investing Activities

Acquisitions of property, plant and
equipment continue to be our primary use of capital resources. In 2002 our cash flow used
in investment activities decreased by approximately 41.6% or R$1.3 billion to a negative
cash flow of approximately R$1.9 billion from a negative cash flow of approximately R$3.2
billion in 2001. Our negative cash flows from investment activities in 2002 were primarily
due to the expansion and modernization of our network. In 2002, we invested approximately
R$2.0 billion, compared to R$3.2 billion in 2001, to expand and modernize our network to
facilitate the introduction of new products and services, enhance responsiveness to
competitive challenges, increase the operating efficiency and productivity of the network
and meet our network expansion and modernization goals.

Capital spending
is expected to be
approximately R$1.82 billion in 2003 to expand and modernize our network. As of March 31,
2003, we had invested approximately R$381 million in the expansion and modernization of
our network.

In 2001 our cash flow used in
investment activities decreased by approximately 7.7% from a negative cash flow of
approximately R$3.4 billion in 2000 to a negative cash flow of approximately R$3.2 billion
in 2001. Our negative cash flows from investment activities in 2001 were primarily due to
the expansion and modernization of our network. In 2001, we invested approximately R$3.2
billion, compared to R$2.0 billion in 2000 to expand and modernize our network to
facilitate the introduction of new products and services, enhance responsiveness to
competitive challenges, increase the operating efficiency and productivity of the network
and meet our network expansion and modernization goals.

Cash Flows
Provided by (Used in) Financing Activities

In 2002, our cash flow from financing
activities increased by approximately 178.9% or R$1,169.0 million to approximately R$515.5
million, from a negative cash flow of approximately R$653.5 million in 2001. The increase
in the cash flow from financing activities was primarily due to a R$666.4 million decrease
in loans repaid. In 2002, the amount of loans repaid decreased by approximately 60.9% to
approximately R$428.7 million, from approximately R$1.1 billion loans paid in 2001, due
primarily to the payment, in 2001, of R$779.2 million in commercial paper which had been
issued on June 15, 2000 in order to fund the acquisition of CRT.

In 2002, the amount of new loans
incurred increased by approximately 99.9% or R$624.7 million to approximately R$1.2
billion, from approximately R$625.2 million in 2001. The R$1.2 billion in new loans
incurred in 2002 was primarily related to:

- approximately
R$900 million in public non-convertible debentures issued in 2002; and
- approximately
R$325.3 million in drawdowns from our long-term credit facility with BNDES.

In 2001, our cash flow from financing
activities decreased by approximately 129.2% from approximately R$2.2 billion in 2000 to a
negative cash flow of approximately R$653.5 million in 2001. The decrease in the cash flow
from financing activities was primarily due to a R$605.1 million increase in loans repaid
and a R$1.9 billion decrease in new loans obtained in 2001. In 2001, the amount of
loans repaid increased by approximately 123.5%, from approximately R$490.1 million loans
paid in 2000 to approximately R$1.1 billion in 2001, due primarily to the payment of
R$779.2 million in commercial paper which had been issued on June 15, 2000 in order to
fund the acquisition of CRT.

In 2001, the amount of new loans
incurred decreased by approximately 75.2%, from approximately R$2.5 billion in 2000
to approximately R$625.2 million in 2001. The R$625.0 million in new loans incurred in
2001 was primarily related to approximately R$613.2 million in draw downs from our R$2.18
billion long-term credit facility with BNDES. See Item 5 Operating and Financial
Review and ProspectsLiquidity and Capital ResourcesIndebtedness and Note
20 to our Financial Statements.

As of December 31, 2002, we had R$20
million remaining in our line of credit with Banco do Brasil, and no unused credit
remaining in our credit facility with BNDES. See Item 3 Key InformationRisk
FactorsRisks Relating to Our CompanyWe may need additional third party
financing which may not be available in the future or on terms acceptable to us.

Increase
(Decrease) in Cash and Cash Equivalents

At December 31, 2002, our cash and
cash equivalents totaled approximately R$1.60 billion, a 242.9% or R$1.13 billion increase
in cash and cash equivalents at December 31, 2001 of approximately R$465.5 million. The
increase in our cash and cash equivalents in 2002 was due primarily to the new loans
obtained and our cash flow generation.

Our cash and cash equivalents at
December 31, 2001 totaled approximately R$465.5 million, a R$1.6 billion decrease over
cash and cash equivalents at December 31, 2000 of approximately R$2.0 billion. The
decrease in our cash and cash equivalents in 2001 was due primarily to our net loss in
2001, our continued plant expansion and modernization program and our repayment of loans
in 2001.

Indebtedness

At December 31, 2002, we had
approximately R$4.18 billion of indebtedness, an increase of approximately 32.7% or R$1.03
billion, from approximately R$3.15 billion at December 31, 2001. In 2002, our interest
expense increased by 120.2% or R$295.7 million to R$541.9 million, from approximately
R$246.1 million for the year ended December 31, 2001, as a result of the following
increases in indebtedness:

- On May
1, 2002, we issued R$500 million public non-convertible debentures, in a single series of
50,000 debentures with a nominal value of R$10,000.00, with warranty to be rendered by
Brasil Telecom Participações S.A. The maturity date is May 1, 2004. The
cost of the operation is equivalent to 109% of the DI rate. The interest is payable on a
semi-annual basis, on November 1 and May 1, until the maturity of the debentures.
- On
December 1, 2002, we issued R$400 million public non-convertible debentures, in a single
series of 40,000 debentures with a nominal value of R$10,000.00, with warranty to be
rendered by Brasil Telecom Participações S.A. The maturity date is December
1, 2004. The cost of the operation is equivalent to 109% of the DI rate. The interest is
payable on a semi-annual basis, on June 1 and December 1, until the maturity of the
debentures.
- During the
year ended December 31, 2002, we drew down an additional R$325.3 million from our
long-term credit facilities with BNDES. Approximately R$71.5 million of these draw-downs
were drawn from a BNDES credit facility bearing interest at the variable TJLP rate + 6.5%
per annum. The TJLP rate as of December 31, 2002 was 10.0% per annum. Approximately
R$253.8 million of these draw-downs were drawn from a BNDES credit facility bearing
interest at a rate equal to the rate of appreciation of the U.S. dollar versus the
Brazilian real on an annual basis + the average annual currency basket rate published by
BNDES (Cesta de Moeda) + 3.85% per annum. See Item 10 Additional InformationMemorandum
and Articles of AssociationMaterial ContractsBNDES Loan Agreements.

At December 31, 2002, approximately
5.4%, or R$224.6 million, of our total indebtedness was denominated in U.S. dollars. Of
our indebtedness denominated in U.S. dollars at December 31, 2002, approximately 38% was
hedged against significant variations in exchange rates (R$/U.S.$). See Note 20g to
our Financial Statements.

At December 31, 2001, we had
approximately R$3.15 billion of indebtedness, a decrease of approximately 11.1%, from
approximately R$3.54 billion at December 31, 2000. In 2001, our interest expenses
increased by 82.2%, from approximately R$135.1 million for the year ended December 31,
2000 to approximately R$246.1 million for the year ended December 31, 2001, as a result of
the following increases in indebtedness:

- an increase in
our interest expense from our U.S. dollar denominated indebtedness, due to a
         depreciation of the real during 2001; and
- an increase in
our interest expense from our real denominated indebtedness, due to an increase in
         Brazilian interest rates.

At December 31, 2001, approximately
8.0%, or R$251.2 million, of our total indebtedness was denominated in U.S. dollars. Of
our indebtedness denominated in U.S. dollars at December 31, 2001, approximately 71% was
hedged against significant variations in exchange rates (R$/U.S.$). See Note 20g to
our Financial Statements.

The following table sets forth the
repayment schedule of our indebtedness:

|                   | At December 31,2002 
|------------------ | --------------------
|                   |                     
|                   | (thousands of reais)
|2003               | 591,874             
|2004               | 1,602,571           
|2005               | 702,571             
|2006               | 740,054             
|2007 and after     | 539,097             
|                   |                     
|Total Indebtedness | 4,176,167           
|                   |                     

Although our indebtedness increased
to approximately R$4.18 billion at December 31, 2002, and our interest expenses increased
to approximately R$541.9 million for 2002, we expect to be able to repay substantially all
principal and interest on our indebtedness with internally generated funds. Net cash flow
from our operating activities was approximately R$2.5 billion, R$2.3 billion and R$2.1
billion in 2002, 2001 and 2000, respectively. However, there can be no assurances that net
cash flow from operating activities will continue to be sufficient to cover these
obligations or that we will not need additional financing in order to repay all principal
and interest on our indebtedness as it comes due. See Item 3 Key
InformationRisk FactorsRisks Relating to Our Company. In the event that
we require it, we may not be able to obtain financing on terms that are acceptable to us
or to finance our future capital expenditures. See Item 3 Key InformationRisk
FactorsRisks Relating to Our CompanyWe may need additional third party
financing which may not be available in the future or on terms acceptable to us.

Capital
Expenditures

In 2002 we made capital expenditures
of approximately R$2.0 billion, a decrease of approximately 41.2% or R$1.4 billion from
2001. These expenditures related primarily (approximately R$1.04 billion) to the
expansion and modernization of our network. In 2001 and 2000, we made capital expenditures
of approximately R$3.4 billion and R$2.1 billion, respectively. See Item 4
Information on the CompanyHistory and Development of the CompanyCapital
Expenditures and Item 4 Information on the CompanyBusiness
Overview.

We currently expect to invest
approximately R$1.82 billion in the expansion and modernization of our network during the
fiscal year 2003. At December 31, 2002 we had Capital Expenditure commitments amounting to
approximately R$97.4 million for 2003. For the three months ended March 31, 2003, we had
invested approximately R$381 million in the expansion and modernization of our network.
See Item 5 Operating and Financial Review and ProspectsLiquidity and Capital
ResourcesCapital Expenditures. We expect to finance our remaining expected
2003 capital expenditures with internally generated funds from operations. Net cash flow
from our operating activities was approximately R$2.5 billion, R$2.3 billion and R$2.1
billion in 2002, 2001 and 2000, respectively. See Item 3 Key InformationRisk
FactorsRisks Relating to Our Company.

Contractual
Obligations and Commercial Commitments

The following tables set forth our
obligations to make future payments under contracts, such as debt and lease agreements,
and under contingent commercial commitments, such as debt guarantees.

|                                   | Payments due by period at December 31, 2002
|---------------------------------- | -------------------------------------------
|                                   |                                            
|Contractual Obligations            | Less than1 year                            
|                                   |                                            
|                                   | (thousands of reais)                       
|Indebtedness                       | 591,874                                    
|Capital lease obligations          | -                                          
|Operating leases                   | 39                                         
|Unconditional purchase obligations | 97,432                                     
|Other long-term obligations        | -                                          
|                                   |                                            
|Total contractual cash obligations | 689,345                                    

|                               | Payments due by period at December 31, 2002
|------------------------------ | -------------------------------------------
|                               |                                            
|Other Commercial Commitments   | Less than1 year                            
|                               |                                            
|                               | (thousands of reais)                       
|Lines of credit                | -                                          
|Standby letters of credit      | -                                          
|Guarantees                     | -                                          
|Standby repurchase obligations | -                                          
|Other commercial commitments   | -                                          
|                               |                                            
|Total commercial commitments   | -                                          

Dividends

We are required to distribute to our
shareholders, either as dividends or as tax deductible interest on shareholder equity, 25%
of our adjusted net income determined in accordance with Brazilian accounting principles
and as adjusted in accordance with Brazilian Corporate Law including any realization of
the net income reserve. We were required to pay a non-cumulative preferred dividend on our
Preferred Shares in an amount equal to 6% of the share capital attributable to our
Preferred Shares under Brazilian Corporate Law. Law No. 10,303, dated October 31, 2001,
which amended the Brazilian Corporate Law requires that we pay a non-cumulative preferred
dividend on our Preferred Shares of at least 3% per year of the book value of
Shareholders equity divided by our total number of shares. On December 19, 2002 we
amended our Bylaws to comply with these new requirements. Preferred Shareholders are now
entitled to receive a minimum non-cumulative dividend of Preferred Dividend equal to the
greater of (i) 6% per year of the value of our total share capital divided by our total
number of shares or (ii) 3% per year of the book value of our shareholders equity
divided by the total number of our shares. In 2000, 2001 and 2002 we paid dividends of
approximately R$85.0 million, R$183.6 million and R$281.3 million, respectively.

Pension Plans

We participate in a multi-employer
defined benefit plan, the Sistel Plan, that covers our inactive or retired
employees who were former employees of Telebrás. Under this plan, we are
contingently liable for our proportionate share of unfunded obligations of the plan
attributable to our participating employees as well as post-retirement health care
benefits for active and inactive employees. During the year 1999, we withdrew a portion of
our funds from the multi-employer plan in order to establish a separate plan for our
current employees who were also former employees of Telebrás. On February 28, 2000,
we founded our own private pension entity implementing a defined contribution, variable
benefit plan, TCSPrev (TCSPrev) (Brasil Telecoms Pension Fund). This
plan covers employees who signed terms of membership on or before April 28, 2000, and
employees hired after February 28, 2000. Approximately 62% of our employees are covered
under TCSPrev. The companies that sponsor the Sistel Plan are jointly liable for
contributions with respect to all employees who participate in TCSPrev. Under TCSPrev the
sponsoring companies are no longer jointly liable. Instead, each sponsor is liable only
for contributions with respect to its own employees. Joint liability among the plan
sponsors continues to exist only with respect to retired employees, who will necessarily
continue under the Sistel Plan, or with respect to the active employees who did not sign
the term of membership to join TCSPrev. See Note 22 to our Financial Statements.

Prior to our acquisition of CRT, that
company created a pension program to provide retirement benefits to its employees
(Fundação dos Empregados da Companhia Riograndense de
Telecomunicações  FCRT). Unfortunately the FCRT was
not fully funded by CRT. When we purchased CRT we assumed our proportionate share of the
unfounded obligations of the FCRT attributable to those CRT employees that were assumed by
our company (the FCRT covers approximately 26% of our current employees (approximately
1,341 employees as of December 31, 2002)).

On October 2, 2002 FCRT received
approval from the Supplementary Pensions Department to introduce a defined-contribution
plan called BrTREV. The approval enables contributors to migrate from the foundation
defined-benefit plan. The new plan was introduced on October 17, 2002, and was terminated
on January 18, 2003, and by the end of this period approximately 604 contributors had
migrated to the defined-contribution plan. Consequently, three different plans became
effective: BrTPREV, Fundador  Brazil Telecom and Alternative  Brasil Telecom.

We estimate that, at December 31,
2002, our proportionate share of the unfunded obligations of the FCRT attributable to our
participating employees was approximately R$501.8 million. The contributions to
BrTPREV are credited in individual accounts of each participant, the
employees and sponsors contributions being equal, the basic percentage
contribution varying between 3% and 8% of the participation salary; according to age. The
sponsor is responsible for the cost of administrative expenses and risk benefits. In 2002,
contributions by the sponsor represented on average 1.32% of the payroll of the plan
participants, whilst the average employee contribution was 1.34%. These figures consider
only contributions in November and December 2002, since the plan was recently implemented.
The regular contribution to Fundador  Brasil Telecom by the sponsor in 2002
was an average of 9.04% of the payroll of plan participants, which contributed at variable
rates according to age, service time and salary, the average rate in 2002 being 7.87%. The
amortizing contributions in 2002 related with the actuarial deficit were equivalent on
average to 29.3% of the participants payroll. The regular contribution to
Alternative  Brasil Telecom by the sponsor in 2002 was on average 7.19% of
the payroll of plan participants, which contributed at variable rates according to age,
service time and salary, with the average rate in 2002 being 6.77%. The amortizing
contributions in 2002 relating to the actuarial deficit were on average equivalent to
37.4% of the participants payroll. For the year ended December 31, 2002, the total
cost of the FCRT to our company was approximately R$17.9 million.

As a result of our potential unfunded
obligations under the FCRT, in 2002 we increased the current portion of our provision for
pensions from R$41.7 million at December 31, 2001 to approximately R$92.1 million at
December 31, 2002, and decreased the non-current portion of our provision for pensions
from approximately R$449.1 million at December 31, 2001 to approximately R$409.7 million
at December 31, 2002. See Note 22 to our Financial Statements.

Off-Balance
Sheet Arrangements

Our company does not have any
material off-balance sheet arrangements.

Trading Activities

Our company does not engage in any
material trading activities involving commodity contracts that are accounted for at fair
value. The only risk management activities that we engage in is the hedging of some of our
U.S. dollar denominated indebtedness. See Item 11 Quantitative and Qualitative
Disclosures About Market RiskQuantitative information about market
riskExchange Rate Risk.

Research
and Development

We conduct research and development
in the areas of telecommunications services, but we do not independently develop any new
telecommunications technology. Since prior to the breakup of Telebrás, we, and each
of the other former operating subsidiaries of Telebrás, have contributed to the
Center, which is a research and development center formerly operated by Telebrás
that develops telecommunications technology for application in Brazil.

On August 3, 2001 we entered into new
service agreements with the Center, one in the amount of R$7 million per year for a
three-year period in order to maintain our access to telecommunications software developed
by the Center, and the other in the amount of R$10 million per year for a two-year period
in order to receive technological services provided by the Center, such as equipment
testing and consulting and training services. In addition to the Center, we also depend on
manufacturers of telecommunications products for the development of new hardware and new
telecommunications technologies.

Our aggregate expenditures on
research and development, including our contribution to the Center, were approximately
R$24.7 million, R$8.0 million and R$3.8 million in 2000, 2001 and 2002, respectively. See
Item 4 Information on the CompanyBusiness OverviewIntellectual
Property and Item 4 Information on the CompanyHistory and Development of
the CompanyCapital ExpendituresResearch and Development.

Trend Information

The evolution of the communication
needs of our customers has been redefining the role of telecommunications in Brazil. We
believe that the mass use of computers and the internet, the evolution of wireless and
data compression technology, and the deregulation of and increased competition in
telecommunication services will continue to increase the demand for telecommunication
services in Brazil.

Due to these developments, the value
of access and long-distance networks has decreased and the value of telecommunication
applications and services has increased. As a result, telecommunications companies have
been seeking to integrate vertically and expand geographically in order to obtain
economies of scale and leverage revenue growth. This is expected to favor those companies
with sufficient access to financing. Although we believe that our company is well
positioned to take advantage of this trend, there can be no assurances that we will have
access to sufficient financing in the future or on terms acceptable to us. See Item 3
Key InformationRisk FactorsRisks Relating to Our CompanyWe may
need additional third party financing which may not be available in the future or on terms
acceptable to us.

As an immediate effect of the
geographic expansion and vertical integration, the degree of difference between the
traditional players has diminished and the boundaries between the communication companies
(i.e., voice/data via fixed accesses, voice/data via mobile accesses, internet and cable
modem) have become increasingly narrow. In order to differentiate ourselves from our
competitors, we have sought to bundle our products and services, brand our services and
introduce value-added services.

The deregulation and technological
evolution of the telecommunications industry in Brazil has intensified the competition in
the voice sector as well as in the data sector. See Item 3 Key InformationRisk
FactorsRisks Relating to the Brazilian Telecommunications IndustryWe face
increasing competition in the Brazilian telecommunications industry. This may have a
material adverse effect on our market share, margins, results of operations and financial
condition. In terms of mobile telephony, the auction of licenses for PCS in Brazil
has further boosted competition.

We believe that our main strength
lies in the regional awareness of our brand name, the technologically advanced level of
our network, our success in the recruitment of top quality employees and our strong
internal cash flow generation.

Our key strategies for the period
between 2003-2005 are to:

- offer complete
and innovative solutions in telecommunication services;
- seek excellent
relations with our customers;
- minimize our
operational costs while expanding our network and services;
- attract, develop
and retain qualified personnel; and
- participate in
the consolidation of the Brazilian telecommunications sector.

# ITEM 6. Directors, Senior
Management and Employees

Board of Directors and
Senior Management

Board of Directors

We are administered by a board of
directors (Conselho de Administração) and our executive officers
(Diretoria), and overseen by a fiscal council (Conselho Fiscal). Our board
of directors is comprised of six members and their alternates each currently serving a
term expiring on the date of our General Shareholders Meeting in 2004. Pursuant to
our Bylaws, all of our directors and their respective alternates are elected by holders of
our Common Shares. Our board of directors holds a regular meeting once every two months
and holds special meetings when called by the Chairman or by two members of the board of
directors.

With the reduction of the stake held
by TI in the voting capital of Solpart, directors Mr. Carmelo Furci and Mr. Wilson
Quintella, and their respective alternates, resigned on September 11, 2002. During the
General Shareholders Meeting held on April 23, 2003 our shareholders elected Mr.
Lênin Florentino de Faria and Mr. Carlos Torres Rodenburg.

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

|Name (Age)                            | Position | Date Elected  
|------------------------------------- | -------- | --------------
|                                      |          |               
|Luis Octavio da Motta Veiga (52)      | Chairman | April 30, 2001
|Veronica Valente Dantas (47)          | Director | April 30, 2001
|Arthur Joaquim de Carvalho (46)       | Director | April 30, 2001
|Carlos Alberto de Araujo (62)         | Director | May 27, 2003  
|Lenin Florentino de Faria (43)        | Director | April 23, 2003
|Carlos Bernardo Torres Rodenburg (47) | Director | April 23, 2003

Luis Octavio da Motta Veiga, has
served as a member of our Board of Directors since April 30, 2001. Mr. Motta Veiga is
currently a partner with the law firm of Carvalhosa, Eizirik e Motta Veiga
Advogados. Previously, Mr. Motta Veiga was president of Pretrobrás Petrel
Brasilieiro S.A., Chief Executive Officer of Anglo American Corporation do Brasil
Ltda., Rayner Coffee International (London) and Jornal do Brasil S.A.and director
of Banco da Bahia de Investimentos and other companies of BBM Group. Mr. Motta Veiga has
also been a member of the National Monetary Counsel and president of the Security
Commission of the Brazilian CVM (Comissão de Valores Mobiliários).
Mr. Motta Veiga holds a degree in Law from the Federal University of Rio de Janeiro and a
post graduate degree in Public Management from Institut International
dAdministration Publicin Paris, France.

Verônica Valente Dantas,has served as a member of our Board of Directors since April 30, 2001. Ms. Dantas
is a partner and managing director of Opportunity Asset Management Ltda. Prior to joining
the Opportunity Group, Ms. Dantas was managing director of Icatu Empreendimentos e
Participações Ltda., an investment company in Brazil. Ms. Dantas
holds a degree in arts from the Federal University of Bahia.

Arthur Joaquim de Carvalho,
has served as a member of our Board of Directors since April 2001. In August 1998, he was
also elected to the board of directors of Tele Norte Celular
Participações S.A. and Telemig Celular Participações
S.A. Mr. Carvalho currently serves as a Principal of CVC/Opportunity Equity Partners
Ltda., a Cayman Island privately-owned investment company. Mr. Carvalho has served as a
Senior Investment Officer for private equity at the Opportunity Group. Prior to joining
the Opportunity Group, he served as a Managing Director of Manuel Joaquim de Carvalho
Ltda., an export-oriented agribusiness company. Mr. Carvalho holds a degree in
Business Administration from the Federal University of Bahia.

Carlos Alberto de
Araújo, has served as a member of our Board of Directors since May 2003. Mr.
Araújo is currently a Board of Directors member of several companies, including
Ferroban  Ferrovias Bandeirantes S.A., Ferronorte  Ferrovias Norte
Brasil S.A., Telemont  Engenharia de TelecomunicaçõesS.A. Mr.
Araújo, during his career, has served as manager in Banco do Brasil, Banco do
Estado do Rio de Janeiro S.A.  Banerj, Irriganor  Indústria e
Comércio Ltda., EPI  Empresa Paraibana de Irrigação Ltda.Mr. Araújo holds a degree in law from the Law University of Recife  UFPE.

Lênin Florentino de
Faria, has served as a member of our Board of Directors since April 23, 2003. Mr.
Faria is currently manager in the Corporation Governance Management Department of
PREVI. PREVI from September 2001 to December 2002. He held the position of
division manager in the Administrative Unit Control from September 2000 to September 2001,
and he also held the position of Division Manager of Compliance in the Internal Control
Unit from February to August 2000 in PREVI. Since 1980, he has held other positions
in several departments of PREVI. Mr. Faria holds a Business Administration degree
from CEUB  Brasilia, Brazil and an MBA in Corporate Governance from IBMEC. He has
also obtained a professional qualification in Labor Economy from UNICAMP.

Carlos Bernardo Torres
Rodenburg, has served as a member of our Board of Directors since April 23, 2003.
Mr. Robenburg is currently a Director of CVC/Opportunity Equity Partners Adm. Recursos
Ltda. Previously, he held the position of Director at Opportunity Asset Management Ltda.
He was also a Director of Banco Icatu and a Director of Atlantica
Correctora. Mr. Rodenburg holds a Business Administration Degree from UNIFACS.

Senior Management

Our senior management consists of a
Financial Executive Officer and a Human Resources Executive Officer, each elected by the
board of directors for a term of three years. An executive officer may be removed from
office at any time by our board of directors.

The following are our current
executive officers and their respective positions.

|Name (Age)                           | Position                          | Date elected     
|------------------------------------ | --------------------------------- | -----------------
|                                     |                                   |                  
|Paulo Pedrao Rio Branco (50)         | Financial Executive Officer       | April 18, 2000   
|Carlos Geraldo Campos Magalhaes (49) | Human Resources Executive Officer | December 13, 2001

Paulo Pedrão Rio Branco, has
served as our Chief Financial Officer since April 2000. Mr. Rio Branco joined Coelba
(Companhia de Eletricidade do Estado da Bahia) in 1975, working as General
Coordinator of the Presidency. In 1987, he worked as Coordinator of Energy of the Bahia
State Secretariat of Mines and Energy. In April 1988, he joined CHESF (Companhia
Hidrelétrica do São Francisco) as advisor to the President. In June
1989, Mr. Rio Branco became Special Coordinator of Bahia State Secretariat, becoming
Secretariat of Mines and Energy of the State of Bahia in January 1990. In May 1990, Mr.
Rio Branco became the Chief Financial Officer of CHESF. In 1995, he became Manager of the
New Business Department at Coelba. Prior to joining Brasil Telecom, he worked as
Development Director at Iberdrola Energia do Brasil Ltda.Mr. Rio Branco holds a
degree in Business Administration and Economics from Universidade Católica de
Salvador and a post graduate degree in corporate finance from
Fundação Getúlio Vargas.

Carlos Geraldo Campos
Magalhães, has served as our Human Resources Executive Officer since
December 13, 2001. Prior to coming to the Company, Mr. Magalhães has served as
a financial director for OAS Group, sub-secretary of finance of the State of Bahia,
General Supervisor of LIGHT  Serviços de Eletricidade S.A., and
Finance Director and President of Companhia de Eletricidade do Estado da Bahia 
COELBA. Mr. Magalhães holds a degree in business from the Business
Administration School of the State of Bahia and a degree in engineering from the Federal
University of Bahia.

Solpart
Shareholders Agreement

Under the shareholders
agreement, dated July 19, 1998 and amended on August 27, 2002, among Techold, TII,
Timepart, Solpart, and others, Solpart has agreed to vote its shares to cause the
nomination and election of our directors.In addition, under the shareholders
agreement, the parties thereto have agreed, among other things, that the:

- modification of
our business plan, dividend policy and Bylaws;
- sale of any of
our material assets;
- issuance by our
company of additional securities;
- increase or
reduction of our capital;
- incurrence by our
company of additional indebtedness; and
- merger of our
company with another entity;

require the prior approval of a
majority of the voting capital of Solpart. However, according to the August 27, 2002
amendment to the shareholders agreement, these provisions are suspended until the
earlier of: (i) January 1, 2004; (ii) publication date of the certification by Anatel that
our universalization targets of 2003 have been met; or (iii) if, at any time after
Anatels approval of the August 27, 2002 amendment to the shareholders
agreement, (a) TIM is prevented from providing SMP services due to TIIs
participation in Solpart; or (b) the transfer of TIIs shares to Timepart and Techold
are considered invalid or ineffective. See Item 7 Major Shareholders and Related
Party TransactionsMajor ShareholdersShareholders Agreement, and
Item 3 Key InformationRisk FactorsRisks Relating to Our CompanyOur
existing principal beneficial shareholders will continue to control a large percentage of
our voting shares and their interests may conflict with your interests as a minority
shareholder.

Compensation

For the year ended December 31, 2002,
the aggregate amount of compensation that we paid to all of our directors and executive
officers was approximately R$15.6 million and the aggregate amount of bonuses paid to all
of our directors and executive officers was approximately R$12.2 million.

For the year ended December 31, 2002,
the aggregate amount we accrued in providing pension, retirement or similar benefits for
our directors and executive officers, including the directors and executive officers of
Brasil Telecom S.A. was approximately R$423,500. We have not entered into any employment
or service agreement with any of our directors or executive officers. As a result, the
only benefits accruing to any of our directors or executive officers upon their
termination are those provided under applicable Brazilian laws.

Stock Option Plan

The Extraordinary General
Shareholders Meeting of our subsidiary held on April 28, 2000, approved the general plan
to grant stock purchase options to the officers and the employees and the employees of its
subsidiaries (the Plan). The Plan authorizes a maximum limit of 10% of the
shares of each class of company stock. Shares derived from exercising options guarantee
the beneficiaries the same rights granted to other company shareholders. The
administration of this plan was entrusted to a management committee appointed by the Board
of Directors, which decided to grant only preferred stock options.

The Plan is divided into two separate
programs:

Program (A)

This program is granted as an
extension of the performance of our objectives established by our Board of Directors for a
five-year period. At December 31, 2002, no stock had been granted.

Program (B)

The strike price of the option is
established based on the arithmetic average of the market price of 1000 shares for the
last 20 trading sessions prior to granting the option, and will be monetarily restated by
the IGP-M between the date of signing the contracts and the payment date.

The right to exercise the option
applies as follows: (a) 33% as from January 1, 2004; (b) 33% as from January 1, 2005; and
(c) 34% as from January 1, 2006. The acquisition periods can be anticipated as a result of
the occurrence of events or special conditions established in the option agreement.
Options not exercised by December 31, 2008 will expire without compensation.

The information related with the
general plan to grant stock options is summarized below:

|                         | 2002              
|------------------------ | ------------------
|                         |                   
|                         | Preferred Shares  
|                         | Options (thousand)
|                         |                   
|Balance as of 12/31/2001 | -                 
|Granted                  | 622,364           
|                         |                   
|Balance as of 12/31/2002 | 622,364           

Fiscal Council

Our fiscal council consists of three
members and their respective alternates, two of which are elected by the holders of Common
Shares and one of each of which is elected by our holders of Preferred Shares. Our fiscal
council is the fiscal inspection entity of our company. Members are normally appointed for
one year terms, ending on the date of the first Annual Shareholders Meeting, subsequent to
their respective election. Reelection is allowed, and all the members are required to
remain in their posts until their successors takes over.

Our fiscal council has been
established on a permanent basis, pursuant to applicable law and our bylaws, with the
following characteristics:

- our fiscal
council members, at their first assembly, shall elect their chairman, who will be in
         charge of remitting the deliberations of the group;
- our fiscal
council may request that the company appoints qualified personnel to act as secretary
         and render technical assistance;
- our fiscal
council shall meet, ordinarily, once every quarter and extraordinarily, when required;
- the assemblies
are summoned by the chairman of our fiscal council or by 2 (two) of its members;
- our fiscal
council manifests itself by a majority of votes, with the presence of the majority of
         its members;
- the members of
our fiscal council are substituted, in their absence or impediment, by their
         respective alternates;
- except in the
case of death, resignation, destitution or pursuant to applicable law, the vacancy of the
post is considered when a member of our fiscal council fails to appear without just cause
to 2 (two) consecutive assemblies or 3 (three) interspersed assemblies during the same
corporate year; and
- in the case of
absence in the position of a member of our fiscal council without an alternate assuming
the post, our general assembly will convene to elect an alternate.

The following are the current members
of our fiscal council:

|Name                             | Date Elected  
|-------------------------------- | --------------
|                                 |               
|Luiz Otavio Nunes West           | April 23, 2003
|Luiz Fernando Cavalcanti Trocoli | April 23, 2003
|Egon Handel                      | April 23, 2003

Employees

In 2002, we decreased the number of
our employees by approximately 29.4%, from 7,890 employees at December 31, 2001 to 5,571
employees at December 31, 2002. All of our employees are employed on a full-time basis.

Approximately 27.9% of our employees
work in the area of operations, 27.2% of our employees work in the area of marketing and
other commercial activities, 8.4% of our employees work in the area of finance, 8.2% of
our employees work in the area of information technology, 20.2% of our employees work in
the area of support services, 2.0% of our employees work in the area of human resources
and 6.1% of our employees work in the area of senior management.

Approximately 37.4% of our employees
are members of state labor unions associated either with the Federação
Nacional dos Trabalhadores em Telecomunicações (Fenattel) or
with the Federação Interestadual dos Trabalhadores em
Telecomunicações (Fittel). Some employees in certain job
categories are affiliated with other unions specific to such categories. We normally
negotiate a new collective labor agreement every year with our local union. These annual
negotiations are carried out under our supervision and guidance, on one side, and Fenattel
or Fittel, on the other. We believe that we have good relations with our employees and to
date we have never experienced a work stoppage that had a material effect on our
operations.

The following table sets forth the
breakdown of our employees by geographic region:

|                   | 2000  | 2001  | 2002 
|------------------ | ----- | ----- | -----
|                   |       |       |      
|                   | (%)   | (%)   | (%)  
|Branch            
|Distrito Federal   | 12.5  | 20.2  | 32.9 
|Rio Grande do Sul  | 31.7  | 27.0  | 17.9 
|Parana             | 25.1  | 21.5  | 20.1 
|Santa Catarina     | 15.9  | 11.2  | 10.4 
|Goias/Tocantins    | 8.0   | 11.0  | 7.9  
|Mato Grosso do Sul | 3.4   | 4.6   | 4.3  
|Mato Grosso        | 1.8   | 2.5   | 3.9  
|Rondonia           | 1.2   | 1.5   | 2.1  
|Acre               | 0.4   | 0.5   | 0.5  
|                   |       |       |      
|Total              | 100.0 | 100.0 | 100.0
|                   |       |       |      

Performance Bonus Plan

We have entered into collective
agreements with various labor unions under which we have undertaken to pay a bonus to
employees for attainment of operating goals, in accordance with the terms and conditions
established in the performance bonus plan rules.

For the year ended December 31, 2002,
we paid, in 2003, approximately R$39.9 million in performance bonuses to our directors,
executive officers and employees.

Share Ownership

According to the Brazilian
Corporation Law, all members of the board of directors of a Brazilian publicly held
company must also be shareholders of that company. As a result, all members of our board
of directors own at least one of our shares.

The following table indicates the
amount of shares owned by each member of our board of directors and senior management.

|                                 | Number of        | Number of    
|-------------------------------- | ---------------- | -------------
|Name of Director (1)             | Preferred Shares | Common Shares
|                                 |                  |              
|Luis Octavio da Motta Veiga      | 50,040           | 16,016       
|Veronica Valente Dantas          | -                | 1            
|Arthur Joaquim de Carvalho       | -                | 1            
|Carlos Alberto de Araujo         | -                | -            
|Lenin Florentino de Faria        | 1,832            | 17,749       
|Carlos Bernardo Torres Rodenburg | 464              | 462          

|                                | Number of        | Number of    
|------------------------------- | ---------------- | -------------
|Name of Senior Manager(1)       | Preferred Shares | Common Shares
|                                |                  |              
|Paulo Pedrao Rio Branco         | 4,674            | 4,672        
|Carlos Geraldo Campos Magalhaes | -                | 381          

|_________ | _________                                                                                                            
|--------- | ---------------------------------------------------------------------------------------------------------------------
|(1)       | None of the persons indicated in the table beneficially owns more than one percent of any class of our
capital stock.

# ITEM 7. Major Shareholders and
Related Party Transactions

Major Shareholders

References to Preferred
Shares and Common Shares in this Annual Report are to our preferred
shares and common shares, respectively. References to American Depositary
Shares or ADSs are references to American Depositary Shares each
representing 5,000 Preferred Shares, and references to American Depositary
Receipts or ADRs are references to the American Depositary Receipts, the
certificates that evidence the ADSs.

Our capital stock is comprised of
Preferred Shares and Common Shares, all without par value. At December 31, 2002, there
were 219,863,510,944 Preferred Shares outstanding and 132,355,516,131 Common Shares
outstanding. Of the two classes of our capital stock outstanding, only our Common Shares
have full voting rights. Our Preferred Shares have voting rights under the following
limited circumstances:

- in any
decision by the general assembly related to any management service agreement, including
any technical assistance agreement, to be entered into by our company with any foreign
entity affiliated to any of Techold, TII or Timepart; and
- in any
decision by the general assembly, related to any matter, if our company shall have
omitted to pay preferred dividends for three or more consecutive years.

The following table sets forth
information concerning the ownership of our Preferred Shares and Common Shares (i) by
Solpart and (ii) by our directors and senior management as a group, at April 30, 2003. We
are not aware of any other shareholder of record owning more than 5.0% of our Common
Shares.

|Name of Owner                                    | Number ofPreferred SharesOwned | % ofOutstandingPreferredShares | Number ofCommon SharesOwned | % ofOutstandingCommonShares
|------------------------------------------------ | ------------------------------ | ------------------------------ | --------------------------- | ---------------------------
|                                                 |                                |                                |                             |                            
|Solpart                                          | 161,687,175                    | 0.07                           | 71,830,503,826              | 53.59                      
|All directors and executives officers as a group | 57,010                         | 0.00                           | 39,282                      | 0.00                       

At December 31, 2002 our Preferred
Shares were held by approximately 1,590,034 registered holders, of whom approximately
1,589,810 registered holders were located in Brazil. At December 31, 2002, our Common
Shares were held by approximately 1,870,240 registered holders, of whom approximately
1,870,092 registered holders were located in Brazil.

At December 31, 2002, Solpart owned
approximately 53.45% of our common stock. At December 31, 2002, to the best of our
knowledge, Techold, TII and Timepart owned approximately 47.48%, 31.59% and 20.93%,
respectively, of the capital stock of Solpart, with Timepart owning 62.00% of the voting
capital of Solpart. Accordingly, Solpart has the ability to control the election of our
board of directors.

The following is a brief description
of the shareholders of Solpart:

- Techold is a
subsidiary of Invitel S.A., a company controlled by Opportunity Zain S.A., which in
         turn is controlled by CVC/Opportunity Equity Partners F.I.A. and
CVC/Opportunity Equity          Partners L.P.

CVC/Opportunity
Equity Partners F.I.A. is an investment fund managed by
                  CVC/Opportunity Equity Partners Administradora de Recursos Limitada.CVC/Opportunity
Equity Partners L.P. is an investment fund managed by CVC/Opportunity
                  Equity Partners, Inc.
- CVC/Opportunity
Equity Partners F.I.A. is an investment fund managed by
                  CVC/Opportunity Equity Partners Administradora de Recursos Limitada.
- CVC/Opportunity
Equity Partners L.P. is an investment fund managed by CVC/Opportunity
                  Equity Partners, Inc.
- TII is
part of a group headed by Telecom Italia (BC) S.p.A.
- Timepart is a
company owned by Telecom Holding S.A., Privtel Investimentos S.A. and Teleunion S.A.


Telecom Holding
S.A. is, to the best of our knowledge, controlled by members of the Woog
                  family.Privtel
Investimentos S.A. is owned by Eduardo Cintra Santos, who serves on our board of
                  directors.Teleunion S.A. is
owned by Luiz Raymundo Tourinho Dantas, who is related to the
                  controlling shareholders of the Opportunity Group.
- Telecom Holding
S.A. is, to the best of our knowledge, controlled by members of the Woog
                  family.
- Privtel
Investimentos S.A. is owned by Eduardo Cintra Santos, who serves on our board of
                  directors.
- Teleunion S.A. is
owned by Luiz Raymundo Tourinho Dantas, who is related to the
                  controlling shareholders of the Opportunity Group.

The following chart sets forth our
controlling shareholders as of December 31, 2002:

Shareholders
agreement

We do not have a shareholders
agreement at the company level.

Solpart, our controlling entity, has
a shareholders agreement. On July 19, 1998, Techold, TII, Timepart, Solpart, and
others, entered into a shareholders agreement, which governs their respective rights
and obligations with respect to their shareholdings in Solpart. The shareholders
agreement was amended as of August 27, 2002 and provides, among other things, for the
following:

- the rules for the
nomination of a majority of our directors and executive officers;
- a right of first
offer, rights of first refusal and tag-along rights for TII;
- rights of first
refusal for Techold with respect to the sale of TII's shares in Solpart; and
- the
implementation of an initial business plan for our company.

Under the shareholders' agreement, Solpart has agreed to vote its
shares in our company to cause the nomination and election, by Techold and TII of members
of our Board of Directors and TII and of our Senior Management.  In addition, under the
shareholders' agreement, the parties thereto have agreed, among other things, that the:

- modification of
our business plan, dividend policy and Bylaws;
- sale of any of
our material assets;
- issuance by our
company of additional securities;
- increase or
reduction of our capital;
- incurrence by our
company of additional indebtedness; and
- merger of our
company with another entity,

require the prior
approval of an absolute majority of the voting capital of Solpart.  However, according to
the August 27, 2002 amendment to the shareholders' agreement, these provisions are
suspended as described in Item 6 "Directors, Senior Managers and EmployeesBoard of
Directors and Senior ManagementSolpart Shareholders' Agreement."

Related Party
Transactions

None
of the members of our board of directors or senior management, or any close member of
their respective families, has or has had, since the period beginning January 1, 2001,
any direct interest in any transaction effected with our company which is or was unusual
in its nature or conditions, or significant to our business.

As
of December 31, 2002, no outstanding loans or guarantees have been made to the members of
our board of directors, senior management, or any close member of their respective
families.

ITEM 8.
Financial Information

Consolidated
Statements and Other Financial Information

See
Item 18 "Financial Statements."

Legal Proceedings

Breakup of Telebrás

The
legality of the breakup of Telebrás and privatization of Telebrás was challenged in
numerous legal proceedings, the great majority of which have now been dismissed.  A few,
however, are still pending.  We believe that the ultimate resolution of those proceedings
will not have a material adverse effect on our business or financial condition.

We
are a party to certain legal proceedings arising in the normal course of business,
including civil, administrative, tax, social security and labor proceedings.  We have
provided for or deposited in court amounts to cover our estimated losses due to adverse
legal judgments.  We believe that such actions, if decided adversely to our company, are
not likely to have a material adverse effect on our business or financial condition.

Telebrás,
our legal predecessor, is a defendant in a number of legal proceedings and is subject to
certain other claims and contingencies.  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 of Telebrás remains with Telebrás, except for labor and tax claims
(for which Telebrás and the 12 new holding companies into which it was broken-up are
jointly and severally liable by operation of law) and any liability for which specific
accounting provisions have been assigned to us.  Our management believes that the chances
of any such claims materializing and having a material adverse financial effect on our
company are remote.

Claims Before Anatel

Certain
claims have been filed against us before Anatel, but we believe that none of these
claims, if determined adversely to us, (individually or in the aggregate) would have a
material adverse effect on our operations.

Labor Proceedings

At
February 28, 2003, contingent liabilities for labor legal proceedings in which the risk
of loss was considered "probable" amounted to approximately R$321.4 million.  At February
28, 2003, contingent liabilities for labor legal proceedings in which the risk of loss
was considered "possible" amounted to approximately R$466.1 million.  As of February 28,
2003, we were involved in approximately 14,054 labor legal proceedings, 5,513 of which
were brought against CRT.  The estimated total amount involved in these proceedings is
approximately R$978.6 million.  The majority of these proceedings are related to:

- performance bonus
plan;
- employee
promotions;
- dangerous work
conditions;
- overtime;
- subsidiary
liability;
- productivity;
- recognition of
employment relationship;
- reinstatement; and
- voluntary
severance plans.

As
the successor of Telepar, we were the defendant in a civil public action brought by the
Attorney General for Labor Matters of Curitiba (Ministério Público do Trabalho  Curitiba)
based on our dismissal of a large number of employees aged 40 years or over (with an
average of more than 20 years' of seniority) under our restructuring program. During
2001, a preliminary judgment was entered in this matter ordering the reinstatement of the
dismissed employees and dismissing all claims for indemnification. We have appealed this
judgment and the judicial order was revoked. The civil public action was dismissed and
the Attorney General for Labor Matters of Curitiba filed an appeal with the Regional
Labor Court (Tribunal Regional do Trabalho). The appeals court ordered the rehiring of
the dismissed employees. Both parties filed a review appeal to the Superior Labor Court
(Tribunal Superior do Trabalho) and we are still awaiting a decision of this matter.
Considering that the rehiring of such employees, as opposed to their reinstatement, will
have effects only as of effective rehiring, we do not expect any costs related to this
action.

In
1989, the Labor Union of Rio Grande do Sul (SINTTEL) filed a labor claim, as the legal
substitute of 798 claimants, requesting the payment of a risk premium. The Labor Judge
ordered the payment of such a risk premium. In 1999, CRT filed a rescissory action to
the Superior Labor Court (Tribunal Superior do Trabalho) in order to revert the decision
of the court of first instance. This action is still awaiting a decision. Should we
lose our rescissory action, we estimate that we would incur a cost of approximately R$97
million.

We
are the defendant in a labor claim filed by 1,478 employees, in 1984, requesting the
payment of salary differences due to the failure in complying the "Company Internal
Rules," which established different criteria depending on an employee's seniority. In
1988, a judgment was entered in this matter ordering the payment of such differences.
Since the judgment, the parties have been discussing the values involved in the action.
In order to settle the values involved, a specific appeal was filed to the Regional
Labor Court (Tribunal Regional do Trabalho) which ordered the exclusion of the employees
who were hired after October 1976 (which represent 600 claimants). We estimate that we
would incur a cost of approximately R$20 million.

We
are the defendant in a labor claim filed by the Labor Union of Santa Catarina (SINTEL),
in 1997, as the legal substitute of all employees, requesting the payment of differences
due to the profit sharing paid by Telesc in 1996, considering a difference of criteria
regarding the procedures adopted to calculate the values paid. The Labor Judge ordered
the payment of such differences. However, we filed an appeal to the Regional Labor Court
(Tribunal Regional do Trabalho), which dismissed the labor claim. The Labor Union
(SINTEL) filed a review appeal (recurso de revista) to the Superior Labor Court (Tribunal
Superior do Trabalho) and the decision issued by the Regional Labor Court was confirmed.
We are awaiting the decision of the second motion for clarification of judgment
(embargos de declaração) filed by the Labor Union. We estimate that we could incur a
cost of approximately R$9.6 million.

In
1984, 1,480 employees filed a labor claim requesting the payment of differences due to
the profit sharing's bonus. The Labor Judge dismissed the labor claim in 1985. An
appeal filed to the Regional Labor Court (Tribunal Regional do Trabalho) modified the
decision, ordering the payment of the profit sharing. Telesc filed a review appeal
(recurso de revista) to the Superior Labor Court (Tribunal Superior do Trabalho) and also
to the Superior Federal Court (Supremo Tribunal Federal), but the decision was confirmed.
In 1990, an agreement was settled with the employees in order to pay the profit sharing.
In 1995, a Governmental Resolution N. 10 was issued and as a result, Telesc did not pay
the profit sharing as agreed but instead began to pay as established in the Resolution.
In 1997, the Labor Union of Santa Catarina (SINTEL) and part of the employees requested
the reopening of the labor claim to execute the differences of the profit sharing
payments. The Labor Judge did not accept the request. However, the Regional Labor Court
(Tribunal Regional do Trabalho) admitted the employees' request. In 1998, Telesc filed a
review appeal (recurso de revista), which was not accepted by the Superior Labor Court
(Tribunal Superior do Trabalho). In 2003, Telesc filed an extraordinary appeal (recurso
extraordinário) to the Superior Federal Court (Supremo Tribunal Federal) which was not
accepted. We are awaiting the decision on the interlocutory appeal (agravo de
instrumento) filed by Telesc to the Superior Federal Court in April 2003. We estimate
that we would incur a cost of approximately R$18 million.

We
are the defendant in a labor claim filed in 1993 by the Labor Union of Goiás (SINTEL), as
the legal substitute of 89 claimants, requesting the payment of a risk premium. The
Labor Judge ordered the payment of such a risk premium. In 1999, Telegoiás filed a
rescissory action with the Superior Labor Court (Tribunal Superior do Trabalho) in order
to revert the decision. We are still awaiting a decision. Should we lose our rescissory
action, we estimate that we would incur a cost of approximately R$6 million.

In
1998, the Lawyers Labor Union of Santa Catarina (SINDALEX) filed a labor claim, as the
legal substitute of 4 claimants (Telescs lawyers), requesting the payment of overtime
according to Law 8.906/94. The Labor Judge ordered the payment of such overtime. An
appeal filed with the Regional Labor Court (Tribunal Regional do Trabalho) modified the
decision, ordering the payment of overtime to only one of the claimants. The parties
filed a review appeal (recurso de revista), and we are awaiting the decision. If we lose
our appeal, we estimate that we would incur a cost of approximately R$5 million.

In
1997, the Labor Union of Rio Grande do Sul (SINTEL) filed an enforcement action (ação de
cumprimento) requesting the payment of salary differences due to the failure to comply
with the 5% readjustment granted by the Labor Bargaining Agreement. The Labor Judge
ordered the payment of such differences. We filed an ordinary appeal to the Regional
Labor Court (Tribunal Regional do Trabalho) and the decision was confirmed. We filed a
review appeal (recurso de revista) to the Superior Labor Court (Tribunal Superior do
Trabalho) in order to revert the decision. We are still awaiting the outcome of this
appeal. We estimate that we would incur a cost of approximately R$60.5 million.

Tax Proceedings

Retroactive Application of Certain Taxes to Cellular Activation and Other Fees

In
June 1998, the governments of Brazilian states approved an Agreement (Convênio No. 69/98)
to interpret existing Brazilian tax law to broaden the application of the ICMS effective
July 1, 1998, to certain services, including cellular activation and installation
services, to which the ICMS had not previously been applied.

The
administrative tax authorities in the Federal District and in the State of Santa Catarina
have assessed our company on this issue regarding the five years preceding June 30, 1998.
 Moreover, there is a risk that other states could seek to apply this interpretation
retroactively to services rendered during the six months preceding June 30, 1998, within
the statute of limitations.

We
believe that any such attempt by other states to extend the scope of the ICMS to apply it
retroactively to services that are supplementary to basic telecommunications services
would be illegal and unconstitutional because:

|(a) | their interpretation would subject certain services which are not telecommunications services to taxation; and
|--- | --------------------------------------------------------------------------------------------------------------
|   
|(b) | taxes may not be applied retroactively.                                                                       

Nevertheless,
there can be no assurance that we will prevail in our position that the interpretation by
the state governments is unlawful.  If the ICMS were to be applied retroactively in the
activation fees earned by the discontinued cellular operations for the six months prior
to June 30, 1998, under the statute of limitations, it would have a material adverse
impact on our financial condition and results of operations.  It would give rise to a
liability estimated at approximately R$20 million in back taxes.

Recently,
the Superior Court of Justice ("STJ") initiated the judgment of the Special Appeal No
401.411-AM regarding the application of the ICMS tax on the cellular installation and
activation services established in Convênio No. 69/98.  This Special Appeal is a leading
case on this issue.  Currently, the first vote, by Judge Eliana Calmon, was favorable to
the taxpayer.  However, as of April 15, 2003, this Special Appeal is pending analysis of
the other Judges.  Even though the STJ has not granted a final decision yet, a favorable
decision seems likely, which means a low likelihood of disbursement in our proceedings.

With
regard to the payments of ICMS tax on such cellular activation and installation services
as of July 1, 1998, we have filed judicial claims (declaratory actions) in the states of
our region to avoid such collections.  In addition, we deposited in court the approximate
amount of R$123 million in order to guarantee the judicial discussion without the
application of interest and fees.

Services Tax Applying
to Complementary Telecommunication Services

Several
municipal governments assessed our company in order to collect the Services Tax ("ISS")
on the complementary telecommunication services.  These assessments constitute a relevant
contingency for our company.  The company understands that these complementary
telecommunication services, which are considered accessory services in the
telecommunication services, are subject to ICMS instead of the ISS.  Consequently, our
company is not paying the ISS on these services.  The amount of this tax contingency is
approximately R$224 million, which is not provisioned in our company's balance sheet.

State Value-Added Tax
Credits

Several
state treasury departments assessed our company in order to discuss the use of the ICMS
tax credits.  Our company presented administrative and judicial defenses against the
assessments.  In some administrative proceedings, the decision at the first
administrative level was unfavorable to the company.  According to the state tax
authorities, the procedure adopted by our company for registering the ICMS credits is not
in accordance with to law.  On the other hand, our company's legal counsel understands
that the likelihood of disbursement is low in the judicial level since ICMS tax credits
are guaranteed by the Brazilian Constitution.  The amount involved in the discussion is
approximately R$71 million, which is not provisioned in our company's balance sheet.

State Value-Added Tax
Applying on International Telecommunication Services

Several
state Treasury Departments assessed our company in order to collect the ICMS tax on
international telephone calls. The tax authorities understand that international
telephone calls are services rendered in Brazil and subject to ICMS tax since the request
and the payment for the services are executed in Brazil.  Our company presented
administrative defenses against the assessments.  The amount involved in the
administrative proceedings is approximately R$43 million, which is not provisioned in the
company's balance sheet.  Our company's legal counsel understands the ICMS tax is not
applicable to the international telephone call services and estimates the likelihood of
disbursement as low.

Social Security
Contribution Applying on Several Issues

The
National Welfare Agency filed administrative and judicial proceedings against our company
in order to collect the INSS on different payments to our company's employees.  Our
company presented defenses against the proceedings.  The amount involved in those
proceedings is approximately R$78 million, which is not provisioned in the company's
balance sheet.

State Value-Added Tax
Applying on Sale of Pre-Paid Telephone Cards

The
state Treasury Department of the states of Mato Grosso and Tocantins assessed our company
to collect the ICMS on sale of pre-paid telephone cards used in public telephones.  Our
company presented administrative defenses against the assessments.  The amount involved
in the administrative proceedings is approximately R$22 million, which is not provisioned
in the company's balance sheet.

Costs of the Social
Contribution on Gross Revenue Transferred to the Users of the Telecommunication Services

A
civil class action was filed by a federal prosecutor and ANDEC ("Associação Nacional de
Defesa dos Consumidores de Cartão de Crédito") in order to suspend the transfer of the
cost of the PIS/COFINS to the users of the telecommunication services.  Our company
presented defenses against the assessments.  The amount involved in these judicial
proceedings is approximately R$182 million, which is not provisioned in the company's
balance sheet.

REFIS

The
REFIS is a program created by the Federal government in order to provide the opportunity
to legal entities to pay their debts related to taxes managed by the Federal Revenue
Service and the INSS ("INSS").

In
November 16, 2000, the company filed the request to include in the REFIS program its
debts related to the taxes managed by the Federal Revenue Service and the INSS.  As of
April 2003, the total amount of the debt included in the REFIS is approximately R$76
million.  In the calculation of the total amount included in the REFIS, (allowed by law)
the company used both (i) a 40% of reduction of the penalty fee applied issued in the
assessments and (ii) its own and third parties' net operating losses, to offset with the
tax debts included in the REFIS.

Civil Proceedings

At
March 31, 2003, we had provisions of approximately R$56.5 million of contingent
liabilities for civil lawsuits classified as "probable" risks.  At March 31, 2003,
contingent liabilities for civil lawsuits classified as "possible" risks amounted to
approximately R$304.2 million.

Most
of the civil suits filed against us would not, if determined in a manner adverse to our
company, have a material adverse effect on our results of operations or financial
condition.  The most significant civil suits against us are the following:

CRT
is a defendant in certain lawsuits in connection with certain illegalities that are
alleged to have occurred during the privatization and sale of CRT.  Although we believe
that we will prevail in this dispute, there can be no assurance that the courts will rule
in our favor.  If the plaintiffs in these lawsuits are successful, the courts could void
the privatization of CRT, which would result in our loss of control of CRT.  Although we
would be entitled to recover the purchase price paid for CRT from the State of Rio Grande
do Sul, such an adverse ruling could have a material adverse effect on our operations.

As
the successor of CRT, we are the defendant in a Civil Public Action brought by the
Federal Attorney General (Ministério Público) for Rio Grande do Sul against CRT claiming
indemnification of amounts paid by customers as a result of allegedly abusive commercial
practices in connection with 0900/900 telephone services. An adverse judgment has been
issued against us in this action. Although the court did not award any damages in this
action, it enjoined us from offering 0900/900 telephone services and from disconnecting
service to customers for the non-payment of any 0900/900 services incurred prior to the
date of the judgment. Both parties have filed appeals against the decision at first
instance and the appeals have not yet been decided. Customers seeking to recover damages
in this matter will have to bring their own separate actions. Our ultimate liability
will depend on how many of our customers initiate and succeed in any such proceedings.

We
are a defendant in a lawsuit brought by Tele Centro Oeste Celular Participações S.A.
("TCO") in May 1999. TCO claims that certain debts owed to TCO by third parties were
wrongly allocated to us in connection with the breakup of Telebrás. TCO sought a
declaration that these debts, which are owed by Telebrasília Celular S.A.and Telegoiás
Celular S.A.and which amount to approximately R$142.5 million, are owed to TCO and not
to us. In October 1999, we filed suit against Telebrasília Celular S.A.and Telegoiás
Celular S.A.to collect unpaid and overdue amounts under these debts. In early 2002, the
court ruled that (i) the debts are owed to our company and not to TCO, (ii) Telebrasília
Celular S.A.and Telegoiás Celular S.A.must repay the debts to our company, and (iii)
the debts will be adjusted according to the exchange rate only up until the date that the
breakup of Telebrás took place, and thereafter shall only be adjusted according to the
rate of inflation (IGP-DI). Each of the parties appealed this ruling on different
grounds. The judgment on appeal decided (i) to overturn the decision at first instance
in the lawsuit brought by TCO against us and dismiss the action without judgment on the
merits because of TCOs lack of standing to bring action and (ii) to overturn in part the
decision at first instance in the suits brought by us against Telebrasília Celular S.A.and Telegoiás Celular S.A.determining that the debts will be adjusted according to the
exchange rate, as established in the agreements.

Dividend Policy

Pursuant
to our Bylaws, we are required to distribute as dividends in respect of each fiscal year
ending on December 31, to the extent amounts are available for distribution, an aggregate
amount equal to at least 25% of Adjusted Net Income (as defined below) on such date (the
"Mandatory Dividend").  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 subsequently
distributed equally among holders of Preferred Shares and Common Shares.  Under the
Brazilian Corporate Law, a company is permitted to suspend the Mandatory Dividend in
respect of common shares and preferred shares not entitled to a fixed or minimum dividend
if its board of directors and fiscal council report to the shareholders' meeting that the
distribution would be incompatible with the financial circumstances of such company and
the shareholders ratify this conclusion at the shareholders' meeting.  In this case, (i)
the board of directors must forward to the CVM within five days of the shareholders'
meeting an explanation justifying the information transmitted at the meeting and (ii) the
profits which were not distributed for such reason are to be recorded as a special
reserve and, if not absorbed by losses in subsequent fiscal years, are to be paid as
dividends as soon as the financial situation of such company permits.  Our Preferred
Shares are entitled to a minimum dividend and thus the Mandatory Dividend may be
suspended only with respect to the Common Shares.  See "Priority and Amount of Preferred
Dividends."

Under
our Bylaws, we may pay dividends out of retained earnings or accumulated profits in any
given fiscal year.  For the purposes of the Brazilian Corporate Law, accumulated profits
are defined as net income after income and social contribution taxes for such fiscal
year, net of any accumulated losses from prior fiscal years and any amounts allocated to
founders' shares, income bonds, employees' and management's participation in a company's
profits.  Retained earnings are defined as the amount of our net income in prior years
that was not paid out as dividends in the year in which it was earned, but rather was
retained in accordance with a proposal of the board of directors duly approved by a
shareholders meeting.

At
each annual shareholders' meeting, our board of directors is required to recommend how
net profits for the preceding fiscal year are to be allocated.  Under the Brazilian
Corporate Law, we are required to maintain a statutory reserve, to which we must allocate
5% of net profits for each fiscal year until the amount of such reserve equals 20% of our
paid-up share capital (the "Statutory Reserve").  This reserve can only be used to
increase capital or offset accumulated losses.  Net losses, if any, may be charged
against the statutory reserve.

The
Brazilian Corporate Law also provides for two additional discretionary allocations of net
profits that are subject to approval by shareholders at the annual shareholders' meeting.
First, a percentage of net profits may be allocated to the contingency reserve for
anticipated losses that are deemed probable in future years (the "Contingency Reserve").
Any amount so allocated in a prior year must be either (i) reversed in the fiscal year
in which the loss was anticipated if such loss does not in fact occur or (ii) reversed in
the event that the anticipated loss occurs. Second, if the amount of Unrealized Revenue
(as defined below) exceeds the sum of (i) the statutory reserve (Reserva Legal), (ii) the
Contingency Reserve and (iii) retained earnings, such excess may be allocated to the
reserve (the "Unrealized Revenue Reserve"). Such allocations may not hinder the payment
of minimum dividends on our Preferred Shares. "Unrealized Revenue" is defined under the
Brazilian Corporate Law as the sum of (i) the share of equity earnings of affiliated
companies which is not paid as cash dividends and (ii) profits from installment sales to
be received after the end of the next succeeding fiscal year.

For
the purposes of the Brazilian Corporate Law, and in accordance with our Bylaws, "Adjusted
Net Income" is an amount equal to our net profit adjusted to reflect allocations to and
reversion from (i) the Reserva Legal; (ii) the Contingency Reserve and (iii) the
Unrealized Revenue Reserve.

The
amounts available for distribution are determined on the basis of our financial
statements prepared in accordance with the Brazilian Corporate Law, which differ from
financial statements, such as our Financial Statements included herein, that are prepared
using the constant currency method according to Brazilian GAAP.

In
order to allow the payment of dividends after the breakup of Telebrás, the shareholders
of Telebrás approved the allocation and transfer of a proportional part of the retained
earnings and reserves of Telebrás to our company as retained earnings.  These earnings
and reserves (which amount to approximately R$1.3 billion) are available to be used by
our company for payment of future dividends, if so approved by our shareholders, although
we are not legally obligated to do so.

Priority and Amount of
Preferred Dividends

Our
Bylaws provide for a minimum non-cumulative dividend of Preferred Dividend equal to the
greater of (i) 6% per year of the value of our total share capital divided by the total
number of shares or (ii) 3% per year of the book value of our shareholders' equity
divided by the total number of our shares.  As a result of such provision, holders of
Preferred Shares are entitled to receive, in any year, distributions of cash dividends
prior to the holders of Common Shares receiving any distribution of cash dividends in
such year.  In addition, distributions of cash dividends in any year are made:

- first, to the
holders of Preferred Shares, up to the amount of the Preferred Dividend of our Preferred
Shares for such year;
- then, to the
holders of Common Shares, until the amount distributed in respect of each Common Share is
equal to the amount          distributed in respect of each Preferred Share; and
- thereafter, to
the Common Shares and Preferred Shares on a pro rata basis.

If
the Mandatory Dividend in any year is less than or equal to the Preferred Dividend
payable to the holders of Preferred Shares in such year, the holders of Common Shares
will not be entitled to receive any cash dividends distributed by our company in such
year, unless the holders of Common Shares approve dividends in excess of the Mandatory
Dividend.  In such circumstances, however, holders of Preferred Shares will be entitled
to the amount available for payment of dividends up to an aggregate amount equal to the
Preferred Dividend plus, in the event the Preferred Dividend is higher than the amount
available for payment of dividends for such year, any retained earnings from previous
years may be used to make up for such shortfall.  If the Preferred Dividend is not paid
for a period of three years, holders of Preferred Shares shall be entitled to full voting
rights until such time as the minimum dividend is paid in full for any year.

Payment of Dividends

We
are required by Brazilian law (Law 6,404, article 132) and our Bylaws to hold an annual
shareholders' meeting within four months after the end of each fiscal year at which,
among other things, an annual dividend may be declared by decision of the shareholders on
the recommendation of our executive officers and our board of directors.  The payment of
annual dividends is based on our financial statements prepared for each fiscal year ended
December 31 in accordance with Brazilian Corporate Law.  Under Brazilian Corporate Law,
dividends are required to be paid within 60 days following the date the dividend
distribution is declared to shareholders of record, unless a shareholders' meeting
resolution sets forth another date of payment, which must occur prior to the end of the
fiscal year in which such dividend distribution was declared.  A shareholder has a
three-year period from the dividend payment date to claim dividends in respect of its
shares, after which our company has no liability for such payment.  Because our shares
are issued in book-entry form, dividends with respect to any share are automatically
credited to the account holding such share and no action is required on the part of the
shareholder.  We are not required to adjust the amount of paid-in capital for inflation.
 Annual dividends may be paid to shareholders of newly issued shares on a pro rata basis
according to the date when the subscription price for such newly issued shares was paid
to us.

Shareholders
who are not residents of Brazil must register with the Brazilian Central Bank in order
for dividends, sales proceeds or other amounts with respect to their shares to be
eligible to be remitted outside of Brazil. The Preferred Shares underlying the ADSs are
held in Brazil by Banco Itaú S.A., as agent for the Depositary, which has registered with
the Brazilian Central Bank as the registered owner of our shares.

Payments
of cash dividends and distributions, if any, will be made in Brazilian currency to Banco
Itaú S.A., as custodian for our Preferred Shares represented by the ADSs, on behalf of
the Depositary. Banco Itaú S.A.will then convert such 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
Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars
payable to holders of ADSs may be adversely affected by devaluations of the Brazilian
currency that occur before such dividends are converted and remitted. Dividends in
respect of our Preferred Shares paid to resident and non-resident shareholders, including
holders of ADSs, are not currently subject to Brazilian withholding tax. See Item 10
"Additional InformationTaxationBrazilian tax considerations."

ITEM 9.
The Offer and Listing

Offer and Listing
Details

Our
Preferred Shares commenced trading separately on the Brazilian stock exchanges on
September 21, 1998.  The following table sets forth the reported high and low closing
sale prices for our Preferred Shares on the São Paulo Stock Exchange and the approximate
average daily trading volume for the annual periods indicated.

|              | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------- | ---------------------------------------- | ---------------------
|              | High                                     | Low                  
|              |                                          |                      
|Year-end 1998 | 13.57                                    | 9.36                 
|Year-end 1999 | 30.89                                    | 10.38                
|Year-end 2000 | 33.84                                    | 15.90                
|Year-end 2001 | 24.34                                    | 10.30                
|Year-end 2002 | 19.57                                    | 12.73                

The
following table sets forth the reported high and low closing sale prices for our
Preferred Shares on the São Paulo Stock Exchange and the approximate average daily
trading volume for the quarterly periods indicated.

|                    | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------------- | ---------------------------------------- | ---------------------
|                    | High                                     | Low                  
|                    |                                          |                      
|First quarter 2000  | 33.84                                    | 22.49                
|Second quarter 2000 | 25.18                                    | 17.32                
|Third quarter 2000  | 27.80                                    | 19.88                
|Fourth quarter 2000 | 21.72                                    | 15.90                
|First quarter 2001  | 24.34                                    | 15.88                
|Second quarter 2001 | 19.27                                    | 15.35                
|Third quarter 2001  | 17.98                                    | 10.30                
|Fourth quarter 2001 | 18.96                                    | 13.19                
|First quarter 2002  | 19.57                                    | 13.15                
|Second quarter 2002 | 18.34                                    | 15.38                
|Third quarter 2002  | 17.65                                    | 12.73                
|Fourth quarter 2002 | 19.33                                    | 15.82                
|First quarter 2003  | 19.60                                    | 15.40                

The
following table sets forth the reported high and low closing sale prices for our
Preferred Shares on the São Paulo Stock Exchange and the approximate average daily
trading volume for the six monthly periods indicated.

|              | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------- | ---------------------------------------- | ---------------------
|              | High                                     | Low                  
|              |                                          |                      
|December 2002 | 18.02                                    | 15.99                
|January 2003  | 18.71                                    | 15.74                
|February 2003 | 17.27                                    | 15.40                
|March 2003    | 19.60                                    | 16.07                
|April 2003    | 20.50                                    | 19.10                
|May 2003      | 22.20                                    | 20.65                

Our
ADSs, each representing 5,000 Preferred Shares, commenced trading on the New York Stock
Exchange on November 16, 1998. The following table sets forth the reported high and low
closing sale prices for our ADSs on the New York Stock Exchange and the approximate
average daily trading volume for the quarterly periods indicated.

|              | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------- | ---------------------------------------- | ---------------------
|              | High                                     | Low                  
|              |                                          |                      
|Year-end 1998 | 61.31                                    | 41.63                
|Year-end 1999 | 90.75                                    | 29.25                
|Year-end 2000 | 97.75                                    | 42.88                
|Year-end 2001 | 66.19                                    | 22.06                
|Year-end 2002 | 44.90                                    | 21.70                

|                    | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------------- | ---------------------------------------- | ---------------------
|                    | High                                     | Low                  
|                    |                                          |                      
|First quarter 2002  | 44.90                                    | 33.41                
|Second quarter 2002 | 42.40                                    | 24.40                
|Third quarter 2002  | 30.40                                    | 21.70                
|Fourth quarter 2002 | 28.55                                    | 22.50                
|First quarter 2003  | 30.72                                    | 22.67                

The
following table sets forth the reported high and low closing sale prices for our ADSs on
the New York Stock Exchange and the approximate average daily trading volume for the six
monthly periods indicated.

|              | Nominal reais per 1,000 Preferred Shares | Average Daily Trading
|------------- | ---------------------------------------- | ---------------------
|              | High                                     | Low                  
|              |                                          |                      
|December 2002 | 28.20                                    | 22.30                
|January 2003  | 30.72                                    | 23.05                
|February 2003 | 25.99                                    | 22.67                
|March 2003    | 28.95                                    | 23.85                
|April 2003    | 35.40                                    | 29.22                
|May 2003      | 38.30                                    | 34.24                

There
are no restrictions on ownership of our Preferred Shares or Common Shares by individuals
or legal entities domiciled outside Brazil.

The
right to convert dividend payments and proceeds from the sale of shares into foreign
currency and to remit such amounts outside Brazil is subject to restrictions under
foreign investment regulations which generally require, among other things, that the
relevant investments have been registered with the Brazilian Central Bank. Banco Itaú S.A.,
as custodian for our Preferred Shares represented by the ADSs, has registered with the
Brazilian Central Bank on behalf of the Depositary the Preferred Shares that it will
hold. This enables holders of ADSs to convert dividends, distributions or the proceeds
from any sale of such Preferred Shares, as the case may be, into U.S. dollars and to
remit such U.S. dollars abroad. However, holders of ADSs could be adversely affected by
delays in, or a refusal to grant any, required government approval for conversions of
Brazilian currency payments and remittances abroad of the Preferred Shares underlying our
ADSs.

In
Brazil, there are a number of mechanisms available to foreign investors interested in
trading directly on the Brazilian stock exchanges or on organized over-the-counter
markets.

Under
the regulations issued by the National Monetary Council, on January 26, 2000 ("Resolution
No. 2,689"), foreign investors seeking to trade directly on a Brazilian stock exchange or
on an organized over-the-counter market, must meet the following requirements:

- investments must
be registered with a custody, clearing or depositary system authorized by CVM or the
Brazilian Central Bank;
- trades of
securities are restricted to transactions performed on the stock exchanges or organized
over-the-counter markets          authorized by the CVM;
- you must
establish a representative in Brazil;
- you must complete
a form annexed to the Resolution No. 2,689; and
- you must register
with the CVM and register the inflow of funds with the Brazilian Central Bank.

If
these requirements are met, foreign investors will be eligible to trade directly on the
Brazilian stock exchanges or on organized over-the-counter markets.  These rules extend
favorable tax treatment to all foreign investors investing pursuant to these rules.  See
Item 10 "Additional InformationTaxation."  These regulations contain certain
restrictions on the offshore transfer of the title of the securities, except in the case
of corporate reorganizations effected abroad by a foreign investor.

A
certificate of foreign capital registration has been issued in the name of the Depositary
with respect to the ADSs and is maintained by Banco Itaú S.A., as custodian for our
Preferred Shares represented by the ADSs, on behalf of the Depositary. Pursuant to such
certificate of foreign capital registration, we expect that Depositary will be able to
convert dividends and other distributions with respect to the Preferred Shares
represented by ADSs into foreign currency and remit the proceeds outside of 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 foreign capital
registration for five business days after such exchange, following which such holder must
seek to obtain its own certificate of foreign capital registration with the Brazilian
Central Bank.  Thereafter, any holder of Preferred Shares may not be able to convert into
foreign currency and remit outside Brazil the proceeds from the disposition of, or
distributions with respect to, such Preferred Shares, unless such holder qualifies under
Resolution No. 2,689 or obtains its own certificate of foreign capital registration.  A
holder that obtains a certificate of foreign capital registration will be subject to less
favorable Brazilian tax treatment than a holder of ADSs.  See Item 10 "Additional
Information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 Brazilian 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.

Markets

Our
Preferred Shares are traded on the Bolsa de Valores de São Paulo(the São Paulo Stock
Exchange) under the symbol "BRTP4." Our Preferred Shares were previously traded on the
Bolsa de Valores do Rio de Janeiro(the Rio de Janeiro Stock Exchange) and on several
other Brazilian stock exchanges. Our Preferred Shares are no longer traded on these
stock exchanges. Under the terms of the formal protocol signed by the former nine
Brazilian stock exchanges, effective on May 31, 2000, all of the stock exchanges in
Brazil have merged. The Rio de Janeiro Stock Exchange now only trades Brazilian federal,
state and municipal public debt or carries out privatization auctions. Stocks and bonds
are traded exclusively on the São Paulo Stock Exchange. At December 31, 2002, we had
approximately 1.9 million shareholders.

Our
Preferred Shares are also listed on the New York Stock Exchange in the form of ADSs under
the symbol "BRP," with each ADS representing 5,000 Preferred Shares, issued by the
Depositary pursuant to the deposit agreement, dated November 16, 1998, among our company,
the Depositary and the registered holders and beneficial owners from time to time of
ADSs. Preferred Shares represented by ADSs are held in custody in Brazil by Banco Itaú S.A.,
as custodian for our Preferred Shares represented by the ADSs.

Our
Common Shares are also traded on the São Paulo Stock Exchange under the symbol "BRTP3."

Trading on the São
Paulo Stock Exchange

The
São Paulo Stock Exchange is a non-profit entity owned by its member brokerage firms.
 Trading on the São Paulo Stock Exchange is limited to member brokerage firms and a
limited number of authorized non-members.  The São Paulo Stock Exchange has open outcry
trading sessions and an automated system on which trading can be conducted during the
trading day.  In 1999, the São Paulo Stock Exchange began operating an "after-market"
which allows for limited after-hours trading to take place.  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 exchanges in certain
circumstances, although such trading is very limited.

Settlement
of transactions is effected three business days after the trade date without adjustment
of the purchase price for inflation. Payment for shares or delivery of shares are made
through the facilities of separate clearinghouses for each exchange, which maintain
accounts for member brokerage firms. The clearinghouse for the São Paulo Stock Exchange
is Companhia Brasileira de Liquidação e Custodia S.A  CBLC.

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 the indices of this stock exchange fall below the limit of
10% in relation to the index registered in the previous trading session.

At
December 31, 2002, the aggregate market capitalization of all of the companies listed on
the São Paulo Stock Exchange was approximately R$438.3 billion.  Although all the
outstanding shares of an exchange-listed company may trade on a 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 São
Paulo Stock Exchange tends to overstate the liquidity of the Brazilian equity securities
market.

The
Brazilian equity market is relatively small and illiquid as compared to major world
markets.  In 2002, the daily trading volume on the São Paulo Stock Exchange averaged
approximately R$558.1 million.  In 2002, the ten most actively traded issues represented
approximately 56.3% of the total trading in the cash market (standard lot) 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, which generally require,
among other things, that the relevant investments have been registered with the Brazilian
Central Bank, according to Resolution No. 2,689.  See "Offer and Listing Details."

The Special Corporate
Governance Levels of the São Paulo Stock Exchange

On
December 11, 2000, the São Paulo Stock Exchange launched three new listing segments
designed for the trading of shares issued by publicly held companies:  the Special
Corporate Governance Level 1, the Special Corporate Governance Level 2 and the "Novo
Mercado" of the São Paulo Stock Exchange.

Such
new listing segments were designed for the trading of shares issued by companies that
voluntarily undertake to abide by more stringent corporate governance practices and
disclosure requirements than those currently requested by the Brazilian legislation.

The
inclusion of a company in any of the new segments implies the adhesion of such company to
a series of corporate governance rules known generally as "good corporate governance
practices."  These rules, which are consolidated in the listing regulations of the
exchange, are meant to enhance the quality of information provided by Brazilian
corporations and increase shareholder's rights, depending on the considered level.

On
March 27, 2002, our board of directors approved our adhesion to the Special Corporate
Governance Level 1 of the São Paulo Stock Exchange.  Our shares joined the Special
Corporate Governance Level 1 of the São Paulo Stock Exchange on May 9, 2002.

In
order to join the Special Corporate Governance Level 1, we agreed to undertake the
following corporate governance practices:

- the maintenance
of a free-float of at least 25% of our capital stock;
- holding of public
offerings for share placements through mechanisms that favor capital dispersion to a
broader spectrum of          shareholders;
- disclosing
improved quarterly information, including consolidated figures and special audit
revisions on a quarterly basis;
- complying with
the enhanced disclosure rules of the exchange for transactions involving assets,
including transactions with          our controlling shareholders and our management;
- disclosing
shareholder agreements and stock option programs; and
- the publication
of an annual calendar of corporate events.

Regulation of
Brazilian Securities Markets

The
Brazilian securities markets are regulated by the Comissão de Valores Mobiliários (the
"CVM"), which has authority over stock exchanges and the securities markets generally,
and by the Brazilian 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 6,385, as amended (the "Brazilian
Securities Law") and Law 6,404, as amended (the "Brazilian Corporate Law").

Under
the Brazilian Corporate Law, a company is either publicly held, a companhia aberta, such
as our company (whose shares are publicly traded on the São Paulo Brazilian stock
exchanges) or privately held, a companhia fechada.  All publicly held companies are
registered with the CVM and are subject to reporting requirements.  A company that is
registered with the CVM may have its securities traded either on the Brazilian stock
exchanges or on the Brazilian over-the-counter market.  The shares of a public company
may also be traded privately, subject to certain limitations.  To be listed on the
Brazilian stock exchanges, a company must apply for registration with the CVM and the
stock exchange where the head office of the company is located.  Once this stock exchange
has admitted a company to listing and the CVM has accepted its registration as a
publicly-held company, its securities may be traded on the São Paulo Stock Exchange.

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 may also be suspended on the
initiative of the São Paulo Stock Exchange or the CVM, among other reasons, based on or
due to a belief that the company has provided inadequate information regarding a material
event or has provided inadequate responses to inquiries by the CVM or the relevant stock
exchange.

The
Brazilian Securities Law provides for, among other things, disclosure requirements,
restrictions on insider trading and price manipulation, and protection of minority
shareholders.  However, the Brazilian securities markets are not as highly regulated and
supervised as the U.S. securities markets or markets in certain other jurisdictions.

ITEM 10.
Additional Information

Memorandum and
Articles of Association

The
summary of the material provisions concerning our Preferred Shares and Common Shares, our
Bylaws, and Brazilian Corporate Law contained in Item 10 "Additional InformationMemorandum
and Articles of Association" under Amendment No. 1 to our Registration Statement on Form
20-F (File No. 1-15256), filed with the U.S. Securities and Exchange Commission on
October 31, 2001, as amended (the "Registration Statement") is incorporated herein by
reference.  Such description contained in the Registration Statement is qualified to the
extent applicable by this section, as well as by reference to our Bylaws, which have been
filed (together with an English translation) as an exhibit to this Annual Report, and to
Brazilian Corporate Law.  A copy of our Bylaws (together with an English translation) is
available for inspection at the principal office of the Depositary.

Our
Capital Stock is comprised of Preferred Shares and Common Shares, all without par value.
 At April 30, 2003, there were 222,670,187,883 Preferred Shares outstanding and
134,031,688,203 Common Shares outstanding.

Changes to the
Brazilian Corporate Law

On
October 31, 2001, Law No. 10,303 amended the Brazilian Corporate Law, establishing, among
other provisions, the following applicable to companies such as ours:

- disputes among
our shareholders will be subject to arbitration if provided for in our Bylaws;
- a tender offer at
a purchase price equal to fair value for all outstanding shares will be required upon a
de-listing or a          substantial reduction in liquidity of our shares as a result of
purchases by any controlling shareholder;
- non-controlling
shareholders representing at least 15% of our Common Shares will have the right to elect
one member of our          board of directors by separate vote;
- non-voting
non-controlling shareholders representing at least 10% of our outstanding capital stock
will have the right to          elect one member of our board of directors by separate
vote;
- any sale of
control will require the purchaser to offer to purchase the minority shareholders' common
shares at a purchase          price at least equal to 80% of the price per share paid to
a controlling shareholder;
- insiders (i.e.,
controlling shareholders, the shareholders that elect members to our board of directors
and fiscal council,          the members of our board of directors and fiscal council and
our executive officers) will be required to disclose any          purchase or sale of our
shares to the CVM and the São Paulo Stock Exchange;
- the chairman of
any shareholders', board of directors' or executive officers' meeting will be entitled to
enforce the voting          provisions of any shareholders' agreement which has been duly
filed with our company; and
- the first and
second calls for shareholders' meetings will have to be made fifteen and eight days,
respectively, before such          meeting, except that the CVM can also require the
first call 30 days before a shareholders' meeting.

Material Contracts

Our Concessions for
Local Fixed-Line Switched Telecommunication Services

As
successor in interest to each of Telesc, Telegoiás, Telebrasília, Telemat, Telems,
Teleron, Teleacre and CTMR and CRT, we have assumed their public regime concessions to
provide fixed-line local switched telecommunication services, for calls originating in
the following geographic areas:  Paraná, Santa Catarina, Distrito Federal, Goiás/Tocantins,
Mato Grosso, Mato Grosso do Sul, Rondônia, Rio Grande do Sul and Acre.

Switched
fixed-line local telecommunication services are services that, through the transmission
of voice and other signals, allow for communication between fixed predetermined points
within a local calling area.

The
term of our respective concessions, which were originally granted free of charge, ends on
December 31, 2005. Notwithstanding the foregoing, we have the right to a one-time
extension of twenty years for each concession provided that we meet certain conditions
set forth in each such concession.  See Item 4 "Information on the CompanyHistory and
Development of the CompanyRegulation of the Brazilian Telecommunications Industry."

Our Concessions for
Intraregional Fixed-Line Switched National Long-Distance Telecommunication Services

As
successor in interest to each of Telesc, Telegoiás, Telebrasília, Telemat, Telems,
Teleron, Teleacre and CTMR and CRT, we have assumed their public regime concessions to
provide intraregional fixed-line switched telecommunications services for calls
originating in the following geographic areas:  Paraná, Santa Catarina, Distrito Federal,
Goiás/Tocantins, Mato Grosso, Mato Grosso do Sul, Rondônia, Rio Grande do Sul and Acre.

The
terms of our respective concessions, which were originally granted free of charge, end on
December 31, 2005. Notwithstanding the foregoing, we have the right to a one-time
extension of twenty years for each concession, provided that we meet certain conditions
set forth by each such concession.  See Item 4 "Information on the CompanyHistory and
Development of the CompanyRegulation of the Brazilian Telecommunications Industry."

BNDES Loan Agreements

We
have entered into loan agreements with the BNDES.  BNDES is our principal creditor.  At
December 31, 2002, we had outstanding loans to BNDES in the aggregate principal amount of
approximately R$2.4 billion.  The interest payable by our company on such
Real-denominated debt is based either on the TJLP rate + 3.85% per annum or on a rate
equal to the rate of appreciation of the U.S. dollar versus the Brazilian real on an
annual basis + the average annual currency basket rate published by BNDES (Cesta de
Moeda) + 3.85% per annum.  The TJLP rate in Brazil as of December 31, 2002 was 10.0% per
annum.

The
proceeds from the BNDES loans were used to finance the expansion and modernization of our
network from June 1998 to December 2002, in order to meet the service requirements under
our concessions.

Contracts with
Suppliers

On
November 23, 2000, we entered into an agreement with Lucent Technologies Network Systems
of Brasil Ltd., for the supply and installation of telecommunications equipment and data
communication systems, worth approximately R$95.8 million. Under the terms of the
agreement, Lucent also agreed to provide us with technical support in all cities in which
our equipment needed to be installed.

On
March 4, 2002, we entered into a R$162.1 million contract with Alcatel Telecomunicações
S.A. for the supply and installation of telecommunications equipment, software and
services for the implementation and expansion of the intelligent network. The contract
will expire in March 2004.

Call Center Contracts

On
October 31, 2001, we entered into contracts for call center services with Teleperformance
Brasil Ltda. and with CBCC Companhia Brasileira de Contact Center, in the respective
amounts of R$822.4 million and R$230.7 million.  Each of these contracts will expire in
November 2006.

Exchange Controls

There
are no restrictions on ownership of the ADSs or the Preferred Shares by individuals or
legal entities domiciled outside Brazil.

The
right to convert dividend payments and proceeds from the sale of shares into foreign
currency and to remit such amounts outside Brazil may be subject to restrictions under
foreign investment legislation which generally requires, among other things, that the
relevant investments be registered with the Brazilian Central Bank. If any restrictions
are imposed on the remittance of foreign capital abroad, they could hinder or prevent
Banco Itaú S.A., as custodian for our Preferred Shares represented by the ADSs, or
registered holders who have exchanged ADSs for Preferred Shares, from converting
dividends, distributions or the proceeds from any sale of such Preferred Shares, as the
case may be, into U.S. dollars and remitting the U.S. dollars abroad.

Foreign
investors may register their investment under Law 4,131/62 or Resolution No. 2,689.
Registration under Resolution No. 2,689 affords favorable tax treatment to foreign
investors who are not resident in a tax haven, as defined by Brazilian tax laws.  See "TaxationBrazilian
Tax Considerations."

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

Under
Resolution No. 2,689, a foreign investor must:

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

Under
Resolution No. 2,689, securities and other financial assets held by a foreign investor
must be registered or maintained in deposit accounts or under the custody of an entity
duly licensed by the Brazilian Central Bank or the CVM.  In addition, any transfer of
securities held under Resolution No. 2,689 must be carried out in the stock exchanges or
through organized over-the-counter markets licensed by the CVM, except for transfers
resulting from a corporate reorganization, or occurring upon the death of an investor by
operation of law or will or as a consequence of the de-listing of the relevant shares
from a Brazilian stock exchange and the cancellation of the registration of the relevant
company from the CVM.

Holders
of ADSs who have not registered their investment with the Brazilian Central Bank could be
adversely affected by delays in, or refusals to grant, any required government approval
for conversions of payments made in reais and remittances abroad of these converted
amounts.

Resolution
No. 1,927 of the National Monetary Council, which restated and amended Annex V to
Resolution No. 1,289, provides for the issuance of depositary receipts in foreign markets
in respect of shares of Brazilian issuers.  We have obtained approval for the American
Depositary Shares under Annex V to Resolution No. 1,289, in order to (i) allow the
proceeds from the sale by holders of ADSs outside Brazil to be free of Brazilian foreign
investment controls, and (ii) allow holders of ADSs who are not resident in a tax haven
to be entitled to favorable tax treatment in Brazil.  See "TaxationBrazilian Tax
Considerations."

A
certificate of foreign capital registration has been issued in the name of the Depositary
with respect to the ADSs and is maintained by Banco Itaú S.A., as custodian for our
Preferred Shares represented by the ADSs, on behalf of the Depositary. Pursuant to such
certificate of foreign capital registration, we expect that the Depositary will be able
to convert dividends and other distributions with respect to the Preferred Shares
represented by ADSs into foreign currency and remit the proceeds outside of Brazil. See
Item 9 "Offer and listingOffer and listing details" and Item 9 "Offer and ListingMarketsTrading
on the São Paulo Stock Exchange."

In
the event that a holder of ADSs exchanges the ADSs for Preferred Shares, such holder will
be entitled to continue to rely on the Depositary's certificate of foreign capital
registration for only five business days after such exchange, following which such holder
must seek to obtain its own certificate of foreign capital registration with the
Brazilian Central Bank.  Thereafter, any holder of Preferred Shares may not be able to
convert into foreign currency and remit outside Brazil the proceeds from the disposition
of, or distributions with respect to, such Preferred Shares, unless such holder qualifies
under Resolution No. 2,689 or obtains its own certificate of foreign capital
registration.  A holder of Preferred Shares that obtains a certificate of foreign capital
registration will be subject to less favorable Brazilian tax treatment than a holder of
ADSs.  See "TaxationBrazilian Tax Considerations."

Taxation

The
following summary contains a description of the principal Brazilian and U.S. federal
income tax consequences of the acquisition, ownership and disposition of Preferred Shares
or ADSs, but it does not purport to be a comprehensive description of all the tax
considerations that may be relevant to a decision to purchase Preferred Shares or ADSs.
 The summary is based upon the tax laws of Brazil and regulations thereunder and on the
tax laws of the U.S. and regulations thereunder as in effect on the date hereof, which
are subject to change, possibly with retroactive effect.  Each holder should consult
their own tax advisors as to the tax consequences of the acquisition, ownership and
disposition of Preferred Shares or ADSs.

Although
there is at present no income tax treaty in force between Brazil and the U.S., 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.
 Prospective holders of Preferred Shares or ADSs should consult their own tax advisors as
to the tax consequences of the acquisition, ownership and disposition of Preferred Shares
or ADSs in their particular circumstances.

Brazilian Tax
Considerations

The
following discussion summarizes the principal Brazilian tax consequences of the
acquisition, ownership and disposition of Preferred Shares or ADSs by a holder not deemed
to be domiciled in Brazil for Brazilian tax purposes (a "non-Brazilian holder"). This
discussion does not address all the Brazilian tax considerations that may be applicable
to any particular non-Brazilian holder, and each non-Brazilian holder should consult his
or her own tax advisor about the Brazilian tax consequences of investing in Preferred
Shares or ADSs.

Taxation of Dividends

Dividends
paid by our company in cash or in kind from profits of periods beginning on or after
January 1, 1996 (i) to the Depositary in respect of Preferred Shares underlying ADSs or
(ii) to a non-Brazilian holder in respect of Preferred Shares will not be subject to
Brazilian withholding tax.  Dividends paid from profits generated before January 1, 1996
may be subject to Brazilian withholding tax at varying rates, except that stock dividends
are not subject to Brazilian tax unless we subsequently redeem the stock, or the
non-Brazilian holder sells the stock in Brazil, within five years after the distribution.

The
only Brazilian tax treaty now in effect that would (if certain conditions are met) reduce
the rate of the withholding tax on dividends paid from profits generated before January
1, 1996 is the treaty with Japan, which would reduce the rate to 12.5% under the
circumstances set forth in the treaty.

Taxation of Gains

Brazilian
law distinguishes between, on the one hand, direct foreign investments in Brazilian
companies and, on the other hand, foreign investments in securities issued by Brazilian
companies through the Brazilian capital markets.  Under Resolution No. 2,689, which
became effective on March 31, 2000, superseding previous regulations (Annex IV) which
restrict such foreign investment portfolios to institutional investors, foreign investors
may invest directly in Brazilian financial markets, as long as they meet certain
requirements.  See "Exchange Controls" above.

Gains
realized outside Brazil by a non-Brazilian holder on the disposition of ADSs to another
non-Brazilian holder are not subject to Brazilian tax.  Neither the deposit of Preferred
Shares in exchange for ADSs nor the withdrawal of Preferred Shares upon cancellation of
ADSs is subject to Brazilian tax.

Non-Brazilian
holders are not subject to tax in Brazil on gains realized on dispositions of Preferred
Shares outside Brazil to other non-Brazilian holders.

Gains
realized by non-Brazilian holders on dispositions of Preferred Shares in Brazil or in
transactions with Brazilian residents, if they observe the requirements of Resolution No.
2,689, are exempted from withholding income tax, unless the foreign investor is located
in a jurisdiction which does not impose income tax or which has an income tax rate lower
than 20%, in which case it will be subject to the same general taxation rules applicable
to Brazilian residents.

Gains
on the disposition of Preferred Shares obtained upon cancellation of ADSs are not taxed
in Brazil if such disposition is made, and the proceeds are remitted abroad, within five
business days after cancellation.

Any
gains realized by a non-Brazilian resident 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
20%, except for gains realized by a non-Brazilian resident located in a jurisdiction
which does not impose income taxes or which has an income tax rate lower than 20%, in
which case such gain will be subject to tax at a rate of 25%.

Gain
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 Brazilian Central Bank is calculated on the basis of the
foreign currency amount registered with the Brazilian Central Bank.

There can be
no assurance that the current preferential treatment for holders of ADSs and
non-Brazilian holders of Preferred Shares will be maintained.

Any
exercise of preemptive rights relating to our Preferred Shares or ADSs will not be
subject to Brazilian taxation.  Gains on the sale or assignment of preemptive rights
relating to our Preferred Shares will be treated differently for Brazilian tax purposes
depending on (i) whether the sale or assignment is made by the Depositary or by you, 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 20%.

Distributions of
Interest on Capital

Brazilian
corporations may make payments to shareholders characterized as interest on our capital
as an alternative form of making dividend distributions.  The rate of interest may not be
higher than the TJLP rate as determined by the Brazilian Central Bank from time to time
(12.0% per annum for the three month period beginning April 1, 2003).  The total amount
distributed as interest on capital may not exceed the greater of (i) 50% of net income
(before taking such distribution and any deductions for income taxes into account) for
the year in respect of which the payment is made or (ii) 50% of retained earnings for the
year prior to the year in respect of which the payment is made.  Payments of interest on
capital are decided by the shareholders on the basis of recommendations of our board of
directors.

We
may deduct 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, for Brazilian corporate income tax purposes. Such payments are
subject to Brazilian withholding tax at the rate of 15%, except for payments to persons
who are exempt from tax in Brazil, which are free of Brazilian tax, and except for
payments to persons situated in jurisdictions deemed to be tax havens (i.e., countries
that either have no income tax or in which the income tax rate is less than 20%), which
will be subject to tax at a 25% rate.

No
assurance can be given that our board of directors will not recommend that future
distributions of profits should 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 that we are obligated to distribute to its
shareholders in accordance with its Charter and the Brazilian Corporate Law.
Distributions of interest on capital in respect of our Preferred Shares, including
distributions to the Depositary in respect of Preferred Shares indemnifying ADSs, may be
converted into U.S. dollars and remitted outside of Brazil, subject to applicable
exchange controls.

Other Brazilian Taxes

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

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

In
addition to the IOF tax, a second, temporary tax that applies to the removal of funds
from accounts at banks and other financial institutions (the "CPMF tax") will be imposed
on our distributions in respect of ADSs at the time such distributions are converted into
U.S. dollars and remitted abroad by Banco Itaú  S.A., as custodian for our Preferred
Shares represented by the ADSs. Currently, the CPMF tax rate is 0.38%.

FUST  Universal
Telecommunications Service Fund

The
Universal Telecommunications Service Fund, introduced by Law 9,998/00, was created to
raise funds to meet the cost of the universalization of the telecommunications services,
which are not recoverable through the efficient exploration of the service. According to
the law, one of FUST's forms of income is the contribution by both public and private
telecommunications providers, of 1% of the gross operating income from the rendering of
telecommunications services.  The value will be calculated after certain tax deductions
and will exclude interconnection costs.  The funds are supposed to be paid to Anatel and
will be invested according to the policies laid out by the Ministry of Communication.

FUNTTEL  Fund for the
Technological Development of the Telecommunications

Law
10,052/00 established the Fund for the Technological Development of Telecommunications.
 Pursuant to this regulation, the fund was created to foster technological development,
encourage human intellectual capital, encourage employment, promote capital access to
small and medium sized business, all in order to enlarge the competitiveness of the
Brazilian Telecommunications' Industry.  This fund received a contribution of 0.5% of the
gross operating income, after tax deduction, earned through the exploration of
telecommunications services by both public and private companies.  A directive board
composed of governmental representatives will manage the fund and determine how the funds
will be invested.

Registered Capital

Amounts
invested in Preferred Shares by a non-Brazilian holder who qualifies under the Resolution
No. 2,689 and obtains registration with the CVM, or by the Depositary representing an ADS
holder, are eligible for registration with the Brazilian Central Bank.  Such registration
(the amount so registered is referred to as "Registered Capital") allows the remittance
outside Brazil of foreign currency, converted at the Commercial Market Rate, acquired
with the proceeds of distributions on, and amounts realized through dispositions of such
Preferred Shares.  The Registered Capital per Preferred Share purchased in the form of an
ADS, or purchased in Brazil and deposited with the Depositary in exchange for an ADS,
will be equal to its purchase price (stated in 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 Brazilian Central Bank on such date or
dates.

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

U.S. Federal Income
Tax Considerations

The
statements regarding U.S. federal income tax law set forth below are based on the
Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed Treasury regulations thereunder, published rulings and court decisions, as
in force on the date of this Annual Report, and changes to such law subsequent to the
date of this Annual Report may affect the tax consequences described herein, possibly
with retroactive effect.  This summary describes the principal tax consequences of the
ownership and disposition of Preferred Shares or ADSs, but it does not purport to be a
comprehensive description of all of the federal income tax consequences that may be
relevant to a decision to own or dispose of Preferred Shares or ADSs.  This summary
applies only to purchasers of Preferred Shares or ADSs who will hold the Preferred Shares
or ADSs as capital assets and does not apply to special classes of holders such as
dealers in securities or currencies, holders whose functional currency is not the U.S.
dollar, holders of 10% or more of our shares of (by vote or by value, and directly or by
attribution, taking into account shares held directly through depositary arrangements),
tax-exempt organizations, financial institutions, holders liable for the alternative
minimum tax, securities traders who elect to account for their investment in Preferred
Shares or ADSs on a mark-to-market basis, and persons holding Preferred Shares or ADSs in
a hedging transaction or as part of a straddle, conversion or constructive ownership
transaction.

Each
holder should consult such holder's own tax advisor concerning the overall tax
consequences to it, including the consequences under tax laws other than U.S. federal
income tax laws, of an investment in the Preferred Shares or ADSs.

As
used in this summary, references to "ADSs" also refer to "Preferred Shares."  As used in
this summary, the term "U.S. holder" means a beneficial owner of ADSs that is for U.S.
federal income tax purposes, (i) a citizen or resident of the United States, (ii) a
corporation or other entity (treated as a corporation for U.S. federal income tax
purposes) organized in or under the laws of the United States or its political
subdivisions, (iii) a trust subject to the control of a U.S. person and the primary
supervision of a U.S. court or (iv) an estate, the income of which is subject to U.S.
federal income taxation regardless of its source.  As used in this summary, the term
"non-U.S. holder" means a beneficial owner of ADSs that is not a U.S. holder.  If a
partnership holds our common shares, the tax treatment of a partner will generally depend
upon the status of the partner and the activities of the partnership.  Therefore,
partners of a partnership holding our common shares should consult their tax advisor.

For
purposes of the U.S. federal income tax laws, holders of ADRs will be treated as owners
of the ADSs represented by such ADRs.

Taxation of Dividends

Subject
to the "Passive Foreign Investment Company" discussion below, a U.S. holder will
recognize ordinary dividend income for U.S. federal income tax purposes in an amount
equal to the amount of any cash and the value of any property that we distribute as a
dividend, to the extent that such distribution is paid out of our current or accumulated
earnings and profits ("e&p"), as determined for U.S. federal income tax purposes, in
accordance with the U.S. holder's regular method of accounting for U.S. federal income
tax purposes. To the extent that such a distribution exceeds our e&p, it will be treated
as a nontaxable return of capital, to the extent of the U.S. holder's tax basis in the
ADS (or Preferred Shares, as the case may be), and thereafter as capital gain. The amount
of any distribution will include the amount of Brazilian tax withheld on the amount
distributed and the amount of a distribution paid in reais will be measured by reference
to the exchange rate for converting reais into U.S. dollars in effect on the date the
distribution is received by Banco Itaú S.A., as custodian for our Preferred Shares
represented by the ADSs, or by a U.S. holder, in the case of a holder of Preferred
Shares. If the custodian or U.S. holder, in the case of a holder of Preferred Shares,
does not convert such reais into U.S. dollars on the date it receives them, it 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. Dividends that
we have paid will generally not be eligible for the dividends received deduction allowed
to corporations under the Code.

Distributions
out of e&p with respect to the ADSs generally will be treated as dividend income from
sources outside of the U.S. and generally will be treated separately along with other
items of "passive" (or, in the case of certain U.S. holders, "financial services") income
for purposes of determining the credit for foreign income taxes allowed under the Code.
 Subject to certain limitations, Brazilian income tax withheld in connection with any
distribution with respect to the ADSs may be claimed as a credit against the U.S. federal
income tax liability of a U.S. holder if such U.S. holder elects for that year to credit
all foreign income taxes, or such Brazilian withholding tax may be taken as a deduction.
 Foreign tax credits will not be allowed for withholding taxes imposed in respect of
certain short-term or hedged positions in securities or in respect of arrangements in
which a U.S. holder's expected economic profit, after non-U.S. taxes, is insubstantial.
 U.S. holders should consult their own tax advisors concerning the implications of these
rules in light of their particular circumstances.

Distributions
of additional shares to holders with respect to their ADSs that are made as part of a pro
rata distribution to all of our shareholders generally will not be subject to U.S.
federal income tax.

A
non-U.S. holder generally will not be subject to U.S. federal income tax or withholding
tax on distributions with respect to ADSs that are treated as dividend income for U.S.
federal income tax purposes, and generally will not be subject to U.S. federal income tax
or withholding tax on distributions with respect to ADSs that are treated as capital gain
for U.S. federal income tax purposes unless such holder would be subject to U.S. federal
income tax on gain realized on the sale or other disposition of ADSs, as discussed below.

Taxation of Capital
Gains

Subject
to the "Passive Foreign Investment Company" discussion below, in general, upon the sale
or other taxable disposition of an ADS, a U.S. holder will recognize gain or loss for
U.S. federal income tax purposes in an amount equal to the difference between the amount
realized in consideration for the disposition of the ADS (excluding the amount of any
distribution paid to the custodian but not distributed by the custodian prior to the
disposition) and the U.S. holder's tax basis in the ADS.  Such gain or loss generally
will be subject to U.S. federal income tax and will be treated as capital gain or loss.
 Long-term capital gains recognized by an individual holder generally are subject to a
maximum rate of 20 percent in respect of property held for more than one year or 18
percent in respect of property held for more than five years if the U.S. holder acquired
the ADS on or after January 1, 2001.  The deductibility of capital losses is subject to
certain limitations.  Gain realized by a U.S. holder on a sale or disposition of ADSs
generally will be treated as U.S. source income.  Consequently, if Brazilian tax is
imposed on such gain, the U.S. holder will not be able to use the corresponding foreign
tax credit, unless the holder has other foreign source income of the appropriate type in
respect of which the credit may be used.

A
non-U.S. holder will not be subject to U.S. federal income tax or withholding tax on gain
realized on the sale or other disposition of an ADS unless (i) such gain is effectively
connected with the conduct by the holder of a trade or business in the U.S., or (ii) such
holder is an individual who is present in the U.S. for 183 days or more in the taxable
year of the sale and certain other conditions are met.

Passive Foreign
Investment Company

We
believe that we are not a passive foreign investment company ("PFIC") for U.S. federal
income tax purposes in the current taxable year and do not expect to become a PFIC in
future taxable years.  However, because the determination of whether the offered shares
constitute shares of a PFIC will be based upon the composition of our income and assets
on an annual basis, there is no assurance that we will not be considered a PFIC for any
subsequent year.  If the offered shares were shares of a PFIC for any fiscal year, a U.S.
holder of the offered shares could be subject to adverse U.S. federal income tax
consequences with respect to any gains realized on the sale or other disposition of the
offered shares and certain distributions received with respect to the offered shares.  We
do not intend to provide you with information necessary for the "qualified electing fund"
election in the case that we are deemed a PFIC.

U.S. Backup
Withholding and Information Reporting

Distributions
made in respect of offered shares, and proceeds from the sale or other disposition of
offered shares, payable to a U.S. holder by a U.S. paying agent or other U.S.
intermediary will be subject to information reporting requirements.  If information
reporting requirements apply, distributions made to the U.S. holder will be reported to
the Internal Revenue Service ("IRS") and to the U.S. holder as may be required under
applicable Treasury regulations.  Backup withholding will also apply to any payments made
to a U.S. holder if such U.S. holder fails to provide an accurate taxpayer identification
number or certification of exempt status or is notified by the IRS that it has failed to
report all dividends or interest required to be shown on its U.S. federal income tax
return.  In addition, certain penalties may be imposed by the IRS on a U.S. holder that
is required to supply such information but that does not do so.

Information
reporting and backup withholding are generally not required with respect to payments made
by a U.S. paying agent or other U.S. intermediary to certain exempt U.S. holders (e.g., corporations
and tax-exempt organizations) and non-U.S. holders, provided that, in the case of
non-U.S. holders, such non-U.S. holders file a timely and properly completed IRS Form W-8
or W-8BEN with the U.S. paying agent or intermediary.  Any amount withheld under the
backup withholding rulings will be allowed as a refund or credit against a holder's U.S.
federal income tax liability provided the required information is furnished to the IRS.
 Each holder should consult its own tax advisor concerning the effect of the New
Regulations on its ownership and disposition of Preferred Shares or ADSs.

Independent Auditors

Our
audited  financial  statements as of December 31, 2001 and for the years ended December
31, 2000 and 2001 included in this Annual  Report,  have been  audited by Deloitte
 Touche  Tohmatsu,  independent  auditors,  as stated in their report which is included
herein.  The offices of Deloitte  Touche  Tohmatsu are located at Rua Alexandre  Dumas
1981,  04717-906,  São Paulo,  SP,  Brazil.  Our audited financial  statements as of
December 31, 2002 and for the year then ended included in this Annual Report,  have been
audited by KPMG  Auditores  Independentes,  independent  auditors,  as stated in their
 report  which is  included  herein.  The  offices  of KPMG Auditores Independentes are
located at Rua Dr. Renato Paes de Barros, 33, 04530-904, São Paulo, SP, Brazil.

Documents on Display

Statements
contained in this Annual Report regarding the contents of any contract or other document
are complete in all material respects, however, where the contract or other document is
an exhibit to this Annual Report, each of these statements is qualified in all respects
by the provisions of the actual contract or other documents.

This
Annual Report may be reviewed without charge at the Public Reference Section of the U.S.
Securities and Exchange Commission, 450 Fifth Street, N.W., Room 1300, Washington, D.C.
 20549.

Copies
of all or any portion of this Annual Report can be obtained from the Public Reference
Section of the U.S. Securities and Exchange Commission, 450 Fifth Street, N.W., Room
1300, Washington, D.C. 20549, upon payment of fees prescribed by the U.S. Securities and
Exchange Commission.  For further information on the public reference rooms, call the
U.S. Securities and Exchange Commission at 1-800-SEC-0330.

We
are subject to the information requirements of the Exchange Act applicable to a foreign
private issuer, and accordingly, we must file or furnish reports, including annual
reports on Form 20-F, reports on Form 6-K, and other information, with the U.S.
Securities and Exchange Commission.  These reports and other information can be inspected
at, and subject to the payment of any required fees, copies may be obtained from, the
public reference facilities maintained by the U.S. Securities and Exchange Commission as
described above.  These reports and other information may also be inspected and copied at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
 As a foreign private issuer, however, we will be exempt from the proxy requirements of
Section 14 of the Exchange Act and from the short-swing profit recovery rules of Section
16 of the Exchange Act, although the rules of the New York Stock Exchange may require
that we solicit proxies from our shareholders under some circumstances.

Our
website is located at http://www.brasiltelecom.com.br.  The information on our website is
not part of this Annual Report.

ITEM 11.
Quantitative and Qualitative Disclosures About Market Risk

Quantitative
Information About Market Risk

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

The
principal market for our products and services is Brazil and substantially all of our
revenues are denominated in reais. We have described above under Item 4 "Information on
the CompanyHistory and Development of the Company" the manner in which the Brazilian
government has controlled, and continues to control, the prices we charge.

Prior
to our merger with CRT, we did not use derivative instruments to hedge against currency
risks.  However, after our merger with CRT, we became responsible for, among other
things, CRT's dollar-denominated liabilities.  Due to these circumstances and the
increasing volatility of U.S. dollar rates, we decided to hedge some of our U.S.
dollar-denominated indebtedness.  We do not hold or issue derivative or other financial
instruments for trading purposes.

Exchange Rate Risk

We
have exchange rate exposure with respect to the U.S. dollar because our equipment costs
are primarily denominated in U.S. dollars.  Our cost of financing, however, is not
materially exposed to exchange rate risk.  At December 31, 2002, approximately 5.4% or
R$224.6 million of our indebtedness was denominated in U.S. dollars, of which
approximately 38% was hedged against significant variations in exchange rates (R$/U.S.$)
by using foreign currency swap contracts.  The aggregate notional principal amount of the
swap contracts is approximately U.S.$90.8 million, of which approximately U.S.$33.6 million
matures within one year and approximately U.S.$57.2 million matures in one to three
years.  At December 31, 2002, the fair value of the swap contracts amounted to
approximately R$28.8 million.  See Notes 20i and 28 to our Financial Statements for
additional information regarding the swap contracts.

At
December 31, 2002, the potential immediate loss in earnings that we could sustain from a
hypothetical 10% change in foreign currency exchange rates would be approximately R$10.5
million.

Interest Rate Risk

At
December 31, 2002, we had approximately R$4,176 million in loans and financing
outstanding, of which R$4,137 million bore interest at floating rates and R$39 million
bore at fixed rate.  We invest our excess liquidity (approximately R$1,596.2 million at
December 31, 2002) mainly in short-term instruments.  The potential loss in earnings 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 financial
assets and liabilities on December 31, 2002 would be approximately R$5.7 million.  The
above sensitivity analyses are 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
(e.g., reais).  As a result, our interest rate risk sensitivity model may overstate the
impact of interest rate fluctuation for such financial instruments as consistently
unfavorable movements of all interest rates are unlikely.

The
table below provides summary information regarding our exposure to interest rate and
exchange rate risk in our total debt portfolio as of December 31, 2002:

|                             | Total Debt Portfolio
|---------------------------- | --------------------
|                             | R$ million          
|Floating rate debt:         
|Real denominated             | 3,951,512           
|Foreign currency denominated | 185,795             
|                            
|Fixed rate debt:            
|Real denominated             | 29                  
|Foreign currency denominated | 38,831              
|                             |                     
|Total                        | 4,176,167           
|                             |                     

As
of December 31, 2002, approximately 22% of our total debt portfolio was tied to the CDI
rate (the Brazilian interbank deposit rate).  As of December 31, 2002, the CDI rate was
24.83% per annum.

The
table below provides information about our debt obligations as of December 31, 2002,
which are sensitive to changes in interest rates and exchange rates.  This table
presents, by expected maturity dates and currency, the principal cash flows and related
average interest rates of these obligations.  Variable interest rates are based on the
applicable reference rate (LIBOR or TJLP) as of December 31, 2002:

|Debt Obligation           | 2003    | 2004      | 2005    | 2006      | 2007-After | Total Long TermDebt | Fair Value Long TermDebt
|------------------------- | ------- | --------- | ------- | --------- | ---------- | -------------------- | -------------------------
|                          |         |           |         |           |            |                      |                          
|                         
|Debt in U.S. Dollars:    
|Fixed rate debt           | 36,100  | 260       | 260     | 260       | 1,950      | 2,730                | 2,730                    
|Average interest rate     | 15.4%   | 1.8%      | 1.8%    | 1.8%      | 1.8%       | -                   
|Variable rate debt        | 19,548  | 41,642    | 41,642  | 21,452    | 61,510     | 166,247              | 166,247                  
|Average interest rate     | 3.8%    | 3.8%      | 3.8%    | 3.2%      | 1.9%      
|                         
|Debt in Brazilian reais: 
|Fixed rate debt           | 29     
|Average interest rate     | 19.5%  
|Variable rate debt(1)     | 536,197 | 1,560,668 | 660,668 | 718,342   | 475,637    | 3,415,316            | 3,415,316                
|Average interest rate     | 15.8%   | 21.9%     | 15.0%   | 14.9%     | 15.0%      | -                    | -                        
|                          |         |           |         |           |            |                      |                          
|Total debt obligations(1) | 591,874 | 1,602,571 | 702,571 | 1,279,152 | 1,279,152  | 3,584,293            | 3,584,293                
|                          |         |           |         |           |            |                      |                          

|(1) | In R$ thousands                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | U.S. dollar debt was converted to reais at the commercial market exchange rate of R$3,5333 per U.S. dollar. Description of Securities Other than Equity Securities

ITEM 12. Description
of Securities Other than Equity Securities

We
are filing an Annual Report under the Exchange Act.  Accordingly, this item does not
apply to us.

PART II

ITEM 13. Defaults,
Dividend Arrearages and Delinquencies

Not
applicable.

ITEM 14. Material
Modifications to the Rights of Security Holders and Use of Proceeds

We
were required to pay a non-cumulative preferred dividend on our Preferred Shares in an
amount equal to 6% of the share capital attributable to our Preferred Shares under
Brazilian Corporate Law.  Law No. 10,303, dated October 31, 2001, which amended the
Brazilian Corporate Law requirement that we pay a non-cumulative preferred dividend on
our Preferred Shares of at least 3% per year of the book value of Shareholders' equity
divided by our total number of shares.  On December 19, 2002 we amended our Bylaws to
comply with these new requirements.  Preferred Shareholders are now entitled to receive a
minimum non-cumulative dividend of Preferred Dividend equal to the greater of (i) 6% per
year of the value of our total share capital divided by our total number of shares or
(ii) 3% per year of the book value of our shareholders' equity divided by the total
number of our shares.

ITEM 15. Controls and
Procedures

Evaluation
of disclosure controls and procedures. The company carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and procedures as of
a date within 90 days of the filing date of this Annual Report. Our disclosure controls
and procedures are the controls and other procedures that are designed to ensure that
information required to be disclosed by the company in the reports that are filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Based on this evaluation, Carla Cico, the company's Chief
Executive Officer, and Paulo Pedrão Rio Branco, the company's Financial Executive
Officer, have concluded that these controls and procedures are effective.

Changes
in internal controls. There have been no significant changes in the company's internal
controls or in other factors that could significantly affect these controls subsequent to
the date of company's evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

ITEM 16. Reserved

PART III

ITEM 17. Financial
Statements

We have responded to Item 18 in lieu of responding to this Item.

ITEM 18. Financial
Statements

Reference
is made to pages F-1 through F-71 for our Financial Statements.

ITEM 19. Exhibits

The
following is a list of all exhibits filed as a part of this Annual Report on Form 20-F:

|NumberExhibit | Exhibit                                                                                                                                                                                                                          | SequentialNumbering
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
|1.1           | Amended and Restated Charter of the Registrant.(1)                                                                                                                                                                               |                   
|1.2           | Amended and Restated Charter of the Registrant (English translation).(1)                                                                                                                                                         |                   
|1.3           | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                   | 134                
|1.4           | Amended and Restated Bylaws of the Registrant (English translation).                                                                                                                                                             | 144                
|2.1           | Form of Deposit Agreement to
be executed among the Registrant, Citibank N.A., as Depositary, and the Holders and Beneficial Owners of American Depositary Shares evidenced by American Depositary
Receipts issued thereunder.(2) |                   
|3.1           | Amendment to the Amended and Restated Shareholders' Agreement.(3)                                                                                                                                                                |                   
|4.1           | Standard Concession Agreement for Local, Switched, Fixed-Line Telephone Service.(2)                                                                                                                                              |                   
|4.2           | Standard Concession Agreement for Local, Switched, Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements (English translation).(2)(4)                                                                       |                   
|4.3           | Standard Concession Agreement for Domestic Long-Distance, Switched, Fixed-Line Telephone Service.(2)                                                                                                                             |                   
|4.4           | Standard Concession Agreement for Domestic Long-Distance, Switched, Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements (English translation).(2)(4)                                                      |                   
|8.1           | List of subsidiaries of the Registrant, their jurisdiction of incorporation and names under which they do business.                                                                                                              |                   

|(1) | Filed as an Exhibit to the company's Annual Report on Form 20-F, filed on July 15, 2002.                                                                                                                                                                                                         
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Filed as an Exhibit to Amendment No. 1 to the company's Registration Statement on Form 20-F, filed on October 31, 2001.                                                                                                                                                                          
|(3) | Filed with the company's Report on Form 6-K, filed on October 9, 2002.                                                                                                                                                                                                                           
|(4) | Pursuant to Rule 12b-31 under
the Exchange Act the Registrant is not filing a copy of each concession agreement for each region because such agreements are substantially identical in all material respects except as enumerated in the schedule attached to
each standard concession agreement.

INDEX OF DEFINED TERMS

|                                         | Page
|---------------------------------------- | ----
|                                        
|Adjusted Net Income                      | 98  
|ADRs                                     | 89  
|ADSs                                     | 89  
|American Depositary Shares               | 89  
|Anatel                                   | 8   
|Anatel Decree                            | 26  
|Brazilian Corporate Law                  | 105 
|Brazilian GAAP                           | 2   
|Brazilian Securities Law                 | 105 
|CDI                                      | 60  
|Center                                   | 34  
|Code                                     | 113 
|COFINS                                   | 49  
|Commercial Market                        | 6   
|Common Shares                            | 89  
|Contingency Reserve                      | 98  
|Convênio 69/98                           | 15  
|CPMF tax                                 | 112 
|CRT                                      | 1   
|CTBC                                     | 12  
|CTMR                                     | 22  
|CVM                                      | 105 
|Depositary                               | 19  
|e&p                                      | 114 
|Embratel                                 | 12  
|Evaluation Date                          | 130 
|Exchange Act                             | 2   
|FCRT                                     | 80  
|Fenattel                                 | 87  
|Financial Statements                     | 1   
|Fittel                                   | 87  
|Floating Market                          | 6   
|GDP                                      | 39  
|General Plan of Concessions and Licenses | 28  
|General Plan on Quality                  | 28  
|General Plan on Universal Service        | 28  
|General Telecommunications Law           | 22  
|Global Village Telecom                   | 8   
|IBGE                                     | 40  
|ICMS                                     | 48  
|ICNIRP                                   | 20  
|IGP-M                                    | 3   
|INSS                                     | 97  
|Intelig                                  | 8   
|IOF tax                                  | 112 
|IRS                                      | 115 
|ISS                                      | 95  
|List of Obligations                      | 26  
|Mandatory Dividend                       | 97  
|non-Brazilian holder                     | 110 
|non-U.S. holder                          | 114 
|PAT                                      | 57  
|PFIC                                     | 115 
|PIS                                      | 49  
|Plan                                     | 86  
|Plano Real                               | 6   
|Preferred Dividend                       | 97  
|Preferred Shares                         | 89  
|Registered Capital                       | 113 
|Registrant                               | 1   
|Registration Statement                   | 106 
|Resolution No. 2,689                     | 102 
|SDH                                      | 51  
|Securities Act                           | 19  
|Sercomtel                                | 12  
|SFAS                                     | 5   
|Sistel Plan                              | 80  
|Solpart                                  | 9   
|Statutory Financial Statements           | 3   
|Statutory Reserve                        | 98  
|STJ                                      | 95  
|TBS                                      | 25  
|TCSPrev                                  | 80  
|Techold                                  | 7   
|Teleacre                                 | 22  
|Telebrás                                 | 21  
|Telebrasília                             | 22  
|Telecommunications Regulations           | 22  
|Telegoiás                                | 22  
|Telemar                                  | 12  
|Telemat                                  | 22  
|Telems                                   | 22  
|Telepar                                  | 22  
|Teleron                                  | 22  
|Telesc                                   | 21  
|Telesp                                   | 12  
|TI                                       | 10  
|TII                                      | 7   
|TIM                                      | 12  
|Timepart                                 | 7   
|TJLP                                     | 60  
|U.S. GAAP                                | 2   
|U.S. holder                              | 114 
|Unrealized Revenue                       | 98  
|Unrealized Revenue Reserve               | 98  
|VSAT                                     | 126 

TECHNICAL GLOSSARY

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

Access
charge:  Amount per minute charged by network operators for the use of their network by
other network operators. Also known as an "interconnection charge" or "network usage
charge."

Access
gates:  The points of interface between the network equipment (either dedicated or
switched) and the transmission media that connect network equipment to the end user.

Analog:
 A mode of transmission or switching which is not digital and therefore not represented
in discrete terms such as voltage on/off or light pulse on/off.

Analog
network:  A network using analog technology with circuit switching, capable of connecting
one user with all users, but with limited transmission capacity.

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

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

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

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

Broadband
services:  Services characterized by a transmission speed of 2 Mbit/second or more.
 According to international standards, these services are divided into two categories:
 (i) Interactive Services, including video-telephone/video-conferencing (both
point-to-point and multipoint), video-monitoring, interconnection of local networks, file
transfer, high-speed fax, e-mail for moving images or mixed documents, broadband
videotext, video on demand, retrieval of sound programs or fixed and moving images, and
(ii) Broadcast Services, such as sound programs, television programs (including
high-definition TV and pay TV) and selective document acquisition.

CATV
(Cable Television):  Cable or fiber-based distribution of TV programs.

Cell:
 The geographic area covered by a single base station in a cellular telecommunications
system.

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

CGI
(Common Gateway Interface)-bins:  A directory on a web server in which CGI programs are
stored.  CGIs are programs or scripts, usually executed on the web server, that perform
actions (like searching or running applications) when the user clicks on certain buttons
or parts of the web screen.

Dedicated
IP:  A service for internet hosting that does not use the virtual shared hosting system.
 The virtual shared hosting system is a system in which an IP number is assigned to
multiple dominion names.  Dedicated IP hosting accounts allow users to have their own log
files, true CGI-bins, telnet accounts, and many other unique configuration files.  The
service provides a foundation for other IP applications, such as e-mail, web hosting,
eCommerce, and home banking and enables business productivity through the use of web
access, file transfer, multimedia presentation, video-conferencing, collaborative
applications and new readers.

DialNet:
 A service that offers remote access through a switched telephone network to internet
providers or corporations.

Digital:
 A mode of representing a physical variable, such as speech, using digits 0 and 1.  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 telephone calls.  Digital systems offer lower noise
interference and can incorporate encryption as a protection from external interference.

Digital
penetration:  The substitution of analog transmission equipment for equipment capable of
transmitting digital signals.

Exchange:
 See Switch.

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

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 communications protocol.

IP
WAN:  A service that allows for the interconnection of corporate networks located in
several distant locations for applications that do not need band guarantee.  This service
also provides for the formation of data communication networks without protocol
conversion.

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

IP
(Internet Protocol):  The language of the internet; a set of rules that specify how
information is divided into jackets and addressed for delivery between computer systems.

IT
(Information Technology):  The equipment, processes, procedures and systems used to
provide and support information systems (computerized and manual) within an organization
and those reaching out to customers and suppliers.

Kbps:
 Kilobytes per second.

Leased
high-speed data communication:  The digital exchange of information at speeds exceeding
64 Kbps transmitted through mediums that are leased to users for their exclusive use.

Light
IP:  A service for internet hosting that uses the virtual shared hosting system.  The
virtual shared hosting system is a system in which an IP number is assigned to multiple
dominion names.

Local
loop:  The system used to connect a subscriber to the nearest switch.  It generally
consists of a pair of copper wires, but may also employ fiber-optic circuits, microwave
links or other technologies.

Log
files:  Files that track access activity for a host resource.  For instance, a log file
might contain information relative to those who access a web site.

Mbps:
 Megabytes per second.

Mux:
 A multilever that slices up individual traffic streams and combines individual time
slots to create a high-speed transmission stream of information.

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

Network
usage charge:  See Access charge

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

Packet-switched
data communication services:  Data services that are based on parceling or breaking data
stream into packets and switching the individual packets.  Information that is
transmitted is segmented into cells of a standardized length, which are then transmitted
independently of one another, allowing maximization of available capacity and usage of a
single transmission path for multiple communications.  The cells are then reassembled
upon reaching their destination.

Packet
switching:  A method of data transmission in which small blocks of data are transmitted
rapidly over a channel dedicated to the connection only for the duration of the packet's
transmission.

PBX
(Private Branch Exchange):  Telephone switchboard for private use, but linked to a
national telephone network.

Penetration:
 The measurement of the take-up of services.  Penetration is calculated by dividing the
number of subscribers at any given time by the population to whom the service is
available and multiplying the quotient by 100.

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

PSTN
(Public Switched Telephone Network):  The public telephone network that delivers basic
telephone service and, in certain circumstances, more advanced services.

Repeater:
 A device that amplifies an input signal for re-transmission.

Satellite
services:  Used for links with countries that cannot be reached by cable, or as an
alternative to cable, and to form closed user networks.

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

Sectorization:
 The process of dividing cells into sectors by using directional antennae at the base
station.  Sectorization reduces co-channel interference which permits smaller cells and
increases network capacity.

Services
control points (SCP):  A database that is able to screen the full ten digits of an 800
number and route calls to the appropriate, customer-designated long-distance carrier.

Signaling
network:  A network used for signaling by one or more users and consisting of signaling
points and connecting signal links.

SLDD:
 A digital dedicated line service with speed options varying between 1.2Kbps and 2Mbps,
that allows data transfer with practically null delay and transparency to protocols.
 SLDD makes it possible to form point to point or multi-point networks by means of
dedicated circuits.

SLS
(Specialized Limited Service):  Limited telephonic, telegraphic, data-communication
service or any other type of telecommunications service for one person or a group of
persons for the accomplishment of specific activity.

Switch:
 Used to set up and route telephone calls either to the number called or to the next
switch along the path.  They may also record information for billing and control
purposes.  Also known as an "exchange."

TDMA
(Time Division Multiple Access):  A standard of digital cellular telecommunications
technology.

Telnet:
 A program that allows the user to connect to other computers on the internet.  The
process by which a person using one computer can sign on to a computer in another city,
state or country.

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

Value
Added Services:  Services that provide additional functionality to the basic transmission
services offered by a telecommunications network.

VC1:
 Rate for local calls made from fixed-line to cellular.

VC2:
 Rate for calls made from fixed-line to cellular, outside the cellular subscriber's
registration area but inside the region where the respective cellular provider provides
service.

VC3:
 Rate for calls made from fixed-line to cellular, outside the cellular subscriber's
registration area and outside the region where the respective cellular provider provides
service.

VSAT
(Satellite Network Technology):  A telecommunication system based on wireless satellite
technology.  The term "VSAT" stands for Very Small Aperture Terminal.  VSAT technology is
comprised of a small satellite earth station and an antenna of approximately 1.8 meters
in diameter.



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.

| |                                         
| | ----------------------------------------
| | BRASIL TELECOM PARTICIPAÇÕES S.A.       
|
| | By: /s/ Paulo Pedrão Rio Branco         
| | Name: Paulo Pedrão Rio Branco           
| | Title: Financial Executive Officer      
|
| | By: /s/  Carlos Geraldo Campos Magalhães
| | Name:Carlos Geraldo Campos Magalhães    
| | Title: Human Resources Executive Officer

Dated:   June 30, 2003



CERTIFICATIONS

Certification of Carlos
Geraldo Campos Magalhães, Human Resources Executive Officer

I, Carlos Geraldo
Campos Magalhães, certify that:

|1. | I have reviewed this annual report on Form 20-F of Brasil Telecom 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 officer 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:                                                                                                   

| | (i)   | 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;
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  | 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                                                                                                                    
|
| | (iii) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures
                  based on our evaluation as of the Evaluation Date;                                                                                                                                          
|

|5. | The  registrant's  other certifying  officer and I have disclosed,  based on our most recent  evaluation,  to the registrant's
         auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)  | 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
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) | 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  officer 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.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | June 30, 2003 | /s/Carlos Geraldo Campos Magalhães________________________________________
| | ------------- | --------------------------------------------------------------------------
| |               | Carlos Geraldo Campos Magalhães                                           
| |               | Human Resources Executive Officer,Brasil Telecom Participações S.A.       



Certification of Paulo
Pedrão Rio Branco, Financial Executive Officer

I, Paulo Pedrão Rio
Branco, certify that:

|1. | I have reviewed this annual report on Form 20-F of Brasil Telecom 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  officer 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:                                                                                                                    

| | (i)   | 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;
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  | 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                                                                                                                    
|
| | (iii) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures
                  based on our evaluation as of the Evaluation Date;                                                                                                                                          
|

|5. | The  registrant's  other certifying  officer and I have disclosed,  based on our most recent  evaluation,  to the registrant's
         auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i)  | 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
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) | 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  officer 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.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | June 30, 2003 | /s/  Paulo Pedrão Rio Branco________________________________________
| | ------------- | --------------------------------------------------------------------
| |               | Paulo Pedrão Rio Branco                                             
| |               | Financial Executive Officer, Brasil Telecom Participações S.A.      



INDEX TO EXHIBITS

|NumberExhibit | Exhibit                                                                                                                                                                                                                                         | SequentialNumbering
|------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------
|             
|1.1           | Amended and Restated Charter of the Registrant(1)                                                                                                                                                                                               | --                 
|             
|1.2           | Amended and Restated Charter of the Registrant (English translation)(1)                                                                                                                                                                         | --                 
|             
|1.3           | Amended and Restated Bylaws of the Registrant                                                                                                                                                                                                   | 134                
|             
|1.4           | Amended and Restated Bylaws of the Registrant (English translation)                                                                                                                                                                             | 144                
|             
|2.1           | Form of Deposit Agreement to be
executed among the Registrant, Citibank N.A., as  Depositary, and the Holders and Beneficial Owners of American Depositary Shares
               evidenced by American Depositary Receipts issued thereunder(2) | --                 
|             
|3.1           | Amendment to the Amended and Restated Shareholders' Agreement(3)                                                                                                                                                                                | --                 
|             
|4.1           | Standard Concession Agreement for Local, Switched, Fixed-Line Telephone Service(2).                                                                                                                                                             | --                 
|             
|4.2           | Standard Concession
 Agreement for Local, Switched, Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements (English translation)(2)(4)                                                                                      | --                 
|             
|4.3           | Standard Concession Agreement
for Domestic Long-Distance, Switched, Fixed-Line) Telephone Service(2)                                                                                                                                            | --                 
|             
|4.4           | Standard Concession Agreement for
Domestic Long-Distance, Switched, Fixed-Line Telephone Service and Schedule of Omitted Concession Agreements (English
               translation)(2)(4)                                                       | --                 
|             
|8.1           | List of subsidiaries of the Registrant,
 their jurisdiction of incorporation and  names under which they do business                                                                                                                            | 152                

|(1) | Filed as an Exhibit to the Company's Annual Report on Form 20-F, filed on July 15, 2002.                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Filed as an Exhibit to Amendment No. 1 to the Company's Registration Statement on Form 20-F, filed on October 31, 2001.                                                                                                                                                                               
|(3) | Filed with the company's Report on Form 6-K, filed on October 9, 2002.                                                                                                                                                                                                                                
|(4) | Pursuant to Rule 12b-31 under
the Exchange Act the Registrant is not filing a copy of each concession agreement for each region because such agreements are substantially identical in all material respects except as enumerated in the schedule attached to
     each standard concession agreement.



EXHIBIT 8.1

LIST OF SUBSIDIARIES OF

BRASIL TELECOM PARTICIPAÇÕES
S.A.

|1. | Brasil Telecom S.A., incorporated under the laws of Brazil                                                             
|-- | -----------------------------------------------------------------------------------------------------------------------
|2. | BrT Serviços de Internet S.A. (a wholly-owned subsidiary of Brasil Telecom S.A.), incorporated under the laws of Brazil
|3. | Brasil Telecom Celular S.A. (a wholly-owned subsidiary of Brasil Telecom S.A.), incorporated under the laws of Brazil  



# EXHIBIT 1.3

# AMENDED AND RESTATED
BYLAWS

# ESTATUTO SOCIAL

# BRASIL TELECOM
PARTICIPAÇÕES S.A.

# CAPITULO I

CARACTERÍSTICAS
DA SOCIEDADE

Art.    
          1o  BRASIL TELECOM PARTICIPAÇÕES S.A. é uma
          sociedade por ações, de capital aberto, que se rege pelo presente
          Estatuto e pela legislação aplicável.

Art.    
          2o  A Companhia tem por objeto:

I.    
          exercer o controle das sociedades exploradoras de serviços
          públicos de telefonia fixa na Região II a que se refere o Plano
          Geral de Outorgas aprovado pelo Decreto no 2.534, de 02 de abril de 1998;

II.    
          promover, através de sociedades controladas ou coligadas, a
          expansão e a implantação de serviços de telefonia
          fixa, em sua respectiva área de concessão;

III.    
          promover, realizar ou orientar a captação, em fontes internas e
          externas, de recursos a serem aplicados pela Companhia ou pelas suas
          controladas;

IV.    
          promover e estimular atividades de estudos e pesquisas visando ao
          desenvolvimento do setor de telefonia fixa;

V.    
          executar, diretamente ou através de sociedades controladas ou coligadas,
          serviços técnicos especializados afetos à área de
          telefonia fixa;

VI.    
          promover, estimular e coordenar, diretamente ou através de sociedades por
          ela controladas ou que lhe sejam coligadas, a formação e o
          treinamento do pessoal necessário ao setor de telefonia fixa;

VII.    
          realizar ou promover importações de bens e serviços para ou
          através de sociedades sob seu controle ou que lhe sejam coligadas;

VIII.    
          exercer outras atividades afins ou correlatas ao seu objeto social; e

IX.    
          participar do capital de outras sociedades.

Art.    
          3o A Companhia tem sede e foro em Brasília, Distrito
          Federal, podendo, por decisão da Diretoria, observado o disposto no
          artigo 30 deste Estatuto Social, criar e extinguir filiais e escritórios
          em qualquer ponto do território nacional e no exterior.

Art.    
          4o  O prazo de duração da Companhia é
          indeterminado.

# CAPÍTULO II

CAPITAL SOCIAL

Art.    
          5o  O capital social subscrito, totalmente integralizado,
          é de R$ 2.544.432.313,67 (dois bilhões, quinhentos e quarenta e
          quatro milhões, quatrocentos e trinta e dois mil, trezentos e treze reais
          e sessenta e sete centavos), representado por 356.701.876.086 (trezentos e
          cinqüenta e seis bilhões, setecentos e um milhões, oitocentos
          e setenta e seis mil e oitenta e seis) ações, sendo
          134.031.688.203 (cento e trinta e quatro bilhões, trinta e um
          milhões, seiscentos e oitenta e oito mil, duzentas e três)
          ações ordinárias e 222.670.187.883 (duzentos e vinte e dois
          bilhões, seiscentos e setenta milhões, cento e oitenta e sete mil,
          oitocentas e oitenta e três) ações preferenciais, todas
          nominativas e sem valor nominal.

Art.    
          6o  A Companhia está autorizada a aumentar o capital
          social, mediante deliberação do Conselho de
          Administração, até o limite de 700.000.000.000 (setecentos
          bilhões) de ações, ordinárias ou preferenciais,
          observado o limite legal de 2/3 (dois terços) para a emissão de
          ações preferenciais sem direito a voto.

Art.    
          7o  Por deliberação da Assembléia Geral ou
          do Conselho de Administração, o capital da Companhia poderá
          ser aumentado pela capitalização de lucros acumulados ou de
          reservas anteriores a isto destinados pela Assembléia Geral.

Parágrafo 1o
 A capitalização poderá ser feita sem modificação
no número de ações.

Parágrafo 2o O valor do saldo dos lucros ou reservas inferior a 1% (um por cento) do capital
social poderá não ser capitalizado.

Art.    
          8o  O capital social é representado por
          ações ordinárias e preferenciais, sem valor nominal,
          não havendo obrigatoriedade, nos aumentos de capital, de se guardar
          proporção entre elas.

Art.    
          9o  Por deliberação da Assembléia Geral ou
          do Conselho de Administração, pode ser excluído o direito
          de preferência à emissão de ações, bônus
          de subscrição ou debêntures conversíveis em
          ações, nas hipóteses previstas no artigo 172 da Lei das
          Sociedades por Ações.

Art.    
          10  A cada ação ordinária corresponde o direito a
          um voto nas deliberações da Assembléia Geral.

Art.    
          11  As ações preferenciais não têm direito
          a voto, exceto nas hipóteses do parágrafo único deste
          artigo e no parágrafo único do artigo 14, sendo a elas assegurada
          prioridade no recebimento de dividendo mínimo e não cumulativo de
          6% (seis por cento) ao ano calculado sobre o valor resultante da divisão
          do capital social pelo número total de ações da companhia
          ou de 3% (três por cento) ao ano, calculado sobre o valor resultante da
          divisão do patrimônio líquido contábil pelo
          número total de ações da companhia, o que for maior.

Parágrafo Único
 As ações preferenciais adquirirão direito a voto se a
Companhia, por 3 (três) exercícios consecutivos, deixar de pagar os
dividendos mínimos a que fazem jus nos termos do caput deste artigo.

Art.    
          12  As ações da Companhia são escriturais, sendo
          mantidas em conta de depósito, em instituição financeira,
          em nome de seus titulares, sem emissão de certificados.

# CAPÍTULO III

# ASSEMBLÉIA GERAL

Art.    
          13  A Assembléia Geral é o órgão superior
          da Companhia, com poderes para deliberar sobre todos os negócios
          relativos ao objeto social e tomar as providências que julgar convenientes
          à defesa e ao desenvolvimento da Companhia.

Art.    
          14  Além das atribuições previstas em lei,
          compete privativamente à Assembléia Geral:

I.    
          fixar a remuneração global dos membros do Conselho de
          Administração e da Diretoria e a remuneração
          individual dos membros do Conselho Fiscal; e

II.    
          aprovar previamente a celebração de quaisquer contratos de longo
          prazo entre a Companhia ou suas controladas, de um lado, e o acionista
          controlador ou sociedades controladas, coligadas, sujeitas a controle comum ou
          controladoras deste último, ou que de outra forma constituam partes
          relacionadas à Companhia, salvo quando os contratos obedecerem a
          cláusulas uniformes.

Parágrafo Único
 Sem prejuízo do disposto no § 1o do art. 115 da Lei no
6.404/76, os titulares de ações preferenciais terão direito a voto
nas deliberações da assembléia geral referidas no inciso II deste
artigo, assim como naquelas referentes à alteração ou
revogação dos seguintes dispositivos estatutários:

1.    
          inciso II do art. 14 e seu parágrafo único;

2.    
          parágrafo único do art. 15; e

3.    
          art. 49

Art.    
          15  A Assembléia Geral é convocada pelo Conselho de
          Administração, ou na forma prevista no parágrafo
          único do art. 123 da Lei no 6.404/76. Quando o Conselho de
          Administração convocar a Assembléia Geral caberá ao
          Presidente consubstanciar o ato.

Parágrafo Único
 Nas hipóteses do art. 136 da Lei no 6.404/76, a primeira
convocação da Assembléia Geral será feita com 30 (trinta) dias
de antecedência, no mínimo, e com antecedência mínima de 10
(dez) dias, em segunda convocação.

Art.    
          16  A Assembléia Geral é instalada pelo Presidente da
          Companhia ou, na ausência ou impedimento deste, por qualquer Diretor, ou
          ainda, por procurador devidamente investido de poderes específicos para
          esse fim. A Assembléia será presidida pelo Presidente do Conselho
          de Administração, cabendo ao mesmo a escolha do secretário.
          Na ausência do Presidente do Conselho de Administração, a
          Assembléia será presidida pelo Presidente da Companhia, e, no caso
          de impedimento deste, por qualquer diretor. Na hipótese de ausência
          e/ou impedimento de quaisquer diretores, observada a mecânica prevista
          neste artigo, compete à assembléia eleger o presidente da mesa e o
          respectivo secretário.

Art.    
          17  Dos trabalhos e deliberações da Assembléia
          Geral será lavrada ata em livro próprio, assinada pelos membros da
          mesa e pelos acionistas presentes, que representem, no mínimo, a maioria
          necessária para as deliberações tomadas.

Parágrafo 1o
 A ata pode ser lavrada na forma de sumário dos fatos, inclusive
dissidências e protestos.

Parágrafo 2o
 Salvo deliberação em contrário da Assembléia, as atas
serão publicadas com omissão das assinaturas dos acionistas.

Art.    
          18  Anualmente, nos quatro primeiros meses subseqüentes ao
          término do exercício social, a Assembléia Geral se
          reúne, ordinariamente, para:

I.    
          tomar as contas dos administradores; examinar, discutir e votar as
          demonstrações financeiras;

II.    
          deliberar sobre a destinação do lucro líquido do
          exercício e a distribuição de dividendos; e

III.    
          eleger os membros do Conselho Fiscal e, quando for o caso, os membros do
          Conselho de Administração.

Art.    
          19  A Assembléia Geral se reúne, extraordinariamente,
          sempre que os interesses da Companhia o exigirem.

# CAPÍTULO IV

# ADMINISTRAÇÃO
DA COMPANHIA

# SEÇÃO I

# NORMAS GERAIS

Art.    
          20  A Administração da Companhia é exercida pelo
          Conselho de Administração e pela Diretoria.

Parágrafo 1o
 O Conselho de Administração, órgão de
deliberação colegiada, exerce a administração superior da
Companhia.

Parágrafo 2o
 A Diretoria é o órgão de representação executivo
da administração da Companhia, atuando cada um de seus membros segundo a
respectiva competência.

Parágrafo 3o
 As atribuições e poderes conferidos por lei a cada um dos
órgãos da administração não podem ser outorgados a
outro órgão.

Art.    
          21  Os administradores tomam posse mediante termos lavrados no Livro
          de Atas das Reuniões do Conselho de Administração ou da
          Diretoria, conforme o caso.

Art.    
          22  É de 3 (três) anos o mandato dos administradores,
          permitida a reeleição.

Parágrafo Único
 Os mandatos dos administradores reputam-se prorrogados até a posse de seus
sucessores.

# SEÇÃO II

# CONSELHO DE
ADMINISTRAÇÃO

Art.    
          23  Além das atribuições previstas em lei,
          compete ao Conselho de Administração:

I.    
          aprovar o orçamento anual da Companhia, bem como das sociedades por ela
          controladas, além do plano de metas e de estratégia de
          negócios previsto para o período de vigência do
          orçamento;

II.    
          deliberar sobre o aumento do capital da Companhia até o limite do capital
          autorizado, bem como deliberar sobre a emissão de ações ou
          bônus de subscrição, inclusive com a exclusão do
          direito de preferência dos acionistas, fixando as condições
          de emissão e de colocação das ações ou
          bônus de subscrição;

III.    
          autorizar a emissão de notas promissórias comerciais para
          subscrição pública (commercial papers);

IV.    
          resolver, quando delegado pela Assembléia Geral, sobre as
          condições de emissão de debêntures, conforme disposto
          no § 1o do artigo 59 da Lei no 6.404/76;

V.    
          autorizar a venda de debêntures, inclusive conversíveis em
          ações, de emissão da Companhia que estejam em tesouraria;

VI.    
          autorizar a aquisição de ações de emissão da
          Companhia, para efeito de cancelamento ou permanência em tesouraria e
          posterior alienação;

VII.    
          aprovar a participação ou alienação da
          participação da Companhia no capital de outras sociedades;

VIII.    
          autorizar a permuta de ações ou de outros valores
          mobiliários conversíveis em ações de emissão
          de sociedades controladas;

IX.    
          autorizar a alienação ou oneração de bens
          integrantes do ativo permanente;

X.    
          autorizar a aquisição de bens para o ativo permanente cujo valor
          individual seja superior a 1% (um por cento) do patrimônio líquido
          da Companhia;

XI.    
          autorizar a renúncia a direitos de subscrição de
          ações, debêntures conversíveis em ações
          ou bônus de subscrição de emissão de sociedades
          controladas;

XII.    
          dentro do limite do capital autorizado, aprovar a outorga de opção
          de compra de ações a seus administradores, empregados e a pessoas
          naturais que prestem serviços à Companhia ou a empresas por ela
          controladas.

XIII.    
          autorizar a prestação de garantias reais ou fidejussórias
          pela Companhia em favor de terceiros ou de sociedade controlada;

XIV.    
          autorizar a prática de atos gratuitos, em benefício dos empregados
          ou da comunidade, tendo em vista as responsabilidades sociais da Companhia,
          sendo que a prestação de fianças para empregados no caso de
          transferências e/ou remanejamentos interestaduais e/ou intermunicipais
          não configura matéria que dependa de prévia
          aprovação do Conselho de Administração;

XV.    
          aprovar a contratação de empréstimos, financiamentos,
          arrendamento mercantil e emissão notas promissórias cujo valor
          individual seja superior a 1% (um por cento) do patrimônio líquido
          da Companhia, bem como das sociedades por ela controladas;

XVI.    
          autorizar investimentos em novos negócios ou a criação de
          subsidiária;

XVII.    
          deliberar sobre a aprovação de programa de Depositary
          Receipts de emissão da Companhia ;

XVIII.    
          submeter à aprovação da Assembléia Geral a
          realização de qualquer negócio ou operação
          que se inclua entre os mencionados no inciso II do artigo 14 deste estatuto;

XIX.    
          autorizar a Companhia, bem como suas coligadas e controladas, a celebrar,
          alterar ou rescindir Acordos de Acionistas;

XX.    
          aprovar a política de previdência complementar da Companhia e os
          acordos coletivos;

XXI.    
          aprovar o Regimento Interno do Conselho de Administração;

XXII.    
          aprovar a proposta da Diretoria com relação ao Regimento da
          Companhia com a respectiva estrutura organizacional, inclusive a
          competência e atribuição dos Diretores da Companhia;

XXIII.    
          ratear o montante global da remuneração, fixado pela
          Assembléia Geral, entre os Conselheiros e Diretores da Companhia,
          fixando-lhes a remuneração individual;

XXIV.    
          estabelecer diretrizes para o exercício do direito de voto pelos
          representantes da Companhia nas Assembléias Gerais de suas controladas ou
          coligadas;

XXV.    
          eleger e destituir, a qualquer tempo, os Diretores da Companhia, inclusive o
          Presidente, fixando-lhes as atribuições, observadas as
          disposições deste estatuto;

XXVI.    
          indicar os representantes da Companhia na administração das
          sociedades de que participe; e

XXVII.    
          executar outras atividades que lhe sejam delegadas pela Assembléia Geral.

Art.    
          24  O Conselho de Administração é composto de
          três a onze membros efetivos e igual número de suplentes.

Art.    
          25  Os membros do Conselho de Administração e
          respectivos suplentes são eleitos pela Assembléia Geral que
          escolhe, dentre eles, o Presidente do Conselho.

Parágrafo 1o- Os
membros do Conselho de Administração serão substituídos em
suas faltas, impedimento ou vacância, pelo respectivo suplente.

Parágrafo 2o Na hipótese de vacância de cargo de membro do Conselho de
Administração, e não assumindo o suplente, observar-se-á o
disposto no Art. 150 da Lei 6.404/76.

Art.    
          26  O Conselho de Administração se reúne
          ordinariamente uma vez em cada bimestre calendário e,
          extraordinariamente, mediante convocação feita por seu Presidente
          ou por 2 (dois) Conselheiros, lavrando-se ata das reuniões.

Parágrafo único
 As convocações se fazem por carta, telegrama ou fax entregues com a
antecedência mínima de 10 (dez) dias, salvo nas hipóteses de manifesta
urgência, a critério exclusivo do Presidente do Conselho de
Administração, devendo a comunicação conter a ordem do dia.

Art.    
          27  O Conselho de Administração delibera por maioria
          absoluta de votos, presente a maioria de seus membros, cabendo ao Presidente do
          Conselho, quando for o caso, baixar os atos que consubstanciem essas
          deliberações.

# SEÇÃO III

# DIRETORIA

Art.    
          28  A Diretoria é composta de 1 (um) Presidente e 3
          (três) Diretores executivos, assim titulados:

a)    
          Diretor Financeiro;

b)    
          Diretor Técnico; e

c)    
          Diretor de Recursos Humanos.

Art.    
          29  Em suas ausências e impedimentos temporários, o
          Presidente é substituído pelo Diretor Financeiro.

Parágrafo 1o
 No caso de faltas e impedimentos simultâneos do Presidente e do Diretor
Financeiro, a Presidência é exercida pelo Diretor designado pelo Conselho de
Administração.

Parágrafo 2o
 O Diretor Financeiro e os demais Diretores em seus impedimentos temporários
são substituídos por Diretor escolhido pelo Presidente.

Parágrafo 3o
 No caso de vacâ;ncia de cargo de Diretor, o Conselho de
Administração promoverá a eleição do substituto para
completar o mandato do substituído.

Art.    
          30  Observadas as disposições contidas neste Estatuto,
          serão necessárias para vincular a Companhia: (i) a assinatura
          conjunta de 2 (dois) Diretores, sendo um deles, necessariamente, o Presidente;
          (ii) a assinatura de 1 (um) Diretor em conjunto com um procurador; ou (iii) a
          assinatura de 2 (dois) procuradores em conjunto, investidos de poderes
          específicos.

Parágrafo Único
 Os instrumentos de mandato outorgados pela Companhia, que serão assinados
por 2 (dois) Diretores em conjunto, sendo um deles necessariamente o Presidente,
deverão especificar os poderes conferidos e, com exceção daqueles
para fins judiciais, terão o prazo máximo de validade de 1 (um) ano.

Art.    
          31  É a seguinte a competência específica de cada
          um dos membros da Diretoria:

I  PRESIDENTE  A
execução da política, da diretrizes e das atividades relacionadas ao
objeto social da Companhia, conforme especificado pelo Conselho de
Administração.

II  DIRETOR FINANCEIRO  A
execução da política, das diretrizes e das atividades
econômico-financeiras e contábeis da Companhia, conforme especificado pelo
Conselho de Administração.

III  DIRETOR TÉCNICO
 O planejamento e execução dos projetos de engenharia de rede
orientados para a expansão e modernização da rede, prospectar novas
tecnologias, conforme especificado pelo Conselho de Administração.

IV  DIRETOR DE RECURSOS HUMANOS
 Administrar e orientar as ações relativas à gestão da
Companhia, compreendendo a captação, o dimensionamento, a
educação e o desenvolvimento dos Agentes Humanos da empresa, conforme
especificado pelo Conselho de Administração.

# CAPÍTULO V

# CONSELHO FISCAL

Art.    
          32  O Conselho Fiscal é o órgão de
          fiscalização da administração da Companhia, devendo
          funcionar permanentemente.

Art.    
          33  O Conselho Fiscal será composto de 3 (três) a 5
          (cinco) membros efetivos e igual número de suplentes.

Parágrafo 1o
 O mandato dos membros do Conselho Fiscal termina na primeira Assembléia
Geral Ordinária subsequente à respectiva eleição, permitida a
reeleição, permanecendo os Conselheiros nos cargos até a posse de
seus sucessores.

Parágrafo 2o
 Os membros do Conselho Fiscal, em sua primeira reunião, elegerão o
seu Presidente, a quem caberá dar cumprimento às deliberações
do órgão.

Parágrafo 3o
 O Conselho Fiscal poderá solicitar à Companhia a
designação de pessoal qualificado para secretariá-lo e prestar-lhe
apoio técnico.

Art.    
          34  O Conselho Fiscal se reúne, ordinariamente, uma vez a cada
          trimestre e, extraordinariamente, quando necessário.

Parágrafo 1o
 As reuniões são convocadas pelo Presidente do Conselho Fiscal ou por
2 (dois) membros do Conselho Fiscal.

Parágrafo 2o
 O Conselho Fiscal se manifesta por maioria de votos, presente a maioria dos seus
membros.

Art.    
          35  Os membros do Conselho Fiscal são substituídos, em
          suas faltas ou impedimentos, pelo respectivo suplente.

Art.    
          36  Além dos casos de morte, renúncia,
          destituição e outros previstos em lei, dá-se a
          vacância do cargo quando o membro do Conselho Fiscal deixar de comparecer,
          sem justa causa, a 2 (duas) reuniões consecutivas ou 3 (três)
          intercaladas, no exercício anual.

Parágrafo Único
 Na hipótese de vacância de cargo de membro do Conselho Fiscal e
não assumindo o suplente, a Assembléia Geral se reunirá imediatamente
para eleger o substituto.

# CAPÍTULO VI

# EXERCÍCIO
SOCIAL E DEMONSTRAÇÕES FINANCEIRAS

Art.    
          37  O exercício social coincide com o ano civil.

Art.    
          38  Ao final de cada exercício social, a Diretoria fará
          elaborar o Balanço Patrimonial e as demais demonstrações
          financeiras exigidas em lei.

Art.    
          39  O Conselho de Administração apresentará
          à assembléia geral, juntamente com as demonstrações
          financeiras, proposta de destinação do lucro líquido do
          exercício, com observância do disposto neste estatuto e na lei.

Art.    
          40  Além de instituir reservas previstas em lei, a
          assembléia geral pode destinar até 10% (dez por cento) do lucro
          líquido, ajustado na forma do disposto no artigo 202 da Lei 6404/76, para
          a formação de reserva para reforço do capital de giro, cujo
          valor não poderá ultrapassar 10% (dez por cento) do
          patrimônio líquido contábil da companhia.

Art.    
          41  Os acionistas têm direito a receber o dividendo
          mínimo obrigatório de 25% (vinte e cinco por cento) do lucro
          líquido de cada exercício ajustado na forma do disposto no artigo
          202 da Lei 6404/76.

Art.    
          42  O valor correspondente ao dividendo mínimo
          obrigatório será destinado, prioritariamente, ao pagamento do
          dividendo das ações preferenciais previsto no artigo 11 deste
          estatuto até o limite da preferência; a seguir, serão pagos
          os dividendos a que fazem jus as ações ordinárias,
          até que cada ação ordinária tenha recebido dividendo
          igual ao atribuído às ações preferenciais;
          remanescendo saldo do dividendo mínimo obrigatório, será
          ele rateado, em igualdade de condições, pelas ações
          de ambas as espécies.

Parágrafo Único
 No exercício em que o valor do dividendo mínimo obrigatório
for insuficiente para o pagamento do dividendo prioritário das ações
preferenciais, o dividendo mínimo obrigatório será aumentado
até quanto baste para tal pagamento.

Art.    
          43  Após pago o dividendo mínimo obrigatório, a
          assembléia geral resolverá sobre o destino do saldo remanescente
          do lucro líquido do exercício, o qual, por proposta da
          administração, poderá destinar-se, nas
          proporções que vierem a ser deliberadas, a: (i) pagamento de
          dividendo suplementar aos acionistas; (ii) transferência para o
          exercício seguinte, como lucros acumulados, desde que devidamente
          justificada pelos administradores para financiar plano de investimento previsto
          em orçamento de capital.

Art.    
          44  A companhia pode, por deliberação do Conselho de
          Administração, pagar ou creditar, a título de dividendos,
          juros sobre o capital próprio, nos termos do artigo 9o da Lei 9.249,
          de 26.12.95. Os juros pagos serão compensados com o valor do dividendo
          mínimo obrigatório devido no exercício tanto aos titulares
          de ações ordinárias quanto aos de ações
          preferenciais.

Art.    
          45  A Companhia, por deliberação do Conselho de
          Administração, pode, observadas as limitações
          legais:

(i)    
          levantar balanços semestrais ou em períodos menores e, com base
          neles, declarar dividendos; e

(ii)    
          declarar dividendos intermediários à conta de lucros acumulados ou
          de reservas de lucros existentes no último balanço anual ou
          semestral.

Art.    
          46  A Companhia pode, por deliberação da
          Assembléia Geral, observados os limites legais, atribuir
          participação nos lucros a seus administradores e empregados.

# CAPÍTULO VII

# LIQUIDAÇÃO
DA COMPANHIA

Art.    
          47  A companhia da assembléia, que determinará o modo de
          liquidação e elegerá o liqüidante e o conselho fiscal
          para o período da liquidação, fixando-lhes as respectivas
          remunerações.

# CAPÍTULO VIII

# DISPOSIÇÕES
GERAIS E TRANSITÓRIAS

Art.    
          48  A aprovação, pela Companhia, através de seus
          representantes, de operações de fusão, cisão,
          incorporação ou dissolução de suas controladas
          será precedida de análise econômico  financeira por
          empresa independente, de notório renome profissional, confirmando estar
          sendo dado tratamento eqüitativo a todas as sociedades interessadas, cujos
          acionistas terão amplo acesso ao relatório da citada
          análise.

# ALTERAÇÕES
DESTE ESTATUTO

Estatuto consolidado com
alterações aprovadas por deliberações das Assembléias
Gerais Extraordinárias, realizadas em 01.09.1998, 27.01.1999, 11.10.1999,
09.05.2000, 23.02.2001, 30.04.2001, 29.04.2002, 30.12.2002 e 23.04.2003.



# EXHIBIT 1.4

# AMENDED AND RESTATED
BYLAWS

# BRASIL TELECOM
PARTICIPAÇÕES S.A.

# BYLAWS

# CHAPTER I

ABOUT THE
CHARACTERISTICS OF THE COMPANY

1 st Article  BRASIL
TELECOM PARTICIPAÇÕES S.A. is a publicly traded company, which is governed
by the present Bylaw and by the applicable legislation.

2 nd Article  The object
of the Company is to:

I.    
          control the companies which explore the public fixed telephony services in
          Region II referred to in the General Licensing Plan approved by Decree no. 2,534
          of April 2, 1998;

II.    
          promote, through controlled or associated companies, the expansion and
          implementation of fixed telephony services in its respective concession area;

III.    
          promote, perform or give guidance in relation to the collection, at internal and
          external sources, of funds to be invested by the Company or by its controlled
          companies;

IV.    
          promote and incentive study and research activities aimed at the development of
          the fixed telephony sector;

V.    
          execute, directly or through controlled or associated companies, specialized
          technical services related to the area of fixed telephony;

VI.    
          promote, incentive or coordinate, directly or through the companies controlled
          by it or associated to it, the formation and the training of the staff required
          for the fixed telephony sector;

VII.    
          perform or promote the import of goods and services to or through the companies
          under its control or those that are associated to it;

VIII.    
          exert other activities related or correlated to the corporate object; and

IX.    
          participate in the capital of other companies.

3 rd Article  The
Company is headquartered and its forum is based in the Federal District of
Brasília, and may, by decision of the Board, in accordance with the dispositions in
the article 30 of this Corporate Bylaw, create and close branches and offices at any point
in the national territory or abroad.

4 th Article  The
duration term of the Company is indeterminate.

# CHAPTER II

CAPITAL STOCK

5 th Article  The subscribed
capital stock, totally paid off, is R$ 2,544,432,313.67 (two billion, five hundred and
forty-four million, four hundred and thirty-two thousand, three hundred and thirteen
reais and sixty-seven centavos), represented by 356,701,876,086 (three
hundred and fifty-six billion, seven hundred and one million, eight hundred and
seventy-six thousand, eighty-six) shares, being 134,031,688,203 (one hundred and
thirty-four billion, thirty-one million, six hundred and eighty-eight thousand, two
hundred and three) common shares and 222,670,187,883 (two hundred and twenty-two billion,
six hundred and seventy million, one hundred and eighty-seven thousand, eight hundred and
eighty-three) preferred shares, all nominative shares, at no par value.

6th Article  The Company
is authorized to increase the capital stock, upon the deliberation of the Board Council,
up to the limit of 700,000,000,000 (seven hundred billion) shares, common or preferred, in
accordance with the legal limit of 2/3 (two thirds) for the emission of preferred shares
with no right to vote.

7 th Article  Through
the deliberation of the General Assembly or of the Board Council, the capital of the
Company may be increased by the capitalization of accrued profit or by reserves formerly
made for this purpose by the General Assembly.

1 st Paragraph  The
capitalization shall be made with no alteration in number of shares.

2 nd Paragraph  The value of
the balance of profit or reserves under 1% (one percent) of capital stock may not be
capitalized.

8 th Article  The
capital stock is represented by common and preferred shares, no par value, and it is not
required to keep them proportionate, in the capital increases.

9th Article  Through the
deliberation of the General Assembly or of the Board Council, the preferential right at
the subscription of share, issue bonds or debentures convertible in shares, in the cases
predicted in article 172 of the Corporate Law, may be excluded.

10 th Article  Each
common share corresponds to the right of one vote at the deliberations of the General
Assembly.

11 th Article The
preferred shares have no right to vote, except in the cases of the sole paragraph of this
article and in the sole paragraph of article 14, being assured to them priority in the
payment of the minimum and non cumulative dividend of 6% (six percent) per year of the
value of the division of the capital stock by the total number of shares of the Company or
3% (three percent) per year of the book value of shareholders equity divided by the
total number of shares of the Company, whichever is higher.

Sole Paragraph  The preferred
shares shall acquire the right to vote if the Company, for 3 (three) consecutive years
omits to pay the minimum dividends due to it in accordance with the terms of the caput of
this article.

12 th Article  The
shares of the Company are subscribed, and are kept at a deposit account at a financial
institution in the name of the titleholders without the issue of certificates.

# CHAPTER III

GENERAL ASSEMBLY

13 th Article  The
General Assembly is the governing entity of the Company, with powers to deliberate over
all the business related to the corporate object and to take the measures it deems
necessary for the protection and the development of the Company.

14 th Article  Besides
the attributions set forth by law, the General Assembly is responsible for:

I.    
          setting the global remuneration of the members of the Board Council and of the
          Board and the individual remuneration of the members of the Audit Committee; and

II.    
          previously approve the formalization of any long-term contracts between the
          Company or its controlled companies, on one side, and the controlling
          shareholder or controlled, associated companies, subject to the same control or
          controllers of the latter, or that in another manner constitute the parts
          related to the Company, except when the contracts are governed by the same
          clauses.

Sole Paragraph  With no loss to
the dispositions in the 1 st paragraph of Article 115 of Law n o 6,404/76, the holders of
preferred shares shall have the right to vote at the deliberations of the General Assembly
referred to in sub-paragraph II of this article, as in those referred to in the alteration
or revocation of the following bylaw dispositions:

1.    
          sub-paragraph II of Article 14 and its Sole Paragraph;

2.    
          Sole Paragraph of Article 15; and

3.    
          Article 49

15 th Article  The
General Assembly is summoned by the Board Council, or in the form predicted in the Sole
Paragraph of Article 123 of Law n o 6,404/76. Whenever the Board Council summons a General
Assembly it is up to the Chairman to co-substantiate the act. Sole Paragraph  In
Article 136 of Law n o 6,404/76, the first summons of the General Assembly shall be made
30 (thirty) days in advance, at least, and 10 (ten) days in advance, at least, at the
second summons.

16 th Article  The
General Assembly is held by the President of the Company or, in his absence or due to his
impediment, by any Director, or also, by attorney-in-fact duly invested of specific powers
for this purpose. The Assembly shall be presided by the Chairman of the Board Council, who
is also responsible for choosing the secretary. In the absence of the Chairman of the
Board Council, the Assembly shall be presided by the Chairman of the Company, and, in case
of impediment, by any Director. In the case of absence and/or impediment of any directors,
as predicted in the terms of this article, the assembly must elect the chairman of the
board and the respective secretary.

17 th Article  The
discussions and deliberations of the General Assembly shall be written in the book of
minutes, signed by the members of the board and by the shareholders present, which
represent, at least, the majority required for the deliberations assumed. 1 st Paragraph
 The minute may be written in the form of a fact summary, inclusive dissidence and
protests. 2 nd Paragraph  Except for counter deliberations of the Assembly, the
minutes shall be published with omission of the signatures of the shareholders.

18 th Article  Annually,
at the four first months subsequent to the corporate yearend, the General Assembly will
meet, ordinarily, to:

I.    
          take the accounts of the administrators, examine, discuss and vote over the
          financial statements;

II.    
          deliberate about the destination of the net profit of the year and the
          distribution of dividends; and

III.    
          elect the members of the Audit Committee and, whenever the case, the members of
          the Board Council.

19 th Article  The
General Assembly shall meet, extraordinarily, whenever the interests of the Company
require so.

# CHAPTER IV

COMPANY ADMINISTRATION

# SECTION I

GENERAL NORMS

20 th Article  The
Administration of the Company is exercised by the Board Council and by the Board.

1 st Paragraph  The Board Council,
the body of the Company that deliberates as a group, executes the top administration level
of the Company.

2 nd Paragraph  The Board is
the body of the Company that represents the executive administration of the Company,
acting each one of each members in accordance with their respective competence.

3 rd Paragraph  The
attributions and powers granted by law to each one of the administrative bodies may not be
granted to any other body.

21 st Article  The
administrators come into power at the writing of the terms into the Book of Minutes of the
Assemblies of the Board Council or of the Board, according to the case.

22 nd Article  The
mandate of the administrators is of 3 (three) years, with reelection allowed.

Sole Paragraph  The mandate of
the administrators is considered to run until their successors come into power.

# SECTION II

BOARD COUNCIL

23 rd Article  Besides
the attributions predicted by law, the Board Council is responsible for:

I.    
          approving the annual budget of the Company, as well as of its controlled
          companies, besides the objective and business strategy plan predicted for the
          period of validity of the budget;

II.    
          deliberating over the capital increase of the Company up to the limit of the
          authorized capital, as well as deliberating over the issue of stock or
          subscription bonus, including with the exclusion of the preferential right of
          the shareholders, setting the issue and placement conditions of the stock or
          subscription bonus;

III.    
          authorizing the issue of commercial papers for public subscription;

IV.    
          resolving, when delegated by the General Assembly, about the conditions of issue
          of the debentures, according to the dispositions of the 1 st paragraph in the
          article 59 of Law n o 6,404/76;

V.    
          authorizing the sale of debentures, including those convertible into shares,
          issued by the Company that are in the treasury;

VI.    
          authorizing the acquisition of Company issued shares, for the purpose of
          cancellation or permanence in the treasury and subsequent sale;

VII.    
          approving the participation or sale of participation of the Company in the
          capital of other companies;

VIII.    
          authorizing the exchange of shares or of other securities convertible into
          shares issued by the controlled companies;

IX.    
          authorizing the sale or burden of goods which integrate the fixed assets;

X.    
          authorizing the acquisition of goods for the fixed assets whose individual value
          is above 1% (one percent) of the net worth of the Company;

XI.    
          authorizing the waiver of rights for the subscription of shares, debentures
          convertible into shares or subscription bonuses issued by the controlled
          companies;

XII.    
          within the limit of authorized capital, approving the grant for the option of
          the purchase of stock to its administrators, employees and to individuals that
          render services to the Company or to the controlled companies.

XIII.    
          authorizing the rendering of real or fidejussionary guarantees by the Company in
          favor of third parties or controlled companies;

XIV.    
          authorizing the practice of gratuitous acts, in benefit of the employees or of
          the community, in view of the corporate responsibilities of the Company, of
          which the rendering of guarantees to employees in the case of interstate and/or
          inter-city transfer and/or relocation does not imply in a matter that depends on
          the prior approval of the Board Council;

XV.    
          approving the employment of loans, financing, leasing and issue of commercial
          papers whose individual value is above 1% (one percent) of the net worth of the
          Company, as well as of its controlled companies;

XVI.    
          authorizing investments in new businesses or the creation of a subsidiary;

XVII.    
          deliberating over the approval of a Depositary Receipts program
          issued by the Company ;

XVIII.    
          submitting for approval to the General Assembly the performance of any business
          or operation which is included among those mentioned in subparagraph II of
          article 14 of this bylaw;

XIX.    
          authorizing the Company, as well as its associated and controlled companies, to
          sign, alter or rescind Shareholder Agreements;

XX.    
          approving the policy for complementary social security of the Company and the
          collective agreements; XXI. approving the Internal Rules of the Board Council;

XXII.    
          approving the proposal of the Board in relation to the Company Rules with the
          respective organizational structure, including at the competence and attribution
          of the Directors of the Company;

XXIII.    
          dividing the global remuneration amount, set by the General Assembly, between
          the Councilors and the Directors of the Company, setting their individual
          remuneration;

XXIV.    
          establishing guidelines for the exercise of the right to vote of the
          representatives of the Company at the General Assemblies of its controlled or
          associated companies;

XXV.    
          electing and dismissing, at any moment, the Directors of the Company, including
          the Chairman, setting attributions to them, in accordance with the dispositions
          of this bylaw;

XXVI.    
          appointing the representatives of the Company in the administration of the
          companies in which it participates; and

XXVII.    
          performing other activities which may be delegated to it by the General
          Assembly.

24 th Article  The Board
Council is comprised of 3 (three) to 11 (eleven) effective members and similar number of
alternate Councilors.

25 th Article  The
members of the Board Council and their respective alternate Councilors are elected by the
General Assembly which elects, among them, the Chairman of the board.

1 st Paragraph  In the case of
a vacancy in the position of an effective Councilor, the respective alternate Councilor
will substitute and serve up to the first General Assembly.

2 nd Paragraph  In the case of
a vacancy in the position of an effective Councilor and if the respective alternate
Councilor does not replace the effective Councilor, Art. 150 of Law 6.404/76 shall apply.

26 th Article  The Board
Council will meet ordinarily once every two calendar months and, extraordinarily, upon
summons made by its Chairman or by 2 (two) Councilors, drawing up the minutes of the
Assemblies.

Sole Paragraph  The summons
shall be made by letter, telegram or fax delivered in at least 10 (ten) days in advance,
except in the cases of urgency, at the sole discretion of the Chairman of the Board
Council, and the notice must contain the order of the day.

27 th Article  The Board
Council deliberates by absolute majority of votes, with the presence of the majority of
its members, and it is up to the Chairman of the board, when necessary, to remit the
proceedings that co-substantiate these deliberations.

# SECTION III

BOARD

28 th Article  The Board
is comprised of 1 (one) Chairman and 3 (three) executive Directors, thus titled: a)
Financial Director; b) Technical Director; and c) Human Resources Director. 29 th Article
 In their absence and due to temporary impediments, the Chairman is substituted by
the Financial Director.

1 st Paragraph  In the case of
simultaneous absences and impediments of the Chairman and the Financial Director, the
Board is governed by the Director designated by the Board Council.

2 nd Paragraph  The Financial
Director and the other Directors at their temporary impediments are substituted by the
Director appointed by the Chairman.

3 rd Paragraph  In the case of
vacancy in the position of an effective Director, the Board Council will promote the
election of a substitute to complete the mandate of the substituted person.

30 th Article  In
accordance with the dispositions contained in this Bylaw, it is necessary to link the
Company to: (i) the joint signature of 2 (two) Directors, of which one, necessarily, must
be the Chairman; (ii) the signature of 1 (one) Director in combination with a
attorney-in-fact; or (iii) the joint signature of 2 (two) attorneys-in-fact, invested with
specific powers.

Sole Paragraph  The tools of
the mandate granted by the Company, which shall be signed jointly by 2 (two) Directors, of
which one must necessarily be the Chairman, must specify the powers granted and, with
exception to those used for legal purposes, will have the maximum validity period of 1
(one) year.

31 st Article  The
specific responsibility of each one of the members of the Board is the following:

I  CHAIRMAN  The
execution of the policy, guidelines and the activities related to the corporate object of
the Company, according to the terms specified by the Board Council.

II  FINANCIAL DIRECTOR 
The execution of the policy, guidelines and the economic-financial and accounting
activities of the Company according to the terms specified by the Board Council.

III  TECHNICAL DIRECTOR 
The planning and execution of the network engineering projects directed to the expansion
and modernization of the network and the exploration of new technology, according to the
specifying by the Board Council.

IV  HUMAN RESOURCES DIRECTOR
 Administrate and guide the actions related to the management of the Company,
comprising the employment, the dimensioning, the education and the development of Human
Agents for the company, according to the specifying by the Board Council.

# CHAPTER V

AUDIT COMMITTEE

32 nd Article  The Audit
Committee is the fiscal inspection entity of the Company administration, and must perform
permanently.

33 rd Article  The Audit
Committee shall be comprised of 3 (three) to 5 (five) members and substitutes in an even
number.

1 st Paragraph  The mandate of
the Audit Committee members ends at the first Annual General Assembly subsequent to the
respective election, reelection permitted, remaining the Councilors in the positions until
the successors take over.

2 nd Paragraph  The Audit
Committee members, at their first Assembly, will elect their Chairman, who will be in
charge of remitting the deliberations of the body.

3 rd Paragraph  The Audit
Committee may request that the Company appoint qualified personnel to act as secretary and
render technical assistance.

34 th Article  The Audit
Committee shall meet, ordinarily, once every quarter and, extraordinarily, when required.

1 st Paragraph  The Assemblies
are summoned by the Chairman of the Audit Committee or by 2 (two) members of the Audit
Committee.

2 nd Paragraph  The Audit
Committee manifests itself by majority of votes, with the presence of the majority of its
members.

35 th Article  The
members of the Audit Committee are substituted, in their absence or impediment, by the
respective substitute.

36 th Article  Except in
the cases of death, resignation, destitution and other terms set forth by law, the vacancy
of the position when a member of the Audit Committee fails to appear, without just cause,
to 2 (two) consecutive Assemblies or 3 (three) interspersed ones, in the corporate year.

Sole Paragraph  In the case of
absence in the position of a member of the Audit Committee without a supplent assuming the
position, the General Assembly will immediately summon to elect the substitute.

# CHAPTER VI

FISCAL YEAR AND
FINANCIAL STATEMENTS

37 th Article  The
fiscal year coincides with the calendar year.

38 th Article  At each
yearend, the Board will prepare the Balance Sheet and the other financial statements
required by law.

39 th Article  The Board
Council will present to the General Assembly, in combination with the financial
statements, the proposal for the destination of the net profit of the period, as set forth
by the dispositions of this bylaw and the law.

40 th Article  Besides
creating the reserves predicted by law, the General Assembly may use up to 10% (ten
percent) of the net profit, adjusted in the form of the dispositions in the article 202 of
Law 6,404/76, for the formation of a reserve to reinforce the working capital, and whose
value may not surpass 10% (ten percent) of the accounting net worth of the company.

41 st Article  The
shareholders have the right to receive the minimum dividend required of 25% (twenty five
percent) of the net profit for each period adjusted in the form of the disposition in the
article 202 of Law 6,404/76.

42 nd Article  The
amount corresponding to the minimum required dividend shall be used, in the first, for the
payment of the dividend of preferred shares predicted in the article 11 of this Bylaw up
to the limit of the preference; following this, the dividends to be used for the common
stock shall be paid, until each common share has received a dividend equal to that
attributed to the preferred shares; and the remaining balance of the minimum required
dividend, shall be divided in equal conditions, by the shares of both types.

Sole Paragraph  In the period
which the minimum amount dividend required is insufficient for the payment of the priority
dividend of preferred shares, the minimum required dividend shall be increased up to the
amount sufficient for such payment.

43 rd Article  After the
payment of the minimum required dividend, a General Assembly will decide about the
destination of the remaining balance of the net profit of the period, which, by proposal
of the administration, may be used in the proportion in which they are to be deliberated,
as: (i) supplementary dividend payment to the shareholders; (ii) transfer to the following
year, as accumulated earnings, as long as duly justified by the administrators to finance
the investment plan predicted in the budget of capital.

44 th Article  The
company may, by deliberation of the Board Council, pay or credit, in dividends, interests
over its own capital, in the terms of article 9 of Law 9,249, on 12/26/95. The interests
will be compensated with the amount of the minimum required dividend due in the fiscal
year to the holders of both common and preferred shares.

45 th Article  The
Company, by deliberation of the Board Council, may, in accordance with legal limitations:
(i) balances, declare dividends; and (ii) declare intermediary dividends on account of
accumulated earnings or of reserves of the existing profits in the last annual or
half-yearly balance sheet.

46th Article  The
Company may, through deliberation of General Assembly, provided the legal limits,
attribute profit participation to its administrators and employees.

# CHAPTER VII

ABOUT THE LIQUIDATION
OF THE COMPANY

47 th Article  The
company will be dissolved, by entering in liquidation, in the cases predicted in law or
through deliberation of the Assembly, which will determine the manner of settlement and
will elect the liquidator and the Audit Committee for the liquidation period, establish
for them a respective fees.

# CHAPTER VIII

ABOUT THE GENERAL AND
TRANSITORY DISPOSITIONS

48 th Article  The
approval, by the Company, through its representatives, of operations for the merger,
split, incorporation or dissolution of its controlled companies shall be preceded by a
economic-financial analysis by an independent company, of well-known professional acclaim,
confirming that it is giving equal treatment to all the companies interested, whose
shareholders have full access of the referred analysis report.

# CHART OF ALTERATIONS IN
THIS BYLAW

|ASSEMBLY                     | DATE     | OCCURRENCE                                           
|---------------------------- | -------- | -----------------------------------------------------
|2 nd Extraordinary Assembly  | 09/01/98 | Articles 15, 21 (caput), 22, 24 and 27 changed.      
|4 th Extraordinary Assembly  | 01/27/99 | Chapters I, II, III, IV, V, VI, VII and VIII changed.
|6 th Extraordinary Assembly  | 10/11/99 | Articles 16 and 34 changed.                          
|11 th Extraordinary Assembly | 05/09/00 | Article 01 changed.                                  
|17 th Extraordinary Assembly | 02/23/01 | Article 05 changed.                                  
|18 th Extraordinary Assembly | 04/30/01 | Articles 24 and 25 changed.                          
|19 th Extraordinary Assembly | 04/29/02 | Article 05 changed.                                  
|20 th Extraordinary Assembly | 12/30/02 | Articles 11 changed.                                 
|21 th Extraordinary Assembly | 04/23/03 | Article 05 changed.                                  





BRASIL TELECOM
PARTICIPAÇÕES S.A.



CONSOLIDATED
FINANCIAL STATEMENTS

AS OF DECEMBER 31,
2001 AND 2002 AND FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED DECEMBER 31, 2002



BRASIL TELECOM
PARTICIPAÇÕES S.A.

CONSOLIDATED
FINANCIAL STATEMENTS

As of December 31,
2001 and 2002 and for each of the                                         years in the
three year period ended December 31, 2002

CONTENTS

|Reports of Independent Accountants                         | F-3 and F-4      
|---------------------------------------------------------- | -----------------
|Consolidated Balance Sheets                                | F-5              
|Consolidated Statements of Operations                      | F-6              
|Consolidated Statements of Changes in Shareholders Equity | F-7              
|Consolidated Statements of Cash Flows                      | F-8              
|Notes to the Consolidated Financial Statements             | F-9 through F- 70



INDEPENDENT AUDITORSREPORT

To the Board of
Directors and Shareholders of

Brasil Telecom
Participações S.A.:

We
have audited the  accompanying  consolidated  balance  sheets of Brasil Telecom  Participações
 S.A. (a Brazilian  Corporation)  and subsidiaries as of December 31,
2001, and the related  consolidated  statements of operations,  changes in shareholdersequity
and cash flows for each of the two years in the period ended  December 31, 2001,  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. 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.

In
our opinion,  the consolidated  financial  statements  referred to above present fairly,
in all material respects,  the consolidated financial  position of Brasil Telecom
 Participações S.A. and subsidiaries as of December 31, 2001, the results of their
operations and cash flows for each of the two years in the period ended December 31,
2001, in conformity with accounting practices adopted in Brazil. 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, 2001, and the
results of operations  for each of the two years in the period ended December 31, 2001,
to the extent  summarized in Note 31 to the consolidated financial statements.

June 10, 2002, except
for Notes 31 and 32 as to which the date is June 26, 2002

DELOITTE TOUCHE
TOHMATSU

INDEPENDENT
ACCOUNTANTS REPORT



The Board of Directors
and ShareholdersBrasil Telecom Participações S.A.
Brasília, DF

We
have audited the  accompanying  consolidated  balance sheet of Brasil  Telecom  Participações
 S.A. as of December 31, 2002, and the related  consolidated  statements of income, cash
flows and changes in shareholders equity for the year then ended. These consolidated
financial  statements  are the  responsibility  of the  Companys  management.  Our
 responsibility  is to  express an opinion on these consolidated financial statements
based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brasil Telecom Participações
S.A. as of December 31, 2002, and its results of operations and its cash flows for the
year then ended in conformity with Brazilian generally accepted accounting principles
(Brazilian GAAP), including recognition of the effects of changes in the purchasing power
of the Brazilian currency through December 31, 2000, as discussed in Note 2.b.

Brazilian
GAAP varies in certain respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting principles in the
United States of America would have affected results of operations for the year ended
December 31, 2002 and shareholders equity as of December 31, 2002, to the extent
summarized in Note 31 of the consolidated financial statements.

/s/ KPMG Auditores
Independentes

February 26, 2003,
except as to Note 31.o, which is as of March 17, 2003.
 Brasília, DF

BRASIL TELECOM
PARTICIPAÇÕES S.A.                                                          (See Notes 1
and 2)

CONSOLIDATED BALANCE
SHEETS

As of December 31,
2001 and 2002                                                    (In thousands of
Brazilian reais)

|                                           |          |            |           
|------------------------------------------ | -------- | ---------- | ----------
|                                           |          | 2001       | 2002      
|Current assets:                           
|Cash and cash equivalents                  | Note 11  | 465,530    | 1,596,163 
|Trade accounts receivable, net             | Note 12  | 1,230,937  | 1,542,851 
|Deferred and recoverable taxes             | Note 13  | 406,387    | 416,015   
|Other assets                               | Note 14  | 221,473    | 194,297   
|Total current assets                       |          | 2,324,327  | 3,749,326 
|Non-current assets:                       
|Deferred and recoverable taxes             | Note 13  | 936,125    | 893,460   
|Other assets                               | Note 14  | 426,524    | 603,863   
|Total non-current assets                   |          | 1,362,649  | 1,497,323 
|Permanent assets:                         
|Investments                                | Note 15  | 109,044    | 171,537   
|Property, plant and equipment, net         | Note 16  | 12,231,013 | 11,460,131
|Intangibles                                | Note 1.c | 372,537    | 276,404   
|Total permanent assets                     |          | 12,712,594 | 11,908,072
|                                           |          | 16,399,570 | 17,154,721
|Current liabilities:                      
|Payroll and related accruals               | Note 17  | 92,502     | 44,352    
|Accounts payable and accrued expenses      |          | 1,294,944  | 998,236   
|Taxes other than income taxes              | Note 18  | 277,091    | 356,720   
|Dividends                                  | Note 19  | 304,078    | 290,166   
|Income taxes                               | Note 9   | 85,072     | 64,958    
|Loans and financing                        | Note 20  | 448,778    | 591,874   
|Provisions for contingencies               | Note 21  | 63,403     | 3,232     
|Provision for pensions                     | Note 22  | 41,668     | 92,144    
|Other liabilities                          |          | 95,576     | 87,306    
|Total current liabilities                  |          | 2,703,112  | 2,528,988 
|Non-Current liabilities:                  
|Income taxes                               | Note 9   | 566,029    | 417,741   
|Taxes other than income taxes              | Note 18  | 182,814    | 344,452   
|Loans and financing                        | Note 20  | 2,699,466  | 3,584,293 
|Provision for pensions                     | Note 22  | 449,076    | 409,696   
|Provisions for contingencies               | Note 21  | 315,075    | 385,992   
|Other liabilities                          |          | 46,877     | 237,479   
|Total non-current liabilities              |          | 4,259,337  | 5,379,653 
|Minority Interests                         |          | 2,703,754  | 2,582,648 
|Shareholders' equity:                     
|Share capital                              |          | 2,428,221  | 2,453,191 
|Capital reserves                           |          | 885,293    | 864,544   
|Income reserves                            |          | 1,862,104  | 1,530,617 
|Retained earnings                          |          | 1,557,749  | 1,815,080 
|Total shareholders' equity                 | Note 23  | 6,733,367  | 6,663,432 
|Total liabilities and shareholders equity |          | 16,399,570 | 17,154,721

See the accompanying
notes to the financial statements

BRASIL TELECOM
PARTICIPAÇÕES S.A.                                                           (See Notes 1
and 2)

CONSOLIDATED
STATEMENTS OF OPERATIONS

Years ended December
31, 2000, 2001 and 2002                                      (In thousands of Brazilian
reais, except earnings per share)

|                                                                              |        |             |             |            
|----------------------------------------------------------------------------- | ------ | ----------- | ----------- | -----------
|                                                                              |        | 2000        | 2001        | 2002       
|Net operating revenue                                                         | Note 4 | 4,652,184   | 6,158,408   | 7,071,368  
|                                                                             
|Cost of services                                                              | Note 5 | 3,768,699   | 4,765,593   | 5,143,358  
|Gross profit                                                                  |        | 883,485     | 1,392,815   | 1,928,010  
|Operating expenses:                                                          
|Selling expenses                                                              |        | 379,235     | 724,507     | 763,346    
|General and administrative expenses                                           |        | 534,624     | 624,751     | 687,462    
|Other net operating expenses (income)                                         | Note 6 | (56,899)    | 60,875      | (121,181)  
|Operating income (loss) before net financial expense                          |        | 26,525      | (17,318)    | 598,383    
|Net financial expense (income)                                                | Note 7 | (20,480)    | 47,051      | 330,460    
|Operating income (loss)                                                       |        | 47,005      | (64,369)    | 267,923    
|Net non-operating expenses (income)                                           | Note 8 | (166,753)   | 85,167      | 78,312     
|Employees' profit share                                                       |        | 18,516      | 52,783      | 42,619     
|Income (loss) before taxes and minority interests                             |        | 195,242     | (202,319)   | 146,992    
|Income and social contribution taxes (benefit)                                | Note 9 | 74,386      | (87,347)    | 916        
|Income (loss) before minority interests                                       |        | 120,856     | (114,972)   | 146,076    
|Minority interests                                                            |        | 31,456      | 75,720      | 2,397      
|Net income (loss)                                                             |        | 152,312     | (39,252)    | 148,473    
|                                                                             
|Shares outstanding at the balance sheet date (thousands)                      |        | 344,232,541 | 348,323,389 | 351,527,027
|Earnings per lot of one thousand shares outstanding at the Balance sheet date |        | 0.44        | (0.10)      | 0.42       

See the accompanying
notes to the financial statements

BRASIL TELECOM
PARTICIPAÇÕES S.A.                                                                   (See
Notes 1 and 2)

CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

Years ended December
31, 2000, 2001 and 2002                                                            (In
thousands of Brazilian reais)

|                                      |           |           | Income Reserves |            |          
|------------------------------------- | --------- | --------- | --------------- | ---------- | ---------
|                                      |           |           |                 | Unrealized |          
|                                      | Share     | Capital   | Legal           | Income     | Retained 
|                                      | Capital   | Reserves  | Reserve         | Reserve    | Earnings 
|Balances at December 31, 1999         | 2,129,434 | 1,590,929 | 172,272         | 2,041,044  | 1,851,951
|Capital increase:                    
|Subscription bonus                    | 59,755    | 225,947   | -               | -          | -        
|Consolidation adjustments             | -         | -         | -               | -          | 4,293    
|Special reserve for premium merger    | -         | (765,233) | -               | -          | -        
|Net income                            | -         | -         | -               | -          | 152,311  
|Realization of unrealized profit      | -         | -         | -               | (112,077)  | 112,077  
|Deferred tax on full indexation       | -         | -         | -               | -          | (199,987)
|Transfer to reserves                  | -         | -         | 20,431          | -          | (20,431) 
|Dividends                             | -         | -         | -               | -          | (117,622)
|Balances at December 31, 2000         | 2,189,189 | 1,051,643 | 192,703         | 1,928,967  | 1,782,592
|Prior year adjustments               
|Provision for pensions                | -         | -         | -               | -          | (215,943)
|Capital increase                     
|Subscription bonus                    | 138,460   | (138,460) | -               | -          | -        
|Transfer from reserves                | 76,880    | -         | -               | -          | (76,880) 
|Fiscal benefits on amortization of    | 23,692    | (23,692)  | -               | -          | -        
|goodwill                             
|Consolidation adjustments             | -         | -         | -               | -          | (3,462)  
|Fiscal incentives                     | -         | 23        | -               | -          | -        
|Decrease in income tax, due to change | -         | (4,221)   | -               | -          | -        
|in tax rate                          
|Net loss                              | -         | -         | -               | -          | (39,252) 
|Realization of unrealized profit      | -         | -         | -               | (272,280)  | 272,280  
|Transfer to/from reserves             | -         | -         | 12,714          | -          | (12,714) 
|Dividends                             | -         | -         | -               | -          | (148,872)
|Balances at December 31, 2001         | 2,428,221 | 885,293   | 205,417         | 1,656,687  | 1,557,749
|Capital increase                     
|Fiscal benefits on amortization of    | 24,970    | (24,970)  | -               | -          | -        
|goodwill                             
|Consolidation adjustments             | -         | -         | -               | -          | 4,173    
|Increase in income tax, due to change | -         | 4,221     | -               | -          | -        
|in tax rate                          
|Net income                            | -         | -         | -               | -          | 148,473  
|Realization of unrealized profit      | -         | -         | -               | (353,659)  | 353,659  
|Acquisition of treasury stock         | -         | -         | -               | -          | (9,175)  
|Transfer to/from reserves             | -         | -         | 22,172          | -          | (22,172) 
|Dividends                             | -         | -         | -               | -          | (217,627)
|Balances at December 31, 2002         | 2,453,191 | 864,544   | 227,589         | 1,303,028  | 1,815,080

See the accompanying
notes to the financial statements

BRASIL TELECOM
PARTICIPAÇÕES S.A.                                                           (See Notes 1
and 2)

CONSOLIDATED
STATEMENTS OF CASH FLOWS



Years ended December
31, 2000, 2001 and 2002                                                    (In thousands
of Brazilian reais)

|                                                             |             |             |            
|------------------------------------------------------------ | ----------- | ----------- | -----------
|                                                             | 2000        | 2001        | 2002       
|Operating Activities                                         |             |             |            
|Net income (loss)                                            | 152,312     | (39,252)    | 148,473    
|                                                            
|Adjustments to reconcile net income (loss) to cash from     
|operating activities:                                       
|Depreciation                                                 | 2,387,150   | 2,747,250   | 2,834,604  
|Minority share of net income                                 | (31,456)    | (75,720)    | (2,397)    
|Foreign exchange losses                                      | 126,764     | 66,886      | 60,209     
|Provision for losses on fiscal incentives                    | 17,735      | -           | -          
|Gain on permanent asset disposals                            | 39,694      | 5,084       | (5,502)    
|Other provisions                                             | -           | 20,317      | (3,502)    
|(Decrease) increase in provisions for contingencies          | (151,683)   | (12,396)    | 10,746     
|(Decrease) increase in provision for pensions                | (3,531)     | (9,920)     | 11,096     
|Increase in allowance for doubtful accounts                  | 15,854      | 88,280      | 10,203     
|Net decrease (increase) in income tax, due to change in rate | -           | (7,685)     | 4,221      
|Increase in customer accounts receivable, gross              | (196,426)   | (121,003)   | (322,117)  
|Decrease (increase) in other current assets                  | (5,520)     | (24,573)    | 27,175     
|Increase in other non-current assets                         | (42,603)    | (236,735)   | (217,272)  
|(Decrease) increase in payroll and related accruals          | (54,300)    | 26,825      | (48,150)   
|(Decrease) increase in accounts payable and accrued expenses | 246,671     | 389,838     | (296,708)  
|Increase in taxes other than income taxes                    | 44,110      | 43,950      | 79,629     
|(Decrease) decrease in other current liabilities             | (109,118)   | 12,068      | (19,594)   
|Increase (decrease) in accrued interest                      | -           | (257,665)   | 18,698     
|Decrease in income taxes                                     | (359,417)   | (278,987)   | (14,313)   
|Increase (decrease) in other non-current liabilities         | (6,462)     | (65,905)    | 191,899    
|Net cash provided by operating activities                    | 2,069,774   | 2,270,657   | 2,467,396  
|Investing activities:                                       
|Additions to investments                                     | (16,670)    | (9,795)     | (38,559)   
|Additions to property, plant & equipment                     | (2,033,348) | (3,178,923) | (1,838,125)
|Cash paid for the acquisition of CRT, net of cash and cash  
|equivalents acquired of R$122,252                            | (1,395,322) | -           | -          
|Proceeds from asset disposals                                | 11,664      | 18,227      | 24,416     
|                                                             |             |             |            
|Net cash used by investing activities                        | (3,433,676) | (3,170,491) | (1,852,268)
|Financing activities:                                       
|Loans repaid                                                 | (490,062)   | (1,095,170) | (428,741)  
|New loans obtained                                           | 2,524,910   | 625,241     | 1,249,898  
|Expansion plan and other contributions paid back/received    | -           | (38)        | (1,296)    
|Subscription bonus                                           | -           | -           | 8,020      
|Purchase (issue) of treasury shares                          | 285,702     | -           | (31,028)   
|Dividends paid                                               | (85,048)    | (183,560)   | (281,348)  
|Net cash provided by (used in) financing activities          | 2,235,502   | (653,527)   | 515,505    
|Increase (decrease) in cash and cash equivalents             | 871,600     | (1,553,362) | 1,130,633  
|Cash and cash equivalents at beginning of the period         | 1,147,292   | 2,018,892   | 465,530    
|                                                             |             |             |            
|Cash and cash equivalents at end of the period               | 2,018,892   | 465,530     | 1,596,163  

See the accompanying
notes to the financial statements

BRASIL TELECOM
PARTICIPAÇÕES S.A.                                                          (See Notes 1
and 2)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of
Brazilian reais)

1.       a)
 Operations and background



Brasil
Telecom Participações S.A. (the Company or the Holding Company) and its subsidiaries
(collectively the Companies) are the principal providers of fixed-line
telecommunications services in the states of Santa Catarina, Paraná, Goiás, Tocantins,
Mato Grosso do Sul, Mato Grosso, Rondônia, Acre, the Federal District and Rio Grande do
Sul, under the terms of the concessions granted by the Federal Government which will
expire on December 31, 2005 and may be renewed for a further term of 20 years. On July
31, 2000 the companies acquired a controlling interest in CRT, the provider of fixed-line
telecommunication service in the state of Rio Grande do Sul, except the region of Pelotas.

The
Companies business, including the services they may provide and the rates they charge,
is 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, orders and plans.

b)
Corporate Reorganization

On
February 28, 2000, the Company reorganized its investments in fixed-line
 telecommunication companies, by exchanging its shares in its eight smaller operating
 subsidiaries for newly issued shares of its main operating subsidiary,  Telecomunicações
do Paraná S.A. - TELEPAR.  The minority  shareholders  of the smaller  operating
 companies  also  exchanged  their shares for newly issued  shares of TELEPAR. These
companies were then merged into TELEPAR.

After
the merger,  the name of TELEPAR was changed to Brasil  Telecom  S.A.  ("the
 Subsidiary").  The exchange of shares was made based on the book value of TELEPAR's
 shares compared to the book value of each  outstanding  share of the eight  operating
 companies. This merger resulted in the following new capital structure (in thousands of
shares):

TELEPAR- Before the
merger

|Shareholders            | Common share | Preferred shares | Total     | %  
|----------------------- | ------------ | ---------------- | --------- | ---
|Controlling Shareholder | 1,197,661    | 1,032,787        | 2,230,448 | 66 
|Minorities              | 263,294      | 909,727          | 1,173,021 | 34 
|Total                   | 1,460,955    | 1,942,514        | 3,403,469 | 100

Shares issued by
TELEPAR

|Shareholders            | Common share | Preferred shares | Total     | %  
|----------------------- | ------------ | ---------------- | --------- | ---
|Controlling Shareholder | 2,620,917    | 3,999,264        | 6,620,181 | 78 
|Minorities              | -            | 1,848,564        | 1,848,564 | 22 
|Total                   | 2,620,917    | 5,847,828        | 8,468,745 | 100

TELEPAR - After the
merger (currently Brasil Telecom S.A.)

|Shareholders            | Common share | Preferred shares | Total      | %  
|----------------------- | ------------ | ---------------- | ---------- | ---
|Controlling Shareholder | 3,818,578    | 5,032,051        | 8,850,629  | 75 
|Minorities              | 263,294      | 2,758,291        | 3,021,585  | 25 
|Total                   | 4,081,872    | 7,790,342        | 11,872,214 | 100

On
August 4, 2000, a 39 for 1 split of the Subsidiary's shares was approved.

c)
Acquisition of Companhia Riograndense de Telecomunicações (CRT)

On
July 31, 2000, the Company and the Subsidiary agreed to purchase all the outstanding
 shares of TBS  Participações  S.A. (TBS), the holding company of Companhia  Riograndense
de Telecomunicações  (CRT). TBS controlled CRT through a holding of 85.19% of its common
shares (31.56% of CRT's total  capital).  The price paid for TBS in cash on August 4,
2000 was R$ 1,517,574,  of which R$ 1,499,760 was paid by the Subsidiary and R$ 17,814 by
the Company.  The amount paid resulted in goodwill of R$ 820,547 at the date of
acquisition.

Effective
 December 1, 2000, the Subsidiary  acquired the minority interest of CRT through the
exchange of its outstanding  shares for 69,312,979 new shares issued by the Subsidiary,
 with a total book value of R$ 1,296,246.  The acquisition of the minority interest was
recorded on December 1, 2000 at this book value.  Accordingly,  the results of operations
of the Subsidiary for periods  subsequent to December 1, 2000 include the CRT minority
interest acquired.

On
December  28, 2000,  a further  corporate  reorganization  resulted in the merger of CRT
into the  Subsidiary  with effect from December  1, 2000.  The  restructuring  process
 included a  down-stream  merger  performed  in  accordance  with the  requirements  of
Instructions  319/99 and 320/99 of the Brazilian  Securities  Commission  (CVM) with the
objective of achieving the  deductibility  for income tax purposes of  amortization of
the goodwill.  As a consequence,  a special  goodwill  reserve was recorded at the CRT
level in shareholders'  equity with the related tax benefit of the future goodwill
 amortization  recorded as a deferred tax asset in the amount of R$321,856 (the remaining
 balance of this tax benefit is shown in the balance sheet as part of deferred and
recoverable  taxes as of December  31,  2001 and 2002 in the  amounts of  R$246,598  and
 R$187,749  respectively  - see Note 9). As a result of this  corporate reorganization,
 in the Subsidiary books goodwill was recomputed reducing its amount to R$ 480,691,  net
of the tax benefit,  including the unamortized balance of goodwill recognized in previous
 acquisitions.  The remaining  unamortized balance of goodwill is R$ 372,537 and R$
276,404 as of December 31, 2001 and 2002, respectively, which is recorded as an
intangible asset.

The
 shareholders'  meeting which approved the merger,  gave minority  shareholders  of CRT
the right to exchange their shares for Brasil Telecom S.A.  preferred and common shares.
 The exchange ratio was determined based on the market value of Brasil Telecom S.A.s
shares  compared to the market value of each share of CRT.  This  exchange of shares
 generated a gain at the Holding  Company level in the amount of R$185,262 recognized in
the 2001 consolidated statements of operations as non-operating income.

This
merger resulted in the following new capital structure (in thousands of shares):

Brasil Telecom S.A.
- Before the merger of CRT

|Shareholders            | Common share | Preferred shares | Total       | %  
|----------------------- | ------------ | ---------------- | ----------- | ---
|Controlling Shareholder | 229,132,204  | 116,042,516      | 345,174,720 | 75 
|Minorities              | 2,375,972    | 115,465,660      | 117,841,632 | 25 
|Total                   | 231,508,176  | 231,508,176      | 463,016,352 | 100

Shares issued by
Brasil Telecom

|Shareholders            | Common share | Preferred shares | Total      | %  
|----------------------- | ------------ | ---------------- | ---------- | ---
|Controlling Shareholder | 3,285,801    | 55,649           | 3,341,450  | 5  
|Minorities              | 2,371,420    | 60,696,079       | 63,067,499 | 95 
|Total                   | 5,657,221    | 60,751,728       | 66,408,949 | 100

Brasil Telecom S.A.
- After the merger of CRT

|Shareholders            | Common share | Preferred shares | Total       | %  
|----------------------- | ------------ | ---------------- | ----------- | ---
|Controlling Shareholder | 232,418,005  | 116,098,165      | 348,516,170 | 66 
|Minorities              | 4,747,392    | 176,161,739      | 180,909,131 | 34 
|Outstanding shares      | 237,165,397  | 292,259,904      | 529,425,301 | 100
|Treasury shares         | -            | 2,904,030        | 2,904,030  
|Total                   | 237,165,397  | 295,163,934      | 532,329,331

2. Presentation of
the consolidated financial statements

The
consolidated financial statements reflect the results of operations of Brasil Telecom
Participações S.A. and the Subsidiary.

a.       Indexation
of the financial statements

The
 consolidated  financial  statements  were  prepared  on a fully  indexed  basis to
 recognize  the  effects of changes in the purchasing  power of the  Brazilian  currency
 until 2000.  In 2001,  the  Federal  Accounting  Council  determined  that the  Monetary
Restatement  Principle may only be applied when accumulated  inflation,  calculated based
on the General Market Price Index (IGP-M) for the three-year period is equivalent to or
higher than 100%. As a result of this definition,  differences  between financial
 statements prepared in accordance with accounting  principles  generally accepted in
Brazil (Brazilian GAAP) and financial  statements prepared in accordance with  accounting
 practices  emanating from Brazilian  corporate law, as of December 31, 2000, will
continue to be reflected in the Brazilian GAAP financial  statements  until they have
been exhausted  through the  depreciation or amortization of the permanent assets to
which they relate.

b. Previously
published financial information

The
 presentation  of the  consolidated  financial  statements  is consistent  with the
 presentation  of the published  financial statements of the Companies,  from which the
accompanying  financial  information was extracted,  except for certain adjustments
mainly related to effects of indexation applied until 2000 on shareholders'  equity and
net income,  detailed in the tables below, and certain reclassifications within the
balance sheets and the statements of operations.

The
tables  below  present a  reconciliation  of net income  (loss)  for the years  ended
 December  31,  2000,  2001 and 2002 and shareholders' equity at those dates in
accordance with Brazilian corporate law to net income and shareholders' equity reported
herein:

|Net income                                                           | 2000      | 2001      | 2002     
|-------------------------------------------------------------------- | --------- | --------- | ---------
|Net income in accordance with Brazilian Corporate Law                | 409,613   | 261,002   | 442,981  
|Effect of the indexation of non-monetary assets through December 31,
|2000 (mainly an increased depreciation charge)                       | (719,210) | (763,229) | (668,370)
|Effect on deferred taxation of the above adjustments                 | 255,648   | 290,957   | 220,769  
|Minority interest in the above adjustments                           | 206,261   | 172,018   | 153,093  
|Net income (loss) as reported herein                                 | 152,312   | (39,252)  | 148,473  

|Shareholders equity                                                | 2000      | 2001      | 2002     
|------------------------------------------------------------------- | --------- | --------- | ---------
|Shareholders equity in accordance with Brazilian Corporate Law     | 6,112,448 | 6,000,974 | 6,225,547
|Effect of the indexation of non-monetary assets through December 31 | 2,483,892 | 1,720,663 | 1,052,293
|Effect on deferred taxation of the above adjustment                 | (898,512) | (607,554) | (386,786)
|Minority interest in the above adjustments                          | (552,734) | (380,716) | (227,622)
|Shareholders equity as reported herein                             | 7,145,094 | 6,733,367 | 6,663,432

c. Principles of
consolidation

These
consolidated financial statements include the accounts of the Holding Company and its
subsidiary. All material intercompany balances and transactions have been eliminated.

Certain
prior year amounts were reclassified to conform to the current years presentation.

d. Statements of
cash flows

These
consolidated financial statements include the consolidated  statements of cash flows
which better reflect the source and use of funds in order to provide  more  significant
 information,  instead of the  statements  of changes in financial  position  which are
usually disclosed in accordance with Brazilian GAAP.

3. Summary of the
principal accounting practices

a.       Cash and
cash equivalents

Cash
equivalents are considered to be all highly liquid temporary cash investments with
maturity dates of three months or less. They are recorded at the original cost plus the
accrued income until the balance sheet date and do not exceed market value.

b.       Trade
accounts receivable

Accounts
receivable from telephone subscribers are calculated at the tariff rate on the date the
service was rendered. Customer accounts receivable also include services provided to
customers up to the balance sheet date but not yet billed.

c.       Allowance
for doubtful accounts

An
allowance for doubtful accounts is recorded for accounts receivable for which
recoverability is considered doubtful. Through 2000, the allowance was calculated by
applying the ratio of actual losses during the previous year (write-offs to gross
revenues) to amounts overdue up to 90 days. For accounts over 90 days, the allowance was
based on historical experience on such accounts. Effective as from 2001, the computation
basis became the historical collection experience and a review of the current status of
all trade accounts receivable. Thus current loss estimates consider the ratio of
historical losses applied to the different categories of all outstanding amounts
receivable from customers.

d.       Foreign
currency transactions

Transactions
in foreign currency are recorded at the exchange rate at the time of the related
transactions. Foreign currency denominated assets and liabilities are translated using
the exchange rate at the balance sheet date. Exchange differences are recognized in the
statements of operations as they occur.

e.       Inventories

Inventories
are stated at the lower of cost or net realizable value. Cost of inventories is
determined on a weighted average cost basis. Inventories are separated into network
expansion and maintenance inventories. Inventories for use in network expansion are
classified as "Construction-in-progress" under "Property, plant and equipment".
Maintenance inventories are classified as other current assets.

f.       Investments

Investments,
including fiscal incentive investments, are recorded at indexed cost through December 31,
2000, less a reserve for losses when considered necessary.

g.       Property,
plant and equipment

Property,
 plant and equipment is stated at indexed cost through  December 31, 2000, less
 accumulated  depreciation.  Interest on loans related to construction in progress is
capitalized.

Improvements
 to existing  property  are  capitalized  while  maintenance  and repair  costs are
 charged to expense as  incurred. Materials allocated to specific projects are added to
construction-in-progress.

Depreciation
 is provided  using the  straight-line  method based on the estimated  useful lives of
the  underlying  assets and in accordance with tax rules. The principal depreciation
rates are shown in Note 16.

The
Companys management reviews property, plant and equipment for possible impairment
whenever events or changes in circumstances indicate that the carrying value of an asset
or group of assets may not be recoverable on the basis of undiscounted future cash flows.
These reviews have not indicated the need to recognize any impairment losses during the
years ended December 31, 2000, 2001 and 2002.

h.       Vacation
pay accrual

Employees
cumulative vacation pay is accrued as earned.

i.       Income and
social contribution taxes

Income
and social contribution taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to (a) differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and (b) tax loss
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment
date in relation to all temporary differences, except for the future benefit arising out
of the goodwill amortization, where the effect of a change in rates is recognized in
capital reserves within shareholders equity.

j.       Loans and
financing

Loans
and financing include accrued interest and monetary and/or exchange variation to the
balance sheet date.

k.       Reserves
for contingencies

Reserves
for contingencies are recognized for the amounts of probable losses based on legal advice
and management's opinion of the outstanding matters at the balance sheet date. The basis
and nature of the provisions are described in Note 21.

l.       Revenue
recognition

Revenues
from customer calls are based on time used, according to Brazilian law, and are
recognized when services are provided. Considering their high turnover and short average
life, revenues from phone cards for public telephones are recorded as the cards are sold.
 Revenues from activation and installation fees are recognized upon the activation of
customer services. For the fixed terminals activated on the pre-paid scheme, the amounts
received are recorded as advances from customers and revenue is recorded according to the
provision of the services.

m.       Interest
income and expense

Interest
income  represents  interest earned and gains and losses on temporary cash  investments
 (after adjusting in 2000 for the effects of inflation as measured by the inflation
index).

Interest
 expense  represents  interest  incurred and charges on loans and financing  (after
 adjusting in 2000 for the effects of inflation as measured by the inflation index) and
exchange gains and losses on foreign currency loans and financing.

n.       Research
and development

Research
and development costs are charged to expense as incurred. Total research and development
costs were R$24,696, R$8,000 and R$3,761 for the years ended December 31, 2000, 2001 and
2002, respectively.

o.       Pensions
and other post-retirement benefits

Private
pension plans and other retirement benefits sponsored by the Company for their employees
are managed by SISTEL and Fundação CRT. Contributions are determined on an actuarial
basis, when applicable, and accounted for on an accrual basis. As of December 31, 2001,
to comply with CVM Instruction No. 371/00, Brasil Telecom S.A. recorded the actuarial
deficit on the balance sheet date against shareholders equity, excluding the
corresponding tax effects. As from the beginning of 2002, adjustments to the actuarial
deficit provision are being recognized as a period expense.

p.       Employees profit
sharing

The
Companies have made a provision for granting employees the right to a share of their
profits. The amount determined to be paid in the year following the recorded provision is
in accordance with the agreement with the union, the Companys bylaws and the labor
agreement.

q.
      Advertising costs

Advertising
 costs are expensed as incurred and amounted to R$49,272,  R$120,145 and R$117,558
 during the years ended  December 31, 2000, 2001 and 2002, respectively.

r.       Earnings
(loss) per thousand shares

Earnings
(loss) per thousand shares have been calculated based on the number of outstanding shares
at the balance sheet date, net of treasury stock.

s.       Segment
information

The
Companies operate solely in one segment for local and regional fixed-line
telecommunications. All revenues are generated in relation to services provided in the
states of Rio Grande do Sul, Santa Catarina, Paraná, Goiás, Tocantins, Mato Grosso do
Sul, Mato Grosso, Rondônia, Acre and in the Federal District.

t.       Use of
estimates

The
preparation of the consolidated financial statements in conformity with generally
accepted accounting principles 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 from fixed telecommunications services

|                                     | 2000        | 2001        | 2002       
|------------------------------------ | ----------- | ----------- | -----------
|Local services:                     
|Monthly charges                      | 1,425,256   | 2,218,784   | 2,656,631  
|Measured service charges             | 2,024,423   | 2,863,073   | 3,106,544  
|Public telephones                    | 283,485     | 274,218     | 341,766    
|Other                                | 156,120     | 191,679     | 149,643    
|Total                                | 3,889,284   | 5,547,754   | 6,254,584  
|Non-local services:                 
|Intra-state and interstate           | 986,863     | 1,341,288   | 1,748,190  
|International                        | 662         | 718         | 594        
|Total                                | 987,525     | 1,342,006   | 1,748,784  
|Data transmission                    | 241,216     | 324,690     | 504,979    
|Network services                     | 914,850     | 994,343     | 1,021,308  
|Other                                | 201,851     | 249,703     | 310,025    
|Gross operating revenues             | 6,234,726   | 8,458,496   | 9,839,680  
|Value added and other indirect taxes | (1,519,260) | (2,200,580) | (2,670,871)
|Discounts                            | (63,282)    | (99,508)    | (97,441)   
|Net operating revenue                | 4,652,184   | 6,158,408   | 7,071,368  

There
are no customers who account for more than 5% of gross operating revenues.

5. Cost of services

|                              | 2000      | 2001      | 2002     
|----------------------------- | --------- | --------- | ---------
|Depreciation and amortization | 2,303,458 | 2,597,160 | 2,614,511
|Personnel                     | 155,953   | 185,843   | 144,581  
|Materials                     | 24,269    | 91,746    | 78,760   
|Services                      | 1,146,006 | 1,689,287 | 2,057,839
|Other                         | 139,013   | 201,557   | 247,667  
|                              | 3,768,699 | 4,765,593 | 5,143,358

6. Other net
operating income (expenses)

|                                                       | 2000     | 2001     | 2002    
|------------------------------------------------------ | -------- | -------- | --------
|Taxes other than income taxes                          | (46,657) | (22,141) | (23,190)
|Provision for retirement incentive plan and lay-off    | (76,579) | (98,173) | (3,295) 
|Technical and administrative services                  | 86,762   | 27,268   | 35,564  
|Provision for contingencies, net of reversal (note 21) | 26,607   | (8,015)  | (29,159)
|Fines and expenses recovered                           | 58,225   | 82,524   | 95,706  
|Write-off - interconnection accounts receivable        | -        | (74,963) | -       
|Write-off of collection in process of classification   | -        | 26,768   | 24,255  
|Write-off of advances and other credits                | -        | (25,802) | (6,727) 
|Infra-structure rentals                                | 20,704   | 27,006   | 36,146  
|Donations and sponsoring                               | (10,127) | (17,523) | (26,707)
|Unclaimed dividends                                    | -        | 19,162   | 6,468   
|Reversal of other provisions                           | 7,776    | 14,218   | 10,780  
|Other                                                  | (9,812)  | (11,204) | 1,340   
|                                                       | 56,899   | (60,875) | 121,181 

In
2001, the Company  created an  interconnection  function to support and coordinate  all
matters  concerning  relations with other  telecommunications  companies,  with the
objective of reevaluating  outstanding  contracts and  renegotiating  the balances from
previous years. As a result,  provisions for write-off  totaling  R$74,963 were
recognized as other operating  expenses in 2001, on the basis of the expectation of
realization of the related accounts receivable.

The
retirement incentive plan and lay-off expense relate to the following termination plans:

|                       |                   | Incurred 
|---------------------- | ----------------- | ---------
|                       |                   | Number of
|Plans                  | Period covered    | employees
|Projeto Amanhã         | Dec. 98 - Feb. 99 | 1,230    
|Lay-Off                | May 99 - July 99  | 1,843    
|Apoio Daqui            | Oct. 99- Mar. 02  | 6,151    
|Projeto Novos Caminhos | Sep. - Dec. 2000  | 324      

The
plans included termination  benefits as part of the Company's overall  restructuring
plan. The costs at each year-end were provided considering the projected employees for
each branch, department and job position.

Fines
and expenses recovered primarily represent penalties collected on past due accounts
receivable and recovery of sales taxes of prior periods. The amount of penalties
collected on past due accounts receivable amounted to R$34,598, R$55,372 and R$67,889 in
2000, 2001 and 2002, respectively.

7. Net financial
income (expense)

|                                            | 2000      | 2001      | 2002     
|------------------------------------------- | --------- | --------- | ---------
|Financial income:                           |           |           |          
|Interest income                             | 139,806   | 253,055   | 228,571  
|Gain on foreign currency denominated assets | 15,830    | 57,265    | 85,181   
|Financial expenses:                        
|Interest expense                            | (135,085) | (246,147) | (541,895)
|Losses on foreign currency financing        | (71)      | (111,224) | (102,317)
|                                            | 20,480    | (47,051)  | (330,460)

8. Net
non-operating income (expense)

|                                                 | 2000     | 2001     | 2002    
|------------------------------------------------ | -------- | -------- | --------
|Gain (loss) on disposal of fixed assets          | (39,694) | (5,084)  | 5,502   
|Gain on acquisition of CRT                       | 185,262  | -        | -       
|Amortization of goodwill on merger of CRT        | (16,654) | (96,133) | (96,133)
|Gain (loss) on disposal of other permanent asset | 15,979   | 18,960   | 3,642   
|Other                                            | 21,860   | (2,910)  | 8,677   
|                                                 | 166,753  | (85,167) | (78,312)

During
the year ended  December 31,  2000,  the Company  recognized  a gain of R$ 185,262 due to
the change in its  percentage ownership interest in the Subsidiary attributable to the
issuance of the Subsidiarys shares in exchange for CRT shares (see Note 1).

9. Income and
social contribution taxes

Brazilian
income taxes comprise federal income and social contribution taxes. In  2000, 2001 and
2002, the rate for income tax was 25%. The rate for social contribution tax was 12% until
January 2000, falling to 9% from February 1, 2000. These changes produced combined
statutory rates of 37% in January 2000 and 34% from February 1, 2000 thereafter.

Deferred
taxes are provided on temporary differences which include the effects of indexation
adjustments that will not give rise to deductions when the related assets are
subsequently depreciated, amortized or disposed of.

The
following is an analysis of total income tax income (expense) benefit:

|                           | 2000     | 2001     | 2002    
|-------------------------- | -------- | -------- | --------
|Social contribution tax    | (21,100) | (29,200) | (9,963) 
|Income tax                 | (61,429) | (89,751) | (57,326)
|Deferred taxes             | 8,143    | 206,298  | 66,373  
|Total tax income (expense) | (74,386) | 87,347   | (916)   

Supplementary
information regarding taxes posted directly to shareholders equity:

|                                  | 2000     
|--------------------------------- | ---------
|Deferred taxes on full indexation | (199,987)
|                                  | (199,987)

The
following is a reconciliation of the amount calculated by applying the combined statutory
tax rates to the reported income before taxes and the reported income tax expense:

|                                                    | 2000     | 2001      | 2002    
|--------------------------------------------------- | -------- | --------- | --------
|Income (loss) before taxes as reported in the       |          |           |         
|accompanying financial statements (domestic)        | 195,242  | (202,319) | 146,992 
|Combined statutory rate                             | 34%      | 34%       | 34%     
|Tax charge at the combined statutory rate           | (66,382) | 68,789    | (49,978)
|Permanent additions:                               
|Goodwill amortization on CRT merger                 | (5,662)  | (32,685)  | (32,685)
|Other Non-deductible expenses                       | (5,643)  | (8,701)   | (9,174) 
|Permanent exclusions:                              
|Payments of interest on shareholders equity        | 18,190   | 26,974    | 91,998  
|Tax exempt income                                   | 21,311   | 21,263    | 5,319   
|Other items:                                       
|Goodwill on purchase of CRT                         | 11,117   | -         | -       
|Reversal of tax loss as a consequence of the       
|merger of CRT                                       | (34,070) | -         | -       
|Reversal of tax loss due to REFIS program           | (17,617) | -         | -       
|Effect of rate changes                              | -        | 12,601    | (8,719) 
|Other, net                                          | 4,370    | (894)     | 2,323   
|Income and social contribution taxes as reported in
|the accompanying financial statements               | (74,386) | 87,347    | (916)   

In
2000, 2001 and 2002, part of dividends proposed by the companies for payment at the end
of the year was characterized as interest on shareholders equity. As a result, under
Brazilian tax law, this part of the dividend was treated as a deduction for income tax
purposes.

The
composition of deferred tax assets and liabilities, based on temporary differences, is as
follows:

|                                            | 2001    | 2002   
|------------------------------------------- | ------- | -------
|Deferred tax assets:                       
|Future benefit from                        
|Goodwill pushed down from Bluetel           | 211,052 | 143,515
|Goodwill on acquisition of CRT              | 246,598 | 187,749
|Provision for contingencies                 | 125,532 | 132,097
|Provision for voluntary terminations        | 11,253  | -      
|Unrealized revenue                          | 9,075   | 7,497  
|Allowance for doubtful accounts             | 48,812  | 52,281 
|Provision for actuarial deficiency- FCRT    | 162,362 | 170,626
|Other                                       | 59,587  | 71,896 
|Total (see Note 13)                         | 874,271 | 765,661
|Deferred tax liabilities:                  
|Additional indexation expense from pre-1990 | 19,203  | 16,772 
|Effect of full indexation                   | 607,555 | 386,786
|Other                                       | 18,504  | 54,319 
|Total                                       | 645,262 | 457,877

Deferred
tax liabilities on the effects of full  indexation  relate to the difference  between the
tax basis of permanent  assets, which was not indexed for inflation  subsequent to
December 31, 1995,  and the  reporting  basis,  which  includes  indexation  through
December 31, 2000.

Other
deferred tax liabilities refer to unrealized  revenue from interest accruing on loans to
certain mobile telephone  operators resulting from the Telebrás spin-off in 1998, which
are being contested by the creditors (Note 14).

The
composition of tax liabilities is as follows:

|                           | 2001    | 2002   
|-------------------------- | ------- | -------
|Federal income tax payable | 5.839   | 24,822 
|Deferred tax liabilities   | 645,262 | 457,877
|Total                      | 651,101 | 482,699
|Current                    | 85,072  | 64,958 
|Non-current                | 566,029 | 417,741

The
Company has not provided a valuation  allowance  against the net deferred tax asset as of
December 31, 2002 arising out of temporary  differences based upon managements  belief
that it is more likely than not that such deferred tax asset will be realized in the
future through reversal of the differences and the generation of taxable income by the
Company.

The
periods  during which the deferred tax assets are  expected to be realized are given
below.  The  realization  periods are based on a technical  study using forecast  future
taxable income,  generated in financial  years when the temporary  differences  will
become deductible  expenses for tax purposes.  This asset is maintained  according to the
requirements of CVM Instruction  371/02,  the technical study having been approved by the
executive and supervisory boards and examined by the fiscal council.

|2003           | 244,962
|-------------- | -------
|2004           | 176,154
|2005           | 111,326
|2006           | 40,025 
|2007           | 38,160 
|2008 a 2010    | 74,897 
|2011 a 2012    | 17,000 
|2012 and after | 63,137 
|TOTAL          | 765,661
|Current        | 244,962
|Noncurrent     | 520,699

The
recoverable amount foreseen after the year 2012 relates to a provision to cover the
actuarial deficit of the FCRT pension plan (see Note 22), the liability for which is
being paid over 19 years, the maximum period established by the Supplementary Pensions
Department (SPC).  Despite the time limit stipulated by the SPC, based on estimated
future taxable income, the Company would be able to recover the deferred tax balance
entirely by the year 2007 if it decided to prepay the FCRT liability that year.

10. Cash flow
information

|                                          | 2000    | 2001    | 2002   
|----------------------------------------- | ------- | ------- | -------
|Income and social contribution taxes paid | 133,543 | 133,543 | 38,666 
|Interest paid                             | 89,177  | 453,120 | 347,558

11. Cash and cash
equivalents

|                           | 2001    | 2002     
|-------------------------- | ------- | ---------
|Cash and bank accounts     | 26,129  | 62,846   
|Temporary cash investments | 439,401 | 1,533,317
|                           | 465,530 | 1,596,163

Temporary
cash investments are composed of public federal  securities  managed by a financial
 institution with average yields equivalent to the CDI (Interbank deposit rate) and are
denominated in Brazilian reais.

12. Trade accounts
receivable, net

|                                | 2001      | 2002     
|------------------------------- | --------- | ---------
|Unbilled amounts                | 474,626   | 572,453  
|Billed amounts                  | 899,876   | 1,124,166
|Allowance for doubtful accounts | (143,565) | (153,768)
|                                | 1,230,937 | 1,542,851

The
changes in the allowance for doubtful accounts were as follows:

|                                     | 2000      | 2001      | 2002     
|------------------------------------ | --------- | --------- | ---------
|Beginning balance                    | 39,493    | 55,287    | 143,565  
|Provision charged to selling expense | 121,176   | 375,526   | 262,505  
|Write-offs                           | (105,382) | (287,248) | (252,302)
|Ending balance                       | 55,287    | 143,565   | 153,768  

13. Deferred and
recoverable taxes

|                                    | 2001      | 2002     
|----------------------------------- | --------- | ---------
|Tax withheld at source              | 7,614     | 9,985    
|Recoverable social contribution tax | 18,843    | 11,190   
|Recoverable income tax              | 155,299   | 180,897  
|Deferred tax assets (see Note 9)    | 874,271   | 765,661  
|Sales and other taxes               | 286,485   | 341,742  
|                                    | 1,342,512 | 1,309,475
|Current                             | 406,387   | 416,015  
|Non-current                         | 936,125   | 893,460  

14. Other assets

|                                                            | 2001    | 2002   
|----------------------------------------------------------- | ------- | -------
|Amounts receivable from loans to mobile telephone operators | 100,346 | 162,207
|Maintenance inventories                                     | 58,927  | 63,171 
|Prepayments                                                 | 47,326  | 58,370 
|Accounts receivable from assets disposals and others        | 3,823   | 7,032  
|Recoverable advances                                        | 75,771  | 78,407 
|Court deposits                                              | 256,715 | 332,090
|Other                                                       | 105,089 | 96,883 
|                                                            | 647,997 | 798,160
|Current                                                     | 221,473 | 194,297
|Non-current                                                 | 426,524 | 603,863

Loans
to mobile telephone operators of R$162,207 as of December 31, 2002 (R$100,346 in 2001)
arose from loans allocated to the Company on the spin-off of Telebrás. The loans are to
Telebrasília Celular S.A. and Telegoiás Celular S.A. and were used by them in their plant
expansions. They are indexed to the U.S. dollar and bear interest that varies between
LIBOR plus 1% per semester and 11.55% per annum.

The
legality of these obligations is being contested by the parent Company of Telebrasília
Celular S.A. and Telegoiás Celular S.A. and thus they are not being paid. Based on the
opinion of the Company legal advisors, no provision for losses regarding these balances
has been made. The Company is providing for deferred tax on the financial income
generated from such loans. The corresponding deferred tax is recognized as a long-term
liability.

# 15. Investments

|                                       | 2001    | 2002   
|-------------------------------------- | ------- | -------
|Fiscal incentive and other investments | 109,044 | 171,537
|                                       | 109,044 | 171,537

The investments are stated at cost
and refer mainly to equity interests obtained by converting into shares or capital quotas
the tax incentive investments in regional funds, information technology companies and
audiovisual projects. Most are shares of other telecommunication companies located in the
regions covered by such regional incentives.

16.
          Property, plant and equipment, net

# a. Composition:

|                                   | 2001         | 2002        
|---------------------------------- | ------------ | ------------
|Construction-in-progress           | 2,737,389    | 1,209,507   
|Automatic switching equipment      | 7,343,974    | 7,662,067   
|Transmission and other equipment   | 13,845,556   | 15,651,358  
|Buildings                          | 5,035,575    | 5,440,501   
|Other                              | 1,754,741    | 2,250,956   
|Total cost                         | 30,717,235   | 32,214,389  
|Accumulated depreciation           | (18,486,222) | (20,754,258)
|Property, plant and equipment, net | 12,231,013   | 11,460,131  

Transmission and other equipment
includes: transmission equipment, aerial, underground and building cables, teleprinters,
private automatic exchanges, generating equipment and furniture.

Other assets include: underground
cables, computer equipment, vehicles, land and other assets. Within Other
assets the book value of land is R$121,046 at December 31, 2001 and R$112,089 at
December 31, 2002.

Changes in property, plant and
equipment for the year ended December 31, 2001 and 2002 are:

|                  | 2001        | 2002       
|----------------- | ----------- | -----------
|Beginning balance | 11,476,414  | 12,231,013 
|Additions         | 3,447,534   | 1,975,618  
|Disposals         | (45,829)    | (8,034)    
|Depreciation      | (2,647,106) | (2,738,466)
|                  | 12,231,013  | 11,460,131 
|Ending balance    |            

# b. Capitalized interest

As required of companies in the
telecommunications industry at that time, the Company capitalized interest attributable to
construction-in-progress, up to December 31, 1998, at the rate of 12% per annum of the
balance of construction-in-progress. Starting in 1999, the Company capitalizes interest on
loans specifically related to financing of construction in progress, and interest on
internal financing is no longer capitalized. The amounts of R$46,926, R$247,380 and
R$127,979, were capitalized in 2000, 2001 and 2002, respectively.

# c. Depreciation rates

The annual depreciation rates applied
to property, plant and equipment are as follows:

|                                 | %         
|-------------------------------- | ----------
|Automatic switching equipment    | 20.00     
|Transmission and other equipment | 20.00     
|Buildings                        | 4.00      
|Other assets (excluding land)    | 5.00-20.00

# d. 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 as follows:

|                 | 2000    | 2001    | 2002   
|---------------- | ------- | ------- | -------
|Rent expenditure | 115,639 | 165,027 | 149,376

Future minimum lease payments under
operating leases that have initial or remaining non-cancelable leases in excess of one
year are as follows:

|2003           | 38,892
|-------------- | ------
|2004           | 15,716
|2005           | 7,224 
|2006           | 7,369 
|2007           | 7,477 
|2008           | 7,514 
|2009 and after | 7,622 
|Total          | 91,814

17.
          Payroll and related accruals

|                                             | 2001   | 2002  
|-------------------------------------------- | ------ | ------
|Salaries and wages                           | 3,443  | 3,149 
|Accrued social security charges              | 51,604 | 37,985
|Accrued benefits                             | 4,359  | 3,218 
|Accrued liability for voluntary terminations | 33,096 | -     
|                                             | 92,502 | 44,352

18.
          Taxes other than income taxes

|                                           | 2001    | 2002   
|------------------------------------------ | ------- | -------
|ICMS (Value-added tax)                     | 388,664 | 607,361
|Other indirect taxes on operating revenues | 71,241  | 93,811 
|                                           | 459,905 | 701,172
|Current                                    | 277,091 | 356,720
|Non-current                                | 182,814 | 344,452

The long-term portion refers to ICMS
(State VAT) mentioned in Note 21 Taxes  ICMS on activation fees and other
services, related to income from other services not directly related to
telecommunications as from 1998, which the Company is challenging in court and for which
escrow deposits are being made. It also includes the deferred ICMS arising on account of
an incentive scheme offered by the government of the State of Paraná, which grants
four years postponement without interest charges.

19.
          Dividends and employees profit sharing

|                         | 2001    | 2002   
|------------------------ | ------- | -------
|Controlling shareholders | 25,820  | 19,141 
|Minority shareholders    | 226,544 | 230,635
|Employee profit sharing  | 51,714  | 40,390 
|                         | 304,078 | 290,166

# 20. Loans and financing

|                           | 2001      | 2002     
|-------------------------- | --------- | ---------
|Financial institutions (a) | 2,404,438 | 2,424,901
|Debentures (b)             | 545,310   | 1,445,310
|Other financing (c)        | 53,607    | 18,488   
|Hedge (g)                  | 3,732     | (19,337) 
|Accrued interest           | 141,157   | 306,805  
|                           | 3,148,244 | 4,176,167
|Current                    | 448,778   | 591,874  
|Non-current                | 2,699,466 | 3,584,293

# a. Financial institutions

As of December 31, 2002, financing
from financial institutions denominated in local currency bore interest based on one of
the following reference rates: TJLP (Brazilian long-term interest rates) plus 3.85% to
6.5% per annum, UMBNDES (National Bank for Economic and Social Development currency) plus
3.85% to 6.5% per annum, 100% and 109% of CDI (Interbank Deposit rate) and IGP-M (General
Market Price Index ) plus 12% per annum. In 2002 this resulted in an average rate of
20.38% per annum.

Financing denominated in foreign
currency bears fixed interest rate of 1.75% to 15.50% per annum resulting in an average
rate of 4.85% per annum, and a variable interest rate of LIBOR plus 0.5% to 4.00% per
annum, resulting in an average rate of 3.24% per annum. The LIBOR rate was 1.38% per annum
on December 31, 2002 for semi-annual payments.

# b. Debentures

In 2000, the Company issued
debentures convertible into preferred shares, for the purpose of financing part of the
investment program of the Subsidiary. Total funding was R$ 817,600, and subscription
bonuses were fully paid-up, in the amount of R$ 285,702. Debentures yield interest of 4%
per annum, above the Brazilian long-term interest rate (TJLP) of 10% per annum as of
December 31, 2001 and 2002, respectively, payable semiannually. The portion of interest
attributable to a TJLP rate in excess of 6% per annum will be added to the debenture
balance.

In 2002, the Subsidiary made 2 new
public issues of debentures:

First public issue: 50,000
non-convertible debentures without renegotiation clause, with a unit value of R$ 10,
totaling R$ 500,000, issued on May 1, 2002. The maturity period is two years, and
remuneration corresponds to an interest rate of 109% of the CDI, payable half-yearly on
November 1 and May 1 as from the date of initial distribution to maturity.

Second Public Issue: 40,000
non-convertible debentures without renegotiation clause, with a unit value of R$ 10,
totaling R$ 400,000, issued on December 1, 2002. The maturity period is two years, and
remuneration corresponds to an interest rate of 109% of the CDI, payable half-yearly on
June 1 and December 1, as from the date of initial distribution to maturity.

As of December 31, 2002, no
debentures issued by the Company had been repurchased.

# c. Other financing

Relates substantially to loans from
suppliers of telecommunication equipment denominated in U.S. dollars that bear interest at
either a fixed rate of 1.75% per annum or a variable rate of LIBOR plus 0.5% to 2.95% per
annum.

# d. Repayment schedule

Non-current debt is schedule to be
paid as follows:

|               | 2002     
|-------------- | ---------
|2004           | 1,602,571
|2005           | 702,571  
|2006           | 740,054  
|2007           | 489,312  
|2008 and after | 49,785   
|               | 3,584,293

# e. Currency analysis

|                | Exchange rate at December 31 |           |          
|--------------- | ---------------------------- | --------- | ---------
|                | 31, 2002 (Units of one       |           |          
|                | Brazilian real)              | 2001      | 2002     
|Brazilian reais |                              | 2,897,045 | 3,951,541
|U.S. dollars    | 3.5333                       | 251,199   | 224,626  
|                |                              | 3,148,244 | 4,176,167

# f.Guarantees

The loans from financial institutions
are subjected to restrictive clauses related to ratios to be achieved, which, if not met,
provide a creditor with the right to anticipate the maturity and require additional
charges. As of December 31, 2002, the Company was not in default of any of its loan
covenants.

The loans and financing contracted
are guaranteed by the credits derived from the provision of telephone services.

# g. Swap contracts

As of December 31, 2002 the Company
had R$224,626 (R$ 251,199 as of December 31, 2001) of debt denominated in U.S. dollars.

The Company entered into several swap
transactions in order to try to mitigate losses from devaluation of the Brazilian real.
The market risk on these swap contracts results from changes in Brazilian certificate of
deposit rates (CDI) versus changes in the exchange rate. The main terms of these swap
transactions are as follows:

(a)    
          The interbank certificate of deposit rate is that quoted by CETIP (Central de
          Custódia e de Liquidação);

(b)    
          The change in the exchange rate is that quoted by the Brazilian Central Bank,
          plus an annual fixed rate from 5.86% to 30.3% per annum.

If the amount calculated under the
terms described in (a) is greater than the amount calculated under (b), the Company must
pay the Banks the difference between the two calculations. If the amount calculated under
the terms of (b) is greater than the amount calculated under (a), the Banks must pay the
Company the difference.

The details of the notional values
and maturity periods are as follows:

|                                | 2002  
|------------------------------- | ------
|Number of contracts             | 57    
|Original value (U.S.$ thousand) | 90,839
|                               
|Maturity periods:              
|Up to 1 year                    | 33,618
|1 to 3 years                    | 57,221

The Company accounts for the swap
transactions by calculating the unrealized gain or loss at each balance sheet date based
on what would have been the result of settlement of the contracts at that date. The gain
or loss for a period is recorded in financial income or expense of such period.

The swap operations resulted in a
loss of R$2,358 and gain of R$28,874 during the years ended December 31, 2001 and 2002,
respectively, which were recorded in financial expense and financial income, in that
order.

# 21. Provision for
contingencies

The Company is a party to certain
legal proceedings arising in the normal course of business, including civil,
administrative, tax, social security and labor proceedings. The Company has provided for
or deposited in court amounts to cover its estimated losses due to adverse legal
judgments. In the opinion of management, such actions, if decided adversely to the
Company, would not have a material adverse effect on the Companys business and
financial condition.

The Company considers the risk of
loss of each contingency, which is classified as probable, possible or remote, taking into
consideration the advice of its legal advisors. Provision for contingencies for which a
loss was considered probable were recognized in the financial statements.

Changes in the provision for
contingent liabilities for the years ended December 31, 2000, 2001 and 2002, were as
follows:

|                                               | Year ended December 31
|---------------------------------------------- | ----------------------
|                                               | 2000                  
|Beginning balances                             | 207,792               
|Contingencies paid during the year             | (85,436)              
|Provision for contingencies from merger of CRT | 295,125               
|Additional provisions                          | 40,124                
|Gain on inflation of accrued contingencies     | (35,812)              
|Reversal of provisions                         | (30,919)              
|Ending balances                                | 390,874               

As a part of its periodic review of
legal proceedings and other contingencies, the Company recalculated the estimated losses
from labor and civil contingencies at December 31, 2000, 2001 and 2002, taking into
consideration such factors as recent favorable judicial decisions, its experience in
negotiations on similar claims and reduction of the expected incidence of potential labor
and civil contingencies, resulting in a reversal of the related provision of R$30,919,
R$42,543 and R$26,316 on December 31, 2000, 2001 and 2002, respectively.

The provision for contingent
liabilities was as follows:

|               | Year ended December 31
|-------------- | ----------------------
|               | 2001                  
|Labor claims   | 320,337               
|Disputed taxes | 7,871                 
|Civil claims   | 50,270                
|               | 378,478               
|Current        | 63,403                
|Non-current    | 315,075               

Those contingencies for which the
related risks of loss were considered possible (rather than probable) and therefore not
provided for in the financial statements, were as follows:

|               | Year ended December 31
|-------------- | ----------------------
|               | 2001                  
|Labor claims   | 323,467               
|Disputed taxes | 402,610               
|Civil claims   | 102,761               
|               | 828,838               

Labor claims

The labor claims relate to various
lawsuits filed by the Companys former employees and their labor unions.

Disputed taxes

Disputed taxes refer mainly to
additional tax assessments due to differences in interpretation of tax legislation. The
determination of the manner in which the various federal, state and municipal taxes apply
to the operations of the Company is subject to varying interpretations arising from the
unique nature of the Companys operations. Management believes that its
interpretation of the Companys tax obligations is substantially in compliance with
the applicable legislation. Accordingly, any changes in the tax treatment afforded to the
Companys operations will be the result of new legislation or interpretive rulings of
the tax authorities that will not have any retroactive impact.

Other

Telebrás, the legal
predecessor of the Holding Company, is a defendant in a number of legal proceedings and
subject to other claims and contingencies. Under the terms of the spin-off, liability for
any claims arising out of acts committed by Telebrás prior to the effective date of
the spin-off remains with Telebrás, except for labor and tax claims (for which
Telebrás and the New Holding Companies are jointly and severally liable) and any
liability for which specific accounting provisions have been assigned to the Holding
Company or one of the other New Holding Companies. Creditors of Telebrás may
challenge this allocation of liability. Management of the Holding Company believes that
the chances of any such claims materializing and having a material adverse financial
effect on the Holding Company are remote and, accordingly, no provision has been recorded.

Civil claims

The civil claims relate mainly to
disputed contractual adjustments due to changes arising from the government various
economic stabilization plans and other causes.

22.
Employee benefits  pension and other post employment benefit plans,
          stock option plans and other benefits

# a. Pension and other
post employment benefit plans

The Subsidiary sponsors various
private pension plans designed to provide retirement benefits and medical assistance to
employees and their dependents. These plans are managed by Fundação de
Seguridade Social (SISTEL), which managed plans for pension and other post retirement
benefits for most companies of the former Telebrás System, and
Fundação dos Empregados da Companhia Riograndense de
Telecomunicações (FCRT), which administered the benefit plans of CRT,
acquired in 2000.

The status of each plan is reviewed
annually by independent actuaries at the balance sheet date. In the case of defined
benefit plans, immediate recognition is given to actuarial gains and losses and as from
2001 the Subsidiary has established a liability in the balance sheet for the deficits of
those plans showing deficits, following the requirements of a new CVM Ruling. In the case
of plans that show surpluses, no assets are recognized due to the legal impossibility of
distributing the surpluses.

Details of the pension plans are as
follows:

# a.1 SISTEL

a.1.1 Description of the
plans

PBS-A  Defined
benefit pension plan and PAMA  Retirees health care plan

The Subsidiary, together with other
companies, sponsors a defined benefit private pension plan and a post-retirement benefit
health care plan managed by Fundação SISTEL de Seguridade Social
(SISTEL), the PBS-A and PAMA plans. Until December 1999, all sponsors of the
plans managed by SISTEL were jointly and severally liable as to these plans. On December
28, 1999, the sponsors negotiated conditions to create plans individualized by sponsor
with the maintenance of joint and several liability only for the participants already
receiving benefits. This restructuring of SISTEL was approved by the government regulator,
the Supplementary Pensions Secretariat (SPC), on January 13, 2000.

The PAMA plan was subsequently
expanded to cover all the beneficiaries of the PBS-TCS Group, incorporated into TCSPREV
(see below) on December 31, 2001, except for those in the PBT-BrT plan. According to legal
and actuarial opinions, the sponsors liability for contributions to the PAMA plan is
exclusively limited to 1.5% of the payroll of active participants.

TCSPREV  Defined
contribution plans

This defined contribution plan and
settled benefits plan was introduced on February 28, 2000, with the adherence of around
80% of employees at that time. On December 31, 2001, all the other pension plans sponsored
by the Company and managed by SISTEL were transformed into defined contribution plans with
settled benefits and were merged into TCSPREV. The reorganization was subsequently
approved by the SPC. The plans that were merged into TCSPREV were the PBS-TCS, PBT-BrT,
the BrT Management Agreement plan and the Supplementary Plan for the Paraná branch
employees. TCSPREV currently serves around 62% of active employees.

PAMEC-BrT 
Health-care plan

This health care plan covers retirees
in the PBT-BrT pension plan, which was incorporated into the TCSPREV plan on December 31,
2001.

a.1.2 Contributions

PBS-A  Defined
benefit pension plan and PAMA  Retirees health care plan

Contributions to the PBS-A plan are
only required in case of an actuarial deficit. As of December 31, 2002, the PBS-A plan was
in surplus.

The PAMA plan is maintained with
contributions of 1.5% of the payroll of active participants linked to the PBS plans,
segregated and sponsored by the several SISTEL sponsors.

TCSPREV  Defined
contribution plan

Contributions to this plan were
maintained on the same basis as the original plans incorporated in 2001 for each group of
participants, and were established based on actuarial studies prepared by independent
actuaries according to regulations in force in Brazil, using the capitalization system to
determine costs. In the case of the PBS-TCS defined benefit plan group, the
Subsidiarys contribution in 2002 was 12% of the payroll of the participants, whilst
the employees contribution varied according to the age, service time and salary. In
the remaining TCSPREV defined contribution plan groups, the contributions are made equally
by the employee and the Subsidiary and are credited into individual accounts of each
participant. The basic contribution percentages vary between 3% and 8% of the
participants salary, according to age. In addition, participants have the option to
contribute voluntarily and sporadically to the plan above the basic contribution, but
without equal payments from the Subsidiary. The Subsidiary is responsible for the
administrative cost of and risk benefits. In 2002 contributions by the Subsidiary to the
TCSPREV groups other than PBS-TCS represented on average 7.14% of the payroll of the plan
participants.

PAMEC-BrT 
Health-care plan

Contributions for this plan were
fully paid in July 1998.

# a.2 FCRT

a.2.1 Description of the
plans

BrTPREV plan

The BrTPREV plan was introduced on
October 21, 2002 as a defined contribution and settled benefits plan to provide
supplementary pension benefits to employees of the former CRT. As of December 31, 2002,
this plan was still receiving migrations from alternative plans previously sponsored by
CRT.

Brasil Telecom Founder
and Alternative plans

The Brasil Telecom Founder and
Alternative plans are defined contribution and settled benefits plans, now closed to the
entry of new participants.

a.2.2 Contributions

BrTPREV plan

Contributions are made equally by the
employee and the Subsidiary and are credited into individual accounts of each participant.
The basic contribution percentages vary between 3% and 8% of the participants
salary, according to age. In addition, participants have the option to contribute
voluntarily and sporadically to the plan above the basic contribution, but without equal
payments from the Subsidiary. The Subsidiary is responsible for the administrative cost of
and risk benefits. In 2002 (November and December only) contributions by the Subsidiary
represented on average 1.32% of the payroll of the plan participants.

Brasil Telecom Founder
and Alternative plans

The regular Subsidiary contributions
in 2002 to the Founder plan were an average of 9.04% of the participants payroll and
to the Alternative plan 7.19%. Employees contributed at variable rates according to age,
service time and salary, at an average rate in 2002 of 7.87% for the Founder plan and
6.77% for the Alternative plan.

The technical deficit corresponding
to the current value of the Subsidiarys supplementary contribution must be amortized
within a maximum period of 20 years as from January 2000, according to SPC requirements.
These supplementary contributions in 2002 amounted to 29.3% (Founder plan) and 37.4%
(Alternative plan) of the respective participants payrolls.

a.2.3 Resolution CVM
371/2000

In accordance with CVM resolution
371/2000, the Company recognized the entire actuarial deficit of R$ 490,744 of the Founder
and Alternative plans at December 31, 2001 directly in shareholders equity, net of
the corresponding income tax benefit and minority share.

As a result of a new actuarial
valuation of these plans at December 31, 2002 the deficit increased to R$ 501,840 and
consequently the liability was increased to the same amount, the difference being charged
to expenses.

# a.3 Status of the SISTEL
and FCRT plans

The status of the SISTEL and FCRT
plans at December 31, 2001 and 2002 is presented below, in accordance with CVM Resolution
371/2000:

|                                                                         |          | FCRT     | SISTEL  
|------------------------------------------------------------------------ | -------- | -------- | --------
|                                                                         | 2001     | 2002     | 2001    
|                                                                         | ALTERNA- |          | ALTERNA-
|                                                                         | TIVE AND | BrTPREV  | TIVE AND
|                                                                         | FUNDADOR |          | FUNDADOR
|Reconciliation of assets and liabilities recognized in the balance sheet |          |          |         
|Actuarial liabilities with benefits granted                              | 740.714  | 587.288  | 185.701 
|Actuarial liabilities with benefits to be granted                        | 218.163  | 72.222   | 76.939  
|(=) Total present value of actuarial liabilities                         | 958.877  | 659.510  | 262.640 
|Fair value of plan assets                                                | -468.133 | -297.040 | -123.270
|(=) Net actuarial liability recognized in the balance sheet              | 490.74   | 362.47   | 139.37  

|CHANGES OF NET ACTUARIAL LIABILITY                         |         |         |          |          |         |        
|---------------------------------------------------------- | ------- | ------- | -------- | -------- | ------- | -------
|Present value of actuarial liability - beginning of period | 834.143 | -       | 958.877  | 958.877  | 467.583 | 491.091
|Cost of interest                                           | 87.584  | -       | 14.210   | 14.210   | -       | -      
|Current service cost                                       | 53.241  | 174     | 12.543   | 12.717   | 31.614  | 30.752 
|Current service cost of the sponsor                        | 46.106  | 81      | 3.009    | 3.090    | 18.049  | 16.247 
|Current service cost of the participants                   | 7.135   | 93      | 9.534    | 9.627    | 13.565  | 14.505 
|Net benefits paid                                          | -71.836 | -69.859 | -72.144  | -142.003 | -29.411 | -45.399
|Administrative cost of the plan                            | -       | -       | -5.029   | -5.029   | -       | -5.386 
|Transfer of commitments to BrTPREV                         | -       | 729.195 | -729.195 | -        | -       | -      
|Actuarial (gain) or loss on actuarial liability            | 55.745  | -       | 83.378   | 83.378   | 21.305  | 32.671 
|Present value of actuarial liability - end of period       | 958.877 | 659.510 | 262.640  | 922.150  | 491.091 | 503.729
|Fair value of plan assets at the beginning of the period   | 428.782 | -       | 468.133  | 468.133  | 449.054 | 491.091
|Expected income from plan assets                           | 103.260 | -       | -        | -        | -       | -      
|Regular contributions received by the plan                 | 35.451  | 174     | 13.238   | 13.412   | 31.614  | 30.490 
|Sponsor                                                    | 27.575  | 80      | 3.705    | 3.785    | 18.049  | 15.985 
|Participants                                               | 7.876   | 94      | 9.533    | 9.627    | 13.565  | 14.505 
|Amortization contributions received from the sponsor       | -       | -       | 14.210   | 14.210   | -       | -      
|Other funds collected                                      | -       | 335     | 790      | 1.125    | -       | -      
|Payment of benefits                                        | -71.836 | -69.859 | -72.144  | -142.003 | -29.411 | -45.399
|Administrative expenses of the plan                        | -3.441  | -336    | -5.818   | -6.154   | -4.652  | -5.124 
|Transfers to BrTPREV                                       | -       | 366.726 | -366.726 | -        | -       | -      
|Actuarial gains (losses) on plan assets                    | -24.083 | -       | 71.587   | 71.587   | 44.486  | 32.671 
|Fair value of plan assets at the end of the period         | 468.133 | 297.040 | 123.270  | 420.310  | 491.091 | 503.729
|(=) Value of net actuarial liability                       | 490.744 | 362.470 | 139.370  | 501.840  | -       | -      
|EXPENSE RECOGNIZED IN THE INCOME STATEMENT                
|Current service cost (with interest)                       | 34.710  | 174     | 12.543   | 12.717   | 31.614  | 30.752 
|Contributions from participants                            | -7.135  | -93     | -9.534   | -9.627   | -13.565 | -14.505
|Interest on actuarial liabilities                          | -       | -       | 14.210   | 14.210   | -       | -      
|Actuarial losses (gains) recognized                        | -       | -       | 11.791   | 11.791   | -       | -      
|Total expense recognized                                   | 27.575  | 81      | 29.010   | 29.091   | 18.049  | 16.247 

|PRINCIPAL ACTUARIAL ASSUMPTIONS USED                   |                              |                           |                         |           |     | 
|------------------------------------------------------ | ---------------------------- | ------------------------- | ----------------------- | --------- | --- | 
|Discount rate for actuarial liability                  | 6%                           | 6%                        | 6%                      | 6%       
|Total yield expected from plan assets
(over inflation) | 6%                           | 6%                        | 6%                      | 6%       
|Estimated salary increase index                        | 1%                           | N/A                       | 0%                      | N/A      
|Administrative cost (loading)                          | 15% of regular contributions | 8% of total contributions | 5%                     
|Mortality table                                        | UP84                         | UP84                      | AT 2000 M              
|Disability table                                       | Álvaro Vindas                | Álvaro Vindas             | Álvaro Vindas          
|Mortality rate of disabled                             | IAPB 57                      | IAPB 57                   | IAPB 57                
|Turnover                                               | Average 4%                   | N/A                       | Average 5%              | -         | N/A
|Retirement age                                         | Equal to INSS,Altern.55      | 60                        | Equal to INSS,Altern.55 | -         | 60 
|Inflation rate                                         | 4.5% p.a.                    | 11.02% p.a.               | 11.02% p.a.             | 4.5% p.a.
|N/A = Not applicable                                  

ADDITIONAL
INFORMATION
a) The position of the plan assets is for December 31, 2002.
b) The
individual record data used for TCSPREV is for 12/31/02 and for FCRT is for 12/01/2002,
projected to 12/31/2002.
c) The statistical records presented consider a family group of
benefits as a single benefit.

|                                                           | SISTEL                      
|---------------------------------------------------------- | ----------------------------
|                                                           |                             
|                                                           | PAMA                        
|                                                           |                             
|                                                           | 2001                        
|                                                           |                             
|RECONCILIATION OF ASSETS AND LIABILITIES                  
|Present value of actuarial liabilities                     | 52.749                      
|Fair value of plan assets                                  | -52.749                     
|(=) Net actuarial liability/(asset)                        | -                           
|MOVEMENTS OF NET ACTUARIAL LIABILITY/(ASSET)              
|Present
value of actuarial liability - beginning of period | 51.830                      
|Cost of interest                                           |                             
|Current service cost                                       | 212                         
|Current service cost of sponsor                            | 212                         
|Net benefits paid                                          | -1.918                      
|Administrative cost of plan                                | -179                        
|Actuarial (gain) or loss on actuarial liability            | 2.804                       
|Present value of actuarial
liability - end of period       | 52.749                      
|Net assets of plan at beginning of period                  | 51.830                      
|Expected income from plan assets                           | -                           
|Regular contributions received by the plan                 | 212                         
|Sponsor                                                    | 212                         
|Payment of benefits                                        | -1.918                      
|Administrative expenses of the plan                        | -179                        
|Actuarial gains (losses) on plan assets                    | 2.804                       
|Fair value of plan assets at the end of the period         | 52.749                      
|(=) Value of net actuarial liability                       | -                           
|(1) Unrecorded actuarial asset.                           
|EXPENSE RECOGNIZED IN THE INCOME STATEMENT                
|Current service cost (with interest)                       | 212                         
|Total expense recognized                                   | 212                         
|PRINCIPAL ACTUARIAL ASSUMPTIONS USED                      
|Discount rate for actuarial liability                      | 6%                          
|Total yield expected from plan assets                      | 17.68% (Inflation + 6%)     
|Estimated salary increase index                            | N/A                         
|Administrative cost (loading)                              | 15%                         
|Mortality table                                            | N/A                         
|Disability table                                           | N/A                         
|Mortality rate of disabled                                 | N/A                         
|Starting age for benefits                                  | Retired accord. to Pl. PBS-A
|Inflation rate                                             | 11.02% p.a.                 

ADDITIONAL
INFORMATION
a) The position of the plan assets is for December 31, 2002.
b)
Individual record data used for PAMA and PAMEC is for 12/31/02. For PBS-A data for
09/30/02 was used, projected to 12/31/2002.
c) The statistical records presented
consider a family group of benefits as a single benefit.
 d) PBS-A is informed net of
the plan's administrative costs.

b.Stock option plans

On April 28, 2000 the shareholders
approved a stock option plan for officers and employees of the Subsidiary. A maximum of
10% of each kind of Subsidiarys stock may be used for the plan. Shares derived from
exercising options guarantee the beneficiaries the same rights granted to other
Subsidiarys shareholders. Administration of this plan was entrusted to a management
committee appointed by the Supervisory Board, which decided to grant options using only
preferred stock. The plan is divided into two separate programs:

# b.1 Program A:

This program is granted as an
extension of managements performance objectives for the Subsidiary established by
the Supervisory Board for a five-year period. Up to December 31 of 2002, no stock had been
granted under this program.

# b.2 Program B:

The price of exercising the option
under Program B is established based on the arithmetic average of the market price for the
last 20 trading sessions prior to granting the option, and will be price-level restated by
the IGP-M index between the date of signing the contracts and the payment date.

On December 16, 2002, the Company
granted 622,364 (thousand) stock options under Program B. Vesting of these options occurs
in the following manner:

- 33% as from January 1,
2004
- 33% as from January 1,
2005
- 34% as from January 1,
2006

Vesting can be anticipated as a
result of the occurrence of events or special conditions established in the option
contract. Options not exercised up to December 31, 2008 will expire without compensation.

|                         | Preferred stock    | Average exercise
|------------------------ | ------------------ | ----------------
|                         | options (thousand) | R$              
|Balance as of 12/31/2001 | -                  | -               
|Granted                  | 622,364            | 11.34           
|Balance as of 12/31/2002 | 622,364            | 11.34           

c.
     Other employee benefits

Other benefits granted to employees
include private health and dental care plans, meal allowances, group life insurance,
occupational accident insurance, sickness allowance and transportation subsidies.

# 23. Shareholders
equity

# a. Share capital

Authorized capital stock as of
December 31, 2002 was 700 billion shares. The Companys issued and paid up capital
stock is comprised of preferred shares and common shares, all without par value, as shown
in the table below:

|                                         |             |             |             | Treasury  |            
|---------------------------------------- | ----------- | ----------- | ----------- | --------- | -----------
|                                         | Common      | Preferred   | Subtotal    | Shares    | Total      
|Number of shares as of December 31, 1999 | 124.369.031 | 210.029.997 | 334.399.028 | -         | 334.399.028
|Issuance of shares                       | -           | 9.833.514   | 9.833.514   | -         | 9.833.514  
|Number of shares as of December 31, 2000 | 124.369.031 | 219.863.511 | 344.232.541 | -         | 344.232.541
|Issuance of shares                       | 4.090.848   | -           | 4.090.848   | -         | 4.090.848  
|Number of shares as of December 31, 2001 | 128.459.878 | 219.863.511 | 348.323.389 | -         | 348.323.389
|Issuance of shares                       | 3.203.638   | -           | 3.203.638   | (692.000) | 2.511.638  
|Number of shares as of December 31, 2002 | 131.663.516 | 219.863.511 | 351.527.027 | (692.000) | 350.835.027

The capital may be increased only by
a decision taken at a shareholders meeting in connection with the capitalization of
profits or reserves previously allocated to capital increases at the shareholders
meeting.

The preferred shares are non-voting
except under limited circumstances and are entitled to a minimum preferential
non-cumulative dividend of 6% of the capital value per share or, as from 2002, 3% of the
net book value per share, whichever is greater. Also the preferred shares 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. Treasury Stock

On December 31, 2002, 692,000
thousand common shares were held in treasury (none at December 31, 2001). These treasury
shares are derived from the stock repurchase program.

On October 1, 2002 the Companys
Board of Directors approved a proposal to repurchase preferred and common stock under the
following terms and conditions: (i) the retained earnings account represented the origin
of the funds invested in purchasing the stock; (ii) the authorized limit for the
repurchase was 6,161,061 thousand common shares and 21,986,351 preferred shares,
corresponding to 10% of the common and preferred shares outstanding; and (iii) the period
determined for the acquisition was three months as from October 2, 2002.

The quantity purchased was 692,000
thousand common shares, the weighted average, minimum and maximum costs were R$ 13.25, R$
12.40 and R$ 13.75 per thousand shares respectively. The total amount paid was R$ 9,168,
to which R$7 was added for brokerage and other fees.

None of the common shares acquired
were sold during the 2002 financial year.

On December 31, 2002, the
Companys common stock was quoted on the BOVESPA exchange at R$ 13.80 per thousand
shares. The common stock held in treasury represented R$ 9,550, quoted at the market value
on that date.

# c. Capital Reserves

Reserve for Share
Subscription Premium

This reserve arose from the
difference between the amount paid on subscription and the value of the corresponding
capital.

Special Goodwill Reserve

This reserve arose out of the
corporate restructuring described in Note 1 and represents the value of the tax benefits
which it is estimated will be generated by the future amortization of the goodwill. Each
year an amount of the reserve, corresponding to the realized benefit may be capitalized,
to the benefit of the controlling shareholder, by the issue of new shares. Minority
shareholders are ensured the right to preference, in proportion to their respective
holdings in type and class of shares, and the consideration for such acquisitions as they
choose to make, will be paid to the controlling shareholder in accordance with the terms
of CVM instruction 319/99. In 2001 and 2002 shareholders meetings approved capital
increases of R$23,692 and R$24,970, respectively, corresponding to the 2000 and 2001
realized portion of such tax benefits.

Other Capital Reserves

These reserves arose out of the funds
invested in income tax incentives.

# d. Income reserves

Legal Reserve

A Brazilian company is required to
appropriate 5% of annual net income to a legal reserve until that reserve equals 20% of
paid-up share capital or 30% of paid-up share capital plus capital reserves; thereafter,
appropriations to this reserve are not compulsory. The legal reserve can only be used to
increase capital or to offset accumulated losses.

Unrealized profit reserve

This reserve represents income
recognized but not yet received relating to net gains on indexation through December 31,
1995 and to adjustments to investments valued on the equity basis. The realization of this
reserve will occur when fixed assets are depreciated or disposed of and as dividends or
other distributions are received from the subsidiary companies. Realization of this
reserve is transferred to retained earnings.

In 2002, the Company reversed
R$353,659 (R$272,280 in 2001), according to its current policy for common and preferred
shareholders remuneration.

e.
Dividends and interest on capital

Pursuant to its by-laws and Brazilian
Corporate Law, the Company is required to distribute as dividends in respect of each
fiscal year ending 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 as mentioned in Note
23.a above. 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.

Brazilian corporations may make
payments to shareholders characterized as interest on the Companys capital (the
JSCP). The rate of interest may not be higher than the Federal
Governments long-term interest rate (the TJLP) as determined by the
Central Bank from time to time. The Company elected to characterize dividends for 2001 and
2002 as JSCP. This is a deductible expense for income tax purposes, but is treated as
dividends for accounting purposes and is deducted from compulsory dividends, net of
withholding income tax.

Mandatory minimum dividends
calculated in accordance with Brazilian Corporate Law and the Companys by-laws are:

|                                                                 | 2001     | 2002    
|---------------------------------------------------------------- | -------- | --------
|Net income (loss) of the year                                    | (39,252) | 148,473 
|Adjustments necessary to reach the adjusted distributable income | 293,518  | 294,968 
|according to the Brazilian Corporate Law                        
|Realization of unrealized profit reserve                         | 272,280  | 353,659 
|Transfer to legal reserve                                        | (12,714) | (22,172)
|Adjusted net income                                              | 513,832  | 774,928 
|Minimum dividends - 25%                                          | 133,958  | 193,732 

Priority dividends and dividends for
common shares in identical conditions were:

|          | 2001    | 2002         
|--------- | ------- | -------------
|          | 6% OF   | 3% OF        
|          | CAPITAL | SHAREHOLDERS'
|          |         | EQUITY       
|COMMON    | 49,403  | 72,562       
|PREFERRED | 84,555  | 121,170      
|TOTAL     | 133,958 | 193,732      

Interest on capital
 JSCP

The Company credited interest on
capital to its shareholders according to the stock position on the date of each credit
made during the financial year. The JSCP interest was allocated to dividends, net of
withholding tax, on the closing date of the financial year, as a proposal for the
allocation of income to be submitted for approval by the general shareholders
meeting. In 2001 the Company did not credit interest on capital to its shareholders.

|                                                    | 2002    
|--------------------------------------------------- | --------
|INTEREST ON CAPITAL (JSCP) CREDITED TO SHAREHOLDERS | 159,300 
|COMMON STOCK                                        | 59,884  
|PREFERRED STOCK                                     | 99,416  
|WITHHOLDING TAX (IRRF)                              | (23,895)
|JSCP, NET                                           | 135,405 

Allocation of interest
on capital to the compulsory dividend was:

|TOTAL DIVIDENDS PER THOUSAND SHARES (IN REAIS) | 2001     | 2002    
|---------------------------------------------- | -------- | --------
|COMMON                                         | 0.384581 | 0.551115
|PREFERRED                                      | 0.384581 | 0.551115

# 24. Expansion plan
contributions

Expansion plan contributions were the
means by which Brazilian telecommunication companies financed the growth of their
telecommunications network up to July 1997. Contributions were made by companies or
individuals wishing to be connected to the national telephone network. The Companies
expansion plan contribution program was terminated, with no new contracts being signed
after June 30, 1997. The remaining balance as of December 31, 2001 and 2002, R$9,455 and
R$8,159 presented within other non-current liabilities in the consolidated
balance sheet, arose from plans realized before termination, the corresponding net assets
of which are already included in the Subsidiarys fixed assets through the Community
Expansion Plan. The Subsidiary must await final court decisions arising from lawsuits
filed by interested parties before the corresponding shares can be issued.

25.
          Transactions with related parties

Transactions  with
related parties refer to operations with the parent company,  Solpart  Participacoes
 S.A. and the subsidiaries Nova Tarrafa Participacoes Ltda. and Brasil Telecom S.A., as
well as their subsidiaries.

Transactions between related parties
and the Company are carried out on an arms-length basis. The principal transactions are:

# Solpart
Participações S.A.

Dividends and Interest on
Capital

R$ 38,989 (R$ 25,820 in 2001) of the
dividends credited in 2002 were allocated to the parent company.

Brasil Telecom S.A.(balances and
transactions have been eliminated in the consolidated financial statements)

Dividends/Interest on
Capital

The Subsidiary credited interest on
capital to the Company in the amount of R$ 213,367 (R$ 152,366 in 2001). The balance of
this asset as of December 31, 2002, net of withholding income tax, is R$ 181,362 (R$
129,511 as of December 31, 2001).

Loans to Subsidiary

The receivable that arose at the time
of the Telebrás spin-off is indexed to the US dollar, bears interest at 1.75% per
year, and amounted to R$ 120,081 at December 31, 2002 (in 2001, R$ 85,717). The charge to
financial income amounted to R$ 44,591 in 2002 (R$ 20,252 in 2001 and R$ 98,039 in 2000).

Debentures

On January 27, 2001, the Subsidiary
issued 1,300 private nonconvertible debentures at a unit price of R$ 1,000, in the total
amount of R$ 1,300,000, for the purpose of funding part of its investment program. The
entire issue of debentures was acquired by the Company. The face value of these debentures
will be amortized in three installments equivalent to 30%, 30% and 40%, with maturity on
July 27, 2004, July 27, 2005 and July 27, 2006, respectively. The remuneration of the
debentures is equivalent to 100% of CDI, paid semiannually. As of December 31, 2002, the
asset is R$ 1,405,228 (R$1,398,875 in 2001) and charges recognized in expenses for 2002
represent R$ 236,356 (R$ 130,539 in 2001).

Accounts Receivable and
Accounts Payable

The balances arise from transactions
related to operating income and expense for use of installations and logistical support.
As of December 31, 2002, the balance payable amounted to R$ 663 (R$ 13 payable, in 2001)
and the amounts recorded in the income statement were: Operating expenses:R$ 2,352
(R$ 2,466 in 2001 and R$ 1,799 in 2000) and Operating income: R$ 256 (R$4,182 in 2001 and
R$ 26,686 in 2000).

# Other related parties

Advance for Future
Capital Increase

Funds for future capital increase in
equity accounted investments or investments stated at cost as of December 31 were as
follows:

|INVESTOR           | INVESTEE                                                 | 2001   | 2002 
|------------------ | -------------------------------------------------------- | ------ | -----
|Company            | Nova Tarrafa Particip. Ltda. (equity account investment) | 12,019 | -    
|Brasil Telecom S.A | Vant Telecomunicacoes S.A. (minority investment)         | 30,000 | 1,809

# 26. Commitments

At December 31, 2002, the Companies
had the following capital expenditure commitments:

# Expected year of
expenditure

|2003 | 97,432
|---- | ------

These commitments are in relation to
the continuing expansion and modernization of the Subsidiarys plant, including
transmission equipment and data transmission equipment.

# GlobeNet

On November 15, 2002, Brasil Telecom
S.A. signed a stock and asset purchase and sale contract with the affiliated companies of
the GlobeNet Communications Group Ltd., acquiring the entire system of submarine
fiber-optic cables of the GlobeNet Group, interconnecting points in the regions of New
York and Miami (United States), St. Davids (Bermuda Islands), Fortaleza and Rio de
Janeiro (Brazil) and Maiquetia (Caracas, Venezuela). The transaction will be realized by
acquiring the assets located in the United States, the Bermuda islands, Brazil and
Venezuela.

BRASIL TELECOM PARTICIPAÇÕES
S.A.(See Notes 1 and 2)

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of
Brazilian reais)

The
transaction,  which is conditional on verifying certain  conditions that are normal in
operations of this nature, was executed by Brasil Telecom S.A.  through its wholly-owned
 subsidiary  BrTi, which in turn may set up subsidiaries  abroad to acquire the assets
and stockholdings  located abroad.  The value of the transaction will be equivalent to
US$48 million,  of which US$28.8 million will be payable on the closing date of the
 transaction  and the remainder of US$19.2  million,  payable within 18 months of the
payment of the first installment.

The
GlobeNet Group was created in 1998 to provide  fiber-optic  communications  services in
the United States and  internationally between the United States and South  America.  The
GlobeNet  Group  comprises  two rings of protected  submarine  cables,  representing
approximately  22,000 km of the best fiber-optic cable technology  connecting Brazil with
the United States,  passing through Venezuela and the Bermuda  islands,  with an
installed  capacity of 80Gbps,  which can reach up to 1.36Tbps.  With this  installed
 capacity,  no additional investments in fixed assets are expected in the short term.

This
 transaction  will enable Brasil Telecom S.A. to consolidate and expand as a residential
 and corporate  broadband IP service provider, in addition to becoming the owner of an
important fiber-optic connection between Brazil and United States.

27. Insurance (not
audited)

The
Company has insurance covering operational risks, loss of profit, guarantee on
contractual commitments, comprehensive general liability (including officers liability),
national and international cargo, vehicle and life. At December 31, 2002, in the opinion
of management, all significant and high-risk assets and obligations were insured.

28. Fair value of
financial instruments

The
following methods and assumptions were used to estimate the fair value of each class of
financial  instrument.  The fair value estimates are made at a discrete point in time
based on relevant market  information and  information  about the financial  instrument.
Because  no market  exists for a  significant  portion of the  Company's  financial
 instruments,  fair  value  estimates  are based on judgments  regarding  future
 expected  loss  experience,  current  economic  conditions,  risk  characteristics  of
various  financial instruments and other factors.  These estimates are subjective in
nature and involve  uncertainties and matters if significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly affect
the estimates.

Current
assets and liabilities

The
 carrying  amount  of cash and cash  equivalents,  trade  accounts  receivable,  accounts
 payable  and  short-term  financing approximates fair value due to the short maturity of
these instruments.

Loans
and financing in foreign currency

The
Company and the Subsidiary  have loans and financing  contracted in foreign  currency
with risk related to the  possibility of fluctuations  in exchange  rates which may
increase the balance of these  liabilities.  Loans  subject to this risk  represent  5.4%
of total loans and financing (8.0% in 2001). To protect it from foreign  currency risk,
the Company and the Subsidiary  enter into foreign currency swap contracts with financial
institutions. Of the debts in foreign currency, 38% are covered by swap contract
agreements.

The
book and market values of the loans and financing in foreign currency as of December 31,
2001 and 2002 are as follows:

|                    | 2001       | 2002        
|------------------- | ---------- | ------------
|                    | Book value | Market value
|Liabilities        
|Loans and financing | 253,557    | 248,109     
|Swap contracts      | (2,358)    | 3,166       
|TOTAL               | 251,199    | 251,275     
|Current             | 99,251     | 99,295      
|Non current         | 151,948    | 151,980     

The
method used for  calculation of market value (fair value) of loans and financing in
foreign  currency was the discounted  cash flow, at the market rates prevailing on the
balance sheet date.

The
fair value of the swap contracts was estimated using specific data available for these
financial instruments,  including using prices currently charged to enter into similar
 agreements,  or discounting  projected cash flows at market discount rates that reflect
the credit, interest and foreign currency risk associated with these financial
instruments.

Local
currency loans and financing

In
2000, the Company issued  private  debentures  convertible  into  preferred  shares.
 This liability was contracted at floating interest rate linked to the TJLP (Brazilian
long-term interest rate), with the risk of a possible increase in this rate.

In
2002 the Subsidiary  issued  non-convertible  public  debentures.  These liabilities were
contracted at floating interest rates tied to the CDI and the risk linked with this
liability is the result of the possible increase in the rate.

The
Subsidiary has loans and financing  contracted in local currency,  subject to interest
rates linked to various reference rates (TJLP,  UMBNDES,  CDI, etc) with the risk of
fluctuations in these rates. The Subsidiary has contracted  derivative  contracts to
hedge 75% of its  liabilities  subject to the UMBNDES rate,  using exchange rate swap
 contracts,  considering the influence of the dollar on the basket of currencies,  which
determine the UMBNDES rate.  However the other market rates are continually  monitored to
evaluate the need to contract derivatives to protect against the risk of volatility of
these rates.

The
book and market values of the loans and financing in local currency as of December 31,
2001 and 2002 is as follows:

|                                            | Book and Market Value
|------------------------------------------- | ---------------------
|                                            | 2001                 
|Liabilities                                
|Loans linked to TJLP (including debentures) | 2.809.712            
|Loans linked to UMBNDES                     | 61.24                
|CDI                                         | -                    
|Loans linked to IGPM                        | 24.46                
|Other loans                                 | 1.61                 
|TOTAL                                       | 2.897.045            
|Current                                     | 349.52               
|Non current                                 | 2.547.518            

Book
and market values are equivalent because the current contractual conditions for these
types of financial instruments are similar to those when they were contracted. A
hypothetical unfavorable variation of 1% in the aforementioned rates, would result in a
negative impact on income of approximately R$ 5,701.

29. Bluetel Participações
S.A. merger

The
 Company  (formerly  Tele  Centro  Sul - TCS) was  acquired  by  Solpart  Participações
 S.A.  (Solpart)  in the  Telebrás privatization  process for approximately R$ 2.1
billion,  including goodwill for the difference between the purchase price and the book
value of the net assets  acquired.  With the objective of providing a structure that
would permit  amortization of the goodwill paid by Solpart,  with a consequent  reduction
of income taxes payable by TCS, the Companies underwent the corporate  reorganization
 described below.

Solpart
formed a new holding company named Bluetel  Participações S.A.  (Bluetel),  with paid in
capital equal to Solparts shares in TCS.  This  investment  was made at book value,
 which  included  the  goodwill.  Bluetel  became  TCS's  stockholder  with the same
investment Solpart had prior to the transfer to Bluetel.

On
recording its  investment  in TCS,  Bluetel  recognized  goodwill of  R$1,160,301.  This
goodwill was merged into the Companys assets in the corporate  restructuring as of
December 31, 1999, with the merger of Bluetel.  The tax benefit of R$395,068  arising
from this merged goodwill was recorded in a Special Goodwill Reserve,  in shareholders  equity.
As the tax benefit is realized,  additional shares are issued to the  controlling
 shareholder,  with the number of shares  based on the market  value of the shares at the
time of issuance. There is no effect on net income for this transaction, nor is the
determination of dividends affected.

The
 goodwill  recognized  upon  the  corporate  restructuring  was  recorded  by the
 Company  in  December  1999,  based  on its interpretation  of the CVM Instruction No.
319/99.  With the issuance of CVM Instruction No. 349/01,  the Company  recorded a
reduction in the reserve in shareholders  equity and in goodwill,  and a corresponding
 future tax benefit in current and noncurrent assets with effect  from  January  1, 2000.
 The  remaining  balance of this tax  benefit is shown in the  balance  sheet as part of
 deferred  and recoverable  taxes as of December 31, 2001 and 2002 in the amounts of
R$211,052 and  R$143.515,  respectively  (see Note 9). Thus,  the net amounts  remaining
 on the  balance  sheet as a result of this  restructuring  reflect  only the tax benefit
 related to the merged goodwill.

30. Operating
licenses for mobile telephone services

In
2002, the  wholly-owned  subsidiary  Brasil Telecom  Celular S.A. signed three Mobile
 Personal  Service (SMP)  licenses with ANATEL.  The cost of these  licenses,  which
guarantee the operation of SMP over the next 15 years in the same operating area where
the Company has its fixed telephone  concession,  amounted to R$ 191,495,  of which 10%
was paid upon signing the contract.  The balance of R$ 172,345  corresponding  to the
 remaining  90%,  was  recognized  as a liability of the  subsidiary  and is payable in
six equal and successive annual installments  falling due between 2005 and 2010. The
outstanding balance is subject to price-level  restatement based on the variation of the
IGP-DI index plus  interest of 1% per month.  On December 31, 2002,  the restated
 liability was R$ 174,991 and is presented under the caption other liabilities, in
non-current liabilities.

31. Summary of the
differences between Brazilian GAAP and U.S. GAAP

The
financial  statements have been prepared in accordance with Brazilian  generally accepted
 accounting  principles  (Brazilian  GAAP),  which differ in certain significant
 respects from accounting  principles  generally accepted in the United States of America
 (U.S.  GAAP). The following is a summary of the significant  adjustments to net income
(loss) and shareholders equity required when  reconciling such amounts recorded in the
financial statements to the corresponding  amounts in accordance with U.S. GAAP,
 considering  the significant differences between Brazilian GAAP and U.S. GAAP.

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 estimated useful lives of the related assets.
 Under U.S. GAAP, capitalized interest is added to the individual assets and is amortized
over their estimated useful lives.

Also,
 under  Brazilian  GAAP,  as  applied  to  companies  in  the   telecommunications
  industry,   interest   attributable  to construction-in-progress   was   calculated,
  up  to  December,   31  1998,   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 self-funding  being credited to capital  reserves.  Starting 1999,
 Brazilian GAAP required  capitalization  of interest  on loans  specifically  related to
 financing  of  construction  in  progress,  and  interest on self-financing is no longer
allowed.

Under
 U.S.  GAAP,  in  accordance  with the  provisions  of  Statements  of  Financial
 Accounting  Standards  (SFAS)  No.  34, Capitalization  of Interest  Cost,  interest
 incurred on borrowings is capitalized  to the extent that  borrowings do not exceed the
balances  of  construction-in-progress.  The credit is a  reduction  of  interest
 expense.  Under U.S.  GAAP,  the amount of  interest capitalized  excludes the monetary
gain  associated with the 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 as follows:

|                                                                                                                                                                                                                                                | 2000     | 2001      | 2002     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | --------- | ---------
|                                                                                                                                                                                                                                                |          |          
|Capitalized interest difference                                                                                                                                                                                                                
|U.S. GAAP capitalized interest:                                                                                                                                                                                                                
|Interest which would have been capitalized and credited to
income under U.S. GAAP (Interest accrued on loans , except in years when total loans exceeded
total construction-in-progress, when capitalized interest was reduced proportionately)
|                                                                                                                                                                                                                                                | 135,450  | 229,234   | 262,767  
|                                                                                                                                                                                                                                               
|Accumulated capitalized interest on disposals                                                                                                                                                                                                   | (8,539)  | (9,967)   | (19,678) 
|                                                                                                                                                                                                                                                |          |          
|                                                                                                                                                                                                                                                | 126,911  | 219,267   | 243,089  
|                                                                                                                                                                                                                                                |          |          
|Less Brazilian GAAP capitalized interest:                                                                                                                                                                                                      
|Interest capitalized and credited to income under Brazilian GAAP (Up to the limit of interest incurred on
loans obtained for financing capital investments)                                                                                     | (46,926) | (247,380) | (127,979)
|Accumulated capitalized interest on disposals                                                                                                                                                                                                   | 26,166   | 22,001    | 39,330   
|                                                                                                                                                                                                                                                |          |           |          
|Total capitalized interest under Brazilian GAAP                                                                                                                                                                                                 | (20,760) | (225,379) | (88,649) 
|                                                                                                                                                                                                                                                |          |          
|U.S. GAAP difference                                                                                                                                                                                                                            | 106,151  | (6,112)   | 154,440  
|                                                                                                                                                                                                                                                |          |          

|                                                    | 2000     | 2001      | 2002     
|--------------------------------------------------- | -------- | --------- | ---------
|                                                   
|Amortization of capitalized interest difference    
|Amortization under Brazilian GAAP                   | 204,091  | 223,769   | 223,498  
|Less: Amortization under U.S. GAAP                  | (75,641) | (106,913) | (120,634)
|Difference in accumulated amortization on disposals | (15,335) | (13,712)  | (24,314) 
|                                                    |          |          
|U.S. GAAP difference                                | 113,115  | 103,144   | 78,550   
|                                                    |          |          

b. Dividends and
interest on shareholders equity

Although
under Brazilian  Corporate Law proposed  dividends require approval at a shareholders  meeting,
 they are accrued for in the consolidated  financial statements in anticipation of their
approval by the shareholders.  Distributions  characterized as interest on capital are
accrued under both Brazilian and US GAAP. Any excess of proposed  dividends over either
the agreed statutory  minimum or distributions  characterized  as  interest  on  capital
 would not be  accrued  for under US GAAP but would be  considered  restricted capital and
shown outside  shareholders  equity,  since the shareholders (but not the Companys
 management) can change or reject the proposal. There was no such excess in 2002.

c. Pensions and
other post-retirement benefits

Refer
to Note 32.a. for a discussion of differences between Brazilian GAAP and U.S. GAAP as
they relate to pensions and other post-retirement benefits.

For
purposes of the U.S. GAAP reconciliation, the provisions of SFAS No. 87, Employers'
Accounting for Pensions (SFAS 87) and SFAS No. 106, Employers' Accounting for
Post-retirement Benefits Other than Pensions (SFAS 106) have been applied.  The
provisions of SFAS 87 were applied with effect from January 1, 1992 because it was not
feasible to apply them from the effective date specified in the standard.  As a result,
R$292,131 of the transition liability was transferred directly to shareholders' equity at
the implementation date.

Under
Brazilian GAAP, the Company adopted CVM Deliberation 371 during the year ended December
31, 2001 and recorded an adjustment to opening shareholders equity amounting to R$
215,943 after tax and minority interests.  This adjustment was reversed for U.S. GAAP
purposes, since all effects of pensions and other post-retirement benefits have already
been recognized after applying SFAS 87 and SFAS 106.

d. Items posted
directly to shareholders equity accounts

Under
Brazilian  GAAP,  various items are posted directly to  shareholders  equity,  which
under U.S. GAAP would be posted to the consolidated statements of operations, such as:

|- | Fiscal incentives in regional funds converted into shares or capital quotas of telecommunication companies detailed in item (l);
|- | --------------------------------------------------------------------------------------------------------------------------------
|- | Deferred tax on full indexation, detailed in item (g); and                                                                      
|- | Other adjustments to consolidation.                                                                                             

e. Earnings per
share

Under
Brazilian  GAAP, net income per share is calculated 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.

As
determined by SFAS No. 128, 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 bylaws
and participation rights in undistributed earnings.

Basic
 earnings per common  share is computed by dividing net income  available  to common
 shareholders  by the weighted  average number of common shares  outstanding  during the
period.  Net income  available to preferred  shareholders  is the sum of the preferred
stock dividends (a minimum of 6% of preferred  capital or, as from 2002, 3% per annum
 calculated on the amount resulting from dividing the net book  shareholders'  equity by
the total number of Company shares,  whichever is greater,  as defined in the Companys
by-laws) and the  preferred  shareholders  portion of  undistributed  net  income.
 Undistributed  net income is computed  by  deducting  total dividends  (the sum of
 preferred  and common  stock  dividends)  from net income.  Undistributed  net income is
shared  equally by the preferred and common  shareholders on a pro rata basis.  Total
dividends are calculated as described in note 23.e. Diluted earnings per share is
computed by reducing  net income for an increase in net  earnings  allocated to minority
 shareholders  and dividing  such net income  available  to common  and  preferred
 shareholders  by the  monthly  weighted-average  number of common  and  preferred
 shares outstanding  during the period. The  weighted-average  (thousand) shares
outstanding for diluted earnings per share is not greater than such  shares  used in the
basic  earnings  per share  calculation  since the  dilutive  share  issue is that of the
 Holding  Companys subsidiaries, as indicated below.

The
 weighted-average  number  of  common  and  preferred  shares  used in  computing  basic
 earnings  per  share  for  2002  was 130,862,607,000  (127,437,166,000  in 2001) and
 219,863,511,000  (the same base in 2001),  respectively.  The Companies  have received
certain  contributions from customers or customers have independently  paid suppliers of
 telecommunication  equipment and services for the  installation  of fixed line
 services.  These  amounts  are  reflected  as funds for  capitalization  within  other
 non-current liabilities in the accompanying  consolidated  balance sheets. Once the
installation is essentially complete and the contributions have been received, the funds
will be converted into equity (see Note 24 to the consolidated  financial statements).
 The shares are treated as  outstanding  and included in the basic EPS  calculation  only
when such funds are  converted to equity and the shares  issued.  The shares are treated
as outstanding for diluted EPS purposes when expansion plan  contributions are received
or when Community  Expansion Plan agreements have been approved.  The 622,364  thousand
 preferred stock options granted under the stock option program for officers and
employees  mentioned in Note 22.b were not  considered in the  calculation of the diluted
 earnings per share,  as the program only contemplates stock options for the Subsidiary
Brasil Telecom S.A.

The
Company's  preferred  shares are nonvoting  except under certain  limited  circumstances
 and are entitled to a  preferential, non-cumulative  dividend and to priority over the
common shares in the event of  liquidation  of the Company.  In 2000,  2001 and 2002, the
amount of dividends paid to the preferred  shareholders exceeded the minimum guaranteed
dividends,  and was equal to the amount per share paid to the common shareholders.

f. Disclosure
requirements

U.S.
 GAAP  disclosure  requirements  differ from those  required by Brazilian  GAAP.
 However,  in these  consolidated  financial statements, the level of disclosure has been
expanded to comply with U.S. GAAP.

g. Income taxes

The
Companies  fully accrue for deferred income taxes on temporary  differences  between tax
and reporting  records.  The existing policies for providing for deferred  taxes are
 substantially  in accordance  with SFAS No. 109,  Accounting  for Income Taxes (SFAS
109), except in connection with the deferred income tax effects of indexation
adjustments in 2000 (see Note 2.a).

Under
U.S.  GAAP the deferred tax effects of 2000  indexation  for  financial  reporting
 purposes  would be charged to income and social contribution taxes in the consolidated
 statements of operations.  In addition under SFAS 109, the provisional  measures,  which
are temporary measures used by the Government to determine changes in tax rates, are not
considered to be enacted law.  Therefore,  the deferred tax effect  calculated  using the
new social  contribution  rate of 9% as described in Note 9, would be changed to 8% for
U.S. GAAP purposes, in 2000 and 2001.

h. Interest
expense and accrued interest

Brazilian
GAAP requires  interest to be shown as part of operating  income and accrued  interest as
a part of loans and financing. Under U.S. GAAP,  interest  expense would be shown after
operating  income and accrued  interest would be included in accounts  payable and
accrued expenses.

i. Employees profit
sharing

Brazilian
GAAP requires  employees  profit sharing to be shown as an  appropriation  of net income
for the year. Under U.S. GAAP, employee profit sharing is included as an expense in
arriving at operating income.

j. 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 in the  corporate and
fiscal law accounts of Brazilian  companies.  Under U.S.  GAAP,  the assets in this
classification  would be  non-current  assets and  property,  plant and  equipment.
 Losses on the  disposal of  permanent  assets were R$39,694 and R$5,084 for the years
ended  December 31, 2000 and 2001,  respectively  and a gain of R$5,502 for the year
ended  December 31, 2002.  Such losses and gains are classified as  non-operating
 expense for Brazilian  GAAP.  Under U.S. GAAP, such losses and gains would affect
operating income.

k. Price-level
adjustments and U.S. GAAP presentation in respect of accounting periods through December
31, 2000

The
effects of price-level  adjustments have not been eliminated in the  reconciliation to
U.S. GAAP nor are the monetary gains or losses associated with the various U.S. GAAP
adjustments  separately  identified,  because the application of inflation  restatement
as measured by the IGP-M,  applied until December 31, 2000,  represents a  comprehensive
 measure of the effects of price level changes in the Brazilian economy and, as such, is
considered a more meaningful  presentation than historical  cost-based  financial
 reporting for both Brazilian and U.S. accounting purposes.

See
the  reconciliation  of net income for the years ended December 31, 2000,  2001 and 2002
and  shareholders  equity as at that date in accordance  with  Brazilian  Corporate Law
to net income and  shareholders  equity in accordance  with Brazilian GAAP reported
herein in Note 2.b.

l. Funds for
capitalization

i. Resources for
capital increase and expansion plan contributions

Under
Brazilian GAAP, resources for capital increases and expansion plan contributions
 received are included in the balance sheet as non-current  liability until the
subscribers have paid for their telephone  connection in full and a general meeting of
shareholders approves the capital increases.

Effective
January 1, 1996,  indexation of the expansion plan contributions was no longer applied
and, for contracts signed as from that date,  Telebrás (the former controlling
 shareholder) was allowed the option of using a value per share equal to the market
value, when this was higher than book value.  For U.S.  GAAP  purposes,  a portion of the
resources  for capital  increase and expansion  plan contributions  would be allocated to
 shareholders'  equity  based on the market value of the shares to be issued to
 subscribers.  The remainder of the  resources  for capital  increase and  expansion
 plan  contributions  would be  classified  as a deferred  credit and amortized to reduce
depreciation expense from the time the related construction-in-progress is completed.

ii. Donations and
subsidies for investments

Under
 Brazilian  GAAP,  those  amounts  which  comprise  principally  the excess of the value
of  property,  plant and  equipment incorporated  into the Company's  assets over the
 corresponding  credits for expansion plan  contributions  received are recorded as a
credit to other capital reserves.  For U.S. GAAP purposes,  the credit to capital
reserves would be classified as a deferred credit and amortized to reduce depreciation
expense.

m. Valuation of
long-lived Assets

SFAS
No. 144 provides a single  accounting  model for long-lived  assets to be disposed of.
SFAS No. 144 also changes the criteria for  classifying  an asset as held for sale;  and
broadens  the scope of  businesses  to be disposed of that  qualify for  reporting as
discontinued  operations  and  changes  the timing of  recognizing  losses on such
 operations.  The Company  adopted  SFAS  No. 144 on January 1, 2002. The adoption of
SFAS No. 144 did not affect the Companys financial statements.

In
accordance with SFAS No. 144,  long-lived assets, such as property,  plant, and
equipment, and purchased intangibles subject to amortization,  are reviewed for
impairment  whenever events or changes in  circumstances  indicate that the carrying
amount of an asset may not be  recoverable.  Recoverability  of assets to be held and
used is measured by a comparison of the carrying  amount of an asset to estimated
 undiscounted  future cash flows  expected to be generated by the asset.  If the carrying
 amount of an asset  exceeds its estimated  future cash flows,  an impairment  charge is
recognized by the amount by which the carrying  amount of the asset exceeds the fair
value of the asset.  Assets to be disposed of would be separately  presented in the
balance sheet and reported at the lower of the carrying  amount or fair value less costs
to sell,  and are no longer  depreciated.  The  assets and  liabilities  of a disposed
 group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the balance sheet.      Goodwill and intangible assets not
subject to amortization are tested annually for impairment,  and are tested for
impairment more frequently  if events and  circumstances  indicate  that the asset might
be impaired.  An  impairment  loss is recognized to the extent that the carrying amount
exceeds the assets fair value.

Prior
to the adoption of SFAS No. 144, the Company accounted for long-lived assets in
accordance with SFAS No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.

Brazilian
GAAP does not require cash flow computations in order to determine potential asset
impairment. For all periods presented, no impairment losses were recognized under
Brazilian GAAP and U.S. GAAP.

Under
Brazilian GAAP,  impairment  losses would be recorded as  non-operating  expenses.  Under
U.S. GAAP,  impairment  losses are recorded as operating expenses.

n. Stock options

Under
U.S.  GAAP,  the  Subsidiary  accounts  for stock  options in  accordance  with SFAS No.
123,  "Accounting  for  Stock-Based Compensation,"  which  establishes a fair-value
method of accounting for employee stock options or similar equity  instruments.  For US
GAAP, the  Black-Scholes  option-pricing  model was used to estimate the grant date fair
value of its options granted.  Under Brazilian GAAP,  there is no requirement to account
for stock options at fair value.  The adjustment to reflect the difference in valuation
basis between U.S. GAAP and Brazilian GAAP for the year ended December 31, 2002 is as
follows:

|Number of options granted (in thousands)    | 622,364 
|------------------------------------------- | --------
|                                           
|Fair value of option at date of grant*      | $0.00409
|                                           
|Fair value of options granted at grant date | $2,544  

The
fair value of options is recognized over the expected  vesting term of the option for US
GAAP purposes,  which is three years. As the options  were issued on  December  16,
 2002,  an amount of R$35 was  recognized  for U.S.  GAAP  purposes as 2002 stock  option
compensation expense.  No stock option compensation expense was recognized for Brazilian
GAAP purposes.

* The assumptions
underlying the calculation of the fair value of the option are detailed in note 32.e.

o. Goodwill & other
intangible assets and business combination

Goodwill & other
intangible assets

Under
 Brazilian GAAP goodwill  represents the difference  between  historical  book value of
the assets  acquired and liabilities assumed and the  purchase  price,  and it is
amortized  over the  estimated  period over which the Company  expects to benefit from
the goodwill. This period is determined based on the reasons attributed by management for
the payment of goodwill.  Impairment,  if any, is measured to the extent that the
unarmotized balance of goodwill exceeds the expected future profits of the business.

Under
US GAAP, goodwill represents the excess of costs over fair value of assets of
businesses acquired. The Company and its subsidiaries adopted the provisions of SFAS
No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Goodwill and
intangible assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets.

In
connection  with SFAS  No. 142s  transitional  goodwill  impairment  evaluation,  the
 Statement  required the Company and its subsidiaries  to perform an  assessment of
whether  there was an  indication  that goodwill is impaired as of the date of adoption.
 To accomplish  this, the Company and its  subsidiaries  were required to identify its
reporting  units and determine the carrying value of each  reporting  unit by assigning
 the assets and  liabilities,  including  the  existing  goodwill and  intangible
 assets,  to those reporting  units as of January 1,  2002. The Company and its
 subsidiaries  were required to determine the fair value of each reporting unit and
compare it to the carrying  amount of the  reporting  unit within six months of  January 1,
 2002.  To the extent the carrying amount of a reporting  unit  exceeded  the fair value
of the  reporting  unit,  the Company and its  subsidiaries  would be required to perform
the second step of the  transitional  impairment  test, as this would be an indication
 that the reporting unit goodwill may be impaired.

Under
the terms of the  operating  concessions  granted by the  Federal  Government,  the
 Company is obliged to provide a certain minimum  level of services  over the entire area
 covered by its  operating  licenses.  Also,  the  Company  does not possess  discrete
financial  information  that could allow a  determination  of assets and  liabilities
 (and  goodwill)  allocation in a level below the entire  business  and neither  does it
manage  different  areas of the  concession  as if they were  separate  businesses  and
has thus considered  the entire  business to be one reporting  unit. In viewing all the
assets and  liabilities  of the Company as one reporting unit and  performing an initial
 assessment  on this  reporting  unit as to whether  there was an indication  that
goodwill is impaired (based on a valuation  performed by an independent third party), the
second step of the transitional  impairment test was not required. Consequently, the
Company and its subsidiaries were not required to recognize an impairment loss.

Prior
to the adoption of SFAS No. 142, for US GAAP purposes goodwill was amortized on a
straight-line basis over the expected periods to be benefited, and assessed for
recoverability by determining whether the amortization of the goodwill balance over its
remaining life could be recovered through undiscounted future operating cash flows of the
acquired operation. All other intangible assets were amortized on a straight-line basis.
The amount of goodwill and other intangible asset impairment, if any, was measured based
on projected discounted future operating cash flows using a discount rate reflecting the
Company and its subsidiaries average cost of funds. The Company has no intangibles other
than goodwill.

Under
Brazilian GAAP, goodwill amortization is classified in nonoperating expenses. Under U.S.
GAAP, goodwill amortization was classified in operating expenses until December 31, 2001.

Business combinations

i) Purchase of
minority interests in the eight operating companies formerly held directly by Tele Centro
Sul

On
February 28, 2000, in connection with the combination of the eight operating companies
under common control with Telepar, the Company made an offer to exchange Telepar shares
for the shares held by minority shareholders in each of the operating companies. The
exchange was made based on the book value of the shares of Telepar compared to the book
value of the shares of the operating companies. The Book value of the shares was
calculated by dividing stockholders equity by the number of shares outstanding. In the
exchange offer, Telepar acquired almost 100% of the minority shares.

Under
U.S. GAAP, the purchase price of these shares must be calculated based on the traded
market value of Telepar shares at the time of the exchange. The purchase price is then
compared to the fair value of the assets and liabilities of each of the operating
companies to determine goodwill. These differences, which were being amortized, on the
straight-line basis over five years for U.S. GAAP, but ceased in 2001, are summarized as
follows:

|Market value of the TELEPAR shares exchanged for minority interests            | 1,188,388  
|------------------------------------------------------------------------------ | -----------
|Fair value of the minority interests exchanged (which approximates book value) | (1,161,690)
|                                                                               |            
|Goodwill as of January 31, 2000                                                | 26,698     
|Amortization of goodwill in 2000                                               | (4,895)    
|                                                                               |            
|Goodwill, net as of December 31, 2000                                          | 21,803     
|Amortization of goodwill in 2001                                               | (5,339)    
|                                                                               |            
|Goodwill, net as of December 31, 2001                                          | 16,464     
|                                                                               |            

ii) Purchase of
controlling interest in CRT

On
July 31, 2000, the Company and The Subsidiary purchased the controlling interest in CRT
for R$1,517,574 in cash, of which R$1,499,760 was paid by The Subsidiary , and R$17,814
by the Company. The goodwill under U.S. GAAP for this purchase must be adjusted for the
difference between the fair value of the net assets purchased and the purchase price.

Under
Brazilian GAAP, goodwill for the purchase is calculated at the difference between
historical book value of the assets and liabilities assumed and the purchase price. Also,
as mentioned in Note 1, goodwill under Brazilian GAAP was accounted for partially as a
deferred tax asset which, for U.S. GAAP purposes, should be included as part of
intangibles.

The
adjustments under U.S. GAAP to reflect the difference in depreciation and amortization
resulting from the purchase price allocation differences explained above are as follows:

|Net assets purchased under U.S. GAAP                                                  | 533,026  
|------------------------------------------------------------------------------------- | ---------
|Adjustment to state fixed assets at fair value                                        | (53,128) 
|                                                                                      |          
|Fair value of net assets purchased from CRT                                           | 479,898  
|Purchase price                                                                        | 1,517,574
|                                                                                      |          
|Goodwill under U.S. GAAP                                                              | 1,037,676
|Goodwill under Brazilian GAAP                                                         | 767,993  
|                                                                                      |          
|Difference in goodwill as of July 31, 2000                                            | 269,683  
|                                                                                      |          
|Subsidiarys interest                                                                 | 244,363  
|Companys interest                                                                    | 25,320   
|                                                                                     
|Amortization of the difference of goodwill:                                          
|For the five months ended Dec. 31, 2000                                               | (22,474) 
|For 2001                                                                              | (53,936) 
|                                                                                     
|Effect of depreciation related to the adjustment to state fixed assets at fair value:
|For the five months ended Dec. 31, 2000                                               | 2,878    
|For 2001                                                                              | 6,906    
|For 2002                                                                              | 4,707    

For
U.S. GAAP, the difference in goodwill was amortized,  until 2001, on the straight-line
basis over five years. The depreciation related to the  adjustment  to state  fixed
 assets at fair value is being  calculated  at a rate per annum  compatible  with the
fixed assets realization.

Additionally,
the amortization of the recomputed goodwill recognized by the Subsidiary in 2002 under BR
GAAP in the amount of R$96,133, as mentioned in Note 1, has been reversed under US GAAP
in connection with the adoption of SFAS 142.

iii)
Purchase of minority interest in CRT

On
December 28, 2000,  the  Subsidiary  exchanged its shares for the remaining  outstanding
 shares of CRT. The exchange ratio was based on the market value of CRT shares and the
market  value of the  Company's  shares at December 1, 2000.  The purchase was recorded
under  Brazilian  GAAP based on the book value of the CRT shares as of  December  1,
2000,  so no  goodwill  arose for  Brazilian  GAAP purposes.

Under
U.S. GAAP, the purchase price of the minority interest in CRT was determined based on the
traded market value of The Subsidiary shares as of December 1, 2000. U.S. GAAP also
requires that this acquisition of the minority interest in CRT be recorded as of the
transaction closing date, December 28, 2000. As discussed in (ii) above, there are also
differences between U.S. GAAP and Brazilian GAAP in the allocation of the purchase price
to the assets and liabilities acquired which result in a difference in depreciation and
amortization expense.

The
adjustments to reflect the differences between U.S. GAAP and Brazilian GAAP discussed
above are as follows:

|Book value of net assets purchased under U.S. GAAP              | 841,908  
|--------------------------------------------------------------- | ---------
|Adjustment to fixed assets to reach fair value                  | (108,174)
|                                                                |          
|Fair value of net assets purchased from CRT                     | 733,734  
|Market value of The Subsidiary shares issued in exchange        | 903,146  
|                                                                |          
|Goodwill under U.S. GAAP                                        | 169,412  
|                                                                |          
|Net effect of recording transaction on December 28, 2000 rather
|than December 1, 2000                                           | (6,129)  
|                                                               
|Amortization of goodwill for 2001                               | (33,881) 
|Reversal of depreciation for 2001                               | 14,063   
|                                                               
|Reversal of depreciation for 2002                               | 9,585    

For
U.S. GAAP, the goodwill was amortized,  until 2001, on the  straight-line  basis over
five years. The depreciation  related to the  adjustment  to state  fixed  assets at fair
 value is being  calculated  at a rate per  annum  compatible  with the  fixed  assets
realization.

Under
Brazilian GAAP, the Company recognized a gain of R$ 185,262 in 2000 due to the change in
its percentage ownership interest in The Subsidiary attributable to the issuance of The
Subsidiarys shares in exchange for CRT shares. The basis per share in The Subsidiary was
lower than the amount received in exchange for the CRT shares; therefore, the increase in
basis resulted in a gain. Under U.S. GAAP, the fair value of the CRT shares received in
exchange for The Subsidiary shares was lower than under Brazilian GAAP. Therefore, the
gain recognized under Brazilian GAAP has been reversed in the reconciliation to U.S. GAAP
net income.  For purposes of U.S. GAAP, the Company recognizes gains and losses arising
from issuance of subsidiaries stock in shareholders equity.

iv) Step-up of basis
of companies under common control

Under
U.S. GAAP,  Emerging Issues Task Force No. 90-5,  "Exchanges of Ownership  Interests
between Entities under Common Control," when an exchange of shares between  companies
under common control takes place, the parent  companys basis in the subsidiaries  should
be  reflected  (or  pushed  down) as the basis in the  financial  statements  of the
 surviving  entity.  The parent  company,  which originally acquired the nine operating
companies in the privatization  auction (Solpart) in August 1998, recorded  significant
goodwill in that  purchase.  This  goodwill,  along with the step up in the basis of the
fixed assets to fair value at the time of the purchase, results in an increase in the
 consolidated  assets,  as well as in  shareholders  equity of the Company of  R$982,054
 (R$589,609  of goodwill and R$392,445 of fixed assets).

Due
to the purchase of minority interest of eight operating companies subsequently merged, in
2000, the Company recognized, under U.S. GAAP, the amount of R$345,801 related to the
difference between the unamortized goodwill of R$740,869 (R$982,054 less accumulated
amortization and depreciation of R$241,185) and the amount of R$395,068 recorded as a tax
credit under Brazilian GAAP.

The
amortization, which ceased in 2001, and depreciation under U.S. GAAP for these assets,
calculated on the straight-line basis, were R$78,102 in 2000 and 2001 and R$14,216 in
2002.

For
U.S. GAAP, goodwill was amortized, until 2001, on the straight-line basis over five
years. The depreciation related to the adjustment to state fixed assets at fair value is
being calculated at a rate per annum compatible with the fixed assets realization

p. Revenue
recognition

i) Activation
and installation fees

Under
Brazilian GAAP,  revenues from activation and installation fees are recognized upon
activation of customer  services.  Under U.S. GAAP,  revenues and related costs from
activation and installation  fees are deferred and amortized over five years, the
estimated average  customer  life.  For U.S.  GAAP  purposes,  the  Company  has adopted
 this  revenue  recognition  policy for  activation  and installation  fees  effective
 January 1, 2000  pursuant to Staff  Accounting  Bulletin  No. 101,  Revenue
 Recognition  in  Financial Statements  (SAB 101).  Accordingly,  the effect of
 implementing  SAB 101 has been presented as a cumulative  effect of a change in
accounting  principle  and  periods  prior to January 1, 2000 have not been  restated  to
reflect  this  change in revenue  recognition policy.  The effect of adopting SAB 101
effective January 1, 2000 resulted in a decrease in net income,  net of related tax
benefit and minority  interest,  of R$21,286.  Additionally,  the  application  of SAB
101  subsequent  to January 1, 2000 resulted in a (decrease) increase in net income, of
R$(4,550), R$(13,385) and R$ 13,332 for the years ended December 31, 2000, 2001 and 2002,
respectively.

ii) Sales of public
telephone cards

Under
 Brazilian  GAAP,  revenues from public  telephone  phone cards are  recognized  when the
cards are sold.  Under U.S.  GAAP, revenues  generated from sales of public  telephone
phone cards are recognized as such services are provided.  For U.S. GAAP,  deferred
revenues at each balance sheet date are  determined  based upon  estimates of sold but
unused public phone card credits  outstanding as of each balance sheet date.

q. Provision for
retirement incentive plan

Under
Brazilian GAAP, the Company recorded a provision for a retirement incentive plan during
the year ended December 31, 2001 in connection with the intended rationalization of
certain business activities of CRT (under the Apoio Daqui plan). Under U.S. GAAP, such
costs may only be accrued if they are part of a formal restructuring plan approved by
management that specifically identifies the significant actions to be taken to complete
the plan, the number and job classifications of employees to be terminated, and other
strict criteria. As all of the criteria for accrual have not been met, the provision was
reversed for U.S. GAAP purposes on December 31, 2001. There was no such provision in the
liabilities as of December 31, 2002, as the retirement incentive plan was carried out and
settled during 2002.

r. Derivative
financial instruments

Under
Brazilian GAAP, swap contracts are recorded on the balance sheet based on the net amount
to be received or paid. For U.S. GAAP purposes, the Company adopted SFAS No. 133, Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138
(collectively, SFAS 133) on January 1, 2000.  Under SFAS 133, the swap contracts are
recorded on the balance sheet at fair value, with changes in fair value recognized in
earnings unless specific hedge criteria are met.

Upon
adoption of SFAS 133 on January 1, 2000, there was no cumulative effect of a change in
accounting principle, as the Company did not utilize derivative financial instruments
prior to the acquisition of CRT in July 2000.

s. Unclaimed dividends

Under
Brazilian GAAP,  dividends  unclaimed by shareholders  after five years are reversed
 against income.  Under U.S. GAAP, such unclaimed dividends are reversed against retained
earnings.

t. Valued added and
other taxes

Under
Brazilian GAAP, value added and other taxes are reported as a reduction of gross
operating revenues to arrive at net operating revenues.  Under U.S. GAAP, value added and
other taxes are reported as a component of cost of services.

Net income
reconciliation of the differences between Brazilian GAAP and U. S. GAAP

Years ended December
31, 2000, 2001 and 2002

|                                                                                                                                                             |          |           |           |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------- | --------- | --------- | ---------
|                                                                                                                                                             |          | 2000      | 2001      | 2002     
|                                                                                                                                                             |          |           |           |          
|Net income (loss) as reported under Brazilian GAAP                                                                                                           |          | 152,312   | (39,252)  | 148,473  
|Add/(deduct):                                                                                                                                                | Note 31 
|                                                                                                                                                            
|Different criteria for:                                                                                                                                     
|Capitalized interest                                                                                                                                         | (a)      | 106,151   | (6,112)   | 154,440  
|Amortization of capitalized interest                                                                                                                         | (a)      | 113,115   | 103,144   | 78,550   
|Pensions and other post-retirement benefits                                                                                                                 
|Sistel                                                                                                                                                      
|U.S. GAAP gain on plan curtailment and settlement                                                                                                            | (c)      | 176,607   | -         | 27,981   
|U.S. GAAP prepaid (accrued) pension cost                                                                                                                     | (c)      | 7,483     | (9,493)   | -        
|FCRT                                                                                                                                                        
|U.S. GAAP prepaid (accrued) pension cost                                                                                                                     | (c)      | (4,251)   | 403,949   | 5,736    
|Reversal of Brazilian GAAP provision for pensions charged to equity                                                                                          | (c)      | -         | (215,943) | -        
|Items posted directly to shareholder's equity:                                                                                                              
|Fiscal incentive received                                                                                                                                    | (d)      | -         | 23        | -        
|Deferred tax on full indexation                                                                                                                              | (d)      | (199,987) | -         | -        
|Other consolidation adjustments                                                                                                                              | (d)      | 4,293     | (3,462)   | 4,173    
|Social contribution rate change not enacted                                                                                                                  | (g)      | (6,228)   | (14,791)  | 6,903    
|Amortization of deferred credit on contributions plan expansion                                                                                              | (l)      | 118,514   | 119,897   | 65,077   
|Compensation cost of stock options                                                                                                                           | (n)      | -         | -         | (35)     
|Amortization of goodwill attributable to purchase of minority                                                                                               
|interests in eight operating companies                                                                                                                       | (o)(i)   | (4,895)   | (5,339)   | -        
|Amortization of goodwill until 2001 attributable to purchase of
controlling interest in CRT, net of reduction in depreciation due to step-down in fair value | (o)(ii)  | (19,596)  | (47,030)  | 4,707    
|Reversal of amortization of goodwill                                                                                                                         | (o)(ii)  | -         | -         | 96,133   
|Purchase of minority interest in CRT:                                                                                                                       
|Net effect of recording purchase on transaction closing date                                                                                                
|(o)(iii)                                                                                                                                                     |          | (6,129)   | -         | -        
|Amortization of goodwill until 2001, net of reduction in depreciation due to step-down in fair value                                                         | (o)(iii) | -         | (19,818)  | 9,585    
|Reversal of Brazilian GAAP gain attributable to issuance of shares by                                                                                       
|Subsidiary                                                                                                                                                   | (o)(iii) | (185,262) | -         | -        
|Amortization until 2001 and depreciation of step-up in basis of companies under common control                                                               | (o)(iv)  | (78,102)  | (78,102)  | (14,216) 
|Deferred revenue, net of related costs - activation and installation fees                                                                                    | (p)      | (4,550)   | (13,385)  | 13,332   
|Deferred revenue - public telephone cards                                                                                                                    | (p)      | (3,701)   | 409       | 2,981    
|Reversal of provision for retirement incentive plan                                                                                                          | (q)      | -         | 33,000    | (33,000) 
|Change in fair value of derivative financial instruments                                                                                                     | (r)      | 1,976     | 3,548     | 3,976    
|Unclaimed dividends                                                                                                                                          | (s)      | -         | (19,162)  | (9,563)  
|Minority interest in U.S. GAAP adjustments                                                                                                                   |          | 38,036    | (174,292) | (137,557)
|Deferred tax effect of above adjustments                                                                                                                     |          | (66,778)  | (151,683) | (147,776)
|                                                                                                                                                             |          |           |           |          
|U.S. GAAP net income (loss) before cumulative effect of change in accounting principle                                                                       |          | 139,008   | (133,894) | 279,899  
|                                                                                                                                                            
|Cumulative effect of change in accounting principle, net of tax and minority interest                                                                        |          | (21,286)  | -        
|                                                                                                                                                             |          |           |           |          
|U.S. GAAP net income (loss)                                                                                                                                  |          | 117,722   | (133,894) | 279,899  
|                                                                                                                                                             |          |           |           |          

|                                                                                                            |             |             |            
|----------------------------------------------------------------------------------------------------------- | ----------- | ----------- | -----------
|                                                                                                            | 2000        | 2001        | 2002       
|                                                                                                            |             |             |            
|Net income per thousand shares in accordance with U.S. GAAP:                                               
|                                                                                                           
|U.S. GAAP net income (loss) - allocated to common shares  basic and diluted                                | 42,252      | (49,130)    | 104,436    
|U.S. GAAP net income (loss) - allocated to preferred shares  basic and diluted                             | 75,470      | (84,764)    | 175,463    
|                                                                                                           
|Weighted average shares outstanding (in thousands)                                                         
|Common shares  basic                                                                                       | 124,369,030 | 127,437,166 | 130,862,607
|Common shares  diluted                                                                                     | 124,369,030 | 127,437,166 | 130,862,607
|Preferred shares  basic                                                                                    | 214,127,275 | 219,863,511 | 219,863,511
|Preferred shares  diluted                                                                                  | 219,863,511 | 219,864,030 | 219,863,959
|                                                                                                           
|U.S. GAAP net income (loss) before cumulative effect of change in accounting principle, per thousand shares
|Common shares  basic                                                                                       | 0.41        | (0.39)      | 0.80       
|Common shares  diluted                                                                                     | 0.40        | (0.39)      | 0.80       
|Preferred shares  basic                                                                                    | 0.41        | (0.39)      | 0.80       
|Preferred shares  diluted                                                                                  | 0.40        | (0.39)      | 0.80       
|                                                                                                           
|Cumulative effect of change in accounting principle, per thousand shares                                   
|Common shares  basic                                                                                       | (0.06)      | -           | -          
|Common shares  diluted                                                                                     | (0.06)      | -           | -          
|Preferred shares  basic                                                                                    | (0.06)      | -           | -          
|Preferred shares  diluted                                                                                  | (0.06)      | -           | -          
|                                                                                                           
|U.S. GAAP net income (loss), per thousand shares                                                           
|Common shares  basic                                                                                       | 0.35        | (0.39)      | 0.80       
|Common shares  diluted                                                                                     | 0.34        | (0.39)      | 0.80       
|Preferred shares  basic                                                                                    | 0.35        | (0.39)      | 0.80       
|Preferred shares  diluted                                                                                  | 0.34        | (0.39)      | 0.80       

Shareholders equity
reconciliation of the differences between Brazilian GAAP and U.S. GAAP

As of December 31, 2001
and 2002

|                                                                                                                                                               |           | 2001      | 2002     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | --------- | ---------
|                                                                                                                                                               |           |           |          
|Total shareholders' equity as reported under Brazilian GAAP                                                                                                    |           | 6,733,367 | 6,663,432
|                                                                                                                                                              
|Add/(deduct):                                                                                                                                                  | Note 31  
|Different criteria for:                                                                                                                                       
|Capitalized interest                                                                                                                                           | (a)       | (880,867) | (726,427)
|Amortization of capitalized interest                                                                                                                           | (a)       | 734,237   | 812,786  
|Reversal of provision for dividends not declared                                                                                                               | (b)       | 133,958   | -        
|Pension and other post-retirement benefits                                                                                                                    
|Sistel                                                                                                                                                        
|U.S. GAAP gain on plan curtailment and settlement                                                                                                              | (c)       | 176,607   | 176,607  
|U.S. GAAP prepaid (accrued) pension cost                                                                                                                       | (c)       | (281,075) | (253,094)
|FCRT                                                                                                                                                          
|U.S. GAAP prepaid (accrued) pension cost                                                                                                                       | (c)       | 399,698   | 405,434  
|Social contribution rate not enacted                                                                                                                           | (g)       | (6,903)   | -        
|Reversal of decrease in income tax charged to equity                                                                                                           | (g)       | 4,221     | -        
|Contributions to plant expansion:                                                                                                                             
|Amortization of deferred credit                                                                                                                                | (l)       | 495,127   | 560,204  
|Subscribed capital stock                                                                                                                                       | (l)       | (640,688) | (640,688)
|Donations and subsidies for investment                                                                                                                         | (l)       | (182,861) | (182,862)
|Purchase of minority interest in eight operating companies:                                                                                                   
|Gain attributable to issuance of shares by subsidiary                                                                                                          | (o) (i)   | 26,698    | 26,698   
|Amortization of goodwill until 2001                                                                                                                            | (o) (i)   | (10,234)  | (10,234) 
|Amortization of goodwill (until 2001) attributable to purchase of
controlling interest in CRT, net of reduction in depreciation due to step-down in fair value | (o) (ii)  | (66,626)  | (61,918) 
|Reversal of amortization of goodwill                                                                                                                           | (o) (ii)  | -         | 96,133   
|Purchase of minority interest in CRT:                                                                                                                         
|Net effect of recording purchase on transaction closing date                                                                                                   | (o) (iii) | (6,129)   | (6,129)  
|Amortization of goodwill (until 2001), net of reduction in
depreciation due to step-down in fair value                                                         | (o) (iii) | (19,818)  | (10,233) 
|Reversal of Brazilian GAAP gain attributable to issuance of
shares by subsidiary                                                                               | (o) (iii) | (185,262) | (185,262)
|U.S. GAAP gain attributable to issuance of shares by                                                                                                          
|subsidiary                                                                                                                                                     | (o) (iii) | 61,238    | 61,238   
|Exchange of shares between companies under common control                                                                                                     
|Step-up in basis                                                                                                                                               | (o) (iv)  | 345,801   | 345,802  
|Amortization until 2001 and depreciation of step-up in basis                                                                                                   | (o) (iv)  | (156,204) | (170,421)
|Deferred revenue  public telephone cards                                                                                                                      | (p)       | (11,261)  | (8,280)  
|Deferred revenue, net of related costs - activation and
installation fees (including cumulative effect of change in accounting principle in 2000)              | (p)       | (55,235)  | (41,903) 
|Reversal of provision for retirement incentive plan                                                                                                            | (q)       | 33,000   
|Change in fair value of derivative financial instruments                                                                                                       | (r)       | 5,524     | 9,500    
|Minority interest in U.S. GAAP adjustments                                                                                                                     |           | 17,256    | (120,336)
|Deferred tax effect of above adjustments                                                                                                                       |           | 216,081   | 68,305   
|                                                                                                                                                               |           |           |          
|U.S. GAAP shareholders equity                                                                                                                                 |           | 6,879,650 | 6,808,351
|                                                                                                                                                               |           |           |          

Statements of changes
in shareholders equity in accordance with U.S. GAAP

As of December 31, 2001
and 2002

|                                  | Note   | Total    
|--------------------------------- | ------ | ---------
|                                 
|Balance, December 31,2000         |        | 7,126,919
|                                 
|Forfeiture of unclaimed dividends | 31 (s) | 19,162   
|Declaration of dividends          | 23 (e) | (132,537)
|Net loss for the year             |        | (133,894)
|                                  |        |          
|Balance, December 31, 2001        |        | 6,879,650
|                                 
|Forfeiture of unclaimed dividends | 31 (s) | 9,563    
|Purchase of treasury shares       | 23 (b) | (9,176)  
|Declaration of dividends          | 23 (e) | (351,585)
|Net income for the year           |        | 279,899  
|                                  |        |          
|Balance, December 31, 2002        |        | 6,808,351
|                                  |        |          

32. Additional
disclosures required by U.S. GAAP

a. Pension and
other post-retirement benefits:

i. Plans administered
by Sistel

The
Company,  together with other former  companies in the Telebrás group,  sponsored
 multi-employer  defined benefit pension and other  post-retirement  benefit plans,
 through the end of 1999, which are operated and  administered by Sistel.  In December
1999, the Company and the other  companies that  participate in the Sistel plan reached
an agreement to withdraw the active  participants  to the pension plan and establish a
new plan for each of the New Holding  Companies.  The parties  agreed to allocate the
plan assets based on the  liabilities in accordance  with Brazilian  GAAP. The allocation
of the initial  transition  obligation and  unamortized  gains and losses was based on
the projected  benefit  obligation (PBO) of each individual  sponsor divided by the total
PBO of Sistel at December 31, 1999. The inactive  employees of all of the New Holding
 Companies that  participated  in the Sistel defined  benefit  pension plan will remain
as part of the multiemployer plan in Sistel. The  post-retirement  benefit plans will
also remain as a multiemployer  plan; however, Sistel no longer subsidizes life insurance
premiums for inactive (retired) employees after December 31, 1999.

The
Company remains jointly and severally liable for the multiemployer portion of the plan,
therefore, no amounts were recorded under those plans.

A
summary of the liability as of December 31, 2001 and 2002 for the Companys active
employees defined benefit pension plan was as follows:

|                                         | 2001      | 2002     
|---------------------------------------- | --------- | ---------
|Funded status:                          
|Accumulated benefit obligation:         
|Vested                                   | 253,529   | 377,510  
|Non-vested                               | 90,278    | 3,344    
|                                         |           |          
|Total                                    | 343,807   | 380,854  
|                                         |           |          
|Projected benefit obligation             | 358,084   | 384,564  
|Allocated assets                         | 494,919   | 492,384  
|                                         |           |          
|Projected obligation in excess of assets | (136,835) | (107,820)
|Unrecognized gains                       | 120,946   | 68,284   
|Unrecognized prior service cost          | 130,693   | 125,057  
|Unrecognized net transition obligation   | (10,336)  | (9,034)  
|                                         |           |          
|Accrued pension cost                     | 104,468   | 76,487   
|                                         |           |          

A
summary of the Sistel pension plan as of December 31, 2001 and 2002 for the multiemployer
portion (inactive employees pension plan) is as follows:

|                                                        | December 31
|------------------------------------------------------- | -----------
|                                                        | 2001       
|Projected benefit obligation (100% vested)              | 2,809,643  
|Fair value of plan assets                               | (3,214,439)
|                                                        |            
|Excess (deficiency) of assets over projected obligation | (404,796)  
|                                                        |            

In
March 2000, the Company offered a new defined contribution plan, and approximately 80% of
the active employees migrated to the new plan. The accumulated benefit of each employee
who migrated was transferred to an individual account for each employee, with 100%
vesting in this amount. The effect of settlement and curtailment of this portion of the
defined benefit plan under SFAS No. 88 Employers' Accounting and Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits  was a gain
of R$176,607, which is reflected in the reconciliation to U.S. GAAP net income.

The
net periodic pension cost for 2001 and 2002 for the Sistel administered plans was as
follows:

|                                   | 2001     | 2002    
|---------------------------------- | -------- | --------
|Service cost                       | 2,728    | 15,911  
|Interest cost                      | 17,410   | 15,849  
|Expected return on assets          | (25,821) | (36,219)
|Amortization of (gains) losses     | (4,334)  | (7,536) 
|                                   |          |         
|Net periodic pension cost (income) | (10,017) | (11,995)
|                                   |          |         

The
changes in the accrued pension cost for the Sistel administered plans for the year ended
December 31, 2001 and 2002 is as follows:

|Accrued pension cost as of December 31, 2000  | 94,975  
|--------------------------------------------- | --------
|Monetary restatement of beginning balance     | 9,847   
|Other accrued pension costs (PBT and PAMEC)   | 11,883  
|Net periodic cost for 2001                    | (10,017)
|Company contributions during 2001             | (2,006) 
|Effect of spin-off of plans PBT and SUBMASSA3 | (214)   
|                                              |         
|Accrued pension cost as of December 31, 2001  | 104,468 
|Net periodic cost for 2002                    | (11,995)
|Company contributions during 2002             | (15,986)
|                                              |         
|Accrued pension cost as of December 31, 2002  | 76,487  
|                                              |         

The
actuarial assumptions used in 2000, 2001 and 2002 were as follows:

|                                                            | 2000  | 2001  | 2002 
|----------------------------------------------------------- | ----- | ----- | -----
|Discount rate for determining projected benefit obligations | 6.00% | 6.00% | 6.00%
|Rate of increase in compensation levels                     | 3.00% | 3.00% | 1.00%
|Expected long-term rate of return on plan assets            | 6.00% | 9.00% | 9.00%

The
above are real rates and exclude inflation.

The
Company maintains jointly with other companies a post-retirement benefit plan (PAMA) for
the participants already covered who were in such position on January 31, 2000.  Based on
a legal and actuarial opinions, the Companys liability is exclusively limited to 1.5% of
the payroll of the active participants.

The
funded status of the pension and post retirement plans under Brazilian GAAP and U.S. GAAP
differ. Benefit obligations differ because they have been prepared using different
actuarial assumptions permitted under Brazilian and U.S. GAAP.

The
net assets of the plans differ under Brazilian GAAP and U.S. GAAP  principally due to the
accrual of income tax  contingencies of the pension fund for U.S. GAAP purposes in the
amount of R$591,489 and  R$426,032 in 2001 and 2002,  respectively.  The  contingency
arises out of  uncertainty  as to the income tax status of  Brazilian  pension  funds in
general  because  the tax law is unclear as to whether these funds are exempt from tax on
their investment  gains.  Under Brazilian GAAP, two methods of accounting for the income
tax contingency are currently  permitted.  The tax is either deducted from plan assets
for the purposes of determining the funded status of the plan or it is not deducted,  but
is disclosed in a note as being a contingency.  Management of the pension fund has
determined that the Brazilian GAAP financial  statements of the fund be prepared on the
basis that the legal  arguments  against  assessment of the tax on the investment gains
are sufficiently  strong as to avoid the need for the potential liability to be
recognized.  However,  for U.S. GAAP  purposes,  management  of the  Company  believes
 that the  assessment  of this  potential  income  tax  liability  is  probable.
Accordingly,  in determining  the funded status for U.S. GAAP purposes,  the potential
 income tax liability  (calculated in accordance with SFAS 109) has been deducted from
the fair value of the plan assets.

ii. Plan administered
by Fundação CRT (FCRT)

On
July 31, 2001, the subsidiary Brasil Telecom S.A. acquired the controlling  interest in
CRT, and in December 2001, acquired the minority  interest.  At the acquisition  dates,
the liability for defined benefit plans of CRT were recorded under U.S. GAAP as part of
the fair value at the  acquisition  dates.  The net pension cost for 2002 under U.S.
 GAAP is reflected  from the dates of  acquisition until December 31, 2002. The plan
covers substantially all of the employees.

In
October  2002,  the Company  offered  employees the option to transfer to a new defined
 contribution  settled  benefits  plan, BrTPREV.  The benefit  obligation  relating to
each employee that opted to migrate was transferred to an individual  account at 100% of
the obligation  under the previous plan in the amount of R$362,469.  The employees  that
did not opt to migrate to BrTPREV  remained in their previous plans.

A
summary of the  liability as of December 31, 2001 and 2002  (Alternative,  Fundador and
BrTPREV are  presented  consolidated  in 2002) for the CRT employees benefit plans was
as follows:

|                                         | 2001     | 2002    
|---------------------------------------- | -------- | --------
|Funded status:                          
|Accumulated benefit obligation:         
|Vested                                   | 805,133  | 909,528 
|Non-vested                               | 144,007  | 10,649  
|                                         |          |         
|Total                                    | 949,140  | 920,177 
|                                         |          |         
|Projected benefit obligation             | 960,059  | 922,150 
|Allocated assets                         | 468,123  | 420,311 
|                                         |          |         
|Projected obligation in excess of assets | 491,936  | 501,839 
|Unrecognized gains                       | 331,044  | 324,970 
|Unrecognized prior service cost          | (27,070) | (25,541)
|Unrecognized net transition obligation   | -       
|                                         |          |         
|Accrued pension cost                     | 795,910  | 801,268 
|                                         |          |         

The
net  periodic  pension  cost for CRT for the year ended  December  31, 2001 and 2002
 (Alternative,  Fundador  and BrTPREV are presented consolidated in 2002) was as follows:

|                               | 2001     | 2002    
|------------------------------ | -------- | --------
|Service cost                   | 24,450   | 11,853  
|Interest cost                  | 62,457   | 55,607  
|Expected return on assets      | (46,229) | (26,689)
|Amortization of (gains) losses | 1,529    | (17,416)
|                               |          |         
|Net periodic pension cost      | 42,207   | 23,355  
|                               |          |         

The
changes in the accrued pension cost for the plans administered by FCRT for the year ended
December 31, 2001 and 2002 (Alternative, Fundador and BrTPREV are presented consolidated
in 2002) were as follows:

|                                                  | 2001     | 2002    
|------------------------------------------------- | -------- | --------
|Accrued pension cost at the beginning of the year | 709,115  | 795,910 
|Monetary restatement of beginning balance         | 73,533   | -       
|Net periodic cost for the year                    | 42,207   | 23,355  
|Company contributions during the year             | (28,945) | (17,997)
|                                                  |          |         
|Accrued pension cost at the end of the year       | 795,910  | 801,268 
|                                                  |          |         

The
actuarial assumptions used in 2002 were follows:

|                                                            | 2002 
|----------------------------------------------------------- | -----
|Discount rate for determining projected benefit obligations | 6.00%
|Rate of increase in compensation levels                     | 0.00%
|Expected long-term rate of return on plan assets            | 6.00%

The
above are real rates and exclude inflation.

b. Purchase of
Companhia Riograndense de Telecomunicações - CRT

As
disclosed in Note 1, the Company acquired a 31.56%  controlling  interest (85.19% voting
interest) in CRT on July 31, 2000. The unaudited  pro forma  Brazilian  GAAP  results of
 operations  for the years ended  December  31, 2000 as if the Company had acquired a
controlling interest in CRT on January 1, 2000, are as follows:

|                                      | 2000     
|------------------------------------- | ---------
|Net operating revenue                 | 5,476,964
|                                     
|Net income (loss)                     | 66,599   
|Net income (loss) per thousand shares | 0.20     

The
pro forma net income above includes  adjustments for the  amortization  of goodwill of R$
89,599,  interest and exchange loss, net of monetary gain on the debt  obtained in
connection  with the purchase of CRT, in the amount of R$105,623 and the tax and minority
effects of those adjustments.  The pro forma information is presented for information
 purposes only and is not necessarily  indicative of what would have  occurred  if the
 acquisition  had been made as of January  1, 2000,  nor does it purport to be
 indicative  of the results that will be obtained in the future.

c. Concentration
of credit risk

The
Company  maintains  several liquid  temporary cash  investments in exclusive  financial
 investment funds (FIF), the assets of which are  comprised  exclusively  of
 floating-rate  federal  government  securities.  There have been no losses on cash
 equivalents. Credit risk with respect to trade accounts  receivable is diversified.  The
Companies  continually  monitor the level of trade accounts receivable  and limit the
 exposure  to bad debts by cutting  access to the  telephone  network if any invoice is
 one-month  past due. Exceptions comprise telephone services that must be maintained for
reasons of safety or national security.

For
conducting their business, the Companies are fully dependent upon the fixed-line
 telecommunications  concession as granted by the Federal  Government.  Approximately
 37.4% of all employees are members of state labor unions  associated either with the
Federação Nacional  dos   Trabalhadores  em   Telecomunicações   ("Fenattel"),   or  with
 the  Federação   Interestadual  dos  Trabalhadores  em Telecomunicações  ("Fittel").
 Management  negotiates new collective labor agreements every year with the local unions.
 The collective agreements currently in force expire in November 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. Comprehensive
income

The
Company did not have any other comprehensive income during the years ended December 31,
2000, 2001 and 2002.

e. Stock options

On
December 16, 2002, the Subsidiary  granted 622,364  thousand stock options under Stock
Option Program B (refer to Note 22.b for the  conditions of the program).  The per share
weighted  average fair value of stock options  granted during 2002 on the date of grant
using the Black Scholes  option-pricing  model was R$4.09 with the following  weighted
average  assumptions:  2002  expected  dividend yield 5.1%, risk-free interest rate of
23% p.a. (which equals the SELIC interest rate), and an expected vesting term of 3 years.

f. Transitional
disclosures due to cessation of goodwill amortization

As
the Company adopted SFAS 142 on January 1, 2002 the amortization of goodwill mentioned in
Note 30.o was ceased for US GAAP purposes on that date. If adoption of SFAS had occurred
on December 31, 1999, reported US GAAP net income and related basic and diluted earnings
per share would have been the following in 2000 and 2001, exclusive amortization expense
(net of income tax):

|                                | 2000    | 2001     
|------------------------------- | ------- | ---------
|                               
|Reported net income (loss)      | 117,722 | (133,894)
|                               
|Add back: goodwill amortization | 45,600  | 127,053  
|                               
|Adjusted net income (loss)      | 163,322 | (6,841)  

|Adjusted net income (loss) allocated to common shares  basic      | 60,007      | (2,510)    
|------------------------------------------------------------------ | ----------- | -----------
|Adjusted net income (loss) allocated to common shares  diluted    | 59,007      | (2,510)    
|Adjusted net income (loss) allocated to preferred shares  basic   | 103,315     | (4,331)    
|Adjusted net income (loss) allocated to preferred shares  diluted | 104,315     | (4,331)    
|                                                                  
|Weighted average shares outstanding (in thousands)                
|Common shares  basic                                              | 124,369,030 | 127,437,166
|Common shares  diluted                                            | 124,369,030 | 127,437,166
|Preferred shares  basic                                           | 214,127,275 | 219,863,511
|Preferred shares  diluted                                         | 219,863,511 | 219,864,030
|                                                                  
|U.S. GAAP net income (loss), per thousand shares                  
|Common shares  basic                                              | 0.48        | (0.02)     
|Common shares  diluted                                            | 0.47        | (0.02)     
|Preferred shares  basic                                           | 0.48        | (0.02)     
|Preferred shares  diluted                                         | 0.47        | (0.02)     

g. New
accounting pronouncements

In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity. The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The adoption of SFAS No. 146 is not
expected to have a material effect on the Companys consolidated financial
statements.

In
November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to
Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB
Interpretation No. 34. This Interpretation elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and are not expected
to have a material effect on the Companys financial statements. The disclosure
requirements are effective for financial statements of interim or annual periods ending
after December 15, 2002.

33. Subsequent event

MetroRED On February
18, 2003, the Subsidiary announced the acquisition of 19.9% of the capital of MTH do
Brasil Ltda., a company that holds 99.99% of the capital of MetroRED Telecomunicações
Ltda. (MetroRED Brasil), for US$17.0 million. In addition, Brasil Telecom holds an option
to purchase the remaining 80.1% of the capital of MTH at the price of US$51.0 million,
which can only be exercised after certification by Anatel of compliance with the 2003
targets stipulated in the Company's concession contracts. MetroRED Brasil will enable
Brasil Telecom to expand the provision of data transmission services to the corporate
market.