##### 



As filed with the Securities and
Exchange Commission on June 18, 2003

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




AMENDMENT NO. 1




FORM 20-F/A


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002


Commission file number: 001-14495

TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

(Exact name of Registrant as specified in its charter)


|                                                                                       |  |                                                                                  
|-------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------
|Tele Nordeste Cellular Holding Company
(Translation of Registrants name into English) |  | The Federative Republic of Brazil
(Jurisdiction of incorporation or organization)

Avenida Conde da Boa Vista 800
50060-004 Boa Vista, Recife, PE, Brazil
(Address of principal executive offices)

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

|                                                                                          |  |                                                                                          
|----------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------
|Title of each class
Preferred Shares, without par value*
American Depositary Shares, each |  | Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
|representing 20,000 Preferred Shares                                                      |  |                                                                                          






|* |  | Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange.
|- |  | ----------------------------------------------------------------------------------------------------------------------

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

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

Indicate the number of outstanding shares of each of the issuers classes of capital or
common stock as of the close of the period covered by this annual report:

130,753,135,918Common
Shares, without par value214,986,483,871Preferred Shares, without par value

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

Yes   [X]   No  [  ]

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

Item 17 [  ]    Item 18   [X]



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TABLE OF CONTENTS



|                                                           |                                                                                         |  |  |  |  |  |  | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PRESENTATION OF INFORMATION                               
|FORWARD-LOOKING INFORMATION                               
|PART I                                                    
|                                                           | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                          
|                                                           | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                        
|                                                           | ITEM 3. KEY INFORMATION                                                                
|                                                           | ITEM 4. INFORMATION ON THE COMPANY                                                     
|                                                           | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                   
|                                                           | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                     
|                                                           | ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS                              
|                                                           | ITEM 8. FINANCIAL INFORMATION                                                          
|                                                           | ITEM 9. THE OFFER AND LISTING                                                          
|                                                           | ITEM 10. ADDITIONAL INFORMATION                                                        
|                                                           | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                    
|                                                           | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                        
|PART II                                                   
|                                                           | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                               
|                                                           | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS
|                                                           | ITEM 15. CONTROLS AND PROCEDURES                                                       
|                                                           | ITEM 16. CODE OF ETHICS                                                                
|PART III                                                  
|                                                           | ITEM 17. FINANCIAL STATEMENTS                                                          
|                                                           | ITEM 18. FINANCIAL STATEMENTS                                                          
|REPORT OF INDEPENDENT AUDITORS                            
|CONSOLIDATED BALANCE SHEETS                               
|CONSOLIDATED STATEMENTS OF INCOME                         
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION  
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS            
|                                                           | ITEM 19 EXHIBITS                                                                       
|                                                           | INDEX OF DEFINED TERMS                                                                 
|                                                           | TECHNICAL GLOSSARY                                                                     
|906 CERTIFICATION                                         

TABLE OF CONTENTS

|                            |  |                                                                                |  |     
|--------------------------- |  | ------------------------------------------------------------------------------ |  | ----
|                            |  |                                                                                |  | Page
|                            |  |                                                                                |  |     
|Presentation of Information |  | iii                                                                           
|Forward-Looking Information |  | iii                                                                           
|                            |  | PART I                                                                         |  |     
|Item 1.                     |  | Identity of Directors, Senior Management and Advisers                          |  | 1   
|Item 2.                     |  | Offer Statistics and Expected Timetable                                        |  | 1   
|Item 3.                     |  | Key Information                                                                |  | 1   
|Item 4.                     |  | Information on the Company                                                     |  | 12  
|Item 5.                     |  | Operating and Financial Review and Prospects                                   |  | 35  
|Item 6.                     |  | Directors, Senior Management and Employees                                     |  | 48  
|Item 7.                     |  | Major Shareholders and Related-Party Transactions                              |  | 53  
|Item 8.                     |  | Financial Information                                                          |  | 54  
|Item 9.                     |  | The Offer and Listing                                                          |  | 57  
|Item 10.                    |  | Additional Information                                                         |  | 61  
|Item 11.                    |  | Quantitative and Qualitative Disclosures About Market
Risk                     |  | 71  
|Item 12.                    |  | Description of Securities Other Than Equity Securities                         |  | 72  
|                            |  | PART II                                                                        |  |     
|Item 13.                    |  | Defaults, Dividend Arrearages and Delinquencies                                |  | 72  
|Item 14.                    |  | Material Modifications to the Rights of Securities
Holders and Use of Proceeds |  | 72  
|Item 15.                    |  | Controls and Procedures                                                        |  | 72  
|Item 16.                    |  | Code of Ethics                                                                 |  | 73  
|                            |  | PART III                                                                       |  |     
|Item 17.                    |  | Financial Statements                                                           |  | 73  
|Item 18.                    |  | Financial Statements                                                           |  | 73  
|Item 19.                    |  | Exhibits                                                                       |  | 74  
|Index of Defined Terms      |  | 76                                                                            
|Technical Glossary          |  | 78                                                                            

ii



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PRESENTATION OF INFORMATION

In this annual report, Tele Nordeste Celular Participações S.A. is
referred to as the Holding Company. Its subsidiaries, Telpe Celular S.A.
(Telpe Celular), Telpa Celular S.A. (Telpa Celular), Telern Celular S.A.
(Telern Celular), Teleceará Celular S.A. (Teleceará Celular), Telepisa
Celular S.A. (Telepisa Celular) and Telasa Celular S.A. (Telasa Celular),
are collectively referred to as the Subsidiaries. The Holding Company and the
Subsidiaries are referred to collectively as we or us.

The Holding Company is one of the companies formed as a result of the
breakup of Telecomunicações Brasileiras S.A.  Telebrás (Telebrás) by
Brazils federal government (the Federal Government) in May 1998. Each of
the Subsidiaries was formed in January 1998 by spinning off the cellular
telecommunications operations of an operating company formerly controlled by
Telebrás (collectively, the Predecessor Companies). References to operations
of the Company prior to January 1998 are to the cellular operations of one or
more Predecessor Companies. See Item 4. Information on the Company   Our
History and Development.

References in this annual report to (i) the real, reaisor R$ are to
the Brazilian real(singular) and Brazilian reais(plural) and (ii) U.S.
dollars, dollars or US$ are to United States dollars. References to the
Preferred Shares and the Common Shares are to the preferred shares and
common shares, respectively, of the Holding Company. References to American
Depositary Shares or ADSs are to American Depositary Shares, each
representing 20,000 Preferred Shares. The ADSs are evidenced by American
Depositary Receipts (ADRs).

Certain terms are defined the first time they are used in this annual
report. The Index of Defined Terms that begins on page 75 lists those terms
and where they are defined. The Technical Glossary that begins on page 77
provides definitions of certain technical terms used herein.

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements. We and our
representatives also may make forward-looking statements in press releases and
oral statements. Statements that are not statements of historical fact,
including statements about the beliefs and expectations of our management, are
forward-looking statements. The words anticipate, believe, estimate,
expect, forecast, intend, plan, predict, project and target, and
similar words are intended to identify these statements, which necessarily
involve known and unknown risks and uncertainties. Known risks and
uncertainties, some of which are discussed on pages 5 to 12 herein, include,
but are not limited to, those resulting from the short history of our
operations as an independent, private sector entity and the introduction of
competition to, and the size of, the Brazilian telecommunications sector, as
well as those relating to the cost and availability of financing, the
performance of the Brazilian economy generally, the levels of exchange rates
between Brazilian and foreign currencies and the Federal Governments
telecommunications policy. Accordingly, the actual results of our operations
may be different from our current expectations, and the reader should not place
undue reliance on these forward-looking statements. Forward-looking statements
speak only as of the date they are made, and we do not undertake any obligation
to update them in light of new information or future developments.

iii



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PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3. KEY INFORMATION

Selected Financial Data

The selected financial information presented below should be read in
conjunction with our consolidated financial statements as of December 31, 2001
and 2002 and for the years ended December 31, 2000, 2001 and 2002 (the
Consolidated Financial Statements). Our consolidated financial statements
for the year ended December 31, 2000 have been audited by KPMG Auditores
Independentes (KPMG). Our consolidated financial statements as of and for
the years ended December 31, 2001 and 2002 have been audited by Ernst & Young
Auditores Independentes (E&Y). The reports of KPMG and E&Y on the
consolidated financial statements that they respectively audited appear
elsewhere in this annual report. The following paragraphs discuss some
important features of the presentation of the selected financial information
and the Consolidated Financial Statements. These features should be kept in
mind in evaluating the selected financial information and in reading Item 5.
Operating and Financial Review and Prospects.

Corporate
Law Method, Brazillian GAAP and U.S. GAAP

Our Consolidated Financial Statements have been prepared in accordance
with the Brazilian Corporate Law accounting method (the Corporate Law
Method), which differs in certain material respects from U.S. GAAP. For many
years prior to 2000, we prepared our financial statements for purposes of
filing reports with the Securities and Exchange Commission (the Commission)
in accordance with a specific rule published by the Brazilian Institute of
Accountants (Brazilian GAAP). The accounting principles embodied in
Brazilian GAAP and the Corporate Law Method are generally identical, except
that Brazilian GAAP requires historical financial information to be restated in
constant reaisas of the end of the period presented, using the integral
restatement method (correção monetária integral), except when, by determination
of the Brazilian Institute of Accountants, the rate of inflation for the period
is so low as to render insignificant the effect of any such restatement. Early
in 2001, the Commission announced that Brazilian companies could present their
financial information in accordance with the Corporate Law Method, which has
excluded monetary restatement of historical financial information since 1995,
following the end of hyperinflation in Brazil in the early 1990s. In
connection with the change in accounting methods in fiscal year 2000, we
restated our financial statements for all prior periods for consistent
presentation. The Corporate Law Method differs in certain material respects
from generally accepted accounting principles in the United States (U.S.
GAAP). See Note 26 to our Consolidated Financial Statements for a summary of
the differences between the Corporate Law Method and U.S. GAAP, as well as a
reconciliation to U.S. GAAP of our shareholders equity as of December 31, 2001
and 2002, and net income for the years ended December 31, 2000, 2001 and 2002.

Accounting Consequences of the Breakup of Telebrás

The formations of the Holding Company and the Subsidiaries have been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. In January 1998, the assets and liabilities
of the cellular telecommunications businesses of Telpe Celular, Telpa Celular,
Telern Celular, Teleceará Celular, Telepisa Celular and Telasa Celular were
transferred to the Holding Company at their indexed historical cost. In
addition, the assets that were transferred from Telebrás to us resulted in an
increase of R$22.2 million compared to our historical divisional equity. The amount of our current
distributable retained earnings includes retained earnings allocated to us in
the Breakup of Telebrás.





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Corporate Reorganization to Transfer Goodwill

On June 30, 2000, our management implemented a corporate restructuring to
transfer to our Subsidiaries the premium (Goodwill) paid by Bitel
Participações S.A. (Bitel) for the acquisition of control of Tele Nordeste
Celular. The Goodwill was recorded as an asset. The transfer of Goodwill
resulted in a potential tax benefit, increasing our ability to generate free
cash flow. Commencing in 1998, the Goodwill was amortized by Bitel using an
amortization rate of 4% per annum. After the transfer to our Subsidiaries, the
balance of the Goodwill has been amortized under the straight-line method over
the remaining eight years. See Note 1(b) to our Consolidated Financial
Statements. The amortization of Goodwill is expected to reduce our
consolidated operating income in future years, and to reduce our Subsidiaries
income and social contribution taxes payable in those years, not affecting the
consolidated net operating income.

Minority Interests

For 1998, 1999, 2000 and 2001, minority interests reflect the interest
of shareholders other than Tele Nordeste Celular in each of Telpe Celular,
Telpa Celular, Telern Celular, Teleceará Celular, Telepisa Celular and Telasa
Celular. On December 31, 2002, minority shareholders owned 21.3% of Telpe
Celular, 20.0% of Teleceará Celular, 28.1% of Telpa Celular, 23.8% of Telern
Celular, 21.2% of Telasa Celular and 20.6% of Telepisa Celular.

2



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Selected Financial Data

|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |          |  
|----------------------------------------------------------------- | ------------------------------------ |  | ----------------------- | ------- | ---- |  | ------------------------ | -------- | ---- |  | -------- | -------- | - |  | -------- | -------- | - |  | -------- | -------- | -
|                                                                  |                                      |  | Year ended December 31,
|                                                                  |                                      |  |                        
|                                                                  |                                      |  | 1998                    |         | 1999 |  | 2000                     |          | 2001 |  | 2002    
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |         
|                                                                  |                                      |  |                         |         |      |  | (thousands of reais) (1) |          |      |  |         
|Income Statement Data                                             |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Corporate Law Method                                              |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Net operating revenue                                             |                                      |  | 469,664                 |         |      |  | 674,853                  |          |      |  | 845,620  |          |   |  | 826,250  |          |   |  | 921,522  |         
|Cost of services and goods                                        |                                      |  | (185,405                | )       |      |  | (369,214                 | )        |      |  | (380,702 | )        |   |  | (362,289 | )        |   |  | (389,383 | )       
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Gross profit                                                      |                                      |  | 284,259                 |         |      |  | 305,639                  |          |      |  | 464,918  |          |   |  | 463,961  |          |   |  | 532,139  |         
|                                                                 
|Operating expenses:                                               |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|                                                                  | Selling expenses                     |  |                         | (70,883 | )    |  |                          | (146,945 | )    |  |          | (233,850 | ) |  |          | (187,996 | ) |  |          | (177,236 | )
|                                                                  | General and administrative expenses  |  |                         | (32,431 | )    |  |                          | (68,631  | )    |  |          | (87,892  | ) |  |          | (95,986  | ) |  |          | (95,298  | )
|                                                                  | Other net operating income (expense) |  |                         | 7,501   |      |  |                          | 3,381    |      |  |          | (15,671  | ) |  |          | (28,502  | ) |  |          | (44,510  | )
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Operating income before interest                                  |                                      |  | 188,446                 |         |      |  | 93,444                   |          |      |  | 127,505  |          |   |  | 151,477  |          |   |  | 215,095  |         
|Net financial expenses                                            |                                      |  | (7,425                  | )       |      |  | (81,127                  | )        |      |  | (82,317  | )        |   |  | (42,158  | )        |   |  | (6,452   | )       
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Operating income                                                  |                                      |  | 181,021                 |         |      |  | 12,317                   |          |      |  | 45,188   |          |   |  | 109,319  |          |   |  | 208,643  |         
|Net non-operating income (expense)                                |                                      |  | (357                    | )       |      |  | (4,646                   | )        |      |  | 2,441    |          |   |  | (2,155   | )        |   |  | (3,120   | )       
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Income before taxes                                               |                                      |  | 180,664                 |         |      |  | 7,671                    |          |      |  | 47,629   |          |   |  | 107,164  |          |   |  | 205,523  |         
|Income and social contribution taxes                              |                                      |  | (46,309                 | )       |      |  | 4,375                    |          |      |  | (9,915   | )        |   |  | (20,123  | )        |   |  | (48,402  | )       
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Income before minority interests                                  |                                      |  | 134,355                 |         |      |  | 12,046                   |          |      |  | 37,714   |          |   |  | 87,041   |          |   |  | 157,121  |         
|Minority interests                                                |                                      |  | (30,320                 | )       |      |  | (2,625                   | )        |      |  | (11,060  | )        |   |  | (21,511  | )        |   |  | (38,547  | )       
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Net income                                                        |                                      |  | 104,035                 |         |      |  | 9,421                    |          |      |  | 26,654   |          |   |  | 65,530   |          |   |  | 118,574  |         
|                                                                  |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|                                                                 
|Net income per 20,000 shares
outstanding (reais)                  |                                      |  | 6.31                    |         |      |  | 0.56                     |          |      |  | 1.59     |          |   |  | 3.88     |          |   |  | 6.86     |         
|Dividends per 20,000 shares
outstanding (reais) (2)               |                                      |  | 1.74                    |         |      |  | 0.59                     |          |      |  | 0.62     |          |   |  | 1.15     |          |   |  | 1.63     |         
|Dividends (2)                                                     |                                      |  | 28,620                  |         |      |  | 9,882                    |          |      |  | 10,319   |          |   |  | 19,438   |          |   |  | 28,161   |         
|                                                                 
|U.S. GAAP                                                         |                                      |  |                         |         |      |  |                          |          |      |  |          |          |   |  |          |          |   |  |          |         
|Operating income                                                  |                                      |  | 184,181                 |         |      |  | 77,080                   |          |      |  | 144,893  |          |   |  | 164,054  |          |   |  | 237,638  |         
|Net income (loss)                                                 |                                      |  | 96,717                  |         |      |  | 355                      |          |      |  | 30,060   |          |   |  | 61,365   |          |   |  | 102,466  |         
|Net income (loss) per 20,000 Common
Shares outstanding (reais)    |                                      |  | 5.87                    |         |      |  | 0.02                     |          |      |  | 1.80     |          |   |  | 3.65     |          |   |  | 5.99     |         
|Net income (loss) per 20,000 Preferred
Shares outstanding (reais) |                                      |  | 5.87                    |         |      |  | 0.02                     |          |      |  | 1.80     |          |   |  | 3.65     |          |   |  | 5.99     |         

3



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|                                   |  |                 |         |      |  |                          |           |      |  |      |           |  |  |  |           |  |  |  |           | 
|---------------------------------- |  | --------------- | ------- | ---- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                   |  | At December 31,
|                                   |  |                
|                                   |  | 1998            |         | 1999 |  | 2000                     |           | 2001 |  | 2002
|                                   |  |                 |         |      |  |                          |           |      |  |     
|                                   |  |                 |         |      |  | (thousands of reais) (2) |           |      |  |     
|Balance Sheet Data(1)              |  |                 |         |      |  |                          |           |      |  |      |           |  |  |  |           |  |  |  |           | 
|                                  
|Corporate Law Method               |  |                 |         |      |  |                          |           |      |  |      |           |  |  |  |           |  |  |  |           | 
|Property, plant and equipment, net |  |                 | 498,170 |      |  |                          | 644,020   |      |  |      | 718,578   |  |  |  | 687,747   |  |  |  | 580,910   | 
|Total assets                       |  |                 | 695,634 |      |  |                          | 961,569   |      |  |      | 1,239,253 |  |  |  | 1,265,935 |  |  |  | 1,401,353 | 
|Loans and financing                |  |                 | 116,420 |      |  |                          | 323,864   |      |  |      | 407,043   |  |  |  | 348,311   |  |  |  | 333,689   | 
|Shareholders equity                |  |                 | 354,552 |      |  |                          | 354,091   |      |  |      | 575,884   |  |  |  | 621,976   |  |  |  | 710,145   | 
|                                  
|U.S. GAAP                          |  |                 |         |      |  |                          |           |      |  |      |           |  |  |  |           |  |  |  |           | 
|Property, plant and equipment, net |  |                 | 536,244 |      |  |                          | 684,154   |      |  |      | 765,410   |  |  |  | 725,644   |  |  |  | 612,109   | 
|Total assets                       |  |                 | 733,707 |      |  |                          | 1,001,703 |      |  |      | 1,284,347 |  |  |  | 1,299,982 |  |  |  | 1,428,348 | 
|Loans and financing                |  |                 | 109,736 |      |  |                          | 318,693   |      |  |      | 395,938   |  |  |  | 354,995   |  |  |  | 390,134   | 
|Shareholders equity                |  |                 | 374,236 |      |  |                          | 364,709   |      |  |      | 588,418   |  |  |  | 630,345   |  |  |  | 702,406   | 



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|(1) |  | Information from 1998 to 2002 is presented in nominal reaisunder both
the Corporate Law Method and U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Dividends from profits generally are not subject to Brazilian income tax
withholding. Dividends in the form of interest on capital paid to
shareholders are deductible from our net profits for tax purposes, but the
recipient of such distributions is subject to Brazilian corporate or
individual income tax withholding with respect to such payments. See
Item 10. Additional Information   Taxation   Brazilian Tax
Considerations   Distributions of Interest on Capital. The dividend
information presented reflects amounts before any withholding tax on
interest on capital. Interest on capital paid in 1998, 1999, 2000 and
2001 was subject to withholding tax of R$4,415, R$1,482, $1,153 and
R$1,200, respectively. We did not pay any interest on capital in 2002.

Exchange Rates

The Holding Company pays any cash dividends, interest on net worth and any
other cash distributions with respect to the Preferred Shares in reais.
Accordingly, exchange rate fluctuations will affect the U.S. dollar amounts
received by the holders of ADSs on conversion by the Depositary of dividends
and other distributions in Brazilian currency on the Preferred Shares
represented by the ADSs. Fluctuations in the exchange rate between Brazilian
currency and the U.S. dollar will affect the U.S. dollar equivalent of the
price of the Preferred Shares on the Brazilian stock exchanges. In addition,
exchange rate fluctuations also may affect the Holding Companys results of
operations. See Item 5. Operating and Financial Review and Prospects 
Foreign Exchange and Interest Rate Exposure. We have hedging agreements in
place to cover exchange rate risk in respect of payments of principal on all of
our foreign currency-denominated indebtedness. See Item 5. Operating and
Financial Review and Prospects   Foreign Exchange and Interest Rate
Exposure.

There are two legal currency exchange markets in Brazil: the commercial
rate currency exchange market (Commercial Market) and the floating rate
currency exchange market (Floating Market). The Commercial Market is
reserved primarily for currency exchange transactions in connection with
foreign trade transactions, and transactions that generally require prior
approval from Brazilian monetary authorities, such as the purchase and sale of
foreign investments registered with the Brazilian Central Bank (Central
Bank). Commercial Market transactions may be carried out exclusively through
a Brazilian financial institution authorized to operate in this market. As
used herein, the Floating Market applies to currency exchange transactions in
connection with transactions other than the ones conducted through the
Commercial Market.

Between March 1995 and January 1999, the Central Bank maintained a band
within which the exchange rate between the realand the U.S. dollar fluctuated,
and the Central Bank intervened in the foreign exchange markets from time to
time in order to keep the currency exchange rate within these limits. In early
January 1999, the Central Bank attempted a controlled devaluation of the real
by widening the band within which the real/U.S. dollar rate was permitted to
fluctuate, but subsequent Central Bank intervention failed to keep the exchange
rate within the new band. On January 15, 1999, the Central Bank announced that
the realwould be permitted to float freely, with

4



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##### 



Central Bank intervention to take place only in times of extreme
volatility. Since January 20, 1999, there has been no exchange rate band
between the realand the U.S. dollar, and the realvalue of the dollar has been
allowed to float. During this time, the Central Bank has intervened only
occasionally to control unstable movements in foreign exchange rates, and the
real-U.S dollar exchange rate has experienced considerable fluctuations. From
January 20, 1999 to June 6, 2003, the realdepreciated by approximately 45.23%
relative to the U.S dollar. We cannot predict whether the Central Bank will
continue to allow the realto float or whether realforeign-exchange rates will
remain stable. See   Risk Factors  Risks Relating to Brazil  Brazilian
political and economic conditions have a direct impact on our business and the
market price of the Preferred Shares and ADSs and   A substantial
devaluation of the realmay affect our ability to meet our foreign
currency-denominated obligations and result in a decline in the market prices
of the Preferred Shares and ADSs.

The following table sets forth the Noon Buying Rate, published by the
Federal Reserve Bank of New York, expressed in reaisper U.S. dollar, for the
periods indicated.

|                            |  |             |        |      |  |     |        |  |  |  |        | 
|--------------------------- |  | ----------- | ------ | ---- |  | --- | ------ |  |  |  | ------ | 
|                            |  | Average for |        |      |  |     |        |  |  | 
|Period                      |  | Period (1)  |        | High |  | Low
|                            |  |             |        |      |  |    
|1998                        |  |             | 1.1604 |      |  |     | 1.2090 |  |  |  | 1.1162 | 
|1999                        |  |             | 1.8135 |      |  |     | 2.2000 |  |  |  | 1.2074 | 
|2000                        |  |             | 1.8330 |      |  |     | 1.9840 |  |  |  | 1.7230 | 
|2001                        |  |             | 2.3220 |      |  |     | 2.7850 |  |  |  | 1.9720 | 
|2002                        |  |             | 2.9969 |      |  |     | 3.9450 |  |  |  | 2.2650 | 
|December 2002               |  |             | 3.6268 |      |  |     | 3.7950 |  |  |  | 3.4390 | 
|January 2003                |  |             | 3.4375 |      |  |     | 3.6590 |  |  |  | 3.2650 | 
|February 2003               |  |             | 3.5955 |      |  |     | 3.6640 |  |  |  | 3.5350 | 
|March 2003                  |  |             | 3.4567 |      |  |     | 3.5700 |  |  |  | 3.3320 | 
|April 2003                  |  |             | 3.1090 |      |  |     | 3.3290 |  |  |  | 2.8870 | 
|May 2003                    |  |             | 2.9517 |      |  |     | 3.0200 |  |  |  | 2.8750 | 
|2003 (through June 6, 2003) |  |             | 3.1935 |      |  |     | 3.6640 |  |  |  | 2.8750 | 



---

|(1) |  | Average of the rates on the last day of each month in the period.
|--- |  | -----------------------------------------------------------------

On June 6, 2003, the Noon Buying Rate was R$2.8850 to US$1.00.

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

Risk Factors

Risks Relating to Us

The conversion of our SMC concessions into PCS authorizations will have a
significant impact on our business

In December 2002, our Subsidiaries converted their respective concessions
to operate under Cellular Mobile Service (SMC) regulations into
authorizations to operate under Personal Communications Services (PCS)
regulations. The SMC regulations differ significantly from the PCS
regulations. We expect to meet our obligations under the PCS regulations, but
there is no assurance that we will be able to do so. A failure to comply with
the PCS regulations may have a material adverse effect on our business,
financial condition and results of operations.
5We may not receive as much interconnection revenue as we receive today.In order for a customer of another telecommunications service provider to
connect to one of our customers, it will be necessary to use a portion of our
network. In situations like these, when our network is used for a call
initiated by a customer of another telecommunications service provider
(Incoming Call), we are paid a fee by that service provider for every minute
our network is used. Similarly, we pay a fee to other telecommunications
service providers for every minute that their network is used in connection
with calls originating from our customers (Outgoing Call). Our customers may
spend more time placing Outgoing Calls than receiving Incoming Calls. As a
result, we may receive less interconnection revenue or pay more interconnection
fees than we presently do, with adverse effects to our financial condition and
results of operation. Furthermore, as a result of our conversion to PCS
authorizations, we will be subject to the CSP (Código de Seleção de Prestadora)
Program promulgated by Anatel under the PCS regulations, which will allow
customers to choose long distance carriers on a per call basis. While under
the concessions, we had the right to charge VC2 and VC3 rates for long distance
calls placed by our customers. Upon the effectiveness of the CSP Program, the
Company will no longer have the right to charge VC2 and VC3 rates for long
distance calls. As a result, we may receive less interconnection revenue, with
adverse effects to our business, financial condition and results of operations.The technology we use has limitations that could restrict our ability to
switch to more advanced technologies.The Brazilian wireless telecommunications market is experiencing
significant technological changes, as evidenced by:
    
    the introduction by Anatel of the PCS regime, under
which telecommunications service providers are allowed to use the
advanced global system for mobile communication technology
(GSM);
    
    shorter time periods between the introduction of new
telecommunication products and their required enhancements or
replacements; and
    
    ongoing improvements in the capacity and quality of
digital technology available in Brazil.We currently use time-division multiple
access technology (TDMA) in our
cellular telecommunications services we provide and plan to offer GSM, as well,
during the second half of 2003.We rely on a small number of suppliers and vendors, and if they fail to
provide us with services or equipment on a timely and cost-effective basis,
our business could be adversely affected.We rely on a small group of vendors for our switch and cellular site
equipment. If we had to replace our primary suppliers of switch and cellular
equipment, we would suffer additional costs and delays on our current
replacement schedules. We may have to change our suppliers and vendors in the
future, resulting in material adverse effects to our business, financial
condition and results of operations.Our business is dependent on our ability to expand our services and to
maintain the quality of the services provided.Our business, as a cellular telecommunications services provider, depends
on our ability to manage successfully our expansion and on continuous
investments in connection with our cellular telecommunications services
network. We believe our expected growth will require, among other things:
    
    continuous development of our operational and administrative systems;
    
    increasing marketing activities; and
    
    attracting, training and retaining qualified management, technical and sales personnel.6These activities are expected to place significant demand on our
managerial, operational and financial resources. Failure to successfully
manage our expected growth could impair our ability to maintain the quality of
our services, with adverse effects to our business, financial condition and
results of operations.We face increasing competition, which may adversely affect our market share
and marginsOur results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1996. Several licenses have been granted for cellular telecommunications
services in our areas of authorization, and the Federal Government began
auctioning additional PCS licenses on frequency ranges referred to as Bands C,
D and E during 2001.As a result, we are facing greater competition, which increased after PCS
providers began operations in 2002. Although we estimate our market share for
the entire authorization area at 59% on March 31, 2003, the cost of maintaining
this market share has increased while margins have decreased due to higher
client acquisition costs, such as those arising from selling commissions and
discounts. In the future, we also may incur higher advertising costs and
experience greater competitive pressure on pricing.The level of competition from fixed-line service providers also is
increasing, following the Federal Governments grant, in February 1999, of a
second concession to provide fixed-line telecommunications services in a region
that includes the Region where we provide cellular telecommunication services.Competition from other wireless telecommunications services, such as
digital trunking and paging services, may increase with certain changes in
economic conditions, such as increases in unemployment, because these services
are generally less expensive than cellular telecommunications services.
Technological changes in the telecommunications field, such as the development
of PCS and mobile satellite services, are expected to introduce additional
sources of competition.Increasing competition may continue to adversely affect our market share
and margins. Increased competition may cause us increasing rates of customer
turnover, adversely affecting our business, financial condition and results of
operations. Our ability to compete successfully will depend on marketing and
on our ability to anticipate and respond to competitive factors affecting the
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. Competition in the industry promises to be
substantial and has already pushed us to adjust our marketing strategies. We
may face competitors with greater access to financial resources and capital
markets than us. We cannot predict which of many possible factors will be
important to maintain our competitive position or what expenditures will be
required to develop and provide such technologies, products or services.We may experience a high rate of customer turnover which could increase our
costs of operations and reduce our revenueChurn reflects the number of customers who have their service terminated
during a period, expressed as a percentage of the simple average of customers
at the beginning and end of the period. Our rate of customer churn was 15.7%
in 1999, 26.5% in 2000, 18.4% in 2001 and 23.2% in 2002. The increase in
customer churn in 2002 was due mainly to an increase in involuntary churn.
Involuntary churn (the rate at which customers have their service terminated
by us) is primarily a consequence of adverse economic conditions in Brazil.
Pursuant to government regulations, we are required to provide cellular
telecommunications service to all individual applicants, regardless of income
level, in the order in which applications are received. We are unable to deny
service to persons whom we believe may have difficulties maintaining their
accounts. Voluntary churn (the rate at which customers voluntarily have
their service terminated) was 18.7% in 2000, 15.7% in 2001 and 7.2% in 2002.
Our high voluntary churn rate in 2000 and 2001 was a result of our competitors
aggressive subsidization of handset sales and customers leaving our postpaid
service plans in favor of our prepaid service plans. We experienced a decrease
in our voluntary churn rate in 2002 due to the implementation of a strategy to
protect market share aggressively and proactively and a reduction in the amount
of subsidies offered by competitors on handset sales. As indicated by our past
rates of custom churn, we may experience a high rate of customer turnover which
could increase our cost of operations and reduce our revenue.7We are dependent on fourth quarter resultsWe have experienced a trend of generating a significantly higher number of
new clients and handset sales in the fourth quarter of each year as compared to
the other three fiscal quarters. There can be no assurance that strong fourth
quarter results from new clients and handset sales will continue in future
years.We may be unable to respond to the recent trend toward consolidation in the
Brazilian wireless telecommunications market.We believe there has been a trend of consolidation in the Brazilian
telecommunications market, with possible joint ventures, mergers and
acquisitions among telecommunications service providers in the future. If such
consolidation occurs, it may result in increased competition within our market.
We may be unable to adequately respond to pricing pressures resulting from
consolidation in our market, adversely affecting our business, financial
condition and results of operations.Our controlling shareholder may exercise its control in a manner that
differs from the best interests of other shareholders.Telecom Italia Mobile S.p.A. (TIM), a corporation organized under the
laws of Italy, indirectly owned approximately 52.32% of our Common Shares and
2.25% of our total capital on December 31, 2002. TIM has had the ability to
determine those actions of ours that require shareholder approval, including
the election of a majority of our directors and, subject to Brazilian law, the
payment of dividends and other distributions. In addition, TIM may exercise
this control in a manner that differs from the best interests of other
shareholders.Risks Relating to the Brazilian Telecommunications IndustryWe are subject to various obligations in the performance of our activities,
with which we may be unable to comply.We are subject to compliance with various obligations arising from
different laws and regulations in the performance of our telecommunications
services, including, but not limited to, the obligations arising from the
following:
    
    the rules set forth by Anatel;
    
    the authorizations granted to our Subsidiaries; and
    
    the General Telecommunications Law (Lei no. 9, 472/97, as amended).We believe we are materially in compliance with our obligations arising out of
such laws, regulations and authorizations, but we cannot give you any assurance
that we will be able to continue to do so in the future. In addition, changes
in the laws and regulations to which we are subject, including those changes in
response to technological advances that we may not be able to implement, may
render us unable to comply with our obligations in the future, with material
adverse effects to our business, financial condition and results of operations.
Furthermore, the Lula administration has indicated that it will take a more
active role in regulating the telecommunications sector. We cannot predict the
impact of any of these regulatory developments on our business, financial
condition and results of operations.Risks Relating to BrazilBrazilian political and economic conditions may have a material adverse
effect on our business and a direct impact on the market price of the
Preferred Shares and ADSs.The Brazilian economy has been characterized by significant involvement on
the part of the Brazilian government, which often changes monetary, credit and
other policies to influence Brazils economy. The Brazilian governments
actions to control inflation and effect other policies have often involved,
among other things, high8interest rate environments, currency devaluations and
exchange controls, tariff and import quotas, electricity consumption controls,
and other measures, such as the freezing of bank accounts, which occurred in
1990.Actions taken by the Brazilian government concerning the economy may have
important effects on Brazilian corporations and other entities, including us,
and on market conditions and prices of Brazilian securities, including our
Preferred Shares and ADSs. Our financial condition and results of operations
may be adversely affected by the following factors and the Brazilian
governments response to these factors:
    
    devaluations and other exchange rate movements;
    
    inflation;
    
    exchange control policies;
    
    social instability;
    
    price instability;
    
    energy shortages;
    
    interest rates;
    
    liquidity of domestic capital and lending markets;
    
    tax policy; and
    
    other political, diplomatic, social and economic developments in or affecting Brazil.In addition, we cannot predict the effect that the policies of the Lula
administration, which took office in January 2003, may have on Brazilian
economic conditions or on our financial condition or results of operations.
The Lula administration has announced that it expects to implement reforms in
the Brazilian social security and welfare systems to address underfunding and
in Brazils tax and bankruptcy laws. To date, no significant legislative or
regulatory changes have been made by the Brazilian government. Future
developments or non-developments in the Brazilian economy and government
policies may reduce demand for our services or products, adversely affect its
financial condition and results of operations, and impact the market price of
the Preferred Shares and ADSs.Devaluation of the real may adversely affect Brazilian economic conditions
and our financial condition.Devaluation of the real relative to the U.S. Dollar could create
additional inflationary pressures in Brazil by generally increasing the price
of imported products and requiring recessionary governmental policies to curb
inflation. On the other hand, appreciation of the real against the U.S. Dollar
may lead to a deterioration of the countrys current account and the balance of
payments, as well as dampen export-driven growth. The potential impact of the
floating exchange rate and of measures by the Brazilian government aimed at
stabilizing the real is uncertain.A devaluation of the real may affect our ability to meet our foreign
currency-denominated obligations and result in a decline in the market
prices of our Preferred Shares and ADSs.Brazilian currency historically has suffered frequent devaluations. As a
result of inflationary pressures, the realand its predecessor currencies have
been devalued periodically over the last four decades. During this period, the
Brazilian government has implemented various economic plans and utilized a
number of exchange rate policies, including sudden devaluations, periodic
mini-devaluations, during which the frequency of adjustments has ranged from
daily to monthly, floating exchange rate systems, exchange controls and dual
exchange rate markets. From time to time, there have been significant
fluctuations in the exchange rates between the realand the U.S. Dollar and
other currencies. See   Selected Financial Data  Exchange Rates
for more information on exchange rates.9

The realfell in value relative to the U.S. dollar by 18.7% and 52.3% in
2001 and 2002, respectively. During 2001, the realexperienced a period of
significant devaluation, due in part to the economic uncertainties in
Argentina, the global economic slowdown and the energy crisis in Brazil.
During 2002, the realexperienced further devaluation, due in part to the continued global economic slowdown and
speculation related to the Presidential election in October 2002.

A depreciation of the realcould significantly increase the cost in reais
of dollar-determined costs, such as those that we may need to incur in
connection with new investments to upgrade technology (for example, from our
current TDMA technology to GSM technology). In the event of a significant
devaluation of the realin relation to the U.S. dollar or other currencies, our
ability to meet our foreign-currency denominated obligations could be adversely
affected, because our revenues are primarily reais-based. Further devaluations
of the realrelative to the U.S. dollar would reduce the U.S. dollar value of
distributions and dividends on the ADSs and also may reduce the market prices
of our Preferred Shares and the ADSs.

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

In the past, Brazil has experienced extremely high rates of inflation.
According to Brazils general price index (IGP-M),the inflation rate was
20.1% in 1999, 9.9% in 2000, 10.4% in 2001, 25.3% in 2002 and 6.3% for the
three months ended March 31, 2003. Inflation itself and some governmental
measures to combat inflation in the past have had significant negative effects
on the Brazilian economy. Inflation, actions taken to combat inflation and
public speculation about possible future governmental actions also have
contributed to economic uncertainty in Brazil and to heightened volatility in
the Brazilian securities markets. Since 1994, Brazils inflation rate has been
substantially lower than in previous periods. However, during this period,
there have been inflationary pressures and actions taken to curb inflation
which, together with public speculation about possible future governmental
actions, have contributed to economic uncertainty in Brazil and to heightened
volatility in the Brazilian securities market. Brazil may experience high
levels of inflation in the future. There can be no assurance that the lower
levels of inflation experienced since 1994 will continue. Future governmental
actions, including actions to adjust the value of the real, could trigger
increases in inflation.

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



| |  | Adverse changes in Brazilian economic conditions could cause an increase in
customer defaults on their outstanding obligations to us, which could
materially reduce our earnings.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our operations are significantly dependent on our customers ability to
make payments on their accounts. If the Brazilian economy worsens because of,
among other factors, the level of economic activity, devaluation of the real,
inflation or an increase in domestic interest rates, a greater portion of our
customers may not be able to make timely payments for services, which would
increase our past due accounts and could materially reduce our net earnings.



| |  | Developments in other emerging market countries may adversely affect the
Brazilian economy, limit our access to international capital markets and
negatively impact the market prices of our Common Shares, Preferred Shares
and ADSs.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe international investors in general consider Brazil to be an
emerging market. The Brazilian economy and the securities of Brazilian
companies always have been, to varying degrees, influenced by economic and
market conditions in other emerging market countries, particularly in Latin
America, as well as investors responses to those conditions. Although
economic conditions are different in each country, investors reactions to
adverse developments in one country may affect the market prices of securities
of issuers in other countries, including Brazil. For example, the 1997 Asian
economic crisis and the 1998 Russian debt moratorium and the devaluation of the
Russian currency triggered market volatility in Latin America and securities
markets in other

10



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emerging market countries. Adverse developments in emerging
market countries could lead to a reduction in demand for, and the market price
of, our Preferred Shares and ADSs.

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

State and municipal defaults may adversely affect the market price of the
Preferred Shares and ADSs.

We may be adversely affected by defaults by state and municipal
governments. In January 1999, the Brazilian States of Minas Gerais and Rio
Grande do Sul suspended payments on their debt to the Federal Government, and
seven States requested the renegotiation of their financing agreements with the
Federal Government. Although these States subsequently reinitiated their debt
payments, any defaults that may occur in the future and the perceived risks of
defaults by state and municipal governments may undermine investor confidence,
have a negative effect on the Brazilian economy and/or negatively impact the
relevant region. If the Brazilian economy or any of the regional economies in
which we operate were to be adversely affected by a default, our operations and
the market price of the Preferred Shares and ADSs may be adversely affected.

Enforcement of rights in Brazil may be difficult.

Our officers and many of our advisors reside in Brazil, and a substantial
portion of the assets of these persons and our assets are located in Brazil. We
are not aware of any treaty between the United States and Brazil regarding the
reciprocal enforcement of judgments. It may not be possible to effect service
of process upon these persons within the United States or other jurisdictions
outside of Brazil. Similarly, it may not be possible to enforce judgments of
non-Brazilian courts in Brazil, including judgments predicated on civil
liability under the U.S. securities laws against us or our directors and
officers.

Risks Relating to Our ADSs

Holders of Preferred Shares have limited voting rights.

Of our two classes of capital stock outstanding, only our Common Shares
have full voting rights. Except in certain limited circumstances, our
Preferred Shares will be entitled to vote only in the event that we fail to pay
the minimum dividends for a period of three consecutive years. As a result,
holders of our Preferred Shares generally will not be able to influence any
corporate decision requiring a shareholder vote, including the declaration of
dividends.

Holders of ADSs are not entitled to attend shareholders meetings and may
only vote through the Depositary.

Under Brazilian law, only shareholders registered as such in our corporate
books may attend shareholders meetings. All Preferred Shares underlying the
ADSs are registered in the name of the Depositary. A holder of ADSs,
accordingly, is not entitled to attend shareholders meetings. A holder of
ADSs is entitled to instruct the Depositary as to how to vote the Preferred
Shares represented by ADSs, in accordance with procedures provided for in the
Deposit Agreement, but a holder of ADSs will not be able to vote the underlying
Preferred Shares directly at a shareholders meeting or to appoint a proxy to
do so.



| |  | Holders of ADSs or Preferred Shares in the United States may not be entitled
to participate in future preemptive rights of offerings.
| |  | -------------------------------------------------------------------------------------------------------------------------------------

Under Brazilian law, if we issue new shares for cash as part of a capital
increase, we generally must grant our shareholders the right to purchase a
sufficient number of shares to maintain their existing ownership percentage.
Rights to purchase shares in these circumstances are known as preemptive
rights. We may not legally be permitted to allow holders of ADSs or Preferred
Shares in the United States to exercise any preemptive rights in any future
capital increase unless we file a registration statement with the Commission
with respect to that future issuance of

11



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shares or the offering qualifies for an
exemption from the registration requirements of the U.S. Securities Act of
1933, as amended. At the time of any future capital increase, we will evaluate
the costs and potential liabilities associated with filing a registration
statement with the Commission and any other factors that we consider important
to determine whether to file such a registration statement. We cannot
assure the holders of ADSs or Preferred Shares in the United States that we
will file a registration statement with the Commission to allow them to
participate in a preemptive rights offering. As a result, the equity interest
of such holders in us may be diluted proportionately.



| |  | Restrictions on the movement of capital out of Brazil may hinder ADS
investors ability to receive dividends and distributions on, and the
proceeds of any sale of, our Preferred Shares.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Any restrictions by the Federal Government on capital outflow may hinder
or prevent investors from converting the proceeds relating to our Preferred
Shares into U.S. dollars and remitting those proceeds abroad. Investors could
be adversely affected by delays in obtaining any required governmental approval
for conversion of reaispayments and remittances abroad in respect of our
Preferred Shares underlying the ADSs.

ITEM 4. INFORMATION ON THE COMPANY

Overview

We provide cellular telecommunications services in the Brazilian States of
Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco and Alagoas (the
Region) under authorizations from the Federal Government. The operations of
the Predecessor Companies related to us began to offer cellular
telecommunications services in December 1991. We are the leading provider of
cellular telecommunications services in the Region. At December 31, 2002, we
had 1,925,843 active cellular lines.

The Holding Company is a corporation (sociedade anônima) incorporated in
May 1998 and organized under the laws of Brazil. The Holding Companys
headquarters are located at Avenida Conde da Boa Vista 800, Boa Vista,
50060-004 Recife, PE, Brazil, and its telephone and fax numbers are (55 81)
3216-2591 and (55 81) 3216-2869, respectively.

Our History and Development

Prior to the incorporation of Telebrás in 1972, there were more than 900
telecommunications companies operating throughout Brazil. Between 1972 and
1975, Telebrás and its operating subsidiaries (collectively, the Telebrás
System) 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 in respect of
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 an independent regulatory agency
called Agência Nacional de Telecomunicações  ANATEL (Anatel).

In January 1998, in preparation for the restructuring and privatization of
the Telebrás System, the cellular telecommunications operations of Telebrás
operating subsidiaries were spun off into separate companies. In May 1998,
Telebrás was restructured to form, in addition to Telebrás, 12 New Holding
Companies by means of a procedure under the Brazilian Corporate Law called
cisão,or split-up. Virtually all the assets and liabilities of Telebrás,
including the shares held by Telebrás in the operating companies of the
Telebrás System, were allocated to the New Holding Companies. The split-up of
the Telebrás System into the New Holding Companies is referred to herein as the
Breakup or the Breakup of Telebrás.

12



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The New Holding Companies, together with their respective subsidiaries,
consist of eight cellular service providers, each operating in one of eight
regions (each a Cellular Region), three fixed-line service providers, each
providing local and intraregional long-distance service in one of three regions
(each a Fixed-Line Region) and Embratel
Participações S.A.  Embratel
(Embratel), which provides domestic (including intraregional and
interregional) long-distance telephone service and international telephone
service throughout Brazil. The fixed-line service provider operating in the
Fixed-Line Region that includes the Region is Tele Norte Leste Participações
S.A. (together with its subsidiaries, TNE). In this annual report,
references to the operations of TNE prior to January 1998 are to the fixed-line
operations of the Predecessor Companies.

The Holding Company is one of the New Holding Companies. In the Breakup,
the Holding Company was allocated all the share capital held by Telebrás in the
operating subsidiaries of the Telebrás System that provided cellular
telecommunications service in the Region. In July 1998, the Federal Government
sold substantially all of its shares of the New Holding Companies, including
the Holding Company, to private-sector buyers. The Federal Governments voting
shares of the Holding Company were purchased by a consortium comprised of UGB
Participações Ltda. (UGB) and Bitel. In March 1999, Bitel purchased all
shares of the Holding Company held by UGB, increasing its interest in the
Holding Company to 51.78% of the voting capital. See Item 7. Major
Shareholders and Related-Party Transactions.

Recent Developments

Conversion from SMC concessions to PCS authorizations

On December 10, 2002, the Subsidiaries converted their SMC concessions
into PCS authorizations. In order to remain competitive in the Brazilian
telecommunications market, we also decided to offer, in addition to TDMA, GSM
technology by the second half of 2003. As regulated by Anatel, cellular
telecommunications providers operating under GSM technology must do so under an
1800 MHz frequency, which is reserved for those providers operating under PCS
licenses auctioned by Anatel. To facilitate our move to include GSM technology
as a part of services, we acquired, through TIM, a PCS license to operate in
our Region.

The migration to PCS authorizations will create a new set of regulatory
obligations for the Subsidiaries, including new quality of service standards
and the introduction of the CSP Program, which will allow customers to choose
long distance carriers on a per call basis. In addition, under our PCS
authorizations, we will be allowed to set prices for our service plans, subject
to approval by Anatel. After we set these prices, we expect that they will be
adjusted annually for inflation based on the IGP-DI. See   PCS Regulation,
  Interconnection, and   Rate Regulation.

Reorganization to Transfer Goodwill

When Bitel and UGB purchased a majority of the Common Shares in connection
with the Privatization, they paid a premium over the book value of the Common
Shares, which was accounted for at the Bitel level. The value of the Goodwill,
net of amortization through April 2000, was R$602.3 million. In the first
quarter of the year 2000, we and Bitel initiated a corporate reorganization to
transfer the Goodwill to certain of the Subsidiaries so that the amortization
of the Goodwill could be available as a deduction against income for purposes
of calculating income taxes and social contribution tax on profits owed by the
Subsidiaries. As of December 31, 2002, the remaining value of the deferred tax
benefit related to the unamortized portion of the Goodwill was R$140.6 million.

In the first step of the corporate restructuring, the premium was
transferred to us through a process involving the formation by Bitel of a new
subsidiary to which it transferred the Goodwill and the merger of such new
subsidiary into us. This process was completed on April 28, 2000.

In the second step of the corporate restructuring, completed on June 30,
2000, we transferred to each of the Subsidiaries that Subsidiarys respective
share of the Goodwill, as well as the related provision and reserve, the value
of each Subsidiarys share thereof being determined by independent appraisal.
The purpose of this second step was to take maximum tax advantage of the
deductibility of the amortization of the Goodwill.

Under Brazilian law, the tax benefit generated by the amortization of the
Goodwill may revert to the benefit of our controlling shareholder. The Holding
Company may therefore capitalize the tax benefit and issue new shares

13



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to its controlling shareholder, Bitel, provided that the remaining shareholders have
the right to maintain their proportional participation in the Holding Company
by acquiring from Bitel such newly issued shares at their cost of issuance.
Accordingly, in return for the transfer of the Goodwill, the terms of the
reorganization anticipated the annual issuance to Bitel of a number of shares
in the Holding Company equal in value to the tax benefit realized from the
amortization of the Goodwill, calculated on the basis of the prevailing market
price for such shares. In connection with each such issuance of shares,
minority shareholders in the Holding Company have a preemptive right to
subscribe for such shares in a proportion equal to their percentage interest in
the capital stock of the Holding Company. Such right is exercisable at a price
equal to that used to calculate the number of shares to be issued to Bitel. In
the event that any minority shareholder elects to exercise such right, it will
be required to pay to Bitel an amount equal to the value of the shares with
respect to which the right is exercised. For fiscal years 2000, 2001 and 2002,
the tax benefit realized by us as a result of amortization of the Goodwill
amounted to R$10.9 million, R$23.2 million and R$25.2 million, respectively.
As a consequence, on June 22, 2001, a total of 3.3 billion Common Shares were
issued to Bitel in connection with the tax benefit realized by us for fiscal
year 2000. Approximately 69% of such Common Shares were purchased from Bitel
by minority shareholders. On June 14, 2002, 3.0 billion Common Shares and 4.9
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2001. Approximately 2% of such Common
Shares and 3% of such Preferred Shares have been purchased from Bitel by
minority shareholders. On May 15, 2003, 2.9 billion Common Shares and 4.8
billion Preferred Shares were issued to Bitel in connection with the tax
benefit realized by us for fiscal year 2002. Approximately 36.6% of such
Common Shares and 36.7% of such Preferred Shares have been purchased from Bitel
by minority shareholders. For more detailed information about the corporate
restructuring and the tax benefit arising therefrom, see Note 1(b) to the
Consolidated Financial Statements.

In addition to the capital increase that resulted from the capitalization
of the tax benefit, we also increased our capital by R$66.2 million on June 22,
2001 and by R$78.8 million on June 14, 2002, without the issuance of new
shares, by capitalizing a portion of its income reserves. As a consequence of
these capital increases, our total capital increased to R$288.4 million,
represented by 130.8 billion Common Shares and 215.0 billion Preferred Shares.

TIM Brasil Recent Developments

According to the rules set forth by Anatel for all PCS authorization
auctions, the controlling shareholders of Band A and Band B cellular service
providers were not allowed to hold more than one license, either in the form of
an authorization or a concession, in a single PCS Region. Accordingly, a
company controlling a Band A or Band B cellular service provider that acquires
control of a PCS authorization resulting in a geographical overlap of its
licenses has two alternatives:



| |  |  | it can sell its controlling shares in the Band A or
Band B cellular service providers within six months of purchasing
the PCS authorization; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | it can waive the right to operate under the PCS
authorization in the areas where overlaps exist.                                               

As a result, some companies controlled by TIM waived their rights to
provide PCS services in certain areas. In 2001, Portale Rio Norte and TIM
Centro Sul waived their rights to operate under PCS authorizations in areas
currently served by Maxitel, Tele Celular Sul and us, because of geographical
overlaps in the PCS authorizations awarded to Portale Rio Norte and TIM Centro
Sul and the concessions held at that time by Maxitel, Tele Nordeste Celular and
us.

On December 31, 2002, TIM Centro Sul and Portale Rio Norte merged into
Portale São Paulo S.A. On January 22, 2003, Portale São Paulo S.A. changed its
name to TIM Celular S.A. and presently is headquartered in the city of São
Paulo.

Organizational Structure

Bitel is a subsidiary of TIM Brasil S.A. TIM Brasil S.A. is a
consolidated Brazilian subsidiary of the TIM group, which provides mobile
telecommunications services to more than 39.1 million customers worldwide.
TIMs parent company is Telecom Italia S.p.A. (Telecom Italia), one of the
worlds largest fixed-line telecommunications operators, with approximately
27.1 million installed fixed lines (including ISDN equivalent

14



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lines). Telecom Italias business activities also include the leasing of its lines and the
provision of data communications services, information technology software and
information technology services. The Telecom Italia groups subsidiaries and
its portfolio of investments include fixed-line and mobile telecommunications
companies that operate mainly in Latin America and certain European countries.
In May 2003, the shareholders of Telecom Italia and Olivetti S.p.A.
(Olivetti) approved the merger of Telecom Italia into Olivetti. Upon the
completion of this merger, Olivetti will change its name to Telecom Italia
S.p.A.

TIM began operating in Brazil in 1998 and is today one of the leading
wireless operators in the country, reaching more than 5.3 million customers
nationwide. TIM considers its operations in Brazil to be of primary
importance, both as a standalone business and as a fundamental part of its
Pan-South American GSM strategy. In the 2001 auctions held by Anatel for Bands
D and E, TIM was the only company to be awarded licenses in each of the three
Brazilian regions, resultantly becoming the sole operator to offer services on
a nationwide level under the same brand. In 2002, TIM formed TIM Brasil S.A.,
the holding company of TIMs operating companies in the country. These
operating companies include Tele Celular Sul, a Band A operating company using
TDMA technology to service the states of Paraná, Santa Catarina and the city of
Pelotas in Rio Grande do Sul; TIM Maxitel, a Band B operating company using
TDMA technology to service the states of Bahia, Minas Gerais and Sergipe; TIM
Celular  PCS, a Band D operating company using GSM technology to service the
states of São Paulo, Goiás, Mato Grosso, Mato Grosso do Sul and Rio Grande do
Sul (except Pelotas) and in the Federal District and a Band E operating company
using GSM technology to service the states of Acre, Amapá, Amazonas, Pará,
Rondônia, Roraima. Tocantins and Rio de Janeiro; and us.

15



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The Region

The Region covers an area of approximately 635,486 square kilometers,
representing approximately 7.4% of Brazils area. The Region has 55
metropolitan areas with populations in excess of 100,000, including the cities
of Recife and Fortaleza, Brazils fifth and seventh largest cities,
respectively. Set forth below is a map showing the location of the Region
within Brazil.

(MAP)

The following table sets forth population, Gross Domestic Product (GDP)
and per capita income statistics for each State in the Region at the dates and
for the years indicated. The name of the Subsidiary that provides services in
each State is set forth in parentheses next to the name of the respective
State.

|                                     |  |                |      |                |  |               |      |                   |  |  |      |  |  |  |       | 
|------------------------------------ |  | -------------- | ---- | -------------- |  | ------------- | ---- | ----------------- |  |  | ---- |  |  |  | ----- | 
|                                     |  | Population     |      | % of Brazil's  |  | % of Brazil's |      | Per capita       
|State                                |  | (millions) (1) |      | population (1) |  | GDP (2)       |      | income in US$ (2)
|                                     |  |                |      |                |  |               |      |                  
|Pernambuco (Telpe Celular)           |  |                | 7.9  |                |  |               | 4.7  |                   |  |  | 2.64 |  |  |  | 1,437 | 
|Ceará (Teleceará Celular)            |  |                | 7.4  |                |  |               | 4.3  |                   |  |  | 1.89 |  |  |  | 1,187 | 
|Paraíba (Telpa Celular)              |  |                | 3.4  |                |  |               | 2.0  |                   |  |  | 0.84 |  |  |  | 964   | 
|Rio Grande do Norte (Telern Celular) |  |                | 2.9  |                |  |               | 1.7  |                   |  |  | 0.84 |  |  |  | 1,575 | 
|Alagoas (Telasa Celular)             |  |                | 2.8  |                |  |               | 1.6  |                   |  |  | 0.84 |  |  |  | 1,482 | 
|Piauí (Telepisa Celular)             |  |                | 2.8  |                |  |               | 1.7  |                   |  |  | 0.48 |  |  |  | 792   | 
|                                     |  |                |      |                |  |               |      |                   |  |  |      |  |  |  |       | 
|Region                               |  |                | 27.2 |                |  |               | 16.1 |                   |  |  | 7.34 |  |  |  | 1,239 | 
|                                     |  |                |      |                |  |               |      |                   |  |  |      |  |  |  |       | 



---

|(1) |  | Information from the Instituto Brasileiro de Geografia e Estatística
(IBGE) based upon Censo Demográfico 2000.
|--- |  | ----------------------------------------------------------------------------------------------------------------
|(2) |  | Information from Almanaque Abril 2001.                                                                          

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

16



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##### 



The Holding Company and the Subsidiaries

The following table sets forth the Holding Companys shareholding in each
Subsidiary as of December 31, 2000, 2001 and 2002:

|                  |  |                           |      |                         |  |                         |      |             |  |            |      |             |  |  |      |  |  |  |      |  |  |  |      | 
|----------------- |  | ------------------------- | ---- | ----------------------- |  | ----------------------- | ---- | ----------- |  | ---------- | ---- | ----------- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                  |  | Holding Company ownership
|                  |  |                          
|                  |  | As of December 31, 2000   |      | As of December 31, 2001 |  | As of December 31, 2002
|                  |  |                           |      |                         |  |                        
|                  |  | % of share                |      | % of voting             |  | % of share              |      | % of voting |  | % of share |      | % of voting
|Subsidiary        |  | capital                   |      | stock                   |  | capital                 |      | stock       |  | capital    |      | stock      
|                  |  |                           |      |                         |  |                         |      |             |  |            |      |            
|Telpe Celular     |  |                           | 77.2 |                         |  |                         | 95.0 |             |  |            | 77.7 |             |  |  | 94.9 |  |  |  | 78.7 |  |  |  | 95.2 | 
|Teleceará
Celular |  |                           | 79.3 |                         |  |                         | 85.2 |             |  |            | 79.5 |             |  |  | 85.6 |  |  |  | 80.0 |  |  |  | 86.0 | 
|Telasa Celular    |  |                           | 77.6 |                         |  |                         | 97.3 |             |  |            | 78.0 |             |  |  | 97.2 |  |  |  | 78.8 |  |  |  | 97.3 | 
|Telpa Celular     |  |                           | 71.4 |                         |  |                         | 95.0 |             |  |            | 71.8 |             |  |  | 94.9 |  |  |  | 71.9 |  |  |  | 94.9 | 
|Telern Celular    |  |                           | 75.4 |                         |  |                         | 92.5 |             |  |            | 75.4 |             |  |  | 92.6 |  |  |  | 76.2 |  |  |  | 92.9 | 
|Telepisa Celular  |  |                           | 78.4 |                         |  |                         | 97.8 |             |  |            | 78.8 |             |  |  | 97.5 |  |  |  | 79.4 |  |  |  | 97.6 | 

The following table sets forth the contribution made by each Subsidiary to
our net operating revenues and net income for the years ended December 31,
2000, 2001 and 2002.

|                  |  |           |    |          |  |           |    |          |  |           |    |          |  |          |    |  |  |  |    |  |  |  |    | 
|----------------- |  | --------- | -- | -------- |  | --------- | -- | -------- |  | --------- | -- | -------- |  | -------- | -- |  |  |  | -- |  |  |  | -- | 
|                  |  | 2000      |    | 2001     |  | 2002     
|                  |  |           |    |          |  |          
|                  |  | % of net  |    |          |  |           |    | % of net |  |           |    |          |  | % of net |    |  |  | 
|                  |  | operating |    | % of net |  | operating |    | % of net |  | operating |    | % of net
|Subsidiary        |  | revenues  |    | income   |  | revenues  |    | income   |  | revenues  |    | income  
|                  |  |           |    |          |  |           |    |          |  |           |    |         
|Telpe Celular     |  |           | 38 |          |  |           | 28 |          |  |           | 37 |          |  |          | 32 |  |  |  | 35 |  |  |  | 18 | 
|Teleceará Celular |  |           | 23 |          |  |           | 49 |          |  |           | 25 |          |  |          | 40 |  |  |  | 24 |  |  |  | 43 | 
|Telasa Celular    |  |           | 13 |          |  |           | 15 |          |  |           | 12 |          |  |          | 12 |  |  |  | 12 |  |  |  | 12 | 
|Telpa Celular     |  |           | 11 |          |  |           | 7  |          |  |           | 11 |          |  |          | 0  |  |  |  | 11 |  |  |  | 9  | 
|Telern Celular    |  |           | 11 |          |  |           | (3 | )        |  |           | 11 |          |  |          | 9  |  |  |  | 12 |  |  |  | 11 | 
|Telepisa Celular  |  |           | 6  |          |  |           | 4  |          |  |           | 6  |          |  |          | 8  |  |  |  | 6  |  |  |  | 7  | 

Our total revenue by category of activity for each of the last three
fiscal years are as set forth below:

|                                  |  |      |           |      |  |                      |           |  |  |  |           | 
|--------------------------------- |  | ---- | --------- | ---- |  | -------------------- | --------- |  |  |  | --------- | 
|Category of Activity              |  | 2000 |           | 2001 |  | 2002                
|                                  |  |      |           |      |  |                     
|                                  |  |      |           |      |  | (thousands of reais) |           |  |  | 
|Cellular telephone services       |  |      | 964,184   |      |  |                      | 1,006,577 |  |  |  | 1,129,642 | 
|Sales of handsets and accessories |  |      | 116,554   |      |  |                      | 47,976    |  |  |  | 68,834    | 
|                                  |  |      |           |      |  |                      |           |  |  |  |           | 
|Total                             |  |      | 1,080,738 |      |  |                      | 1,054,553 |  |  |  | 1,198,476 | 
|                                  |  |      |           |      |  |                      |           |  |  |  |           | 

As of December 31, 2002, substantially all of the Holding Companys assets
consisted of shares in the Subsidiaries. The Holding Company relies almost
exclusively on dividends from the Subsidiaries to meet its needs for cash,
including cash to pay dividends to its shareholders. See Item 5. Operating
and Financial Review and ProspectsLiquidity and Capital Resources.

Internet Company

On June 13, 2000, we incorporated timnet.com S.A. (timnet.com), an
Internet services company. timnet.com had an initial capitalization of
approximately R$18 million in common shares, held 50% by us and 50% by Tele
Celular Sul. As of December 31, 2001, with new capital contributions by
Maxitel S.A., we held a 33.3% interest in timnet.com. On December 31, 2002,
with new capital contributions by Portale São Paulo S.A. and TIM International
N.V., the following companies were timnet.coms shareholders, each holding a
20% interest:



           
the Holding Company;

17



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##### 





| |  |  | Tele Celular Sul;                                               
| | - |  | ----------------------------------------------------------------
|
| |  |  | Maxitel;                                                        
|
| |  |  | TIM Celular S.A. (formerly known as Portale São Paulo S.A.); and
|
| |  |  | TIM International N.V.                                          

On December 31, 2002, all of timnet.coms subscribed capital, in the amount of
R$78 million, was paid by the above listed shareholders.

The business purpose of timnet.com is to establish a common platform for
the technological and commercial development of value-added services and a
Wireless Application Protocol for cellular telephone service providers.
timnet.com is a start-up company operating in a developing sector, and the
reliability of its technology is yet to be proved. Accordingly, there can be
no assurance that timnet.com will become a profitable enterprise.

Network and Client Data

The following table sets forth information on our client base, coverage
and related matters at the dates and for the years indicated. Unless otherwise
indicated, all amounts are our estimates.

|                                                               |  |                 |           |      |  |      |           |   |  |    |           |  
|-------------------------------------------------------------- |  | --------------- | --------- | ---- |  | ---- | --------- | - |  | -- | --------- | -
|                                                               |  | At December 31,
|                                                               |  |                
|                                                               |  | 2000            |           | 2001 |  | 2002
|                                                               |  |                 |           |      |  |     
|Active cellular lines                                          |  |                 | 1,511,000 |      |  |      | 1,757,660 |   |  |    | 1,925,843 |  
|Growth in active cellular lines during year                    |  |                 | 27.2      | %    |  |      | 16.3      | % |  |    | 9.6       | %
|Estimated population of Region (millions) (1)                  |  |                 | 27.1      |      |  |      | 27.2      |   |  |    | 27.2      |  
|Percentage of population covered (2)                           |  |                 | 74.5      | %    |  |      | 75        | % |  |    | 75        | %
|Penetration (3)                                                |  |                 | 5.7       | %    |  |      | 6.5       | % |  |    | 6.9       | %
|Percentage of area of Region covered                           |  |                 | 29.0      | %    |  |      | 29        | % |  |    | 29        | %
|Average monthly incoming minutes of use per client during year |  |                 | 108       |      |  |      | 84        |   |  |    | 62        |  
|Average monthly outgoing minutes of use per client during year |  |                 | 53        |      |  |      | 48        |   |  |    | 51        |  
|Average monthly revenues per client during year (4)            |  | R$              | 46.5      |      |  | R$   | 41.2      |   |  | R$ | 42.1      |  



---

|(1) |  | IBGE estimates from Censo Demográfico 2000.                                          
|--- |  | -------------------------------------------------------------------------------------
|(2) |  | Percentage of population of the Region that can access our cellular
telephone signal.
|(3) |  | Number of active cellular lines in service divided by the population of
the Region.  
|(4) |  | In nominal reais, net of taxes.                                                      

Services

We are the leading supplier of cellular telecommunications in the Region
and supplies both analog and digital service. Our digital cellular
telecommunications service is based on the TDMA standard and was launched in
Recife in November 1998 and in the Regions other larger cities soon
thereafter. We plan to offer GSM technology during the second half of 2003.

We also offer ancillary services, including voicemail, call forwarding,
call waiting, caller identification, Short Message services (SMS), timnet
mail, timnet agenda and timnet news. In December 1998, we started selling
digital cellular telephones in connection with its cellular telecommunications
services, both directly and through its dealer network.

Through agreements with other cellular service providers, we offer
automatic roaming services throughout Brazil that allow clients to make and
receive calls while out of the Region. We offer international roaming in
Argentina, Uruguay and Paraguay through agreements with local cellular service
providers. We also offer international roaming in Europe through an agreement
with Tele Celular Sul, allowing us to take advantage of Tele Celular Suls
agreements with European local cellular service providers. We provide a
reciprocal roaming service to clients of other cellular service providers while
they are in the Region. See Operating AgreementsRoaming Agreements.
In May 1999, we launched a prepaid system within the Region, and in February
2000, we offered

18



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automatic roaming services, for incoming calls only,
throughout Brazil. We continuously adjust our tariff plans to
attract and retain clients. We also provide fixed-line and cellular
service providers with interconnection services, completing calls to our
clients that originate with other service providers. See Operating
AgreementsInterconnection Agreements.

timnet.com offers a range of Internet-related services, including Internet
access and related services, website hosting and design, information and data
processing services, and informational and technical consulting. Under its
by-laws, timnet.com also has the ability to enter into contracts, consortia and
joint ventures and otherwise to make investments and hold interests in other
entities.

In 2001, we launched new pre- and post-paid plans and services. We
introduced new tariff plans (Day, Night and Any Time) to prepaid clients
and offered our prepaid clients the ability to increase the amount credited to
their cellular telephone accounts through online transfers from their accounts
at local banks. We also have expanded the range of postpaid plans. Among the
new services we offered in 2001 are Blah!!! (an interactive chat capability
using the digital display of a cellular handset), Icons (a caller recognition
feature that causes a symbol to be displayed when a call from a particular
telephone line is received) and Ring Tones (a facility for downloading
software that enables the customer to customize the ring of a cellular
handset).

In 2001, we also launched our Intelligent Network services, which allow
our clients to monitor usage and control costs by routing communications
entirely through our network. In connection with the launch of our Intelligent
Network services, we introduced tariff plans to corporate customers that would
allow them to take advantage of reduced interconnection charges for
communications engaged in exclusively on our network. We also offered
corporate customers plans in which they could purchase minutes in large blocks
at discounted rates and allocate such minutes among two or more telephone
numbers.

In 2002, we launched more new services. We introduced Group Calls which
enables customers to choose five cellular numbers, one of which may be a
fixed-line number, to which they may make reduced rate calls. We further
introduced a Minutes Available service, which allows subscribers to verify
both the number of minutes remaining on their plans and any outstanding billed
amounts by sending a text message to a specific number. We launched Business
E-Message, which allows customers to send text messages to pre-established
groups, and TIM Shop the first Internet site in the Region for the sale of
cellular handsets. We also revamped our TIM Formula Plans to realign rates
charged to match customer demand, including a Zero Rate corporate plan which
exempts calls made within a corporate clients group from certain rate charges
in exchange for a payment of a flat surcharge.

Sales and Marketing

Following our privatization and the introduction of competition, we
implemented a number of significant sales and marketing initiatives, including
the introduction of a number of prepaid service plans. See Sources of
RevenueUsage Charges. In March 1999, we began marketing our cellular
telecommunications service under the brand TIM. The TIM brand also is used
by Tele Celular Sul, which provides cellular telecommunications service in
southern Brazil and is controlled by Bitel, the Holding Companys controlling
shareholder. See Item 7. Major Shareholders and Related-Party Transactions.

We divide our market into three main categories: large business customers
(businesses with four or more cellular lines), medium business customers
(businesses with fewer than four cellular lines), and individual customers.
These categories are divided further according to level of usage,
distinguishing, for example, high-volume users from other categories of usage.
We take these categories into account when developing service plans, sales
strategies, customer service strategies and new products, as well as for
billing and collection purposes. We also use market research reports and focus
group studies to analyze our customer base.

We market our services through a network of stores that includes general
retail stores that sell our cellular telecommunications services and related
goods on a non-exclusive basis and dedicated outlets that sell our services and
goods exclusively. As of December 31, 2002, our services were marketed through
443 stores, of which 10 were operated by us and 433 were operated by
independent dealers. As of March 31, 2003 we market our services through 510
stores, of which 10 are operated by us and 500 by independent dealers. This
network enables us to market our services and provide after-sale service
throughout the Region. We also market our cellular telecommunications service
directly to certain large corporate customers.

19



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Our agreements with our dealers provide for the payment of commissions
that vary depending on whether the dealer operates a dedicated outlet or a
general retail store. In 2002, because of increasing competition in the
Region, we renegotiated our agreements with dealers operating dedicated outlets
to allow them to sell more than one brand. We provide dealers with advertising
and marketing materials and make contributions to their advertising costs on a
case-by-case basis. Our dealers also receive product and customer service
training.

We also engage in seasonal and other marketing promotions of our services
to maintain our market share and protect our margins. In September 2002, we
reformulated our rate plans in an attempt to make them easier to understand and
more attractive to clients.

Anatel requires that cellular telecommunications services be provided to
all individual applicants, regardless of income level, in the order in which
applications are received. We, however, may recommend suitable service plans,
including our prepaid card plan, to applicants for cellular service. We
conduct credit checks to assist in managing the risk of payment defaults.
Service may be interrupted if a customer fails to make timely payments. See Billing and Collection.

Sources of Revenue

In 2002, our revenues consisted of usage charges, which included measured
service charges for outgoing calls, prepaid service charges and roaming
charges; monthly subscription charges; interconnection charges to other
cellular and fixed-line service providers for use of our network; other
revenues, including revenues from site sharing and charges for call forwarding,
call waiting and call blocking; since December 1998, proceeds from the sale of
cellular telephones and accessories; and revenues from Internet related
services, including SMS, timnet mail, timnet agenda and timnet news. We
stopped charging activation fees in December 1998 and have not resumed charging
such fees.

Our rates during 2002 were generally subject to regulation by Anatel.
After the applicable transition period, we will be allowed to set prices for
our service plans, subject to approval by Anatel. After we set these prices,
we expect that they will be adjusted annually for inflation based on the
IGP-DI. See Regulation of the Brazilian Telecommunications Industry.

Usage Charges

Charges for cellular calls are calculated based on the clients service
plan, the location of each party to the call and the duration of the call.
Unlike in North America, cellular telecommunications service in Brazil is
offered on a calling party pays basis, under which the client generally pays
only for outgoing calls. Clients are required to pay certain fees when they
receive calls while outside of their home registration areas. There are 29
registration areas in the Region.

The following charges applied under most service plans. The category of
charges containing the lowest base rates per minute (VC1) applied to calls
made by a client in a home registration area to persons in the same
registration area. Charges for calls to persons outside a home registration
area but within the Region were assessed at higher rates in a different
category (VC2). Calls to persons outside the Region were billed at the
highest rates contained in a third category (VC3). Each category of charges
contained one rate for calls to fixed-line telephones and another, generally
higher, rate for calls to cellular telephones. When clients made or received a
call while outside their home registration area, a per-call surcharge known as
AD was applicable. When clients receive a call while outside their home
registration area, clients also pay one per-minute rate (DSL1) if the client
is located within the Region and a higher rate (DSL2) if the client was
located outside the Region. Measured service charges were discounted for calls
made between 9:00 p.m. and 7:00 a.m. on weekdays (other than national
holidays), after 2:00 p.m. on Saturdays, or at any time on Sundays and national
holidays (off-peak calls). Discounts for off-peak calls ranged from 0% to
66% for postpaid plans and from 0% to 81% for prepaid plans, depending on the
plan.

The basic service plan was our principal service plan and was used by a
large majority of its clients (other than those who purchase services on a
prepaid basis). The following table sets forth the rates for the basic service
plan at December 31, 2000, 2001 and 2002 in nominal reais:

20



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##### 



|                              |             |      |                 |      |  |      |       |      |  |  |       |      | 
|----------------------------- | ----------- | ---- | --------------- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                              |             |      | At December 31,
|                              |             |      |                
|Charges(4)                    |             | 2000 |                 | 2001 |  | 2002
|                              |             |      |                 |      |  |     
|                              |             |      | (nominal reais)
|Monthly subscription fee      |             |      | 16.81           |      |  |      | 18.39 |      |  |  | 19.39 |     
|Timed charges (per minute)(1) |             |      |                 |      |  |      |       |      |  |  |       |     
|                              | VC1 (MF(2)) |      |                 | 0.40 |  |      |       | 0.44 |  |  |       | 0.46 | 
|                              | VC1 (MM(3)) |      |                 | 0.53 |  |      |       | 0.58 |  |  |       | 0.63 | 
|                              | VC2 (MF(2)) |      |                 | 0.70 |  |      |       | 0.44 |  |  |       | 0.46 | 
|                              | VC2 (MM(3)) |      |                 | 0.70 |  |      |       | 0.58 |  |  |       | 0.63 | 
|                              | VC3         |      |                 | 0.84 |  |      |       | 0.82 |  |  |       | 1.18 | 
|                              | DSL1        |      |                 | 0.40 |  |      |       | 0.29 |  |  |       | 0.40 | 
|                              | DSL2        |      |                 | 0.46 |  |      |       | 0.40 |  |  |       | 0.63 | 
|AD (per call)                 |             |      | 0.42            |      |  |      | 0.52  |      |  |  | 0.50  |     



---

|(1) |  | All rates are peak rates. A discount of 30% applies to off-peak calls
made under the basic service plan.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | MF denotes the rate charged for calls to fixed-line telephones.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) |  | MM denotes the rate charged for calls to cellular telephones.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(4) |  | The terms of our service plans presented in the table are in effect in
the Brazilian States of Alagoas, Paraiba, Rio Grande do Norte, Ceara and
Piaui. The terms of our service plans in the state of Pernambuco are
different from those in the table due to differences in ICMS tax rates.
The ICMS tax rate in each state in the Region is 25% for domestic
telecommunications services, except in the state of Pernambuco, where a
28% rate went into effect as of January 1, 2002. See Taxes on
Telecommunications Goods and Services.

We offered a number of different plans, as set forth in the table below.
The monthly subscription fee for each of these plans included a number of
prepaid VC1 call minutes.

In May 1999, we launched our Timmy Digital prepaid services plans.
Under these plans, clients may obtain prepaid credits by purchasing calling
cards or by electronically refilling their accounts through bank transfers.
Since February 2000, clients using prepaid services have been able to receive
calls when outside of the Region, within Brazil. After their call credits are
exhausted, such clients may continue to receive calls from within the Region
but must purchase additional credits to make further outgoing calls.
Activation and monthly subscription charges are not applicable to, and no
credit risk or billing cost is associated with, prepaid services. On March 31,
2003, clients using prepaid services made up 65% of the customer base.
Management expects that the proportion of clients using prepaid services will
continue to increase.

21



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##### 



The following table sets forth certain terms of our service plans, in
nominal reais, as of December 31, 2002: (1) (2)

|                      |  |         |          |         |  |         |      |         |  |         |      |         |  |         |      |            |  |         |      |  |  |  |      |  |  |  |      |  |  |        |        | 
|--------------------- |  | ------- | -------- | ------- |  | ------- | ---- | ------- |  | ------- | ---- | ------- |  | ------- | ---- | ---------- |  | ------- | ---- |  |  |  | ---- |  |  |  | ---- |  |  | ------ | ------ | 
|                      |  |         |          |         |  |         |      |         |  |         |      |         |  |         |      |            |  |         |      |  |  |  |      |  |  |  |      |  |  | Charge
|                      |  |         |          |         |  | VC1     |      | VC1     |  | VC2     |      | VC2     |  | VC3     |      | VC4        |  | for 600
|                      |  | Monthly |          | (MF(3)) |  | (MM(4)) |      | (MF(3)) |  | (MM(4)) |      | (MF(3)) |  | (MM(4)) |      | Additional
|                      |  | Charge  |          | Rate    |  | Rate    |      | Rate    |  | Rate    |      | Rate    |  | Rate    |      | Minutes   
|                      |  |         |          |         |  |         |      |         |  |         |      |         |  |         |      |           
|10 minute plan        |  |         | 18.39    |         |  |         | 0.73 |         |  |         | 0.83 |         |  |         | 0.73 |            |  |         | 0.83 |  |  |  | 1.05 |  |  |  | 1.05 |  |  |        |        | 
|30 minute plan        |  |         | 29.80    |         |  |         | 0.55 |         |  |         | 0.55 |         |  |         | 0.55 |            |  |         | 0.55 |  |  |  | 0.66 |  |  |  | 0.66 |  |  |        |        | 
|60 minute plan        |  |         | 41.19    |         |  |         | 0.44 |         |  |         | 0.61 |         |  |         | 0.44 |            |  |         | 0.61 |  |  |  | 0.99 |  |  |  | 0.99 |  |  |        |        | 
|90 minute plan        |  |         | 48.00    |         |  |         | 0.41 |         |  |         | 0.61 |         |  |         | 0.41 |            |  |         | 0.61 |  |  |  | 0.99 |  |  |  | 0.99 |  |  |        |        | 
|120 minute plan       |  |         | 53.81    |         |  |         | 0.36 |         |  |         | 0.61 |         |  |         | 0.36 |            |  |         | 0.61 |  |  |  | 0.95 |  |  |  | 0.95 |  |  |        |        | 
|240 minute plan       |  |         | 86.69    |         |  |         | 0.36 |         |  |         | 0.52 |         |  |         | 0.36 |            |  |         | 0.52 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|360 minute plan       |  |         | 118.80   |         |  |         | 0.36 |         |  |         | 0.52 |         |  |         | 0.36 |            |  |         | 0.52 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|480 minute plan       |  |         | 148.00   |         |  |         | 0.36 |         |  |         | 0.52 |         |  |         | 0.36 |            |  |         | 0.52 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|600 minute plan       |  |         | 180.00   |         |  |         | 0.36 |         |  |         | 0.52 |         |  |         | 0.36 |            |  |         | 0.52 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|720 minute plan       |  |         | 201.60   |         |  |         | 0.36 |         |  |         | 0.50 |         |  |         | 0.36 |            |  |         | 0.50 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|960 minute plan       |  |         | 255.00   |         |  |         | 0.36 |         |  |         | 0.50 |         |  |         | 0.36 |            |  |         | 0.50 |  |  |  | 0.70 |  |  |  | 0.70 |  |  |        |        | 
|1,200 minute plan     |  |         | 299.00   |         |  |         | 0.30 |         |  |         | 0.42 |         |  |         | 0.30 |            |  |         | 0.42 |  |  |  | 0.60 |  |  |  | 0.60 |  |  |        |        | 
|1,200 minute plan (5) |  |         | 395.00   |         |  |         | 0.30 |         |  |         | 0.30 |         |  |         | 0.30 |            |  |         | 0.30 |  |  |  | 0.59 |  |  |  | 1.05 |  |  |        |        | 
|1,200 minute plan(6)  |  |         | 375.00   |         |  |         | 0.38 |         |  |         | 0.38 |         |  |         | 0.38 |            |  |         | 0.38 |  |  |  | 0.52 |  |  |  | 0.52 |  |  |        | 188.00 | 
|1,800 minute plan (5) |  |         | 570.00   |         |  |         | 0.30 |         |  |         | 0.30 |         |  |         | 0.30 |            |  |         | 0.30 |  |  |  | 0.59 |  |  |  | 0.66 |  |  |        |        | 
|2,400 minute plan(6)  |  |         | 680.00   |         |  |         | 0.37 |         |  |         | 0.37 |         |  |         | 0.37 |            |  |         | 0.37 |  |  |  | 0.52 |  |  |  | 0.52 |  |  |        |        | 
|2,400 minute plan (5) |  |         | 725.00   |         |  |         | 0.30 |         |  |         | 0.30 |         |  |         | 0.30 |            |  |         | 0.30 |  |  |  | 0.59 |  |  |  | 0.99 |  |  |        | 170.00 | 
|3,000 minute plan (5) |  |         | 890.00   |         |  |         | 0.30 |         |  |         | 0.30 |         |  |         | 0.30 |            |  |         | 0.30 |  |  |  | 0.59 |  |  |  | 0.99 |  |  |        |        | 
|4,800 minute plan (6) |  |         | 1,310.00 |         |  |         | 0.36 |         |  |         | 0.36 |         |  |         | 0.36 |            |  |         | 0.36 |  |  |  | 0.52 |  |  |  | 0.52 |  |  |        | 164.00 | 
|6,000 minute plan (5) |  |         | 1,730.00 |         |  |         | 0.30 |         |  |         | 0.30 |         |  |         | 0.30 |            |  |         | 0.30 |  |  |  | 0.59 |  |  |  | 0.95 |  |  |        |        | 
|9,600 minute plan(6)  |  |         | 2,510.00 |         |  |         | 0.34 |         |  |         | 0.34 |         |  |         | 0.34 |            |  |         | 0.34 |  |  |  | 0.52 |  |  |  | 0.52 |  |  |        | 157.00 | 
|Prepaid  Day plan    |  |         | N/A      |         |  |         | 0.75 |         |  |         | 0.75 |         |  |         | 0.75 |            |  |         | 0.75 |  |  |  | 0.75 |  |  |  | 0.75 |  |  |        |        | 
|Prepaid  Night plan  |  |         | N/A      |         |  |         | 0.99 |         |  |         | 0.99 |         |  |         | 0.99 |            |  |         | 0.99 |  |  |  | 0.99 |  |  |  | 0.99 |  |  |        |        | 
|Prepaid  Anytime     |  |         | N/A      |         |  |         | 0.72 |         |  |         | 0.72 |         |  |         | 0.72 |            |  |         | 0.72 |  |  |  | 0.72 |  |  |  | 0.72 |  |  |        |        | 
|Prepaid  Blue rate   |  |         | N/A      |         |  |         | 0.81 |         |  |         | 0.81 |         |  |         | 0.81 |            |  |         | 0.81 |  |  |  | 1.31 |  |  |  | 1.31 |  |  |        |        | 
|Prepaid  Green rate  |  |         | N/A      |         |  |         | 1.31 |         |  |         | 1.31 |         |  |         | 1.31 |            |  |         | 1.31 |  |  |  | 1.62 |  |  |  | 1.62 |  |  |        |        | 
|Prepaid  Corporate   |  |         |          |         |  |         |      |         |  |         |      |         |  |         |      |            |  |         |      |  |  |  |      |  |  |  |      |  |  |        |        | 
|plan                  |  |         | N/A      |         |  |         | 0.59 |         |  |         | 0.59 |         |  |         | 0.59 |            |  |         | 0.59 |  |  |  | 0.59 |  |  |  | 0.59 |  |  |        |        | 



---

|(1) |  | The terms of our service plans presented in the table are in effect in
the Brazilian States of Alagoas, Paraíba, Rio Grande do Norte, Ceará and
Piauí. The terms of our service plans in the State of Pernambuco differ
from those in the table solely because of differences in the ICMS tax
rate. The ICMS tax rate in each state in the Region is 25% for domestic
telecommunications services, except in the state of Pernambuco, where a
28% rate went into effect as of January 1, 2002. See Taxes on
Telecommunications Goods and Services.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | All rates are peak rates. Discounts, ranging from 0% to 66% for postpaid
plans and from 0% to 81% for prepaid plans, apply to off-peak calls,
depending on the plan.                                                                                                                                                                                                                                                                                                                                                                                 
|(3) |  | MF denotes the rate charged for calls to fixed-line telephones.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(4) |  | MM denotes the rate charged for calls to cellular telephones.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(5) |  | Corporate plan for five or more lines. Additional monthly charges are
charged on a pro-rated basis for each line subsequently added.                                                                                                                                                                                                                                                                                                                                                                                                                 
|(6) |  | Corporate plan for three or more lines. Monthly charges are increased by
R$10.00 for each line subsequently added.                                                                                                                                                                                                                                                                                                                                                                                                                                   

In July 2000, Anatel authorized an average price increase of up to 8.2%,
effective December 11, 2000, after which we implemented an average price
increase of 7%. In January 2002, Anatel authorized an average price increase
of up to 10.4%, effective February 1, 2002, after which in November 2002, we
increased prices by 4.38% in Alagoas, Paraíba, Rio Grande do Norte, Ceará and
Piauí, and by 7.38% in Pernambuco. In February 2003, Anatel authorized an
additional increase of 21.9%, after which in March 2003, we increased prices by
10.0% in Alagoas, Paraíba, Rio Grande do Norte, Ceará and Piauí, and by 9.6% in
Pernambuco. Since our price increases were below those authorized by Anatel,
our prices remain below the price ceilings set by Anatel under the SMC
regulations. See Regulation of the Brazilian Telecommunications
Industry.

22



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##### 



The rate structure currently applicable to Brazilian cellular
telecommunications companies will be changed with the introduction of the CSP
Program, expected to occur in the second half of 2003. The CSP Program will
allow customers to select long-distance carriers on a per call basis. In
addition, home registration areas will be larger geographically and fewer in
number. Under this new rate allocation structure, a customer will be charged
directly by us only for calls completed within that customers home
registration area. Long-distance calls, however, will be charged to a customer
by the chosen long-distance carrier. This long-distance carrier, in turn, will
pay us a new VU-M fee for any use of its network for such a long-distance call.

Roaming Fees

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

Interconnection

We earn revenues from any call to a client that originates from another
service provider (cellular or fixed-line). We charge the service provider from
whose network the call originates an interconnection charge for every minute
our network is used in connection with the call. See Operating AgreementsInterconnection Agreements. The interconnection fee we charged to the
other service providers from January 1998 through November 1999 was R$0.19 per
minute, net of taxes. The per-minute interconnection fee, net of taxes, was
increased to R$0.2607 in December 2000, R$0.2963 in February 2002 and to
R$0.3614 in February 2003, in each case following Anatel approval.

Cellular Telephone Sales

We started selling digital cellular telephones in December 1998, both
directly and through its dealer network. The telephones are often sold at or
below cost as part of one of our packages that include cellular
telecommunications services. Management believes that, while sales of cellular
telephones may be, from time to time, a significant source of revenue, they are
unlikely to become a significant source of income. At present, supplies of
cellular handsets sufficient to satisfy demand in the Region are available in
the market, making it unnecessary for us to engage in significant levels of
handset sales. Additionally, no meaningful demand for us to supply handsets
has developed, although our move to offer GSM technology by the second half of
2003 may result in increased demand. See Network.

Internet Related Services

We began to provide Internet related services in the second half of 2000,
some of them at no cost to our clients. As a result, we had almost no revenues
from Internet-related services in 2000. In 2001 and 2002, demand for such
services did not develop significantly.

Taxes on Telecommunications Goods and Services

The costs of telecommunications goods and services to clients are subject
to a variety of taxes, currently including ICMS, ISS, COFINS, PIS, FUST Tax,
FUNTTEL Tax and FISTEL Tax, which are described below.



| |  |  | ICMS.The principal tax applicable to telecommunications
goods and services is a state value-added tax, the Imposto sobre
Circulação de Mercadorias e Serviços(ICMS), which the Brazilian
States impose at varying rates on certain revenues from the sale of
goods and services, including certain telecommunications services.
The ICMS tax rate in each state in the Region is 25% for domestic
telecommunications services, except in the State of Pernambuco,
where a 28% rate went into effect as of January 1, 2002. The ICMS
tax rate imposed on the sale of cellular telephones averages 17%
throughout the Region. In June 1998, the governments of individual
Brazilian States approved an agreement to interpret existing
Brazilian tax law to apply ICMS, effective July 1, 1998, to certain
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23



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##### 





| |   |  | services to which ICMS had not previously been applied, including
cellular activation fees. See Item 8. Financial InformationLegal ProceedingsLitigation Related to the Application of ICMS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ISS. The Imposto Sobre Serviços(ISS) is a tax on revenues
from certain services, which municipalities impose at varying rates.
In cities in the Region with a population greater than 400,000, the
ISS rate is around 5%. As provided by Constitutional Amendment No.
20, dated June 12, 2002, municipalities must charge a minimum rate
of 2% and must not grant any direct or indirect tax benefits that
may result in an effective rate below 2%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | COFINS.The Contribuição Social para o Financiamento da
Seguridade Social(COFINS) is a social contribution tax on gross
revenues (both operating and financial). On November 27, 1998, the
Brazilian government increased the COFINS rate from 2% to 3% but
permitted taxpayers to offset up to one-third of the amount of
COFINS paid against the amount owed as Contribuição Sobre Lucro
Líquido(CSL), a social contribution tax assessed on net income.
The ability to offset COFINS against CSL was subsequently revoked
for periods after January 1, 2000. In each State in the Region, the
Subsidiaries historically have passed charges for COFINS along to
their customers. In 2002, the Federal Government filed a lawsuit
against Teleceará Celular and Telpe Celular to prevent this billing
practice and to force Teleceará Celular and Telpe Celular to pay to
each customer an amount equal to double the amount charged to such
customer for COFINS. Although the lawsuit was filed only in the
States of Ceará and Pernambuco, if Teleceará Celular or Telpe
Celular lose the lawsuit, we may decide to discontinue our practice
of passing charges for COFINS through to our customers in all the
States in the Region, which would increase our costs. See Item 8.
Financial InformationLegal ProceedingsLitigation Related to
the Application of PIS and COFINS.          
|
| |  |  | PIS.The Programa de Integração Social(PIS) is another
social contribution tax, imposed prior to December 2002 at a rate of
0.65% on gross revenues from certain telecommunications service
activities (both operating and financial) and handset sales.
Beginning in December 2002, PIS has been levied at a rate of 1.65%
on gross revenues from sales of handsets, according to law
10,637/02. In each state in the Region, the Subsidiaries
historically have passed charges for PIS along to their customers.
In the same lawsuit filed against Teleceará Celular and Telpe
Celular to prevent them from charging customers for COFINS through
to their customers, the Federal Government also has demanded that
Teleceará Celular and Telpe Celular stop passing charges for PIS.
In this lawsuit, the Federal Government has requested that Teleceará
Celular and Telpe Celular pay to each customer an amount equal to
double the amount charged to such customer for PIS. Although the
lawsuit was filed only in the States of Ceará and Pernambuco, if
Teleceará Celular or Telpe Celular lose the lawsuit, we may decide
to discontinue our practice of passing charges for PIS through to
its customers in all the States in the Region, which would increase
our costs. See Item 8. Financial InformationLegal ProceedingsLitigation Related to the Application of PIS and COFINS.
|
| |  |  | FUST.On August 17, 2000, the Brazilian government created
the Fundo de Universalização dos Serviços de Telecomunicações
(FUST), a fund that is supported by a social contribution tax
applicable to all telecommunications services (FUST Tax). The
purpose of the FUST is to reimburse a portion of the costs incurred
by telecommunications service providers to meet the universal
service targets required by Anatel throughout the Region (such as
targets for rural and impoverished areas, schools, libraries and
hospitals), in case these costs are not entirely recovered through
the collection of telecommunications service fees and charges. The
FUST Tax is imposed at a rate of 1% on gross operating revenues, and
its cost may not be passed on to clients. Telecommunications
companies can draw from the FUST upon meeting the universal service
targets required by Anatel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | FUNTTEL.On November 28, 2000, the Brazilian government
created the Fundo para Desenvolvimento Tecnológico das
Telecomunicações(the FUNTTEL), a fund that is supported by a
social contribution tax applicable to all telecommunications
services (the FUNTTEL Tax). The FUNTTEL is a fund managed by
BNDES and FINEP, a government research and development agency. The
purpose of the FUNTTEL is to promote the development of
telecommunications technology in Brazil and to improve competition
in the industry by financing research and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

24



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##### 





| |   |  | development in the area of
telecommunications technology. The FUNTTEL
Tax is imposed at a rate of 0.5% on gross operating revenues, and its
cost may not be passed on to clients.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | FISTEL.The Fundo de Fiscalização das Telecomunicações(the
FISTEL), a fund supported by a tax applicable to
telecommunications services (the FISTEL Tax), was established in
1966 to provide financial resources to the Brazilian government for
its regulation and inspection of the sector. The FISTEL Tax
consists of two types of fees: an installation inspection fee
assessed on telecommunications stations upon the issuance of their
authorization certificates and an annual operations inspection fee
that is based on the number of authorized stations in operation at
the end of the previous calendar year. The amount of the
installation inspection fee is a fixed value, depending upon the
kind of equipment installed in the authorized telecommunications
station. The operations inspection fee equals 50% of the total
amount of installation inspection fees that would have been paid
with respect to existing equipment.

Seasonality

We have experienced a trend of generating a significantly higher number of
new clients and handset sales in the fourth quarter of each year as compared to
the other three fiscal quarters. A number of factors contribute to this
trend, including the increased use of retail distribution (in which sales
volume increases significantly during the year-end holiday shopping season),
the timing of new product and service announcements and introductions,
aggressive marketing and promotions and greater tourism volume in the fourth
quarter of each year.

Network

At December 31, 2002, our cellular telecommunications network consisted of
926 radio base stations, 77 signal amplifiers and approximately 51,542 voice
channels and covered approximately 75% of the Regions population. We expanded
the network during 2002, increasing the number of radio base stations, signal
amplifiers and channels by 3.5%, 14.9% and 1.9%, respectively. We continue to
increase network capacity and coverage in response to projected consumer
demand. The network is connected primarily by a fiber-optic transmission
system leased from TNE and Embratel. Ericsson is our principal supplier of
cellular telecommunications equipment.

Digitalization represents one of our key strategic initiatives. At March
31, 2003, approximately 77% of our network was digital and 97% of its clients
used digital handsets. Our management believes that digitalization offers
certain advantages, including greater network capacity, reduced operating costs
and additional revenues through the sale of value-added services. Digital
cellular telecommunications service also offers clients greater security.

In December 2002, the Subsidiaries converted their respective concessions
to operate under the Serviço Móvel Celular(SMC) rules into authorizations to
operate under the Serviço Móvel Pessoal(PCS) rules. Under the PCS
regulations, we are allowed to use GSM technology. We recently converted our
operations to PCS and is in the process of making the necessary investments for
a GSM technology overlay. We will pay a fee of R$26.0 million to Anatel for
the use of an additional band of radio spectrum.

Under the concessions, we were obligated to meet certain quality of
service and annual network coverage obligations. All the Subsidiaries were in
compliance with their quality of service obligations and reached all their
network coverage obligations under the concessions through 2002. In addition,
prior to our conversion from SMC concessions to PCS authorizations, we also had
quality of service under a Protocol for Mobile Cellular Service Providers,
jointly adopted by Anatel and Brazilian cellular service providers. All the
Subsidiaries were in compliance with their quality of service obligations under
the Protocol through 2002. The Protocol is not applicable to the Subsidiaries
after the migration to the PCS regulations. See Regulation of the
Brazilian Telecommunications Industry.

Dependence on Patents, Licenses or Contracts

Other than the authorizations of each Subsidiary, neither our business nor
our profitability is materially dependent on patents, licenses or contracts.

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Billing and Collection

Towards the end of 1999, we completed the implementation of a new billing
system from SEMA Group PLC (SEMA). This billing system has four main
functions: client registration, client information management, accounts
receivable management and billing and collection. The billing system gives us
greater flexibility in developing service plans and billing options and enables
us to monitor account balances in near real-time. In November 2001, we
acquired from SEMA an updated billing system, which will increase flexibility,
for example enabling us to offer and bill for new services in a short
time-to-market. The system uses a standard UNIX platform and Oracle database,
which will enable us to reduce our operational and maintenance costs. In
August 2002, we installed a Promotion Manager System, a new module from SEMA,
for our prepaid billing system. This new module gives us greater flexibility
in developing promotions, reducing implementation time, and enables us to give
bonuses to prepaid subscribers within a shorter period of time. The new module
uses a standard UNIX platform and Oracle database.

Pursuant to Anatels regulations, we provide our clients with their bills
at least five days before the due date. We have implemented several
initiatives in order to improve collection procedures, including a text message
billing service. If a clients payment is more than 15 days past due, either
outgoing service or both outgoing and incoming services can be suspended until
full payment for all outstanding charges is received. If a clients payment is
more than 90 days past due, service can be discontinued.

We and other telephone service providers operating in Brazil periodically
reconcile the interconnection and roaming charges owed among them and settle on
a net basis. See   Sources of Revenue  Interconnection and   Sources
of Revenue   Roaming Fees. Currently, the reconciliation process is largely
managed by Embratel Clearing House. For international and domestic
long-distance calls made by our clients, we forward the amount collected for
such calls to Embratel and charge Embratel a per-minute fee for the use of its
cellular telecommunications network.

Customer Sales and Services

We operate call centers that enable contract and prepaid clients to obtain
customer service 24 hours a day, seven days a week. On December 31, 2002, 457
of our 1,231 employees, contractors and interns were customer service
representatives. We have 63 customer service centers that provide customer
service and handle complaints that cannot be addressed over the telephone.
These centers also sell cellular telephones, accessories and services offered
by us. Since the implementation of a new billing system in 1999, our call and
service centers have used the Clarify system, which holds a greater amount of
client information and facilitates the work of the our customer service
representatives. Customer services, such as copies of invoices, can be
obtained through our website, which also allows customers to access other
services and contains information regarding operations, new services, rate
plans and corporate information.

Fraud Detection and Prevention

Subscription fraud and cloning fraud are common in parts of Brazil and
are experienced by us. Subscription fraud occurs when the perpetrator of the
fraud obtains identification documents of another individual, either real or
forged, and utilizes them to obtain cellular services without paying for them.
Cloning fraud is less common than subscription fraud. Cloning fraud consists
of duplicating the cellular signal of a client, enabling the perpetrator of the
fraud to make telephone calls using the clients signal. Such calls are billed
to the client, but the receivable is written off when we discover it arose from
a fraudulent call. If part of a fraudulent call is carried by the network of
another service provider, we are obligated to pay that service provider the
applicable interconnection fee, regardless of whether we ever collect the
receivable associated with the call.

We have implemented fraud-prevention and fraud-detection measures in an
effort to detect fraud as quickly as possible and thereby reduce costs
associated with fraud. Fraud detection measures include the collection and
review of call records to detect abnormal calling patterns. When abnormal
patterns are found, the client or user is contacted by our fraud control staff
and, if cloning has occurred, the clients number, cellular telephone or both
are changed. If subscription fraud has occurred, both the applicable number
and the cellular telephone line are terminated. Fraud prevention measures
include restrictions on international calls from a given number and
restrictions on three-way calling by customers with international direct-dial
access.

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We have a nationwide fraud detection system licensed from Digital
Equipment Corporation. This system analyzes various aspects of cellular
service usage including simultaneous usage by a single client, call frequency
and unusually high usage patterns. The system has been operational within the
Region since July 1998.

Competition

Our main competitors are BSE and Oi. Anatel makes public the number of
active lines operated by cellular service providers within the Region. Based
on this information and market research, we can calculate our market share. At
December 31, 2002, BSE and Oi had 965,000 and 350,000 clients, respectively,
according to information provided by Anatel. Our management estimates that, as
of March 31, 2003, our market share was 59%, BSEs market share was 28%, and
Ois market share was 13%. Management believes it is likely that a certain
number of people are clients of us, BSE and Oi.

Band B Competition

The General Telecommunications Law provides for the introduction of
competition in telecommunications services in Brazil. The Federal Government
has granted ten licenses to private companies (each a Band B Service
Provider) to provide cellular telecommunications services within particular
regions of Brazil on a frequency range referred to as Band B The frequency
range used by the cellular service providers that were spun off from the
Telebrás System, including us (each a Band A Service Provider), is referred
to as Band A. Each Band B license covers a geographic region that generally
corresponds to a Cellular Region. See Regulation of the Brazilian
Telecommunications IndustryAuthorizations and Concessions.

A license to provide cellular telecommunications services in the Region on
Band B has been granted to BSE S.A. (BSE), whose shareholders included
Verbier Representações e Participações Ltda., Bombshell Comércio e
Participações Ltda., OESP Participações Ltda., Splice do Brasil
Telecomunicações e Eletrônica Ltda. and BellSouth Latin American Investments
Ltda. BSE paid R$555.6 million for the license and began providing cellular
telecommunications service based on the TDMA digital standard in the Regions
larger cities in June 1998. BSE operates by using its own network and
therefore does not need to pay to use Embratels lines for interregional calls.
Because we and BSE use the same digital technology, a cellular telephone from
one company will function in both systems, which facilitates churn in the form
of client migration from one company to the other. In March 2003, it was
publicized that BSE was sold to América Móvil. We anticipate that América
Móvil will raise the level of competition in the Region by investing heavily in
BSE.

Band C Competition

There were no participants in the auctions for the Band C PCS
authorizations held on February 1, 2001 and on August 16, 2001. On May 2,
2002, Anatel commenced a new auction process for Band C radio frequencies.
This new auction process was open only to cellular telecommunications companies
and to companies that previously had acquired PCS authorizations.

Band D Competition

In 2001, Anatel awarded a license to a subsidiary of TNE to offer GSM
cellular telephone services throughout the area in which TNE offers fixed-line
telephone services. The new competitor, operates under the name Oi, and
began offering services in June 2002. Oi is an aggressive competitor but
appears to have light coverage of the Region. According to the terms of Ois
authorization, Oi must achieve certain coverage targets within specified time
periods. Within 12 months after receiving its authorization, Oi must offer
services in areas covering at least 50% of 50% of all state capitals and
municipalities with populations exceeding 500,000 in the region for which Oi is
licensed. Within 60 months after receiving its authorization, Oi must offer
services in areas covering all municipalities in its region with populations
exceeding 100,000. In May 2003, TNE sold Oi to its subsidiary, Telemar.

Band E Competition

Vésper S.A., a consortium with members including Bell Canada
International, Velocom Incorporated and Qualcomm Incorporated, acquired a Band
E license to offer cellular services in the Region.

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Other Competition

While management does not consider fixed-line service providers to be
major competitors, it is possible that increased fixed-line penetration in
areas where cellular telecommunications previously had been the only readily
available telecommunications service could result in reduced usage of cellular
telecommunications services in those areas. In addition, fixed-line service
providers may acquire additional bands and begin providing cellular services.
There are two fixed-line service providers in the Region: TNE and Vésper S.A.
Vésper S.A. paid R$60 million for its concession.

On April 27, 2000, Anatel issued Resolution No. 221/00, which applies the
same rules to trunking as to other cellular telecommunications services.
Because trunking service providers are not permitted to offer services to
individual clients, such providers will only compete with us in the corporate
segment.

We also compete to a limited extent with certain other wireless
telecommunications services, such as Wireless Local Loop (WLL), mobile radio,
and paging and beeper services, which are widely used in Brazil. These
competing wireless telecommunications services are generally less expensive
than cellular telecommunications services. WLL is a technology that permits
access to fixed-line operators switching centers through radio base stations,
operating in a frequency similar to those of cellular service providers.
Vésper S.A. provides WLL services in the Region.

The opening to competition of the Brazilian market for cellular
telecommunications services has adversely affected our results of operations,
and there can be no assurance that the entry or growth of competitors will not
have a material adverse effect on our business, financial condition, results of
operations or prospects. Any adverse effects on our results and market share
from competitive pressures will depend on a variety of factors that cannot now
be assessed with precision and that are beyond our control. Among such factors
are the identity of the competitors, their business strategies and
capabilities, prevailing market conditions at the time, the regulations
applicable to new entrants and us, and the effectiveness of our efforts to
prepare for increased competition. One or more new competitors may have
technical or financial resources greater than ours.

TIM Brasil

According to rules set forth by Anatel for all PCS authorization auctions,
the controlling shareholders of Band A and Band B cellular service providers
were not allowed to hold more than one license, either in the form of an
authorization or a concession, in a single PCS region. Accordingly, a company
controlling a Band A or Band B cellular service provider that acquires control
of a PCS authorization resulting in a geographical overlap of its licenses has
two alternatives:



| |  |  | it can sell its controlling shares in the Band A or
Band B cellular service providers within six months of purchasing
the PCS authorization; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | it can waive the right to operate under the PCS
authorization in the areas where overlaps exist.                                               

As a result, some companies controlled by TIM waived their rights to
provide PCS services in certain areas. In 2001, Portale Rio Norte and TIM
Centro Sul waived their rights to operate under PCS authorizations in areas
currently served by Maxitel, Tele Celular Sul and us because of geographical
overlaps in the PCS authorizations awarded to Portale Rio Norte and TIM Centro
Sul and the concessions held at that time by Maxitel, Tele Celular Sul and us.

On December 31, 2002, TIM Centro Sul and Portale Rio Norte merged into
Portale São Paulo S.A. On January 22, 2003, Portale São Paulo S.A. changed its
name to TIM Celular S.A. and presently is headquartered in the city of São
Paulo.

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Operating Agreements

Interconnection Agreements

We have entered into interconnection agreements with each of TNEs
subsidiaries operating in the Region, Vésper (TNEs mirror company), BSE,
Embratel and Intelig (a consortium of member companies, including National
Grid, France Telecom and Sprint). The terms of these interconnection
agreements include provisions specifying the number of connection points, the
method by which signals must be received and transmitted, and the costs and
fees for interconnection services. Anatel only has approved the agreement
with BSE and Intelig that was signed while we were operating under the
concessions. Our interconnection agreements currently are being discussed with
Anatel in light of our migration to PCS. Nevertheless, even in the absence of
approval by Anatel, the parties to these interconnection agreements are
obligated to offer interconnection services to each other. See also Regulation of the Brazilian Telecommunications IndustryInterconnection.

Roaming Agreements

We have entered into agreements for automatic roaming with each of the
other Band A and Band B Service Providers. These roaming agreements permit our
clients to use their cellular telephones on the networks of other cellular
service providers while traveling or roaming outside the Region. We are
required to provide reciprocal service to clients of those cellular service
providers when those clients are within the Region. The agreements require
that the cellular service providers to which they refer provide service to
roaming clients on the same basis that they provide service to their own
clients and to carry out a monthly reconciliation of roaming charges. The
agreements have a one-year term and automatically renew for further one-year
terms.

Furthermore, we have entered into international roaming agreements with
foreign carriers that permit our clients to use their cellular telephones in
Argentina, Uruguay and Paraguay. These agreements also allow clients of these
foreign carriers to use their cellular telephones in the Region. We also offer
international roaming in Europe through an agreement with Tele Celular Sul,
allowing us to take advantage of Tele Celular Suls agreements with European
local cellular service providers. We, together with other Latin American
subsidiaries of Telecom Italia, are negotiating additional international
roaming agreements with respect to countries that have the same as well as
different technologies. Roaming in countries with different technologies will
require a change of handsets before leaving Brazil. Countries that use the
same technology as ours include the United States and certain other Latin
American countries. Countries with different technologies include those in
Europe and Asia. The finalization of these agreements is pending the
completion of a contract with an international clearinghouse. BSE began
offering international roaming to its clients in April 2000.

Roaming services require that the technologies used by the service
providers be the same. Accordingly, as GSM becomes used more by service
providers than TDMA, we may increase our roaming coverage if and when we shift
from TDMA technology to GSM.

Site-Sharing Agreement

In accordance with trends in the international telecommunications industry
and Anatel guidelines, we have entered into an agreement with Telemar to share
our sites. Amounts paid by Telemar under a site-sharing agreement could help
offset the costs of leasing such sites.

Capital Expenditures

Our capital expenditure priorities for 2003 include adapting our network
to comply with PCS regulations, the purchase of additional frequencies that we
will use to offer GSM services. The Holding Company expects to make
approximately R$327.0 million in capital expenditures during 2003. See Item
4. Information on the CompanyNetwork.

The following table sets forth the amount of capital expenditures per
Subsidiary for the three-year period ending December 31, 2002:

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|                  |                            |                      |                         |       |      |  |      |       |  |  |      |      | 
|----------------- | -------------------------- | -------------------- | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ---- | 
|                  |                            |                      | Year ended December 31,
|                  |                            |                      |                        
|                  |                            |                      | 2000                    |       | 2001 |  | 2002
|                  |                            |                      |                         |       |      |  |     
|Company           |                            | (millions of reais )
|                  |                            |                     
|Telepisa Celular  |                            |                      | 14.0                    |       |      |  | 7.2  |       |  |  | 5.5  |     
|Teleceará Celular |                            |                      | 45.0                    |       |      |  | 25.1 |       |  |  | 18.7 |     
|Telern Celular    |                            |                      | 28.1                    |       |      |  | 19.8 |       |  |  | 9.0  |     
|Telpa Celular     |                            |                      | 20.8                    |       |      |  | 12.7 |       |  |  | 7.0  |     
|Telpe Celular     |                            |                      | 65.7                    |       |      |  | 53.1 |       |  |  | 26.8 |     
|Telasa Celular    |                            |                      | 24.9                    |       |      |  | 13.6 |       |  |  | 9.1  |     
|Holding Company   |                            |                      | 3.6                     |       |      |  | 0.5  |       |  |  | 0.7  |     
|                  |                            |                      |                         |       |      |  |      |       |  |  |      |     
|                  | Total capital expenditures |                      |                         | 202.1 |      |  |      | 132.0 |  |  |      | 76.8 | 
|                  |                            |                      |                         |       |      |  |      |       |  |  |      |     

The following table sets forth our capital expenditures per category of
investment for each year in the three-year period ended December 31, 2002:

|                              |                            |  |                         |       |      |  |      |       |  |  |      |      | 
|----------------------------- | -------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ---- | 
|                              |                            |  | Year ended December 31,
|                              |                            |  |                        
|                              |                            |  | 2000                    |       | 2001 |  | 2002
|                              |                            |  |                         |       |      |  |     
|                              |                            |  | (millions of reais )   
|Automatic switching equipment |                            |  | 49.8                    |       |      |  | 11.4 |       |  |  | 7.3  |     
|Other equipment               |                            |  | 109.9                   |       |      |  | 73.1 |       |  |  | 30.4 |     
|Real estate                   |                            |  | 0.2                     |       |      |  | 0.6  |       |  |  | 0.0  |     
|Other assets                  |                            |  | 42.2                    |       |      |  | 46.9 |       |  |  | 39.1 |     
|                              |                            |  |                         |       |      |  |      |       |  |  |      |     
|                              | Total capital expenditures |  |                         | 202.1 |      |  |      | 132.0 |  |  |      | 76.8 | 
|                              |                            |  |                         |       |      |  |      |       |  |  |      |     

For a discussion of the methods we used to finance capital expenditures and the
recent evolution of capital expenditures, see Item 5. Operating and Financial
Review and ProspectsLiquidity and Capital Resources.

Research and Development

In connection with the Breakup, the Subsidiaries were required to enter
into three-year contracts which obligated them to contribute an aggregate of
R$2.4 million to the Centro de Pesquisa e Desenvolvimento da Telebrás (the
Center), a research and development center formerly operated by Telebrás,
during the period from May 1998 until July 2001.

Our research and development expenses during 2000, 2001 and 2002 were
R$1.0 million, R$0.7 million and R$90 thousand, respectively. Our research and
development expenses during 2000 and 2001 consisted of its contribution to the
Center. During 2002, although our obligation to make contributions to the
Center had expired, we made contributions to the Center to fund research and
development of discrete projects. We do not independently develop new
telecommunications hardware and depend upon the manufacturers of
telecommunications products for the development of new hardware. Accordingly,
we do not expect to incur material research and development expenses in the
future.

Regulation of the Brazilian Telecommunications Industry

General

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

Anatel is the regulatory agency for telecommunications under the General
Telecommunications Law and the October 1997 Regulamento da Agência Nacional de
Telecomunicações(the Anatel Decree). Anatel is

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administratively independent
and financially autonomous. Anatel maintains a close
relationship with the Ministry of Communications and is required to report
its activities to the Ministry of Communications. It has authority to propose
and to issue regulations that are legally binding on telecommunications service
providers. Any proposed regulation or action by Anatel is subject to a period
of public comment, which may include public hearings, and may be challenged in
Brazilian courts.

Authorizations and Concessions

Pursuant to the 1996 Lei Mínima(the Minimum Law), Band A and Band B
Service Providers were granted concessions under SMC regulations. Each
concession is a specific grant of authority to supply cellular
telecommunications services in a defined geographical area, subject to certain
requirements contained in the applicable list of obligations appended to each
concession. If such a Band A or Band B cellular service provider wishes to
offer any telecommunications service other than the cellular telecommunications
service authorized by its concession, it may apply to Anatel for a license to
offer such other services. Through resolutions enacted in September 2000 and
January 2001, Anatel also has granted cellular service providers operating
under concessions the right to convert their concessions into authorizations
under PCS regulations.

In 1997, the Subsidiaries were granted concessions. In December 2002, the
Subsidiaries converted their respective SMC concessions into PCS
authorizations, with an option to renew the authorizations for an additional 15
years following the original expiration dates of the concessions. As a result
of the conversion from concessions to authorizations, our Subsidiaries were
subsequently allowed to operate under the PCS regulations.

Authorizations and concessions to provide telecommunications services are
granted under either the public regime or the private regime. Only certain
fixed-line service providers are currently operating under the public regime.
Public regime companies are subject to certain requirements under the General
Telecommunications Law and the May 1998 Decree establishing the General
Fixed-Line Service Universalization Target Plan.

Services provided under the private regime are classified as either
collective interest or restricted interest. Collective interest private regime
services are only subject to requirements imposed by Anatel under the
applicable authorizations or concessions and the General Telecommunications
Law. Restricted interest private regime services are subject to fewer
requirements than public regime or collective interest private regime services.
Under the authorizations, the Subsidiaries operate under the collective
interest private regime.

The following table sets forth the expiration date of the initial period
of each Subsidiarys authorizations:

|                  |  |                   |  | 
|----------------- |  | ----------------- |  | 
|                  |  | Authorization    
|Subsidiary        |  | expiration date  
|                  |  |                  
|Telpe Celular     |  | May 15, 2009     
|Teleceará Celular |  | November 28, 2008
|Telpa Celular     |  | December 31, 2008
|Telern Celular    |  | December 31, 2008
|Telasa Celular    |  | December 15, 2008
|Telepisa Celular  |  | March 27, 2009   

Obligations of Telecommunications Companies

The following table sets forth our SMC quality of service obligations
under the concessions, applicable to the Subsidiaries on December 31, 2002:

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|                                                          |  |          |     |  
|--------------------------------------------------------- |  | -------- | --- | -
|                                                          |  | Maximum/
|Quality of Service Indicator                              |  | Minimum 
|                                                          |  |         
|Average
level of system availability(1)                   |  |          | >98 | %
|Network drop rate (2)                                     |  |          | <3  | %
|All circuits busy rate(3)                               |  |          | <5  | %
|Interconnection drop rate(4)                              |  |          | <3  | %
|Average system availability on first call attempt         |  |          | >90 | %
|Number of customer complaints per month (per 100 clients) |  |          | <5  |  



---

|(1) |  | Percentage of time system is operational and available for call
origination, transport and completion.
|--- |  | ------------------------------------------------------------------------------------------------------
|(2) |  | Rate of failed call completion due to signal loss between radio
base station and switching centers.   
|(3) |  | Rate at which system rejects attempted calls during peak period
because no circuits are available.    
|(4) |  | Rate at which interconnected calls fail to complete during peak
periods.                              

In addition to the quality of service requirements under the SMC
regulations described above, Anatel and the Brazilian cellular service
providers jointly adopted a Protocol for Mobile Cellular Service Providers in
November 1999 (the Protocol). The Protocol established additional quality of
service targets and rates, which were required to be achieved by June 2001.
The Protocol does not constitute an addition or modification to the list of
obligations appended to each concession. Although the General
Telecommunications Law does not specify any penalties for failing to meet the
targets required by the Protocol, Anatel is required to examine the performance
of the Brazilian telecommunications companies under the Protocols standards.
All the Subsidiaries were in compliance with their quality of service
obligations under the Protocol through 2002. The Protocol is not applicable to
the Subsidiaries after the migration to the PCS regulations.

Our quality of service obligations under our PCS authorizations will
differ from those under the previous SMC concessions. See PCS
Regulation. While there can be no assurances, management believes that all
the Subsidiaries will be able to continue to meet all their quality of service
obligations under the authorizations.

The following table sets forth our SMC coverage obligations under the
concessions, applicable to the Subsidiaries on December 31, 2002:

|                                                     |                               |  |                          |     |      |  |      |     |      |  |      |    |   |  |    |    |   |  |   |    |  
|---------------------------------------------------- | ----------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- | ---- |  | ---- | -- | - |  | -- | -- | - |  | - | -- | -
|                                                     |                               |  | Minimum Service Coverage
|                                                     |                               |  |                         
|                                                     |                               |  | 1998                     |     | 1999 |  | 2000 |     | 2001 |  | 2002
|                                                     |                               |  |                          |     |      |  |      |     |      |  |     
|Services offered in cities with
populations of: (1)  |                               |  |                          |     |      |  |      |     |      |  |      |    |   |  |    |    |   |  |   |   
|                                                     | Over 200,000 or state capital |  |                          | 100 | %    |  |      |    |      |  |      |   |   |  |    |   |   |  |   |   |  
|                                                     | 100,000 to 200,000            |  |                          |    |      |  |      | 100 | %    |  |      |   |   |  |    |   |   |  |   |   |  
|                                                     | 75,000 to 100,000             |  |                          |    |      |  |      |    |      |  |      | 90 | % |  |    |   |   |  |   |   |  
|                                                     | 50,000 to 75,000              |  |                          |    |      |  |      |    |      |  |      |   |   |  |    | 80 | % |  |   |   |  
|                                                     | 30,000 to 50,000              |  |                          |    |      |  |      |    |      |  |      |   |   |  |    |   |   |  |   | 70 | %
|Maximum average installation
waiting time (days) (2) |                               |  | 180                      |     |      |  | 120  |     |      |  | 30   |    |   |  | 15 |    |   |  | 5 |   



---

|(1) |  | For services to be deemed to be offered in any city, service must be
available to at least 30% of the population.
|--- |  | -----------------------------------------------------------------------------------------------------------------
|(2) |  | Between request for service and connection in areas with cellular
service.                                       

All the Subsidiaries have reached their network coverage obligations under
the concessions through 2002.

PCS Regulation

In September 2000, Anatel promulgated regulations regarding PCS wireless
telecommunications services that are significantly different from the ones
applicable to cellular companies operating under Band A and Band B. The new
rules allow companies to provide wireless telecommunications services under PCS
authorizations. The PCS authorizations allow new entrants in the Brazilian
telecommunications market to compete with existing telecommunications service
providers.

According to rules issued by Anatel, renewal of a concession to provide
cellular services, as well as permission from Anatel to transfer control of
cellular companies, are conditioned on agreement by such cellular service
provider to operate under the PCS rules. The Subsidiaries converted their
cellular concessions into PCS

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authorizations in December 2002, and are now subject to certain
obligations under the PCS regulations. See Authorizations and
Concessions.

In connection with the PCS authorization auctions in 2001 and 2002, Anatel
divided the Brazilian territory into three separate regions, each of which is
equal to the regions applicable to the public regime fixed-line telephone
service providers. PCS services may be provided within the 1800 MHz band,
which contains Bands C, D and E. Accordingly, in addition to the conversion of
the Band A and Band B service providers to PCS authorizations, up to three new
PCS authorizations may be granted in each PCS Region. Anatel held auctions for
PCS authorizations during 2001 and 2002.

Obligations under the PCS regulations and the Subsidiaries authorizations
differ from the obligations that were applicable to the Subsidiaries while
operating under their concessions. For example, the obligations under the PCS
regulations and the Subsidiaries authorizations include the requirement to
comply with additional and more stringent service quality standards and to
offer customers the choice of a fixed-line carrier in long-distance calls on a
per call basis. The Subsidiaries will be required to comply with the
obligations under the PCS regulations and their authorizations by the end of
the transitional periods applicable to the particular obligations. Generally,
the Subsidiaries will comply with the PCS obligations by September 2003. We
believe that we will be able to comply with each of our obligations under the
PCS regulations and the authorizations before the end of the relevant
transitional period.

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

According to the new PCS regulations, we will be required to adjust our
current operating processes and agreements to such new rules, including its
interconnection and roaming agreements, as well as the agreements with its
customers.

Interconnection Regulation

Certain telecommunications service providers are required to provide
interconnection to public interest telecommunications service providers,
according to the so-called General Interconnection Rules, adopted by Anatel
through Resolução40/98. The terms and conditions of interconnection are to be
negotiated by the parties, within certain limits, including a price-cap
established by Anatel. For example, if a telecommunication service provider
offers any party an interconnection fee below the Anatel price-cap, such
telecommunications service provider must offer to provide interconnection to
other parties at the same lower fee. We have informed Anatel that, even after
our conversion to PCS authorizations, we will maintain the interconnection
arrangements that we had in place while operating under our cellular
concessions until June 30, 2004.

There is currently no sharing of equipment requirement under the Anatel
rules. Under a sharing arrangement, a sharing telecommunications service
provider usually permits another to place switching equipment in or near the
sharing providers network connection site. The sharing of equipment is
currently a matter of private negotiation.

Rate Regulation

Our cellular concessions provided for a price-cap mechanism by which the
rates we charged customers were adjusted on an annual basis. The price cap was
a maximum weighted average rate for our basket of services. The basket
consisted of the services we provided through our TIM Basic plan. See Sources of RevenueUsage Charges
for a further description of the TIM Basic plan. The price-cap was adjusted
annually to reflect the rate of inflation as measured by the Índice Geral de
PreçosDisponibilidade Interna(IGP-DI), a price index created by the
Fundação Getúlio Vargas, a Brazilian economic research organization. The
weighted average rate for the entire basket of services could not
have exceeded the price cap, but our rates for individual services within
the basket could have been raised annually above the annual change

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in the
IGP-DI. Under the PCS authorizations, we will be allowed to set prices for our
service plans, subject to approval by Anatel. After we set these prices, we
expect that they will be adjusted annually for inflation based on the IGP-DI.

Value-Added Services and Internet Regulation

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

Recent Regulatory Developments

In May 2003, Brazils Ministry of Telecommunications disclosed a proposed
presidential decree (the Draft Decree) setting forth a number of proposed
changes in the regulation of Brazils fixed-line telecommunications sector.
The Draft Decree sets forth general declarations of policy (but no specific
recommendations) regarding, among other things, universal access to
telecommunications services, stimulation of employment and development of
Brazilian industry in the telecommunications sector, promotion of competition
and adoption of tariff readjustment policies and takes into account Brazilian
socioeconomic considerations. Legal experts in Brazilian telecommunications
regulation have publicly expressed the view that the Draft Decree, if issued as
proposed, would be illegal, since it would constitute an assumption by the
executive branch of Brazils government of authority that by law can be
exercised only by the legislative branch. A number of providers of fixed-line
telecommunications services have delivered to the Ministry of
Telecommunications specific comments on the Draft Decree. We cannot currently
predict whether the Draft Decree will be issued by the President of Brazil or,
if issued, what form it may take, and we therefore cannot determine what effect
it may have on us if issued. If it is issued, the validity of the Draft Decree
may be challenged, and if so, Brazilian courts may uphold it or disallow it
under any of a number of legal theories.

Property, Plant and Equipment

Our principal physical properties consist of transmission equipment,
switching equipment and radio base stations. Our properties are located in the
Brazilian States of Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí and
Alagoas. As of December 31, 2002, we leased office space in Recife
(approximately 8,548 square meters), João Pessoa (approximately 1,600 square
meters), Natal (approximately 320 square meters), Fortaleza (approximately
3,662 square meters) and Teresina (approximately 1,263 square meters), from
which the majority of Telpe Celular, Telpa Celular, Telern Celular, Teleceará
Celular and Telepisa Celular management activities are conducted, respectively.

We also lease the sites where our cellular telecommunications network
equipment is installed. As of December 31, 2002, we had 12 large cellular
switches and 926 radio base stations, of which approximately 7.3% were located
on land owned by us and the remainder of which were located on land leased by
us. Most of these leases do not expire prior to 2003 and generally can be
renewed at our option upon six months prior notice. If we exercise this right
of renewal, the amounts under these leases would be subject to adjustment in
accordance with prevailing market values. In addition, we lease 9 retail
stores in the Region. Our network is designed to operate at an average of 20%
excess capacity. There are no encumbrances that may affect our utilization of
our property or equipment.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Critical Accounting Policies

Critical accounting policies are those that are both important to the
portrayal of our financial condition and results and require managements most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. As
the number of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgments become more complex.
In order to provide an understanding about how our management has estimated
the potential impact of certain uncertainties, including the variables and
assumptions underlying the estimates, we have identified the critical
accounting policies discussed below.

Depreciation

Property, plant and equipment is stated at cost of acquisition or
construction. Depreciation is calculated using the straight-line method based
on the estimated useful lives of the underlying assets. See Notes 3(i) and 9
to the Consolidated Financial Statements. We currently depreciate automatic
switching, transmission and other equipment based on an estimated useful life
of seven years. In 1999, we undertook a review of the rates used for
depreciation of property, plant and equipment. The objective of the review was
to ensure that the depreciation rates used by us continued to reflect the
expected economic lives of the assets. This review resulted in a change in
certain depreciation rates of property, plant and equipment in 1999, which
brought them into line with the rates used by other national and international
telecommunications companies. Our estimates of useful lives of assets also
could change in response to various factors, including the introduction of new
technologies, such as GSM. We are planning to upgrade our TDMA technology to
GSM technology during the second half of 2003.

Allowance for Doubtful Accounts

Management maintains an allowance for doubtful accounts for estimated
losses resulting from the failure of our customers to make required payments.
We revise our estimated percentage of losses on a regular basis, taking into
account our most recent experience with non-payments. We updated our estimated
percentage of losses on our accounts receivable overdue from one to 60 days
from 0% in 2001 to 4% in 2002. The table below reflects our estimated
percentage of losses on our accounts receivable, classified by the number of
days overdue.

|                                       |  |                 |    | 
|-------------------------------------- |  | --------------- | -- | 
|                                       |  | Percentage     
|                                       |  | estimated to be
|                                       |  | uncollectible  
|                                       |  |                
|Receivables overdue 1 to 60 days       |  |                 | 4  | 
|Receivables overdue 61 to 90 days      |  |                 | 35 | 
|Receivables overdue 91 to 120 days     |  |                 | 55 | 
|Receivables overdue 121 to 150 days    |  |                 | 75 | 
|Receivables overdue more than 150 days |  |                 | 95 | 

Contingent Liabilities

The accrual for a contingency involves considerable judgment on the part
of management. As prescribed by SFAS 5, Accounting for Contingencies, a
contingency is an existing condition, situation, or set of circumstances
involving uncertainty as to possible gain or loss to an enterprise that will
ultimately be resolved when one or more future events occur or fail to occur.

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We are subject to various claims, legal and labor proceedings covering a
wide range of matters that arise in the ordinary course of business activities.
We make accruals for legal proceedings that we are party to when we determine
that losses are probable and can be reasonably estimated. Our judgment is
always based on the opinion of our internal legal advisors. Accrual balances
are adjusted to account for changes in circumstances for ongoing issues and the
establishment of additional accruals for emerging issues. While we believe
that the current level of accruals is adequate, changes in the future could
impact these determinations.

Revenue Recognition

We recognize revenues when services are rendered. In accordance with this
policy, we are required to estimate the amount of revenues from unbilled
services earned after the last billing cycle cut-off. We base our estimates on
historical experience with minutes of use. See Note 3(c) to our Consolidated
Financial Statements.

Formation of the Holding Company and Presentation of Financial Information

On May 22, 1998, in preparation for privatization, the Telebrás System was
restructured to form, in addition to Telebrás, the Holding Company and eleven
other New Holding Companies. In the Breakup, certain assets and liabilities of
Telebrás, including 78.5%, 79.3%, 75.4%, 77.2%, 77.6% and 71.5% of the total
share capital of Telepisa Celular, Teleceará Celular, Telern Celular, Telpe
Celular, Telasa Celular and Telpa Celular, respectively, were transferred to
the Holding Company. See Item 4. Information on the CompanyOur History
and Development. The following discussion should be read in conjunction with
our Consolidated Financial Statements and the notes thereto, which are included
elsewhere in this annual report. Certain important features of the
presentation of the Consolidated Financial Statements are described in the
introduction to Item 3. Key InformationSelected Financial Data.

Political, Economic, Regulatory and Competitive Factors

The following discussion also should be read in conjunction with 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 regulation, including the regulation of tariffs.
See Item 4. Information on the CompanyRegulation of the Brazilian
Telecommunications IndustryRate Regulation. Our financial condition and
results of operations also have been, and are expected to continue to be,
affected by the political and economic environment in Brazil. See Item 3.
Key InformationRisk FactorsRisks Relating to Brazil. In particular,
our financial performance will be affected by (i) economic growth and income
distribution in the Region and their impact on demand for telecommunications
services, (ii) our ability to generate adequate cash from operations or,
alternatively, the cost and availability of financing, (iii) exchange rates
between Brazilian and foreign currencies, (iv) the growth and strength of
competition and (v) the regulatory environment in which we operate.

We have faced competition in the Region since mid-1998. In 1999, we took
actions to increase penetration and market share, including providing subsidies
and zero-interest financing on sales of handsets and free airtime to clients.
In 2000, because we changed our focus from expanding our client base to
retaining our heavy-use clients, We substantially reduced the subsidies
directed to the attraction of new clients, but increased the subsidies directed
to customer retention and developing customer loyalty. This pattern continued
in 2001 and 2002, particularly in 2002, when our business strategy emphasized
growth with profitability. The scope of competition and any adverse effects on
our results and market share will depend on a variety of factors that cannot be
assessed with precision, some of which are beyond our control. See Item 4.
Information on the CompanyCompetition.

Foreign Exchange and Interest Rate Exposure

In April 1999, we began entering into hedging agreements covering payments
of principal on our U.S. dollar-denominated indebtedness. Our foreign exchange
hedging agreements establish a fixed rate at which we agree to purchase U.S.
dollars at a future date to pay our U.S. dollar-denominated principal payment
obligations, which protect us from devaluations of the realbut exposes us to
potential losses in the event that the U.S. dollar declines in value against
the real. At December 31, 2002, we had principal outstanding in the amount of
R$190.1 million on indebtedness denominated in U.S. dollars (consisting of
R$13.5 million of equipment financing and R$176.7 million of working capital
loans). All principal amounts outstanding on our U.S. dollar-denominated
indebtedness were covered by foreign exchange hedging agreements under which
our U.S. dollar-denominated

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principal payment obligations were converted into real-denominated
obligations. See Notes 14(b), 14(c) and 25 to the Consolidated Financial
Statements. In connection with our hedging agreements, we experience foreign
exchange gains and losses that are mere accounting entries which, over the
course of such transactions, tend to offset each other such that the sum of all
such gains and losses tends to be close to zero.

We also are exposed to foreign exchange risk arising from our need to make
substantial dollar-denominated expenditures, particularly for imported
components, equipment and handsets, that we have limited capacity to hedge.
Devaluation of the realincreases the cost, expressed in reais, of some of our
foreign-currency-denominated capital expenditures. Our revenues are earned
almost entirely in reais,and we have no material U.S. dollar-denominated
assets.

We are exposed to interest rate risk as a consequence of our floating rate
debt. As of December 31, 2002, R$333.7 million, or 100.0%, of our
interest-bearing liabilities bore interest at floating rates. Our
floating-rate interest obligations are primarily at rates based on the rate for
the Certificado de Depósito Interbancário, a benchmark Brazilian interest rate
(CDI). In 2002, having more assets than liabilities accruing interest at
variable rates, we maintained a natural hedge against interest rate risk. As
of December 31, 2002, we also were party to hedging arrangements under which we
undertook floating-rate reais-denominated obligations in place of some of our
U.S. dollar-denominated floating rate obligations in order to reduce our
exposure to foreign interest rate risk. See Notes 14 and 25 to the
Consolidated Financial Statements. If market interest rates, principally CDI
rise, our financing expenses will increase.

Trend Information

Migration of Customers from Postpaid to Prepaid Plans

In May 1999, we launched our Timmy Digital prepaid services plans, under
which clients purchase credits toward a certain number of call minutes. In
February 2000, this trend accelerated when clients using prepaid services were
able to receive calls when outside of the Region, within Brazil. Clients using
prepaid services made up 58% and 65% of the customer base on April 30, 2002 and
March 31, 2003, respectively. Management expects that the proportion of
clients using prepaid services will continue to increase. See Item 4.
Information on the CompanySources of RevenueUsage Charges.

Increased Competition

Our results of operations have been adversely affected by the opening of
the Brazilian market for cellular telecommunications services to competition in
1998. As a result, we are facing greater competition, which increased after
PCS providers began operations in 2002. The level of competition from
fixed-line service providers also is increasing, following the Federal
Governments grant, in February 1999, of a second concession to provide
fixed-line telecommunications services in a region that includes the Region
where we provide cellular telecommunication services. Technological changes in
the telecommunications field, such as the development of GSM and mobile
satellite services, are expected to introduce additional sources of
competition. The introduction of competition into the industry has pushed us
to adjust our marketing strategies. Our market share for the entire concession
area decreased from 65% on March 31, 2002 to 57% on March 31, 2003, while
margins increased in 2002 due to lower client acquisition costs, including a
decrease in selling commissions and a reduction in subsidies we offered on
handset sales. In the future, we also may incur higher advertising costs and
experience greater competitive pressure on pricing. See Item 3. Key
InformationRisk FactorsRisks Relating to UsWe face increasing competition, which may adversely affect our market share and
margins.

Cellular Telephone Sales

We started selling digital cellular telephones in December 1998, both
directly and through our dealer network. Management believes that, while sales
of cellular telephones may be, from time to time, a significant source of
revenue, they are unlikely to become a significant source of income. Through
the end of 2002, supplies of cellular handsets sufficient to satisfy demand in
the Region were available in the market, making it unnecessary for us to engage
in significant levels of handset sales. However, since January 2003, an
increase in competition, coupled with the expected introduction of GSM
technology, has led us to engage in higher levels of handset sales to our
dealers. See Item 4. Information on the CompanySources of RevenueCellular Telephone Sales.

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Seasonality

We have experienced a trend of generating a significantly higher number of
new clients and handset sales in the fourth quarter of each year as compared to
the other three fiscal quarters. See Item 4. Information on the Company 
Seasonality.

Results of Operations for 2000, 2001 and 2002

The following table presents, in accordance with Brazilian Corporate Law,
certain components of our income for each of the years in the three-year period
ended December 31, 2002.

|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  
|------------------------------------------ |  | ----------------------- | ------ | -------- |  | ---- | ------ | --------- |  | --------- | ------ | - |  |  | ----- | - |  |  | ----- | -
|                                           |  | Year ended December 31, |        | % Change
|                                           |  |                         |        |         
|                                           |  | 2000                    |        | 2001     |  | 2002 |        | 2000-2001 |  | 2001-2002
|                                           |  |                         |        |          |  |      |        |           |  |          
|                                           |  | (millions of reais)(1)  |        |          |  |      |        |           |  |          
|Net operating revenue                      |  |                         | 845.6  |          |  |      | 826.3  |           |  |           | 921.5  |   |  |  | (2.3  | ) |  |  | 11.5  |  
|Cost of services and goods                 |  |                         | (380.7 | )        |  |      | (362.3 | )         |  |           | (389.4 | ) |  |  | (4.8  | ) |  |  | 7.5   |  
|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  
|Gross profit                               |  |                         | 464.9  |          |  |      | 464.0  |           |  |           | 532.1  |   |  |  | (0.2  | ) |  |  | 14.7  |  
|Operating expenses                         |  |                         | (337.4 | )        |  |      | (312.5 | )         |  |           | (317.0 | ) |  |  | (7.4  | ) |  |  | 1.5   |  
|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  
|Operating income before interest           |  |                         | 127.5  |          |  |      | 151.5  |           |  |           | 215.1  |   |  |  | 18.8  |   |  |  | 42.0  |  
|Net financial expenses                     |  |                         | (82.3  | )        |  |      | (42.2  | )         |  |           | (6.5   | ) |  |  | (48.8 | ) |  |  | (84.7 | )
|Net non-operating income (expense)         |  |                         | 2.4    |          |  |      | (2.2   | )         |  |           | (3.1   | ) |  |  |      |   |  |  | 44.8  |  
|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  
|Income before taxes and minority
interests |  |                         | 47.6   |          |  |      | 107.2  |           |  |           | 205.5  |   |  |  | 125.0 |   |  |  | 91.8  |  
|Income and social contribution taxes       |  |                         | (9.9   | )        |  |      | (20.1  | )         |  |           | (48.4  | ) |  |  | 103.0 |   |  |  | 140.5 |  
|Minority interest                          |  |                         | (11.1  | )        |  |      | (21.5  | )         |  |           | (38.5  | ) |  |  | 94.5  |   |  |  | 79.2  |  
|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  
|Net income                                 |  |                         | 26.7   |          |  |      | 65.5   |           |  |           | 118.6  |   |  |  | 145.9 |   |  |  | 80.9  |  
|                                           |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |       |  



---

|(1) |  | Columns may not add due to rounding.
|--- |  | ------------------------------------

Operating revenues

Our operating revenues consist of (i) usage charges, which include
measured service charges for outgoing calls and roaming charges, (ii) monthly
subscription charges, (iii) interconnection charges, which are amounts we
charge to other cellular and fixed-line service providers for use of our
network, (iv) other charges, including charges for value-added services, call
forwarding and call blocking, and (v) proceeds from the sale of cellular
telephones and accessories. The composition of operating revenues by category
of service is presented in Note 18 to the Consolidated Financial Statements and
discussed below. We do not determine net operating revenues or allocate cost
by category of service.

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

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|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|---------------------------------------------------------------------- |  | ----------------------- | ------ | -------- |  | ---- | ------- | --------- |  | --------- | ------- | - |  |  | ----- | - |  |  | ----- | -
|                                                                       |  | Year ended December 31, |        | % Change
|                                                                       |  |                         |        |         
|                                                                       |  | 2000                    |        | 2001     |  | 2002 |         | 2000-2001 |  | 2001-2002
|                                                                       |  |                         |        |          |  |      |         |           |  |          
|                                                                       |  | (millions of reais)(1)  |        |          |  |      |         |           |  |          
|Usage charges                                                          |  |                         | 490.1  |          |  |      | 439.2   |           |  |           | 557.6   |   |  |  | (10.4 | ) |  |  | 27.0  |  
|Monthly subscription charges                                           |  |                         | 170.3  |          |  |      | 183.7   |           |  |           | 158.0   |   |  |  | 7.8   |   |  |  | (14.0 | )
|Interconnection charges                                                |  |                         | 302.5  |          |  |      | 376.2   |           |  |           | 394.5   |   |  |  | 24.4  |   |  |  | 4.8   |  
|Other                                                                  |  |                         | 1.4    |          |  |      | 7.5     |           |  |           | 19.6    |   |  |  | 443.6 |   |  |  | 162.2 |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|Gross operating revenue from services                                  |  |                         | 964.2  |          |  |      | 1,006.6 |           |  |           | 1,129.6 |   |  |  | 4.4   |   |  |  | 12.2  |  
|Value added and other indirect taxes
relating to services              |  |                         | (203.7 | )        |  |      | (213.9  | )         |  |           | (258.5  | ) |  |  | 5.0   |   |  |  | 20.9  |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|Net operating revenues from services                                   |  |                         | 760.5  |          |  |      | 792.7   |           |  |           | 871.1   |   |  |  | 4.2   |   |  |  | 9.9   |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|Sales of cellular handsets and accessories                             |  |                         | 116.6  |          |  |      | 48.0    |           |  |           | 68.8    |   |  |  | (58.8 | ) |  |  | 43.3  |  
|Value added and other indirect taxes
relating to sales of handsets     |  |                         | (31.4  | )        |  |      | (14.5   | )         |  |           | (18.4   | ) |  |  | (53.8 | ) |  |  | 26.9  |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|Net operating revenues from sales of
cellular handsets and accessories |  |                         | 85.2   |          |  |      | 33.5    |           |  |           | 50.4    |   |  |  | (60.7 | ) |  |  | 50.4  |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  
|Total net operating revenue                                            |  |                         | 845.6  |          |  |      | 826.3   |           |  |           | 921.5   |   |  |  | (2.3  | ) |  |  | 11.5  |  
|                                                                       |  |                         |        |          |  |      |         |           |  |           |         |   |  |  |       |   |  |  |       |  



---

|(1) |  | Columns may not add due to rounding.
|--- |  | ------------------------------------

Net operating revenues from services increased by 4.2% and 9.9% in 2001
and 2002, respectively. The increase in net operating revenues from services
in 2001 was due to increases of 24.4% and 7.8% in interconnection charges and
monthly subscription charges, respectively, and was partially offset by a 10.4%
decrease in usage charges and a 5.0% increase in value-added and other indirect
taxes. The increase in 2002 was due primarily to a 27.0% increase in usage
charges and secondarily to a 4.8% increase in interconnection charges and was
partially offset by a 14.0% decrease in monthly subscription charges and a
20.9% increase in value-added and other indirect taxes. Our average number of
clients increased by 16.3%, from 1,511,000 clients in 2000 to 1,757,660 clients
in 2001, and by 9.6% to 1,925,843 clients in 2002.

Overall net operating revenues decreased by 2.3% in 2001 and increased by
11.5% in 2002. The decrease in overall net operating revenues in 2001 was
driven principally by a significant decrease in revenues from sales of cellular
telephones and accessories and was partially offset by an increase in net
operating revenues from services. The increase in overall net operating
revenues in 2002 was driven principally by a 9.9% increase in net operating
revenues from services and secondarily by a 50.4% increase in revenues from
sales of cellular telephones and accessories.

Usage charges

Revenues from usage charges decreased by 10.4% in 2001 and increased by
27.0% in 2002. The decrease in 2001 was due principally to movement of
customers to plans including free minutes and the implementation of stricter
policies to reduce payment defaults, which resulted in a slight decrease in
outgoing call traffic. The increase in 2002 was due principally to an increase
in rates, growth in our customer base, particularly corporate clients and heavy
users attracted from competitors, and our increased success at retaining
quality clients in terms of usage.

Monthly subscription charges

Revenues from monthly subscription charges increased by 7.8% in 2001 and
decreased by 14.0% in 2002. The increase in 2001 was due principally to an
increased number of subscribers choosing Fórmula TIM plans with higher
subscription charges over our basic plans and was partially offset by an
increased number of clients choosing

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prepaid plans over postpaid plans. The decrease in 2002 was due
principally to the migration of existing clients from postpaid plans to prepaid
plans.

Interconnection

We generate interconnection revenues by connecting calls originating from
other service providers to our clients. Revenues from interconnection
increased by 24.4% and 4.8% in 2001 and 2002, respectively. The increase in
2001 resulted primarily from growth in the volume of calls to our clients
originating outside of our network, principally calls from fixed-line
telephones, as well as from an increase in the number of prepaid clients, who
tend to receive more calls than they make. The increase in 2001 was also due
in part to the full-year effect of an increase of 19.4% in interconnection
rates that went into effect in December 2000 and was partially offset by the
adoption by TNE of policies under which it blocked calls from public telephones
to cellular telephones and obligated customers to request authorization to make
calls from fixed lines to cellular telephones. The increase in 2002 resulted
primarily from an increase of 13.65% in interconnection rates and an increase
in the number of prepaid clients and was partially offset by the continuation
of the TNE call blocking and authorization policies.

Cellular telephone sales

Revenues from sales of cellular telephones decreased by 58.8% in 2001 and
increased by 43.3% in 2002. The decrease in 2001 was principally due to our
discontinuation of sales of handsets to independent dealers. The increase in
2002 was principally due to our decision to resume sales of handsets to
independent dealers, as part of our strategy to protect our market share in the
Region aggressively and proactively, and a reduction in subsidies offered by
BSE, which eased competitive pressure and allowed us to reduce our subsidies
and still pursue our strategy of protecting market share.

Other

Revenues from other services increased by R$6.1 million and R$12.1 million
in 2001 and 2002, respectively. Other revenues consist primarily of fees for
value-added services, changing telephone numbers, 900 services, certain account
services and rentals for site sharing in which other telecom carriers use the
sites on which our radio base stations are located. The increase in 2001 was
due to increases in revenues from value-added services and increases in
revenues for changing telephone numbers, transferring numbers from one handset
to another and services provided by timnet. The increase in 2002 was due to
increases of R$8.0 million and R$4.0 million in fees for value-added services
and revenues from site sharing rentals, respectively.

Value-added and other indirect taxes

The principal indirect tax on telecommunications services is ICMS tax.
See Item 4. Information on the Company  Sources of Revenues  Taxes on
Telecommunications Goods and Services. Two federal social contribution taxes,
PIS and COFINS, are imposed at combined rates of 3.65% on gross revenues
(operating and financial) relating to telecommunications services and cellular
telephone sales. Beginning in December 2002, the rate on gross revenues from
cellular telephone sales was increased to 4.65%. Value-added and other
indirect taxes totaled 21.8% of gross operating revenues in 2000, 21.6% in 2001
and 23.1% in 2002. The decrease in 2001 was due to an increase in percentage
terms of revenues from interconnection services, on which ICMS tax is not
collected. The increase in 2002 was due to the relatively large increase in
revenues from usage charges compared to interconnection fees and an increase in
the ICMS tax rate from 25% to 28% by the State of Pernambuco, which went into
effect in January 2002.

Cost of services and goods

Cost of services and goods decreased by 4.8% in 2001 and increased by 7.5%
in 2002. The decrease in 2001 was due to a 55.8% decline in cellular handset
costs and a 12.1% decline in circuit leasing and related expenses and was
partially offset by a 20.6% increase in costs of materials and services and a
17.4% increase in depreciation charges. The increase in 2002 was due to an
11.3% increase in depreciation charges, a 9.6% increase in costs of materials
and services and a 15.6% increase in cellular handset costs and was partially
offset by a 22.6% decline in circuit leasing and related expenses. The
following table sets forth the composition of our costs of

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services and goods for each of the years in the three-year period ended
December 31, 2002, as well as the percentage changes in 2001 and 2002 from the
prior year.

|                                     |  |                         |       |          |  |      |       |           |  |           |       |  |  |  |       |   |  |  |       |  
|------------------------------------ |  | ----------------------- | ----- | -------- |  | ---- | ----- | --------- |  | --------- | ----- |  |  |  | ----- | - |  |  | ----- | -
|                                     |  | Year ended December 31, |       | % Change
|                                     |  |                         |       |         
|                                     |  | 2000                    |       | 2001     |  | 2002 |       | 2000-2001 |  | 2001-2002
|                                     |  |                         |       |          |  |      |       |           |  |          
|                                     |  | (millions of reais (1)) |       |          |  |      |       |           |  |          
|Depreciation                         |  |                         | 108.7 |          |  |      | 127.7 |           |  |           | 142.1 |  |  |  | 17.4  |   |  |  | 11.3  |  
|Circuit leasing and related expenses |  |                         | 34.1  |          |  |      | 30.0  |           |  |           | 23.2  |  |  |  | (12.1 | ) |  |  | (22.6 | )
|Materials and services               |  |                         | 111.9 |          |  |      | 134.9 |           |  |           | 147.8 |  |  |  | 20.6  |   |  |  | 9.6   |  
|Personnel                            |  |                         | 8.0   |          |  |      | 9.6   |           |  |           | 9.2   |  |  |  | 19.6  |   |  |  | (4.3  | )
|Leases and insurance                 |  |                         | 9.9   |          |  |      | 11.8  |           |  |           | 11.5  |  |  |  | 18.5  |   |  |  | (2.5  | )
|FISTEL tax and other                 |  |                         | 1.0   |          |  |      | 1.1   |           |  |           | 1.0   |  |  |  | 12.2  |   |  |  | (9.2  | )
|                                     |  |                         |       |          |  |      |       |           |  |           |       |  |  |  |       |   |  |  |       |  
|Cost of services                     |  |                         | 273.6 |          |  |      | 315.0 |           |  |           | 334.7 |  |  |  | 15.1  |   |  |  | 6.3   |  
|Cellular handsets                    |  |                         | 107.1 |          |  |      | 47.3  |           |  |           | 54.7  |  |  |  | (55.8 | ) |  |  | 15.6  |  
|                                     |  |                         |       |          |  |      |       |           |  |           |       |  |  |  |       |   |  |  |       |  
|Cost of services and goods           |  |                         | 380.7 |          |  |      | 362.3 |           |  |           | 389.4 |  |  |  | (4.8  | ) |  |  | 7.5   |  
|                                     |  |                         |       |          |  |      |       |           |  |           |       |  |  |  |       |   |  |  |       |  



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|(1) |  | Columns may not add due to rounding.
|--- |  | ------------------------------------

Depreciation

Depreciation expense increased by 17.4% and 11.3% in 2001 and 2002,
respectively. The increases in 2001 and 2002 were due principally to the
expansion of the base of depreciable assets, part of which resulted in 2002
from the completion of a large amount of works-in-progress. For a discussion
of the estimates used in calculating the amount of our depreciation expense,
see Critical Accounting Policies.

Circuit leasing and related expenses

Circuit leasing and related expenses represent lease payments to TNE for
use of circuits between our radio base stations and switching centers and
between our network and TNEs network. Such expenses decreased by 12.1% and
22.6% in 2001 and 2002, respectively. The decrease in 2001 resulted in part
from the partial-year effect of a reduction of lease payments negotiated with
TNE, which went into effect in August 2001 and in part from our efforts to
optimize the location of radio base stations, allowing us to reduce the number
of interconnection points leased from TNE. The decrease in 2002 resulted from
a reduction of lease payments negotiated with TNE.

Materials and services

Materials and services expense includes costs of materials and services
received from third parties, principally interconnection charges paid to TNE
and other telecommunications service providers. Materials and services expense
increased by 20.6% and 9.6% in 2001 and 2002, respectively. The increases in
2001 and 2002 principally reflected an increase in the volume of calls subject
to interconnection charges payable to other cellular and fixed-line service
providers, which was driven largely by an increase in the number of clients.

Personnel

Personnel expenses included in cost of services and goods increased by
19.6% in 2001 and decreased by 4.3% in 2002. The increase in 2001 was due
principally to adjustments relating to recalculations of provisions relating to
benefits and tax expenses. The decrease in 2002 was due principally to staff
reductions made possible by productivity increases.

Leases and insurance

Lease and insurance payments, which primarily include fees paid to
fixed-line companies and third parties to rent land, infrastructure and
buildings for use in the cellular network, increased by 18.5% in 2001 and
decreased by 2.5% in 2002. The increase in 2001 was due primarily to an
increase in average lease rates and an increase in the size of locales rented.
The decrease in 2002 was due primarily to a reallocation and more efficient use
of leased

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space and was partially offset by an increase in average lease rates.
Lease rates charged to us may rise and increase our lease expense in the
future.

FISTEL tax and other

FISTEL tax and other costs increased from R$1.0 million in 2000 to R$1.1
million in 2001 and decreased to R$1.0 million in 2002. FISTEL tax consists of
a charge for the installation of new stations and a fee (equal to 50% of the
new installation fee) for the maintenance of existing stations. As a result of
continuing reductions in the installation of new equipment, FISTEL tax expense
in 2001 and 2002 consisted principally of fees charged for the maintenance of
existing stations, and the amount recorded in this line item remained stable as
compared to the respective prior year. See Item 4. Information on the
CompanySources of RevenueTaxes on Telecommunications Goods and
Services.

Cellular handset costs

The cost of acquiring cellular handsets decreased by 55.8% in 2001 and
increased by 15.6% in 2002. The decrease in cellular handset costs in 2001 was
due primarily to our discontinuation of sales of handsets to independent
dealers. The increase in cellular handset costs in 2002 was due primarily to
the resumption of handset sales to independent dealers, which produced an
increased volume of such sales.

Gross profit margins

The following table sets forth our gross profits for each of the years in
the three-year period ended December 31, 2002.

|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |      | 
|---------------------------------------------------------------------- | ---------------- |  | ----------------------- | ------ | -------- |  | ----- | ------ | --------- |  | --------- | ------ | - |  | ----- | ----- | - |  | ----- | ---- | 
|                                                                       |                  |  | Year ended December 31, |        | % Change
|                                                                       |                  |  |                         |        |         
|                                                                       |                  |  | 2000                    |        | 2001     |  | 2002  |        | 2000-2001 |  | 2001-2002
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |          
|                                                                       |                  |  | (millions of reais)(1)  |        |          |  |       |        |           |  |          
|Net operating revenues from services                                   |                  |  | 760.5                   |        |          |  | 792.7 |        |           |  | 871.1     |        |   |  | 4.2   |       |   |  | 9.9   |     
|                                                                       | Cost of services |  |                         | (273.6 | )        |  |       | (315.0 | )         |  |           | (334.7 | ) |  |       | 15.1  |   |  |       | 6.3  | 
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |     
|Gross profit from services                                             |                  |  | 486.9                   |        |          |  | 477.7 |        |           |  | 536.4     |        |   |  | (1.9  | )     |   |  | 12.3  |     
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |     
|Net operating revenues from sales
of cellular handsets and accessories |                  |  | 85.2                    |        |          |  | 33.5  |        |           |  | 50.4      |        |   |  | (60.7 | )     |   |  | 50.4  |     
|                                                                       | Cost of goods    |  |                         | (107.1 | )        |  |       | (47.3  | )         |  |           | (54.7  | ) |  |       | (55.8 | ) |  |       | 15.6 | 
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |     
|Gross profit from sales of cellular
handsets and accessories           |                  |  | (21.9                   | )      |          |  | (13.8 | )      |           |  | (4.3      | )      |   |  | (37.0 | )     |   |  | (68.8 | )   
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |     
|Gross profit                                                           |                  |  | 464.9                   |        |          |  | 464.0 |        |           |  | 532.1     |        |   |  | (0.2  | )     |   |  | 14.7  |     
|                                                                       |                  |  |                         |        |          |  |       |        |           |  |           |        |   |  |       |       |   |  |       |     



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|(1) |  | Columns may not add due to rounding.
|--- |  | ------------------------------------

Our gross profit margin (gross profit as a percentage of net revenues)
from services decreased from 63.6% in 2000 to 58.5% in 2001 and increased to
61.0% in 2002. The decrease in 2001 resulted primarily from a decrease in
revenue from usage charges, which have a low marginal cost, as a percentage
(from 50.8% in 2000 to 43.6% in 2001) of revenues from services. In 2002,
revenues from usage charges as a percentage of revenues from services increased
to 49.4%, which was principally responsible for the increase in gross profit
margin in 2002.

Our overall gross profit margin increased from 55.0% in 2000 to 56.2% in
2001 and increased to 57.7% in 2002. The increase in overall gross profit
margin in 2001 was primarily due to a decrease in gross loss on sales of
cellular handsets and accessories. The increase in overall gross profit margin
in 2002 was due primarily to the increase in gross profit margin for services
and secondarily to further reductions in gross loss on handset sales.

Our negative gross margin for sales of cellular handsets and accessories
increased from 25.7% in 2000 to 41.2% in 2001 and decreased to 8.5% in 2002.
We engage in sales of handsets, often with special promotions at

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particular
times of the year, to increase the number of customers and generate demand for
our services. The increase
in negative gross margin in 2001 was due primarily to subsidies on the
sale of handsets on a lower total volume of sales, which were undertaken to
promote the loyalty and retention of our best customers. The decrease in
negative gross margin in 2002 was due primarily to a reduction in subsidies on
a greater total volume of sales. The increase in handset sales resulted from
our decision to resume sales of handsets to independent dealers, while the
reduction in subsidies reflected a reduction in subsidies offered by BSE, which
eased competitive pressure and allowed us to reduce our subsidies and still
pursue our strategy of protecting market share.

Operating expenses

The following table sets forth certain components of our operating
expenses for each of the years in the three-year period ended December 31,
2002, together with the corresponding percentage changes.

|                                     |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |      |  
|------------------------------------ |  | ----------------------- | ------ | -------- |  | ---- | ------ | --------- |  | --------- | ------ | - |  |  | ----- | - |  |  | ---- | -
|                                     |  | Year ended December 31, |        | % Change
|                                     |  |                         |        |         
|                                     |  | 2000                    |        | 2001     |  | 2002 |        | 2000-2001 |  | 2001-2002
|                                     |  |                         |        |          |  |      |        |           |  |          
|                                     |  | (millions of reais)(1)  |        |          |  |      |        |           |  |          
|Selling expenses                     |  |                         | (233.9 | )        |  |      | (188.0 | )         |  |           | (177.2 | ) |  |  | (19.6 | ) |  |  | (5.7 | )
|General and administrative expense   |  |                         | (87.9  | )        |  |      | (96.0  | )         |  |           | (95.3  | ) |  |  | 9.2   |   |  |  | (0.7 | )
|Other net operating income (expense) |  |                         | (15.7  | )        |  |      | (28.5  | )         |  |           | (44.5  | ) |  |  | 81.9  |   |  |  | 56.2 |  
|                                     |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |      |  
|Total operating expenses             |  |                         | (337.4 | )        |  |      | (312.5 | )         |  |           | (317.0 | ) |  |  | (7.4  | ) |  |  | 1.5  |  
|                                     |  |                         |        |          |  |      |        |           |  |           |        |   |  |  |       |   |  |  |      |  



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|(1) |  | Columns may not add due to rounding.
|--- |  | ------------------------------------

Selling expenses

Selling expenses decreased by 19.6% and 5.7% in 2001 and 2002,
respectively. The decrease in 2001 was due primarily to a decrease in
provisions for doubtful accounts from R$105.2 million in 2000 to R$44.6 million
in 2001, which was partially offset by increased commissions paid to stimulate
sales and expenses incurred in allowing customers no-cost access to our call
center over a circuit owned by Embratel. Use of the Embratel circuit has been
terminated. The decrease in 2002 was due primarily to a decrease in sales
commissions, which was made possible by a dramatic reduction in the level of
commissions paid by BSE, and a reduction in charges associated with offering
toll-free access to our call center.

Provisions for doubtful accounts charged to selling expenses decreased by
57.6% in 2001 and increased by 4.8% in 2002. In 2000, we implemented a number
of initiatives to improve the collection of overdue accounts receivable,
including the adoption of more aggressive collection procedures, the creation
of a dedicated call center, the segmentation of clients into different
collection strategy categories and the reporting of delinquent accounts to
consumer credit bureaus. The decrease in 2001 was due primarily to the
full-year effect of the implementation of these initiatives. The increase in
2002 was due primarily to a change in our estimated percentage of losses on our
overdue accounts receivable, which increased the estimated provisions for
doubtful accounts. See Item 4. Information on the CompanySales and
Marketing and Billing and Collection. For a discussion of the estimates
used in calculating our provisions for doubtful accounts, see Critical
Accounting Policies.

General and administrative expenses

General and administrative expenses increased by 9.2% in 2001 and
decreased by 0.7% in 2002. The increase in 2001 was due primarily to the
full-year effect of payment of a management fee under a Management Assistance
Agreement with TIM and was partially offset by a decline in fees paid to
international consultants. The decrease in 2002 was due primarily to a
reduction in consulting and invoicing expenses.

Other net operating income (expense)

Other net operating income (expense) gives the net result of miscellaneous
smaller income and expense items, such as provisions for contingencies, fines,
expenses and written-off receivables recovered from customers on past-due
accounts, cloning and subscription fraud costs, PIS and COFINS tax expense
related to financial income, and employees profit sharing expense. Other net
operating expense increased from R$15.7 million in 2000 to

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R$28.5 million in
2001, due principally to an increase of R$12.1 million in amortization expense
arising from the
spin-off to us of the goodwill paid in connection with the Privatization
and secondarily to increases of R$4.6 million in other expenses and R$2.3
million in provisions for contingencies. The increase in other net operating
expense in 2001 was partially offset by an increase of R$8.0 million in fines
and expenses recovered from customers on past-due accounts. In 2002, other net
operating expense increased to R$44.5 million, due principally to increases of
R$10.2 million in provisions for contingencies due to a change in our policy of
provisioning for contingencies and R$7.7 million in cloning and subscription
fraud costs and secondarily to an increase of R$4.4 million in PIS and COFINS
tax expense related to financial income. The increase in other net operating
expense in 2002 was partially offset by R$4.7 million in other income recorded
in 2002, as opposed to R$4.7 million in other expenses incurred in 2001.
Amortization expense remained stable in 2002 as compared with 2001. We expect
amortization expenses of approximately R$25.2 million each year from 2003 to
2007 and approximately R$14.7 million in 2008 as a result of the spin-off to us
of the goodwill paid in connection with the Privatization. See Note 1(b) to
the Consolidated Financial Statements. For a discussion of the estimates used
in calculating our provisions for contingencies, see Critical Accounting
Policies.

Net financial expense

We had net financial expense of R$82.3 million in 2000, R$42.2 million in
2001 and R$6.5 million in 2002. The decrease in net financial expense in 2001
was due primarily to a decrease in foreign exchange losses from R$16.0 million
to R$4.1 million, an increase in interest income from R$12.9 million in 2000 to
R$22.0 million in 2001 and a decrease in interest expense from R$64.8 million
in 2000 to R$56.0 million in 2001. In connection with our hedging agreements,
we experience foreign exchange gains and losses that are mere accounting
entries which, over the course of such transactions, tend to offset each other
such that the sum of all such gains and losses tends to be close to zero. See
Foreign Exchange and Interest Rate Exposure. The foreign exchange losses
we recorded in 2001 reflect the amount by which interest payments made on our
U.S. dollar-denominated debt exceeded the reaisamount of such payments,
calculated at the exchange rate provided for in the hedging instrument covering
the principal amount of such debt. We recorded a foreign exchange loss in 2001
primarily because we paid unhedged U.S. dollar-denominated interest obligations
at unfavorable real-U.S. dollar exchange rates relative to the real-U.S. dollar
exchange rates used to determine the notional principal amounts of the related
debt under the applicable hedging instruments. The increase in interest income
in 2001 was primarily due to the increased cash resources available to us for
investment. The decrease in interest expense resulted from a decline in
average interest rates we paid as a result of hedging arrangements under which
we paid some of our interest obligations at a fixed rate lower than the
floating rates charged to us in 2000 and a refinancing at year-end 2000 of
short-term debt with indebtedness with longer maturities at more favorable
interest rates. The decrease in net financial expense in 2002 was due
primarily to an increase in interest income from R$22.0 million to R$56.0
million and a decrease in interest expense from R$56.0 million to R$45.0
million and was partially offset by an increase in foreign exchange losses from
R$4.1 million to R$13.0 million. The increase in interest income in 2002 was
due primarily to the increased cash resources available to us for investment.
The decrease in interest expense resulted principally from the decrease in
LIBOR and secondarily from the payment of principal on our equipment financing
loans. The increase in foreign exchange loss resulted from the same factors as
produced in the increase in foreign exchange loss in 2001, combined with the
greater devaluation of the realin 2002.

Net non-operating income (expense)

We recorded net non-operating income of R$2.4 million in 2000 and net
non-operating expenses of R$2.2 million and R$3.1 million in 2001 and 2002,
respectively. The net non-operating expense in 2001 was due primarily to
losses incurred on the sale of cellular handsets returned by customers
upgrading to newer models. The net non-operating expense in 2002 was due
primarily to a loss on our equity interest in timnet and sales of assets below
cost.

Income and social contribution taxes

We recorded income and social contribution tax expense of R$9.9 million,
R$20.1 million and R$48.4 in 2000, 2001 and 2002, respectively. The increase
in income and social contribution taxes we recorded in 2001 and 2002,
respectively, resulted principally from the increase in our income before taxes
from R$47.6 million in 2000 to R$107.2 million in 2001 and R$205.5 million on
2002. The increases in tax expense in 2001 and 2002 were partially offset by
the recording of a deferred tax benefit of R$4.9 million and R$9.2 million in
2001 and 2002,

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respectively, reflecting the effect of temporary differences between book
values and tax bases of assets and liabilities.

Minority interests

Minority interests reflect the participation of minority shareholders in
the Subsidiaries in the net income or loss of such Subsidiaries, as the case
may be. Minority interests in the Subsidiaries were R$11.1 million, R$21.5
million and R$38.6 million in 2000, 2001 and 2002, respectively. Minority
interests represented 29.3%, 24.7% and 24.5% of income before minority
interests in 2000, 2001 and 2002, respectively. Minority interests as a
percentage of consolidated net income vary in accordance with the distribution
of consolidated net income among the Subsidiaries, each of which has a
different level of minority ownership.

Net Income

As a result of the foregoing, we had R$26.7 million of net income in 2000,
R$65.5 million of net income in 2001 and R$118.6 million of net income in 2002.

Liquidity and Capital Resources

Our principal capital requirements are for capital expenditures and
payments of dividends to shareholders. We made capital expenditures (including
capitalized interest) of R$202.1 million in 2000, R$132.0 million in 2001 and
R$74.9 million in 2002. Capital expenditures made in 2000 related primarily to
increasing network capacity, including the digitalization of our network and
increasing its coverage, and to increasing our ability to provide information
technology services. In 2001, our capital expenditures related primarily to
optimizing the location of radio base stations, maintaining the technological
quality of our network and improving our information technology infrastructure.
In 2002, our capital expenditures related primarily to maintenance of the
quality of our network. See Item 4. Information on the CompanyCapital
Expenditures.

In 2001, the Holding Company distributed a total of R$9.2 million in
respect of 2000 income, R$2.6 million in the form of dividends and R$6.5
million in the form of interest on capital. In 2002, the Holding Company
distributed a total of R$33.1 million in respect of 2001 income, R$26.3 million
in the form of dividends (of which R$14.8 million we held in an income reserve
for distribution at a later date to the shareholders of record on April 5,
2002) and R$6.8 million in the form of interest on capital. In March 2003, the
shareholders approved the distribution of R$28.2 million of dividends in
respect of 2002 income and the distribution of R$2.2 million of the income
reserve in respect of 2001 income created in April 2002. No distributions in
the form of interest on capital were approved in respect of 2002 income. See
Item 8. Financial InformationPolicy on Dividend Distributions.

We generated cash from operations of R$193.6 million in 2000, R$343.5
million in 2001 and R$377.0 million in 2002. At December 31, 2002, we had
working capital of R$229.6 million, compared with working capital of R$196.3
million at December 31, 2001. We have historically financed our working
capital requirements with debt. In the future, we expect to finance our
working capital requirements from cash generated by operations. Our management
believes that our working capital is sufficient for our present requirements.
In the event that cash generated from operations is at any time insufficient to
finance our working capital requirements, we would seek to finance such working
capital needs through new debt financing. If such financing were at any time
unavailable, we would consider curtailing our capital expenditures or our
distribution of dividends.

We had R$333.7 million of total indebtedness at December 31, 2002, of
which (i) R$208.2 million (including R$8.2 million of accrued interest) was in
the form of debentures, (ii) R$9.2 million (including R$0.1 million of accrued
interest) represented financing for the purchase of equipment and (iii) R$116.2
million (including R$1.8 million of accrued interest) was in the form of bank
loans taken for working capital purposes. All of the aforementioned equipment
financings were originally entered into by the Predecessor Companies and were
legally assigned to the Subsidiaries upon the Breakup of Telebrás. Each such
equipment financing has a political risk guarantee from Swedens export credit
agency EKN and a commercial risk guarantee by the Holding Company.

In October 2000, Telpe Celular issued debentures, guaranteed by the
Holding Company, with an aggregate face amount of R$200 million. The
debentures pay a floating rate of interest equal to 103% of CDI and mature in
October 2003.

45



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##### 



The Holding Company is subject to covenants under the agreement evidencing
and governing the debentures and a loan agreement with the European Investment
Bank. The breach of any of these covenants could result in an acceleration of
the maturity date of the debentures or the loan. Under the covenants for the
debentures, the Holding Companys ratio of consolidated earnings before income
taxes, depreciation and amortization to consolidated net financial expense
cannot fall below 2.5 for any four-quarter period, and the Holding Companys
ratio of consolidated net indebtedness to consolidated earnings before income,
taxes, depreciation and amortization cannot exceed 3.5. Under the covenants
for the loan from the European Investment Bank, the Holding Companys ratio of
consolidated earnings before income taxes, depreciation and amortization to
consolidated net financial expense cannot fall below 2.0 for any four-quarter
period, and the Holding Companys ratio of consolidated indebtedness to net
shareholders equity cannot exceed 2.0. Although these covenants in theory
limit our ability to incur indebtedness, we generate sufficient earnings before
income taxes, depreciation and amortization that we do not believe that these
covenants will impose material constraints on our ability to finance our
capital expenditures or, more generally, to develop our business. As of March
31, 2003, the Holding Companys ratio of consolidated earnings before income
taxes, depreciation and amortization to consolidated net financial expense was
21.08; the Holding Companys ratio of consolidated net indebtedness to
consolidated earnings before income, taxes, depreciation and amortization was
(0.18); and the Holding Companys ratio of consolidated indebtedness to net
shareholders equity was 0.49.

Acceleration of the maturity date of the debentures also may occur upon
certain events of default, including:



| |  |  | TIMs direct and indirect ownership of the voting capital of
either the Holding Company or Telpe Celular falls below 51%;                                         
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | any default by Telpe Celular on its obligations to pay principal or interest on the debentures;                                                                   
|
| |  |  | the termination of Telpe Celulars Concession Agreement;                                                                                                          
|
| |  |  | the occurrence of an event of payment default or an
acceleration under any debt obligation of Telpe Celular with a
principal amount of at least R$25.0 million; or
|
| |  |  | any default by Telpe Celular in the payment of obligations
aggregating at least R$25.0 million.                                                                   

The debentures agreement also restricts Telpe Celulars ability to pay
dividends if payments of principal or interest under the debentures are overdue
by more than 15 days. See Exhibit No. 2.2 to this annual report.

The Holding Company has guaranteed the obligations of certain Subsidiaries
under their equipment financing agreements. See Item 7. Major Shareholders
and Related-Party TransactionsRelated-Party TransactionsGuarantees by
the Holding Company of Obligations of the Subsidiaries.

The Subsidiaries have entered into financing arrangements among themselves
and with the Holding Company to address cash-flow needs. Such arrangements
have been entered into on market terms on an arms-length basis. The total of
such financing arrangements was R$22.2 million at December 31, 2002 and R$29.3
million at March 31, 2003.



46



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##### 



The following tables set forth a schedule of our obligations and
commitments to make future payments under contracts:(1)

|                        |  |                        |       |         |  |           |       |        |  |         |      |       |  |  |      |  |  |  |   | 
|----------------------- |  | ---------------------- | ----- | ------- |  | --------- | ----- | ------ |  | ------- | ---- | ----- |  |  | ---- |  |  |  | - | 
|                        |  | Payments Due by Period
|                        |  |                       
|                        |  |                        |       |         |  | Less than |       | 1 to 3 |  | 4 to 5  |      | After
|Contractual Obligations |  | Total                  |       | 1 years |  | years     |       | years  |  | 5 years
|                        |  |                        |       |         |  |           |       |        |  |        
|                        |  | (millions of reais)   
|Long-term debt          |  |                        | 333.7 |         |  |           | 256.2 |        |  |         | 77.5 |       |  |  |     |  |  |  |  | 
|Operating leases (2)    |  |                        | 52.1  |         |  |           | 8.8   |        |  |         | 31.1 |       |  |  | 12.2 |  |  |  |  | 



---

|(1) |  | We have no capital lease obligations, unconditional purchase obligations,
commercial commitments (i.e., lines of credit, standby letters of credit,
standby repurchase obligations or other commercial commitments) or other
long-term obligations.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The information regarding payments due by period under our operating
leases reflects future payments due that are non-cancelable without
payment of a penalty. See Note 15 to the Consolidated Financial
Statements.                               

We have entered into hedging arrangements that protect against the risk of
foreign exchange losses on our foreign-currency denominated indebtedness. For
an analysis of our indebtedness by currency, see Note 14(e) to the Consolidated
Financial Statements. We also have entered into arrangements to hedge market
risk deriving from changes in interest rates for some of our debt obligations.
As of December 31, 2002, R$333.7 million, or 100.0%, of our interest-bearing
liabilities bore interest at floating rates. As of December 31, 2002, we were
party to certain hedging arrangements under which we undertook fixed-rate
obligations in place of some of our floating-rate obligations in order to
reduce our exposure to interest rate risk. See Notes 14(a), 14(c) and 25 to
the Consolidated Financial Statements. Under the financing arrangements
pursuant to which we undertook a floating-rate obligation, we paid interest in
2002 at an average effective rate per annum of 18%. Under the hedging
arrangements pursuant to which we undertook a fixed-rate obligation, we pay an
effective rate per annum of 16.04%.

In 2003, the Holding Company expects to make approximately R$327.0 million
in capital expenditures, to be funded by cash generated from our business. See
Item 4. Information on the CompanyNetwork. All of our planned capital
expenditures for 2003 relate to adapting our network to comply with PCS
regulations, the purchase of additional frequencies that we will use to offer
GSM service and the GSM overlay. See Item 4. Information on the CompanyCapital Expenditures. At December 31, 2002, we did not have material capital
expenditure commitments.

As of December 31, 2002, the Holding Companys principal assets were the
shares of the Subsidiaries. The Holding Company relies almost exclusively on
dividends from the Subsidiaries to meet its needs for cash, including for the
payment of dividends to its shareholders. The Holding Company controls the
payment of dividends by the Subsidiaries, subject to certain limitations under
Brazilian law. These limitations do not materially restrict the ability of the
Subsidiaries to transfer funds to the Holding Company.

Until December 1999, we participated in a multi-employer defined benefit
plan (the Telebrás Pension Plan) that covered the employees of the Telebrás
System who retired before the Breakup as well as those who continued working
for the operating companies after the Breakup. We are contingently liable,
jointly and severally with the other New Holding Companies, for the unfunded
obligations of the Telebrás Pension Plan with respect to all such employees who
retired before January 30, 2000. In December 1999, we changed to a defined
benefit plan (the PBS-TNC Plan) that covers only those former employees of
Telebrás who continued to be employed by us after December 1999. We are also
contingently liable for the unfunded obligations of the PBS-TNC Plan with
respect to our employees participating in this plan. See Notes 16 and 27(c) to
the Consolidated Financial Statements.

In November 2002, we created a separate defined contribution plan (the
TIMPREV-NORDESTE Pension Plan). Migration to this plan was optional for
employees linked to the PBS-TNC Plan. Migration to the TIMPREV-NORDESTE
Pension Plan extinguishes the migrating participants rights under the PBS-TNC
Plan. We are also contingently liable for the unfounded obligations of the
TIMPREV-NORDESTE Pension Plan with respect to our employees participating in
this plan. See Notes 16 and 27(c) to the Consolidated Financial Statements.

47



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U.S. GAAP Reconciliation

We prepare our consolidated financial statements in accordance with the
Corporate Law Method, which differs in significant respects from U.S. GAAP.
The differences are described in Note 26 to the Consolidated Financial
Statements. Net income for 2002 is R$102.5 million under U.S. GAAP, compared
with net income of R$118.6 million under the Corporate Law Method.
Shareholders equity at December 31, 2002 was R$702.4 million under U.S. GAAP,
compared to R$710.1 million under the Corporate Law Method.

The differences between the Corporate Law Method and U.S. GAAP that have
the most significant effects on net income and shareholders equity are the
accounting for hedging and derivative instruments, the treatment of capitalized
interest, the treatment of pre-operating expenses for timnet.com, the rules
regarding indexation of property, plant and equipment, the deferred tax effect
of the differences between the Corporate Law Method an U.S. GAAP and, with
respect to shareholders equity, the treatment of a provision for losses on our
pension plan.

For many years prior to 2000, we prepared our financial statements for
purposes of filing reports with the Commission in accordance with Brazilian
GAAP. The accounting principles embodied in Brazilian GAAP and the Corporate
Law Method are mostly identical, except that Brazilian GAAP generally requires
financial information to be restated in constant reaisas of the end of the
period presented, using the integral restatement method (correção monetária
integral). Early in 2001, the Commission announced that Brazilian companies
could present their financial information in accordance with the Corporate Law
Method, which has excluded monetary restatement of historical financial
information since 1995, following the end of hyperinflation in Brazil in the
early 1990s. See Item 3. Key Information  Corporate Law Method, Brazilian
GAAP and U.S. GAAP.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Board of Directors

The Holding Company is administered by a Board of Directors (Conselho de
Administração) and a Board of Executive Officers (Diretoria), and overseen by a
Fiscal Committee (Conselho Fiscal). The Board of Directors comprises three
members serving for terms of three years. The Board of Directors holds a
regular meeting once every three months and holds special meetings when called
by the Chairman or by two members of the Board.

Since May 15, 2003, the Board of Directors has been comprised of the
following members:

|                              |  |          |  |                  
|----------------------------- |  | -------- |  | -----------------
|Name                          |  | Position |  | Date Elected     
|                              |  |          |  |                  
|Mário César Pereira de Araújo |  | Chairman |  | May 15, 2003     
|Luiz Henrique Fraga           |  | Member   |  | April 30, 2001   
|Franco Bertone                |  | Member   |  | December 20, 2002

In accordance with the Holding Companys by-laws, these board members will
hold their positions until the Annual Shareholders Meeting in 2004. Set forth
below are brief biographical descriptions of the members of the Board of
Directors.

Mário César Pereira de Araújo

Educational Background:Mr. Araújo, 55 years old, holds a degree in
electrical engineering from Universidade Federal do Rio de Janeiro
 UFRJ.

Professional Experience:Mr. Araújo has been a member of our Board of
Directors and the Chairman of our Board since May 15, 2003. He has been our
President and Technology Officer since April 24, 2003. From October 1999 to
2002, he served as Chief Executive Officer of Norte Brasil Telecom. From
August 1998 to 1999, he served as Chief Executive Officer of Tele Centro Oeste
Celular. From 1997 to 1998, he served as a Manager of Services in the areas
of paging, trunking and Internet services at Splice do Brasil S.A. From 1977
to 1997, he worked at Embratel as a Manager of Data Communications, an
Assistant to the Director of Engineering and as a
Manager of the Department of Corporate Clients. From 1973 to 1977, he
worked in the data and text communications department of Telerj.

48



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##### 



Luiz Henrique Fraga

Educational Background:Mr. Fraga, 42 years old, holds an economics
degree from PUC/Rio and a masters degree in finance from AGSIM-Thunderbird.

Professional Experience:Mr. Fraga is Vice President of Globalvest
Company, Lp and President of Latinvest Asset Management of Brazil. Since 1994,
Mr. Fraga has also worked at Latinvest Management Company, where he holds the
positions of Director and Senior Portfolio Manager. During the five years
previous to 1994, he has served as Director of Emerging Markets at Bear
Stearns, with responsibility for securities transactions in New York and all
transactions of the company in Brazil. Mr. Fraga has also served as Unibancos
Director of Emerging Markets in New York and has worked at Citibank in New
York.

Franco Bertone

Educational Background:Mr. Bertone, 51 years old, holds a degree in
electrical engineering and a graduate degree in business, digital
communications and systems management from Scuola Superiore G. Reiss Romoli.

Professional Experience:Mr. Bertone is Corporate Vice President of
Telecom Italia Latin America. From 2001 to 2002, Mr. Bertone was the Director
of International Operations for Telecom Italia Latin America. From 1997 to
2000, Mr. Bertone was the CEO and Board President of Entel-Bolivia. From 1992
to 1997, Mr. Bertone was the CEO and Board President of Sirti Limited Corp. -
USA. From 1986 to 1991, Mr. Bertone was the Director of Systems at
Sirt-Milano. From 1983 to 1985, Mr. Bertone was the Programming Manager of the
Sirt-Ericsson-Phillips joint venture.

The Holding Company does not have contracts with its directors providing
benefits upon termination of their appointment.

Board of Executive Officers

The Board of Executive Officers consists of one President, one Financial
Executive Officer, one Administrative Executive Officer, one Investor Relations
Executive Officer, one Commercial Executive Officer and one Technology
Executive Officer, each of whom is elected by the Board of Directors. An
Executive Officer may be removed from office at any time.

Since April 24, 2003, the Board of Executive Officers has comprised of the
following members:

|                             |  |                                                                      |  |                 
|---------------------------- |  | -------------------------------------------------------------------- |  | ----------------
|Name                         |  | Position                                                             |  | Date Appointed  
|                             |  |                                                                      |  |                 
|Mário César Perera de Araújo |  | President and
Technology Executive Officer                           |  | April 24, 2003  
|Maria Lúcia Motta de Aquino  |  | Administrative Executive Officer                                     |  | October 25, 2000
|Walmir Urbano Kesseli        |  | Financial Executive Officer and
Investor Relations Executive
Officer |  | July 4, 2001    
|Rogério Lyra                 |  | Commercial Executive Officer                                         |  | October 31, 2002

In accordance with the Holding Companys by-laws, officers generally will
hold their positions for three years from the date of their election. Set
forth below are brief biographical descriptions of the Executive Officers.

Mário César Pereira de Araújo

See   Board of Directors for Mr. Araújos biography.

Maria Lúcia Motta De Aquino

Educational Background:Ms. Aquino, 56 years old, received her
undergraduate degree in economics and masters degree in quality and
productivity management from the Universidade Federal da Paraíba, Brazil. She
also received a graduate degree in marketing from the Fundação Getúlio Vargas,
São Paulo, Brazil.

49



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##### 



Professional Experience:From 1972 to 1979, Ms. Aquino served as Manager
of the Planning Division of Companhia de Eletricidade da Borborema. From 1978
to 1998, Ms. Aquino held various positions with
Telecomunicações da Paraíba  TELPA, serving as Manager of the Budget and Costs Division from 1979 to 1981,
Manager of the Finance Department from 1991 to 1995 and Manager of the Customer
Relations Department from 1996 to 1998. Since October 1998, she has served as
Vice President of the Holding Company, President of Telepisa Celular, President
of Teleceará Celular, President of Telern Celular, President of Telpa Celular,
President of Telpe Celular and President of Telasa Celular.

Walmir Urbano Kesseli

Educational Background:Mr. Kesseli, 43 years old, received his
undergraduate and post-graduate degrees in Economics and Administrative Finance
from the Catholic University of Paraná. He received his M.B.A in Finance and
Capital Markets from the Brazilian Institute of Capital Markets-IBMEC and
completed coursework specializing in Finance at the London School of Business.

Professional Experience:Mr. Kesseli has over thirteen years of experience
in finance and management. From 1986 to 1993, he served as Manager of the
Financial Division of Telecomunicações do Paraná S.A.
 Telepar. From 1994 to
1998, he served as Manager of the Department of Administrative Finance of
Telecomunicações do Paraná S.A.  Telepar. From 1999 to 2001, Mr. Kesseli was
Director of the Department of Finance of Tele Celular Sul Participações S.A.
Mr. Kesseli currently serves as the Financial Executive Officer and Investor
Relations Officer of the Holding Company.

Rogério Lyra

Educational Background: Mr. Lyra, 44 years old, holds a degree in
engineering from Pernambuco Federal University.

Professional Experience: From 1998 to 2002, Mr. Lyra served as
Telecommunications Marketing Director for BCP. Mr. Lyra also has held the
position of Business Communications Systems Development Engineer for Phillips.

The Fiscal Committee

The Fiscal Committee consists of five members, three of which are elected
by the majority common shareholders, one by the minority common shareholders
and one by the preferred shareholders.

The following are the current members of the Fiscal Committee:

|                          |  |                |  |       
|------------------------- |  | -------------- |  | ------
|Name                      |  | Date Elected   |  | Term  
|                          |  |                |  |       
|José Carlos de Brito      |  | March 14, 2003 |  | 1 year
|José Dorotheu Fabro       |  | March 14, 2003 |  | 1 year
|Paulo Roberto Cruz Cozza  |  | March 14, 2003 |  | 1 year
|Antonio Sidnei dos Santos |  | March 14, 2003 |  | 1 year
|Isaac Selim Sutton        |  | March 14, 2003 |  | 1 year

Under the Brazilian Corporate Law, the Fiscal Committees general duties
and responsibilities include monitoring the actions of management and verifying
its compliance with legal duties and appropriate statutes; providing opinions
regarding managements annual report, business plans and budgets; and
performing reviews of, and opinions regarding, our financial statements.

Compensation

The aggregate amount of compensation paid by the Holding Company to all
directors and executive officers of the Holding Company was approximately R$1.2
million, R$1.4 million and R$1.3 million in 2000, 2001 and 2002, respectively.
The Holding Company did not set aside or accrue any amount to provide pension,
retirement or similar benefits for officers and directors of the Holding
Company. In April 2001, the Holding Company approved a stock option plan for
members of its Board of Directors, certain managers and key employees.

50



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Each member of the Fiscal Committee receives 10% of the average
compensation of the Holding Companys executive officers.

We are not required under Brazilian law to disclose, and has not otherwise
disclosed, the compensation of our directors and officers on an individual
basis.

Stock Option Plan

On May 4, 2001, the shareholders of the Holding Company approved the
implementation of a stock option plan (the Stock Option Plan) initially
covering our executive officers, managers and key employees. The Stock Option
Plan was first offered in 2002 and has a duration of five years, expiring at
the time of the Annual Shareholders Meeting in 2006.

Options vest under the Stock Option Plan only if our earnings before
interest and taxes meet certain targets, which are set for each year in the
annual budgeting process. The holders of options under the Stock Option Plan
will be able to exercise their options at certain prices established under the
terms of the plan. None of the options has yet been exercised. Options with
respect to 2,822,918,000 Preferred Shares representing 0.79% of our total
outstanding capital were outstanding as of May 2003. See Note 26(j) for
further information about the Stock Option Plan.

Share Ownership

The directors and members of the administrative, supervisory and
management bodies of the Holding Company, together, do not hold more than 1% of
either the Common or Preferred Shares outstanding. As of March 31, 2003, the
directors and executive officers of the Holding Company, owned, in the
aggregate, 9,332 Common Shares.

Employees

At December 31, 2002, we had 1,041 full-time employees and 190 contract
employees, of whom approximately 55% were employed by the Subsidiaries and
approximately 45% were employed by the Holding Company. The following table
sets forth a breakdown of our employees.

|                                                |                        |  |                         |     |      |  |       |     |  |  |       |     | 
|----------------------------------------------- | ---------------------- |  | ----------------------- | --- | ---- |  | ----- | --- |  |  | ----- | --- | 
|                                                |                        |  | Year ended December 31,
|                                                |                        |  |                        
|                                                |                        |  | 2000                    |     | 2001 |  | 2002 
|                                                |                        |  |                         |     |      |  |      
|Total number of employees                       |                        |  | 1,595                   |     |      |  | 1,367 |     |  |  | 1,231 |    
|Number of employees by category of activity (1) |                        |  |                         |     |      |  |       |     |  |  |       |    
|                                                | Network                |  |                         |     |      |  |       | 206 |  |  |       | 195 | 
|                                                | Sales and marketing    |  |                         |     |      |  |       | 414 |  |  |       | 359 | 
|                                                | Information technology |  |                         |     |      |  |       | 78  |  |  |       | 75  | 
|                                                | Customer care          |  |                         |     |      |  |       | 511 |  |  |       | 466 | 
|                                                | Support and other      |  |                         |     |      |  |       | 158 |  |  |       | 136 | 
|Number of employees by geographic location      |                        |  |                         |     |      |  |       |     |  |  |       |    
|                                                | Ceará                  |  |                         | 324 |      |  |       | 308 |  |  |       | 275 | 
|                                                | Pernambuco (2)         |  |                         | 950 |      |  |       | 802 |  |  |       | 745 | 
|                                                | Rio Grande do Norte    |  |                         | 88  |      |  |       | 71  |  |  |       | 57  | 
|                                                | Alagoas                |  |                         | 83  |      |  |       | 64  |  |  |       | 49  | 
|                                                | Piauí                  |  |                         | 57  |      |  |       | 47  |  |  |       | 39  | 
|                                                | Paraíba                |  |                         | 93  |      |  |       | 74  |  |  |       | 66  | 



---

|(1) |  | Information regarding the number of employees by category of activity is not available for 2000.
|--- |  | ------------------------------------------------------------------------------------------------
|(2) |  | Includes employees of the Holding Company and of Telpe Celular.                                 

All employees are represented by state labor unions associated with either
the Federação Nacional dos Trabalhadores em
Telecomunicações Fenattel
(Fenattel) or the Federação Interestadual dos Trabalhadores em
Telecomunicações Fittel (Fittel). Each Subsidiary negotiates a new
collective labor agreement every year with the local union. The collective
agreements currently in force expire in December 2003, and the collective
agreements have historically been renewed annually in December. As of January
2003, the Subsidiaries negotiated one agreement for all the companies with the
help of Fittel and Fenattel. Our management considers the our with

51



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our work
force to be satisfactory. Neither we nor any Predecessor Company have
experienced a work stoppage that had a material effect on our operations.

Our employees at the time of the privatization had the right to maintain
their rights and benefits in the Telebrás Pension Plan, administered by
Fundação Telebrás de Seguridade Social Sistel (Sistel), a multi-employer
defined benefit plan that supplements government-provided retirement benefits.
We made monthly contributions to the Telebrás Pension Plan equal to 13.5% of
the salary of each employee who was a member of the Telebrás Pension Plan.
Each employee member also made a monthly contribution to the Telebrás Pension
Plan based on age and salary. Members of the Telebrás Pension Plan qualified
for full pension benefits after reaching age 57 provided they had been members
of the Telebrás Pension Plan for at least ten uninterrupted years and have been
affiliated with the social security system for at least 35 years. The Telebrás
Pension Plan operated independently from us, and our assets and liabilities
were fully segregated from ours. Employees hired since the privatization have
not become members of the Telebrás Pension Plan, and we did not contribute to
any pension fund on behalf of such employees. The Telebrás Pension Plan
covered the former employees of the companies of the Telebrás System, and we
were contingently liable for all of the unfunded obligations of the plan.

In January 2000, we and the other companies that formerly belonged to the
Telebrás System agreed to divide the existing Telebrás Pension Plan into 15
separate plans, resulting in the creation of private plans for the current
employees of each of the former members of the Telebrás System. These new
private pension plans are still administered by Sistel and have retained the
same terms and conditions of the Telebrás Pension Plan. The division was
carried out so as to allocate liability among the companies that formerly
belonged to the Telebrás system according to each companys contributions in
respect of its own employees. Joint liability among the Telebrás Pension Plan
sponsors will continue with respect to retired employees who will necessarily
remain members of the Telebrás Pension Plan. See Note 16 to the Consolidated
Financial Statements.

During 2002, we created a new defined contribution pension plan
(TIMPREV) that would bring us in line with current social security practices
in the private sector and also allow for the migration of employees
participating in our private plan created in 2000 (Tele Nordeste Celular PBS
Plan). TIMPREV was approved by the Secretary of Complementary Pension on
November 13, 2002 in Notification 1,917 CGAJ/SPC. TIMPREV sets forth new
guidelines for the granting and maintenance of benefits and outlines new rights
and obligations for Sistel, the plan administrator; sponsors; participants and
their respective beneficiaries.

Migration from the Tele Nordeste Celular PBS Plan to TIMPREV is optional.
In order to encourage migration to TIMPREV, we offered bonuses to those
employees migrating before January 29, 2003. As of January 29, 2003, 89.32% of
the participants in our private plan had migrated to TIMPREV. Upon electing to
migrate to TIMPREV, a participant extinguishes all rights to benefits under the
Tele Nordeste Celular PBS Plan.

As more employees participate in TIMPREV, we anticipate that the sponsors
risk to eventual actuarial deficit will decrease, consistent with the
characteristics of typical defined contribution plans. Under the rules of
defined contribution plans, the sponsor normally contributes 100% of the basic
contribution of the participant. In accordance with the terms and conditions
of the approved rules, the administrator of TIMPREV will ensure the benefits
listed below. However, the administrator will not assume responsibility for
granting any other benefit, even if social security officially grants it to its
beneficiaries:



| |  |  | a regular retirement pension;       
| | - |  | ------------------------------------
|
| |  |  | an anticipated retirement pension;  
|
| |  |  | a disability pension;               
|
| |  |  | a deferred proportional benefit; and
|
| |  |  | a death pension.                    

In accordance with Brazilian law, our employees also receive payments
based on our financial performance. The amount of the payment is determined by
negotiation between us and the unions representing our employees.

52



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ITEM 7. MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS

Major Shareholders

Of the Holding Companys two classes of capital stock outstanding, only
the Common Shares have full voting rights. In June 1998, a consortium
comprised of UGB and Bitel acquired 51.8% of the Common Shares. On December
15, 1998, UGB exercised a put option under the Shareholders Agreement between
UGB and Bitel, dated as of July 24, 1998 (the Shareholders Agreement), under
which UGB had the right to sell all of its shares of the Holding Company to
Bitel, subject to the approval of Anatel and the Conselho Administrativo de
Defesa Econômica  CADE (CADE), Brazils federal competition agency. The
sale was finalized on October 6, 1999, following its approval by Anatel and
CADE. Accordingly, Bitel has the ability to control the election of the
Holding Companys Board of Directors and the direction of our future
operations. The Shareholders Agreement was terminated following the sale, and
Bitel is no longer subject to any material obligations under such agreement.

The following table sets forth ownership information with respect to all
shareholders that, to our knowledge, own 5% of the Common Shares or more. The
Common Shares held by Bitel have the same voting rights as the other Common
Shares.

|                                                         |  |                  |                |               |  |               |       | 
|-------------------------------------------------------- |  | ---------------- | -------------- | ------------- |  | ------------- | ----- | 
|                                                         |  |                  |                |               |  | Percentage of
|                                                         |  | Number of Common |                | Outstanding  
|Name of owner                                            |  | Shares Owned     |                | Common Shares
|                                                         |  |                  |                |              
|Bitel Participações S.A.                                 |  |                  | 68,408,897,736 |               |  |               | 52.32 | 
|Caixa de Previdência dos Funcionários do Banco do Brasil |  |                  | 6,695,628,216  |               |  |               | 5.12  | 
|Tanlay S.A.                                              |  |                  | 8,136,108,381  |               |  |               | 6.22  | 
|Latinvest Holdings, LDC                                  |  |                  | 7,731,329,149  |               |  |               | 5.91  | 

Bitel is a Brazilian subsidiary of TIM Brasil S.A., which is part of a
group headed by TIM. TIM is part of a group whose parent company is Telecom
Italia. See Item 4. Information on the Company  Organizational Structure.

Related-Party Transactions

Management and Management Assistance Agreements

The Holding Company entered into a Management Assistance Agreement with
TIM, dated October 1, 2000, under which TIM undertook to provide us management
and consulting services in consideration for a payment equal to 1% of the
Holding Companys consolidated net operating revenues. This Management
Assistance Agreement entered into effect on October 1, 2000 and will remain in
effect until September 30, 2003.

The Holding Company also entered into a Management Agreement with the
Subsidiaries, dated May 2, 2001, under which the Holding Company undertook to
provide management and consulting services to the Subsidiaries in exchange for
a payment equal to the sum of 1% of the net operating revenues of each of the
Subsidiaries. This Management Agreement entered into effect on October 1, 2000
and remains in effect until September 30, 2003. See Note 23 to the
Consolidated Financial Statements for further information about the Management
Assistance Agreement.

Guarantees by the Holding Company of Obligations of the Subsidiaries

The Holding Company is the guarantor of certain obligations of the
Subsidiaries. On October 2, 2000, Telpe Celular issued three-year
non-convertible debentures in the amount of R$200 million. The debentures bear
interest at a rate equal to 103% of the CDI, are payable semi-annually and
mature in October 2003. The debentures are guaranteed by the Holding Company.

In December 1997 and March 1998, Telpe Celular, Telern Celular and Telasa
Celular entered into certain agreements with Ericsson (the Refinancing
Agreements) to refinance certain obligations under other agreements
originally entered into by the Predecessor Companies for the supply of cellular
telecommunications equipment. In December 1997 and March 1998, Ericsson
assigned these agreements to ABN Amro Brasil Participações S.A.

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These
agreements were guaranteed by Telebrás. Telebrás guarantees of these
agreements were replaced by guarantees of the Holding Company on August 25,
2000. In November 2002, each of Telpe Celular and Telasa Celular paid all of
its obligations under the Refinancing Agreements. As of December 31, 2002, the
aggregate outstanding amount of payment obligations under the Refinancing
Agreements, which bear interest at a floating rate of LIBOR plus 0.4%, was
R$9.2 million. All obligations under the Refinancing Agreements were paid in
February 2003.

On September 22, 2000, Telpe Celular entered into a Finance Contract with
the European Investment Bank, in the amount of US$50 million, guaranteed by the
Holding Company. The loan bears interest at a rate of LIBOR plus 0.15% per
annum, is payable in semi-annual installments and matures in September 2005.

The total amount of the Subsidiaries outstanding indebtedness guaranteed
by the Holding Company was R$333.7 million at December 31, 2002 and R$362.1
million at March 31, 2003.

ITEM 8. FINANCIAL INFORMATION

Consolidated Statements and Other Financial Information

See Item 18. Financial Statements.

Significant Changes

See Item 5. Operating and Financial Review and Prospects.

Policy on Dividend Distributions

We are required to distribute 25% of our adjusted net income to our
shareholders, either as dividends or as tax-deductible interest on net worth.
We are also required to pay a non-cumulative preferred dividend on our
Preferred Shares in an amount equal to the higher of: (i) 6% of our capital
(capital social) divided by the total number of ordinary and preferred shares
and (ii) 3% of our net shareholders equity (patrimônio líquido),
according to the most recent financial statements approved by our
shareholders. To the extent there are additional distributable profits, the
Holding Company is also required to distribute to all shareholders an amount
equal to at least 25% of adjusted net income (the General Dividend)
determined in accordance with the Corporate Law Method, including any
realization of the unrealized net income reserve. The amount of General
Dividend, if any, payable by us to the holders of Preferred Shares is offset by
the amount of Preferred Dividend paid to such preferred shareholders. The
Holding Company may also make additional distributions to the extent of
available distributable profits and reserves. The Subsidiaries are also
subject to mandatory distribution requirements and, to the extent of
distributable profits and reserves, are accordingly required to pay dividends
to the minority shareholders as well as to the Holding Company. All of the
aforementioned distributions may be made as dividends or as tax-deductible
interest on capital.

Brazilian corporations may make payments to shareholders characterized as
interest on the corporations capital (juros sobre capital próprio) as an
alternative form of making dividend distributions to the shareholders. The
rate of interest may not be higher than the Federal Governments long-term
interest rate (TJLP) as determined by the Brazilian Central Bank from time to
time. Dividends are not subject to withholding income tax when paid, nor to
corporate income tax or individual income tax with respect to the person
receiving the dividend. On the other hand, interest on capital paid to
shareholders is deductible from the corporations net profits for tax purposes,
but the recipient of such distributions is subject to corporate or individual
income tax with respect to such payments. See Item 10. Additional
Information  Taxation  Brazilian Tax Considerations  Distributions
of Interest on Capital.

In 2001, the Holding Company distributed a total of R$9.2 million in
respect of 2000 income, R$2.6 million in the form of dividends and R$6.6
million in the form of interest on capital. In 2002, the Holding Company
distributed a total of R$33.1 million in respect of 2001 income, R$26.3 million
in the form of dividends (of which R$14.8 million we held in an income reserve
for distribution at a later date to the shareholders of record on April 5,
2002) and R$6.8 million in the form of interest on capital. In March 2003, the
shareholders approved the distribution of R$28.2 million of dividends in
respect of 2002 income and the distribution of R$2.2 million of the

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income
reserve created in respect of 2001 income in April 2002. No distributions in
the form of interest on capital were approved in respect of 2002 income.

Legal Proceedings

Litigation Related to the Conversion of Our Concessions into Authorizations

In January 2003, a type of class action (ação popular) was brought by an
individual against ANATEL and all the companies controlled by TIM in Brazil,
including us. The claim sought to suspend the effects of Resolução318, of
September 27, 2002, and other acts by ANATEL, including the Authorizations
PVCP/SPV nos. 001/2002 to 011/2002, published on December 12, 2002, which
authorized us to migrate from the SMC regime to the PCS regime.

The action specifically challenged the omission of provisions regulating
the return of the assets (bens reversíveis) used by us in connection with the
provision of telecommunication services by the time of the expiration of the
Authorizations. By reason of such omission, argues the claimant, the Federal
Government would suffer irreparable damage and, therefore, the Anatel acts
allowing the migration from the SMC to PCS should be declared null and void.

We vigorously have challenged this action, and after some preliminary
decisions by lower courts (medidas liminares), we have obtained a unanimous
decision from the Regional Federal Court of Appeals (Tribunal Regional
Federal) permitting the migration from SMC into PCS, reserving discussion
about the return of the assets to the Federal Government for a later date.

We believe that migration from the SMC regime to the PCS regime, and the
related acts by Anatel, will not be suspended or modified. The discussion with
respect to the return (reversão) to the Federal Government of our assets used
in connection with the provision of telecommunication services should be
subject to further debate.

Litigation Related to the Application of PIS and COFINS

In 2001 and 2002, the Federal Government (Ministério Público Federal)
filed lawsuits to prevent Teleceará Celular and Telpe Celular from passing
along to its respective customers costs regarding PIS and COFINS. See Item 4.
Information on the CompanyTaxes on Telecommunications Goods and Services.
The Federal Government (Ministério Público Federal) also claimed that
Teleceará Celular and Telpe Celular should compensate their customers for these
charges by paying each of them an amount equal to double the amount that was
individually paid.

We are unable to predict the final outcome of these lawsuits. To our
knowledge, there is no case precedent addressing this issue. We are unable to
predict whether an unfavorable decision to Teleceará Celular or Telpe Celular
would have a material adverse effect on our business, results of operations,
financial condition or prospects.

Litigation Related to the Application of ICMS

In June 1998, the governments of the individual Brazilian States approved
an agreement to interpret existing Brazilian tax law to apply ICMS in respect
of certain revenues, including cellular activation fees, which had not
previously been subject to such tax. Under Brazilian law, there is a risk that
the state governments could seek to apply this interpretation retroactively to
activation fees charged during the five years preceding June 30, 1998. Our
management believes that the attempt by the state governments to extend the
scope of ICMS to services that are supplementary to basic telecommunications
services is unlawful because:



| |  |  | the state governments acted beyond the scope of their
authority;                                                                                                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | their interpretation would subject to taxation certain
revenues, particularly activation fees, that are not considered
to be payments for telecommunications services; and
|
| |  |  | new taxes may not be applied retroactively.                                                                                                                               

55



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None of the state governments in the Region has announced an intention to
apply ICMS to activation fees retroactively. Our management believes that it
is extremely unlikely that any state government in the Region will attempt to
apply ICMS to activation fees retroactively and that any attempt to do so would
be unlawful. However, our management believes that the Predecessor Companies
would be liable to the Subsidiaries for any liability arising from the
retroactive application of ICMS to activation fees earned prior to 1998. In
view of the suspension of our activation fees in November 1998, management does
not believe that application of ICMS to activation fees on a prospective basis
will have a material impact on our results of operations.

It should be noted that few decisions issued by higher courts have
addressed this issue. However, a recent decision with respect to another
cellular service provider operating in another region indicates that ICMS may
not be applicable to cellular activation fees.

Litigation Related to the Use of Premium Arising Out of the Breakup of
Telebrás

On April 4, 2002, a Congressman filed a lawsuit in federal court in
Brasília, Federal District, against a number of governmental telecommunication
entities and the New Holding Companies. The purpose of the lawsuit is to
prevent the New Holding Companies from using the amortization of the goodwill
paid by the New Holding Companies to the Brazilian government in the Breakup of
Telebrás to generate tax benefits. At the time of this annual report, the
defendants are still being served with notice. We will be required to present
our defense 15 days after the court receives confirmation that all defendants
have been served.

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

Litigation Arising out of Events Prior to the Breakup of Telebrás

Telebrás and the Predecessor Companies, the legal predecessors of the
Holding Company and the Subsidiaries, respectively, are defendants in a number
of legal proceedings and subject to certain other claims and contingencies.
Liability for any claims arising out of acts committed by the Predecessor
Companies prior to the effective date of the spin-off of the cellular assets
and liabilities of the Predecessor Companies to the Subsidiaries remains with
the Predecessor Companies, with the exception of liabilities for which specific
accounting provisions have been assigned to the Subsidiaries. Any claims
against the Predecessor Companies that are not satisfied by the Predecessor
Companies could result in claims against the Subsidiaries, to the extent that
the Subsidiaries have received assets which might have been used to settle such
claims had such assets not been spun off from the Predecessor Companies.

Under the terms of the Breakup, liability for any claims arising out of
acts committed by Telebrás prior to the effective date of the Breakup remains
with Telebrás, with the exception of labor and tax claims (for which Telebrás
and the New Holding Companies are jointly and severally liable by operation of
law) and any liability for which specific accounting provisions have been
assigned to the Holding Company or one of the other New Holding Companies. Our
management believes that the chances of claims of this nature materializing and
having a material adverse financial effect on us are remote.

Other Litigation

We are a party to certain legal proceedings arising in the normal course
of business. In general, these legal proceedings may be divided into two main
categories: consumer protection claims and labor law claims. The most common
issue raised by claimants in the consumer protection cases against us is
allegedly incorrect inclusion by us of their names on a public list of
customers who have defaulted on their payments. The labor law claims against
us have been brought by former employees for alleged infringement of labor laws
during the duration of their employment contracts with us. As of December 31,
2002, we were a party to approximately 2,000 consumer protection claims and 112
labor law claims. We believe that such actions, if decided adversely to us,
would not have a material adverse effect on our business, financial condition
or results of operations.

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ITEM 9. THE OFFER AND LISTING

Price History of Common and Preferred Shares and ADSs

The principal trading market for the Common and Preferred Shares is the
Bolsa de Valores de São Paulo(the Bovespa). Until January 2000, the Common
and Preferred Shares were also traded on the Bolsa de Valores do Rio de Janeiro
(the Rio de Janeiro Stock Exchange) and the seven other Brazilian stock
exchanges. In January 2000, the nine Brazilian stock exchanges
merged. See MarketsTrading on the Brazilian Stock Exchanges. At December 31, 2002, the
Holding Company had approximately 1.9 million common and preferred
shareholders.

The Common and 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 the Common and
Preferred Shares on the Bovespa for the periods indicated.

Nominal reais per 1,000Common Shares
    
    Preferred SharesHigh
    
    Low
    
    High
    
    Low1998
    
    
    0.69
    
    
    
    0.60
    
    
    
    1.10
    
    
    
    1.081999
    
    
    3.90
    
    
    
    3.69
    
    
    
    4.75
    
    
    
    4.702000
    
    
    4.60
    
    
    
    3.90
    
    
    
    4.20
    
    
    
    4.002001
    
    
    5.00
    
    
    
    1.83
    
    
    
    4.78
    
    
    
    1.992002
    
    
    5.00
    
    
    
    1.83
    
    
    
    4.78
    
    
    
    1.99First quarter 2001
    
    
    4.50
    
    
    
    2.65
    
    
    
    4.55
    
    
    
    2.78Second quarter 2001
    
    
    5.00
    
    
    
    2.65
    
    
    
    4.78
    
    
    
    2.75Third quarter 2001
    
    
    4.00
    
    
    
    1.83
    
    
    
    3.85
    
    
    
    1.99Fourth quarter 2001
    
    
    3.33
    
    
    
    1.94
    
    
    
    3.53
    
    
    
    2.21First quarter 2002
    
    
    3.65
    
    
    
    2.76
    
    
    
    3.40
    
    
    
    2.65Second quarter 2002
    
    
    2.78
    
    
    
    2.24
    
    
    
    3.20
    
    
    
    2.70Third quarter 2002
    
    
    3.02
    
    
    
    2.32
    
    
    
    3.55
    
    
    
    2.61Fourth quarter 2002
    
    
    2.88
    
    
    
    2.10
    
    
    
    3.80
    
    
    
    2.21November 2002
    
    
    2.80
    
    
    
    2.48
    
    
    
    2.48
    
    
    
    2.21December 2002
    
    
    2.88
    
    
    
    2.68
    
    
    
    2.52
    
    
    
    2.35January 2003
    
    
    2.95
    
    
    
    2.47
    
    
    
    2.48
    
    
    
    2.00February 2003
    
    
    2.56
    
    
    
    2.25
    
    
    
    2.02
    
    
    
    1.65March 2003
    
    
    2.45
    
    
    
    2.24
    
    
    
    2.42
    
    
    
    1.65April 2003
    
    
    2.47
    
    
    
    2.22
    
    
    
    2.54
    
    
    
    2.27May 2003
    
    
    2.63
    
    
    
    2.30
    
    
    
    2.68
    
    
    
    2.41


In the United States, the Preferred Shares traded, until June 24, 2002, in
the form of ADSs, each representing 20,000 Preferred Shares, issued by The Bank
of New York, as depositary, pursuant to a Deposit Agreement among the Holding
Company, The Bank of New York and the registered holders and beneficial owners
from time to time of ADRs. Since June 24, 2002, the Preferred Shares have
traded in the form of ADSs, each representing 20,000 Preferred Shares, issued
by JPMorgan Chase Bank (the Depositary or JPMorgan), pursuant to a new
Deposit Agreement among the Holding Company, the Depositary and the holders
from time to time of ADRs. See Item 10. Additional Information  Material
Contracts. The Holding Companys ADSs commenced trading separately on the
NYSE on November 16, 1998 under the symbol TND. The following table sets forth
the reported high and low closing sales prices for ADSs on the NYSE for the
period indicated.

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|                    |  |                      |       |     |  |  |       | 
|------------------- |  | -------------------- | ----- | --- |  |  | ----- | 
|                    |  | U.S. dollars per ADS
|                    |  |                     
|                    |  | High                 |       | Low
|                    |  |                      |       |    
|1998                |  |                      | 18.06 |     |  |  | 17.50 | 
|1999                |  |                      | 53.25 |     |  |  | 51.00 | 
|2000                |  |                      | 42.25 |     |  |  | 41.13 | 
|2001                |  |                      | 46.50 |     |  |  | 16.70 | 
|2002                |  |                      | 32.60 |     |  |  | 10.80 | 
|First quarter 2001  |  |                      | 46.50 |     |  |  | 25.76 | 
|Second quarter 2001 |  |                      | 39.35 |     |  |  | 24.93 | 
|Third quarter 2001  |  |                      | 32.50 |     |  |  | 17.00 | 
|Fourth quarter 2001 |  |                      | 29.50 |     |  |  | 16.70 | 
|First quarter 2002  |  |                      | 32.60 |     |  |  | 22.50 | 
|Second quarter 2002 |  |                      | 23.84 |     |  |  | 16.50 | 
|Third quarter 2002  |  |                      | 21.35 |     |  |  | 12.54 | 
|Fourth quarter 2002 |  |                      | 15.90 |     |  |  | 10.80 | 
|November 2002       |  |                      | 15.85 |     |  |  | 13.82 | 
|December 2002       |  |                      | 15.90 |     |  |  | 14.50 | 
|January 2003        |  |                      | 17.80 |     |  |  | 14.00 | 
|February 2003       |  |                      | 14.42 |     |  |  | 12.42 | 
|March 2003          |  |                      | 14.35 |     |  |  | 12.11 | 
|April 2003          |  |                      | 16.64 |     |  |  | 13.90 | 
|May 2003            |  |                      | 18.43 |     |  |  | 16.28 | 

Markets

Trading on the Brazilian Stock Exchanges

The Bovespa is the only Brazilian Stock Exchange on which equity and debt
securities issued by Brazilian companies are traded. The exclusive trading of
such securities on the Bovespa is the result of several memoranda of
understanding entered into by the Bovespa and the other Brazilian stock
exchanges. The Rio de Janeiro stock exchange is now exclusively responsible
for the electronic trade of public debt securities and for privatization
auctions. In 2002, the Bovespa accounted for 100% of the trading value of
equity securities on all Brazilian stock exchanges.

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

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

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Settlement of transactions in effected three business days after the trade
date without adjustment of the purchase price for inflation. Delivery of and
payment for shares are made through the facilities of the clearinghouse, or
Companhia Brasileira de Liquidação e Custodia CBLC, which maintain accounts
for member brokerage firms. The seller is ordinarily required to deliver the
shares to the exchange on the second business day following the trade date.

The Bovespa is less liquid than the New York Stock Exchange or other major
exchanges in the world. On April 30, 2003, the aggregate market capitalization
of the 391 companies listed on Bovespa was approximately US $155.5 billion, and
the 10 largest companies listed on Bovespa represented approximately 45.7% of
the total market capitalization of all listed companies. Although all the
outstanding shares of a listed company may trade on a Brazilian stock exchange,
in most cases less than half of the listed shares are actually available for
trading by the public, the remainder being held by small groups of controlling
persons by governmental entities or by one principal shareholder. For this
reason, data showing the total market capitalization of Brazilian stock
exchanges tend to overstate the liquidity of the Brazilian equity securities
market.

Trading on Brazilian stock exchanges by a holder not deemed to be
domiciled in Brazil, for Brazilian tax and regulatory purposes (a
non-Brazilian holder), is subject to certain limitations under Brazilian
foreign investment legislation. With limited exceptions, non-Brazilian holders
may only trade on Brazilian stock exchanges in accordance with the requirements
of Resolution No. 2,689, of January 26, 2000, of the National Monetary Council
(Conselho Monetário Nacional). Resolution No. 2,689 requires that securities
held by non-Brazilian holders be maintained in the custody of, or in deposit
accounts with, financial institutions duly authorized by the Central Bank and
the Brazilian securities commission (Comissão de Valores Mobiliários  CVM).
In addition, Resolution No. 2,689 requires non-Brazilian holders to restrict
their securities trading to transactions on Brazilian stock exchanges or
qualified over-the-counter markets. With limited exceptions, non-Brazilian
holders may not transfer the ownership of investments made under Resolution No.
2,689 to other non-Brazilian holders through a private transaction. See
TaxationBrazilian Tax Considerations for a description of certain tax
benefits extended to non-Brazilian holders who qualify under Resolution No.
2,689.

Differentiated Levels of Corporate Governance and the New Market

In order to increase the transparency of the Brazilian capital markets and
protect minority shareholders rights, among others, the Bovespa has
implemented two new initiatives:



| |  |  | a classification system referred to as Differentiated
Levels of Corporate Governance applicable to the companies
already listed on the Bovespa, and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a new separate listing segment for qualifying issuers
referred to as the New Market.                                                               

The Differentiated Levels of Corporate Governance, Level 1 and Level 2,
are applicable to listed companies that voluntarily comply with special
disclosure and corporate governance practices established by the Bovespa. The
companies may be classified into two different levels, depending on their
degree of adherence to the Bovespa practices of disclosure and corporate
governance.

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

To become a Level 2 company, an issuer must, in addition to satisfying the
Level 1 criteria, satisfy the following requirements: (i) require all
directors to serve unstaggered one-year terms; (ii) prepare and publish annual
financial statements in U.S. GAAP or IAS GAAP; (iii) create tag-along rights
for minority shareholders, ensuring holders of ordinary shares of the right to
sell on the same terms as a controlling shareholder, and ensuring preferred
shareholders a price equal to at least 70% of that received by the selling
controlling shareholder; (iv) grant preferred

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shareholders the right to vote in
certain cases, including the transformation, spin-off or merger of the company,
approval of agreements with related parties or any other matters that may
constitute a conflict of interest between controlling shareholders and the
company; (v) make a tender offer for all outstanding shares, for a price equal
to fair market value, in the event of delisting or withdrawal of the issuer
from Level 2 qualification; and (vi) agree to submit any corporate disputes to
the Bovespas Market Arbitration Chamber.

The New Market is a separate listing segment for the trading of shares
issued by companies that voluntarily adopt certain additional corporate
governance practices and disclosure requirements which are more demanding than
those required by the current law in Brazil. Companies may qualify to have
their shares traded in the New Market, if, in addition to complying with the
Level 2 corporate governance practices referred to above, their capital stock
consists only of voting common shares. We are considering whether to undertake
some or all of the disciplines necessary to become a Level 1 Company.

Bovespa Market Administration Panel

Pursuant to Law No. 9,307/66, a Market Arbitration Panel (the Panel) has
been established by the Bovespa. The Panel was established to settle certain
types of disputes, including disputes relating to corporate governance,
securities issues, financial regulatory issues and other capital market
matters, with respect to Bovespa listed companies that have undertaken to
voluntarily comply with Level 2 and New Market levels of corporate governance
and disclosure. The Panel will provide a forum for dispute resolution to,
among others, the Bovespa, the applicable listed company and the shareholders,
directors and management of the applicable listed company.

Regulation of Brazilian Securities Markets

The Brazilian securities markets are principally governed by Law No.
6,385, of December 7, 1976, and the Brazilian Corporate Law, each as amended,
and by regulations issued by the CVM which has authority over stock exchanges
and the securities markets generally, the National Monetary Council, and by the
Central Bank of Brazil, which has, licensing authority over brokerage firms and
regulates foreign investment and foreign exchange transactions. Both
regulatory bodies are subordinate to the National Monetary Council, the highest
regulatory entity within the National Financial System. These laws and
regulations, among others, provide for disclosure requirements applicable to
issuers of traded securities protection of minority shareholders and criminal
penalties for insider trading and price manipulation. They also provide for
licensing and oversight of brokerage firms and governance of the Brazilian
stock exchanges. Nevertheless, the Brazilian securities markets are not highly
regulated and supervised as the U.S. securities markets.

Under the Brazilian Corporate Law, a company is either public, a companhia
aberta,like us, or private, a companhia fechada.All public companies,
including us, are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
on the Bovespa or in the Brazilian over-the-counter market. The shares of a
public company may also be traded privately, subject to certain limitations.
To be listed on the Bovespa, a company must apply for registration with the CVM
and the Bovespa.

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

The Brazilian over-the-counter market consists of direct trades between
individuals in which a financial institution registered with CVM serves as
intermediary. No special application, other than registration with the, is
necessary for securities of a public company to be traded in this market. The
CVM requires that it be given notice of all trades carried out in the Brazilian
over-the-counter market by the respective financial institution intermediary.

Trading on Bovespa by non-residents of Brazil is subject to limitations
under Brazilian foreign investment and tax legislation. The Brazilian
custodian for our Preferred Shares on behalf of the depositary for the ADSs,
obtain registration from the Central Bank to remit U.S. dollars abroad for
payments of dividends, any other cash distributions, or upon the disposition of
the shares and sales proceeds thereto. In the event that a holder of ADSs
exchanges Preferred Shares for ADSs, the holder will be entitled to continue to
rely on the custodians registration for five business days after the exchange.
Thereafter, the holder may not be able to obtain and remit U.S. dollars

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abroad
upon the disposition of our Preferred Shares, or distributions relating to our
Preferred Shares, unless the holder obtains a new registration. See Item 10.
Additional InformationMemorandum and Articles of Association.

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

ITEM 10. ADDITIONAL INFORMATION

Memorandum and Articles of Association

The following summarizes certain material provisions of Tele Nordeste
Celular by-laws and the Brazilian Corporate Law, the main bodies of regulation
governing us. Copies of Tele Nordeste Celular by-laws have been filed as
exhibits to this annual report. Except as described in this section, the
by-laws do not contain provisions addressing the duties, authority or
liabilities of the directors and senior management, which are instead
established by Brazilian Corporate Law.

Register

Tele
Nordeste Celular by-laws were registered with the Public Registry of
the state of Pernambuco under company number (NIRE) 26.3.0001109-3.

Corporate Purpose

Article 2
of the Tele Nordeste Celular by-laws provides that our main
corporate purpose is to exercise control over the operating companies that
provide mobile telephone and other services in concession areas 5 and 6, as
defined by Anatel regulations. Other corporate purposes include:



| |  |  | promote, through our controlled or affiliated
companies, the expansion of mobile telephone services in their
respective concession or authorization areas;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | procure funding from internal or external sources;                                                                                                        
|
| |  |  | promote and foster study and research for the development of mobile telephone services;                                                                   
|
| |  |  | perform, through our controlled or affiliated
companies, specialized technical services related to the mobile
telephone industry;                         
|
| |  |  | promote and coordinate, through our controlled or
affiliated companies, the education and training of the staff
required by the telephone services;       
|
| |  |  | effect or order the import of goods and services for our controlled and affiliated companies;                                                             
|
| |  |  | hold interests in other companies.                                                                                                                        

Directors

Following
is a description of some of the provisions of our by-laws
concerning members of the Board of Directors:



| |  |  | Pursuant to Art. 23, paragraph XV of, the Board of
Directors has the power to approve loans, financing and lease
agreements, as well as to issue promissory notes, for an amount
exceeding 2% of the shareholders equity;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Pursuant to Art. 23, paragraph XXIII, the Board of
Directors has the power to apportion the global remuneration set
forth by the shareholders meeting between the Directors and the
Executive Officers; and                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Pursuant to Art. 25, paragraph II, a member of the
Board of Directors is not authorized to access information or to
attend a meeting of the Board of Directors regarding subjects or
proposals in which such director is materially interested.

Pursuant to the Brazilian Corporate Law, each member of the Board of
Directors must have at least one share of our capital stock in order to qualify
to be a director. There are no provisions in the by-laws with respect to:



| |  |  | a directors power to vote compensation to him or
herself in the absence of an independent quorum;         
| | - |  | -----------------------------------------------------------------------------------------------------------
|
| |  |  | borrowing powers exercisable by the directors;                                                             
|
| |  |  | age limits for retirement of directors;                                                                    
|
| |  |  | required shareholding for director qualification;                                                          
|
| |  |  | anti-takeover mechanisms or other procedures designed
to delay, defer or prevent changes in our control; or
|
| |  |  | disclosure of share ownership.                                                                             

Rights Relating to our Shares

Dividend Rights

See
Item 8. Financial Information Policy on Dividend
Distributions.

Voting Rights

Each Common Share entitles the holder to one vote at meetings of
shareholders. Our Preferred Shares do not entitle the holder to vote except as
set forth below. Holders of our Preferred Shares are each entitled to attend
or to address meetings of shareholders.

One of the members of our permanent fiscal committee and his or her
alternative may be elected by majority vote of the holders of our preferred
shares, as the case may be, present at the annual meeting of shareholders at
which member of the fiscal committee are elected.

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

Our Preferred Shares are entitled to full voting rights with respect to:



| |  |  | the approval of any long-term contract between us and
our affiliates, on the one hand, and any controlling shareholder
or, that shareholders affiliates and related parties, on the
other hand;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | resolutions modifying certain provisions of our
by-laws; and                                                                                                                                    
|
| |  |  | any resolution submitted to the shareholders meeting
for our delisting or during our liquidation of the shares.                                                                                

Any change in the preference, benefits, conditions of redemption and
amortization of our preferred shares, or the creation of a class of shares
having priority or preference over our preferred shares, would require the
approval of holders of a majority of our outstanding preferred shares at a
special meeting of holders of our preferred

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shares, as the case may be. Such a
meeting would be called by publication of a notice in two Brazilian official
gazettes at least thirty days prior to the meeting but would not generally
require any other form of notice. In any circumstances in which holders of our
preferred shares are entitled to vote, each of our preferred shares will
entitle the holder to one vote.

Meeting of Shareholders

According to Brazilian law, shareholders must be previously convoked in
order for a general or extraordinary shareholders meeting to be installed.
The notification must occur at least 15 days prior to the meeting scheduled
date. If the first meeting is not installed for some reason, the second
notification must happen at least five days before the second meeting date.

On the first call, meetings may only be installed with a minimum quorum of
one fourth of the holders of voting shares. Extraordinary meetings for the
amendment of the by-laws may only be installed on the first call with a minimum
of two thirds of the voting capital present. On a second call, the meetings
are installed regardless of quorum.

Preemptive Rights

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

However, a shareholders meeting is authorized to eliminate preemptive
rights with respect to the issuance of new share, debentures and warrants
convertible into new shares up to the limit of the authorized share capital,
provided that the distribution of these securities is effected:



| |  |  | on a stock exchange;                                                                                                
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | in a public offering;                                                                                               
|
| |  |  | through an exchange of shares in a public offering the
purpose of which is to acquire control of another company; or
|
| |  |  | through the use of certain tax incentives.                                                                          

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

Preemptive rights to purchase shares may not be offered to U.S. holders of
the ADSs unless a registration statement under the Securities Act of 1933 is
effective with respect to the shares underlying those rights, or an exemption
form the registration requirements of the Securities Act of 1933 is available.
Consequently, if you are a holder of our ADSs, who is a U.S. person or is
located in the United States, you may be restricted in your ability to
participate in the exercise of preemptive rights.

Right of Redemption

Subject to the right of a dissenting shareholder to seek redemption upon a
decision made at a shareholders meeting by shareholders representing over 50%
of the voting shares, ordinary shares or preferred shares are redeemable in
case we decide:



| |  |  | to change the preference of our preferred shares or to
create a class of shares having priority or preference over our
preferred shares;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | to reduce the mandatory distribution of dividends;                                                                                    
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | to change our corporate purposes;                                                                                                     
|
| |  |  | to participate in group of companies;                                                                                                 
|
| |  |  | to transfer all of our shares to another company in
order to make us a wholly-owned subsidiary of that company;                       
|
| |  |  | to split up, subject to the conditions set forth by Brazilian Corporate Law;                                                          
|
| |  |  | to adopt another corporate type;                                                                                                      
|
| |  |  | to approve the acquisition of another company, the
price of which exceeds certain limits set forth in the Brazilian
Corporate Law; and
|
| |  |  | to merge or consolidate ourselves with another company.                                                                               

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

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

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

Form and Transfer

Our shares are maintained in book-entry form with a transfer agent, Banco
Real S.A., and the transfer of our shares is made in accordance with the
applicable provision of the Brazilian Corporate Law, which provides that a
transfer of shares is effected by an entry made by the transfer agent on its
books, debiting the share account of the seller and crediting the share account
of the purchaser, against presentation of a written order of the seller, or
judicial authorization or order, in an appropriate document which remains in
the possession of the transfer agent. Our preferred shares underlying our ADS
are registered on the transfer agents records in the name of the Brazilian
depositary.

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

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

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the
case may be, maintained by the relevant stock exchange and will be treated in
the same way as registered shareholders.

Material Contracts

The following is a summary of the material contracts to which we are a
party, other than contracts entered into in the ordinary course of business:



| |  |  | Until December 2002, each of the Subsidiaries operated
under a concession that authorized it to provide specified
services and set forth certain obligations. In December 2002,
the Subsidiaries converted their respective concessions to
operate under SMC regulations into authorizations to operate
under PCS regulations. See also Item 4. Regulation of the
Brazilian Telecommunications IndustryAuthorizations and Concessions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Holding Company entered into a Management
Assistance Agreement with TIM, dated October 1, 2000, under which
TIM undertook to provide management and consulting services to us
in consideration for a payment equal to 1% of the Holding
Companys consolidated net operating revenues. This Management
Assistance Agreement entered into effect on October 1, 2000 and
remains in effect until September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | The Holding Company also entered into a Management
Agreement with the Subsidiaries, dated May 2, 2001, under which
the Holding Company undertook to provide management and
consulting services to the Subsidiaries in exchange for a payment
equal to the sum of 1% of the net operating revenues of each of
the Subsidiaries. This Management Agreement entered into effect
on October 1, 2000 and remains in effect until September 30,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | In the United States, the Preferred Shares traded,
until June 24, 2002, in the form of ADSs, each representing
20,000 Preferred Shares, issued by The Bank of New York, as
depositary (BONY), pursuant to a Deposit Agreement, dated July
27, 1998, among the Holding Company, BONY and the registered
holders and beneficial owners from time to time of ADRs.
Pursuant to a new Deposit Agreement, dated June 24, 2002, among
the Holding Company, JPMorgan, as depositary, and the holders
from time to time of ADRs, JPMorgan replaced BONY as the
depositary for the Holding Companys ADS program. Since June 24,
2002, the Preferred Shares have traded in the United States in
the form of ADSs, each representing 20,000 Preferred Shares,
issued by JPMorgan. The rights of holders of ADRs are not
materially affected by this change in depositaries, except that
holders now have contractual rights against JPMorgan, instead of
BONY, as depositary.

Exchange Controls

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

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

Under Annex IV to Resolution No. 1,289 of the National Monetary Council,
as amended, qualified foreign investors (which principally include foreign
financial institutions, insurance companies, pension and investment funds,
charitable foreign institutions and other institutions that meet certain
minimum capital and other requirements) registered with the Brazilian
securities commission and acting through authorized custody accounts

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managed by
local agents may buy and sell shares on Brazilian stock exchanges without
obtaining separate certificates of registration for each transaction.
Investors under the Annex IV regulations are also entitled to favorable tax
treatment. See TaxationBrazilian Tax Considerations.

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

Pursuant to these new rules, foreign investors must:



| |  |  | appoint at least one representative in Brazil with
powers to perform actions relating to the foreign investment;
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | fill in the appropriate foreign investment registration form;                                                   
|
| |  |  | obtain registration as a foreign investor with the Brazilian securities commission; and                         
|
| |  |  | register the foreign investment with the Central Bank of Brazil.                                                

The securities and other financial assets held by the foreign investor
pursuant to Resolution 2,689/00 must be:



| |  |  | registered or maintained in deposit accounts or under
the custody of an entity duly licensed by the Central Bank of
Brazil or by the Brazilian securities commission or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | registered in register, clearing and custody systems
authorized by the Central Bank of Brazil or by the Brazilian
securities commission.                               

In addition, securities trading is restricted to transactions carried out
on the stock exchanges or organized over-the-counter markets licensed by the
Brazilian securities commission.

On January 26, 2000, the Central Bank of Brazil enacted Circular No.
2,963, providing that beginning on March 31, 2000, all investments by a foreign
investor under the Resolution No. 2,689/00 are subject to the electronic
registration with the Central Bank of Brazil. Foreign investments registered
under the Annex IV regulations must conform to the new registration rules by
June 30, 2000.

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

An electronic registration has been generated in the name of the
depositary with respect to the ADSs and is maintained by the custodian on
behalf of the depositary. This electronic registration is carried on through
the Central Bank of Brazils information system. Pursuant to the registration,
the custodian and the depositary are able to convert dividends and other
distributions with respect to our preferred shares represented by ADSs into
foreign currency and remit the proceeds outside Brazil. In the event that a
holder of ADSs exchanges such ADSs for preferred shares, such holder will be
entitled to continue to rely on the depositarys certificate of registration
for five business days after such exchange, following which such holder must
seek to obtain its own certificate of

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registration with the Central Bank of
Brazil. Thereafter, any holder of preferred shares may not be able to convert
into foreign currency and remit outside Brazil the proceeds from the
disposition of, or distributions with respect to, such preferred shares, unless
such holder qualifies under the Annex IV or the Resolution 2,689/00
regulations, or obtains its own certificate of registration. A holder that
obtains a certificate of registration will be subject to less favorable
Brazilian tax treatment than a holder of ADSs. See TaxationBrazilian Tax
Considerations. In addition, if the holder is a qualified investor under the
Annex IV regulations but resides in a jurisdiction which does not impose income
tax or where the income tax is imposed at a maximum rate of 20%, this holder
will be subject to a less favorable tax treatment than a holder of ADSs.

Under current Brazilian legislation, the federal government may impose
temporary restrictions on remittances of foreign capital abroad in the event of
a serious imbalance or an anticipated serious imbalance of Brazils balance of
payments. For approximately six months in 1989 and early 1990, the federal
government froze all dividend and capital repatriations held by the Central
Bank of Brazil that were owed to foreign equity investors, in order to conserve
Brazils foreign currency reserves. These amounts were subsequently released
in accordance with federal government directives. The imbalance in Brazils
balance of payments increased during 1999, and there can be no assurance that
the federal government will not impose similar restrictions on foreign
repatriations in the future.

Taxation

The following summary contains a description of the principal Brazilian
and U.S. federal income tax consequences of the acquisition, ownership and
disposition of 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 United
States and regulations thereunder as in effect on the date hereof, which are
subject to change. Prospective purchasers 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.

Although there is at present no income tax treaty between Brazil and the
United States, the tax authorities of the two countries have had discussions
that may culminate in such a treaty. No assurance can be given, however, as to
whether or when a treaty will enter into force or how it will affect the U.S.
holders of 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 non-Brazilian holder. This discussion does not address all the
Brazilian tax considerations that may be applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult its own tax
advisor about the Brazilian tax consequences of investing in Preferred Shares
or ADSs.

Taxation of Dividends

Dividends paid by the Holding 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 generally not be subject to Brazilian income
tax withholding.

Taxation of Gains

Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs or Preferred Shares to another non-Brazilian holder are not subject to
Brazilian tax.

Gains realized by non-Brazilian holders on dispositions of Preferred
Shares in Brazil or in transactions with Brazilian residents may be exempt from
Brazilian income tax, taxed at a rate of 20% or taxed at a rate of 15%,
depending on the circumstances. Gains on the disposition of Preferred Shares
obtained upon cancellation of ADSs

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are not subject to income tax in Brazil if
the disposition is made and the proceeds are remitted abroad within five
business days after cancellation, unless the investor is a resident of a
jurisdiction that, under Brazilian law, is deemed to be a tax haven (i.e.,a
country that does not impose any income tax or that imposes tax at a maximum
rate of less than 20%). Gains realized through transactions with Brazilian
residents or through transactions in Brazil off of the Brazilian stock
exchanges are subject to tax at a rate of 15%. Gains realized through
transactions on Brazilian stock exchanges are subject to tax at a rate of 20%,
unless the investor is entitled to tax exempt treatment for the transaction
under Resolution 2,689 of the National Monetary Council Regulations, described
immediately below.

Non-Brazilian holders of Preferred Shares registered under Resolution
2,689, which as of March 31, 2000 superseded the Annex IV Regulations, may be
subject to favorable tax treatment since the investor has (i) appointed a
representative in Brazil with power to take action relating to the investment
in Preferred Shares, (ii) registered as a foreign investor with the CVM and
(iii) registered its investment in Preferred Shares with the Central Bank.
Under Resolution 2,689 securities held by foreign investors must be maintained
under the custody of, or in deposit accounts with, financial institutions duly
authorized by the Central Bank and the CVM. In addition, securities trading is
restricted under Resolution 2,689 to transactions on Brazilian stock exchanges
or qualified over-the-counter markets. The preferential treatment afforded
under Resolution 2,689 and afforded to investors in ADSs is not available to
investors resident or domiciled in tax havens.

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

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

There is a possibility that gains realized by a non-Brazilian holder upon
the redemption of Preferred Shares will be treated as gains from the
disposition of such Preferred Shares to a Brazilian resident occurring off of a
stock exchange and will accordingly be subject to tax at a rate of 15%.

Any exercise of preemptive rights relating to the Preferred Shares or ADSs
will not be subject to Brazilian taxation. Gains on the sale or assignment of
preemptive rights relating to the Preferred Shares will be subject to the same
tax treatment applicable to a sale or disposition of Preferred Shares. The
deposit of Preferred Shares in exchange for the ADSs may be subject to
Brazilian income tax if the amount previously registered with the Central Bank
as a foreign investment in Preferred Shares is lower than (i) the average price
per Preferred Share on the Bovespa on the day of the deposit; or (ii) if no
Preferred Shares were sold on that day, the average price on the Bovespa during
the fifteen preceding trading sessions. In this case, the difference between
the amount previously registered and the average price of the Preferred Shares,
calculated as set forth above, shall be considered a capital gain subject to
income tax at a rate of 15% (unless the Preferred Shares were held in
accordance with Resolution 2,689, in which case the exchange would be
tax-free).

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

Distributions of Interest on Capital

A Brazilian corporation may make payments to its shareholders
characterized as interest on the corporations capital as an alternative form
of making dividend distributions. See Item 8. Financial InformationPolicy
on Dividend Distributions. The rate of interest may not be higher than the
TJLP as determined by the Central Bank from time to time (9.50% per annum for
the three-month period beginning April 2002). The total amount distributed as
interest on capital may not exceed, for tax purposes, the greater of (i) 50% of
net income (after the deduction of social contribution or net profits and
before the deduction of the corporate income tax deduction

68



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and before taking
such distribution into account) for the year in respect of which the payment is
made or (ii) 50% of retained earnings for the year prior to the year in respect
of which the payment is made. Payments of interest on capital are decided by
the shareholders on the basis of recommendations of the Holding Companys Board
of Directors.

Up to the limit mentioned above, distributions of interest on capital paid
to Brazilian and non-Brazilian holders of Preferred Shares, including payments
to the Depositary in respect of Preferred Shares underlying ADSs, are
deductible by the Holding Company for Brazilian tax purposes. Such payments
are subject to Brazilian income tax withholding at the rate of 15%, except for
payments to beneficiaries who are exempt from tax in Brazil, which are free of
Brazilian tax, and except for payments to beneficiaries situated in tax havens,
which payments are subject to withholding at a 25% rate.

No assurance can be given that the Board of Directors of the Holding
Company will not recommend that future distributions of profits will be made by
means of interest on capital instead of by means of dividends.

Amounts paid as interest on capital (net of applicable income tax
withholding) may be treated as payments in respect of the dividends the Holding
Company is obligated to distribute to its shareholders in accordance with its
Charter and the Brazilian Corporate Law. Distributions of interest on capital
in respect of the Preferred Shares, including distributions to the Depositary
in respect of Preferred Shares underlying ADSs, may be converted into U.S.
dollars and remitted outside of Brazil, subject to applicable exchange
controls.

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

The IOF may also be levied on transactions involving bonds or securities
(IOF/Títulos) even if the transactions are effected on Brazilian stock,
futures or commodities exchanges. The rate of the IOF/Títulos with respect to
Preferred Shares and ADSs is currently 0%. The Minister of Finance, however,
has the legal power to increase the rate to a maximum of 1.5% per day.

In addition to such taxes, the temporary contribution on financial
transactions, or the CPMF tax, is currently levied at a rate of 0.38% on all
fund transfers in connection with financial transactions in Brazil. The
CPMF will be in effect until December 31, 2004. The current rate of 0.38%
will be maintained until December 31, 2003, changing to 0.08% for the
subsequent period. As of July 12, 2002, stock exchange transactions are
exempted from the CPMF tax.

U.S. Federal Income Tax Considerations

The statements regarding U.S. tax law set forth below are based on U.S.
law as in force on the date of this annual report, and changes to such law
subsequent to the date of this annual report may affect the tax consequences
described herein. This summary describes the principal tax consequences of the
ownership and disposition of Preferred Shares or ADSs, but it does not purport
to be a comprehensive description of all of the tax consequences that may be
relevant to a decision to hold or dispose of 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 the
shares of the Holding Company (taking into account shares held

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directly or
through depositary arrangements), tax-exempt organizations, financial
institutions, holders liable for the alternative minimum tax, securities
traders who elect to account for their investment in Preferred Shares or ADSs
on a mark-to-market basis, and persons holding Preferred Shares or ADSs in a
hedging transaction or as part of a straddle or conversion transaction.

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

In this discussion, references to ADSs also refer to Preferred Shares, and
references to a U.S. holder are to a holder of an ADS (i) that is a citizen
or resident of the United States of America, (ii) that is a corporation
organized under the laws of the United States of America or any state thereof
or (iii) that is otherwise subject to U.S. federal income taxation on a net
basis with respect to the ADS.

For purposes of the U.S. Internal Revenue Code of 1986, as amended, (the
Code) holders of ADSs will be treated as owners of the Preferred Shares
represented by such ADSs.

Taxation of Distributions

A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by the Holding Company as a dividend to the extent
that such distribution is paid out of the Holding Companys current or
accumulated earnings and profits, as determined for U.S. federal income tax
purposes, when such distribution is received by the Custodian, or by the U.S.
holder in the case of a holder of Preferred Shares. The amount of any
distribution will include the amount of Brazilian tax withheld on the amount
distributed, and the amount of a distribution paid in reaiswill be measured by
reference to the exchange rate for converting reaisinto U.S. dollars in effect
on the date the distribution is received by the Custodian, or by a U.S. holder
in the case of a holder of Preferred Shares. If the Custodian, or U.S. holder
in the case of a holder of Preferred Shares, does not convert such reaisinto
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 reaisare converted into U.S. dollars. Under new rules
applicable to dividends received after 2002 and before 2009, an individual U.S.
holder generally will be subject to U.S. taxation at a maximum rate of 15%.
This reduced rate does not apply to dividends paid in respect of certain
short-term (less than 60 days) or hedged positions. You should consult your
own tax adviser regarding the implications of these new rules in light of your
particular circumstances. Dividends paid by the Holding Company will not be
eligible for the dividends received deduction allowed to corporations under the
Code.

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

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

A holder of ADSs that is a foreign corporation or nonresident alien
individual (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 unless such
dividends are effectively connected with the conduct by the holder of a trade
or business in the United States.

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Taxation of Capital Gains

Upon the sale or other disposition of an ADS, a U.S. holder will generally
recognize gain or loss for U.S. federal income tax purposes. The amount of the
gain or loss will be equal to the difference between the amount realized in
consideration for the disposition of the ADS and the U.S. holders tax basis in
the ADS. Such gain or loss generally will be subject to U.S. federal income
tax and will be treated as capital gain or loss and will be long-term capital
gain or loss if the ADS has been held for more than one year. The net amount
of long-term capital gain recognized by an individual holder after May 5, 2003
and before January 1, 2009 generally is subject to taxation at a maximum rate
of 15 percent. The net long-term capital gain recognized by an individual
holder before May 6, 2003 or after December 31, 2008 generally is subject to
taxation at a maximum rate of 20%. Long-term capital gains recognized by an
individual holder generally are subject to reduced rates. Capital losses may
be deducted from taxable income, subject to certain limitations. Gain realized
by a U.S. holder on a sale or disposition of ADSs generally will be treated as
U.S. source income. Consequently, if Brazilian tax is imposed on such gain,
the U.S. holder will not be able to use the corresponding foreign tax credit,
unless the holder has other foreign source income of the appropriate type in
respect of which the credit may be used.

A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (1) such gain is effectively connected with the conduct by the holder of
a trade or business in the United States, or (2) such holder is an individual
who is present in the United States of America for 183 days or more in the
taxable year of the sale and certain other conditions are met.

Backup Withholding and Information Reporting

Dividends paid on, and proceeds from the sale or other disposition of, the
ADSs or Preferred Shares to a U.S. holder generally may be subject to the
information reporting requirements of the Code and may be subject to backup
withholding unless the U.S. holder provides an accurate taxpayer identification
number or otherwise establishes an exemption. The amount of any backup
withholding collected from a payment to a U.S. holder will be allowed as a
credit against the U.S. holders U.S. federal income tax liability and may
entitle the U.S. holder to a refund, provided that certain required information
is furnished to the Internal Revenue Service.

A non-U.S. holder generally will be exempt from these information
reporting requirements and backup withholding tax, but may be required to
comply with certain certification and identification procedures in order to
establish its eligibility for such exemption.

Documents on Display

The documents concerning us which are referred to in this annual report
may generally be inspected at our headquarters in the city of Recife, PE,
Brazil.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in both foreign currency
exchange rates and interest rates. We are exposed to foreign exchange rate
risk principally because certain costs of ours are denominated in currencies
(primarily U.S. dollars) other than those in which we earn revenues
(primarily reais). Similarly, we are subject to market risk deriving from
changes in interest rates which may affect the cost of our financing. Prior to
April 1999, we did not use derivative instruments, such as foreign exchange
forward contracts, foreign currency options, interest rate swaps and forward
rate agreements, to manage these market risks. In April 1999, we began
entering into hedging agreements covering payments of principal on our U.S.
dollar denominated indebtedness. We also have entered into arrangements to
hedge market risk deriving from changes in interest rates for some of our debt
obligations. We do not hold or issue derivative or other financial instruments
for trading purposes.

Exchange Rate Risk

At December 31, 2002, we had principal outstanding in the amount of
R$190.1 million on indebtedness denominated in U.S. dollars (consisting of
R$13.4 million of equipment financing and R$176.7 million of working capital
loans), all of which was covered by hedging arrangements. See Notes 14(b),
14(c) and 25 to the Consolidated Financial Statements. Since we have hedged
our exchange rate risk with respect to our borrowings

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denominated in foreign
currency, we have limited our exchange rate exposure with respect to such
borrowings. Our foreign-exchange hedging agreements establish a fixed rate at
which we agree to purchase U.S. dollars at a future date to pay our U.S.
dollar-denominated principal payment obligations, which protect us from
devaluations of the realbut expose us to potential losses in the event the
U.S. dollar declines in value against the real.

We also remain exposed to market risk from changes in exchange rates and
their effect upon planned capital expenditures, a substantial portion of which
are denominated in U.S. dollars. With respect to planned capital expenditures
for 2003, the potential loss to us that would have resulted from a
hypothetical, instantaneous and unfavorable 25% change in the real-U.S. dollar
exchange rate as of December 31, 2002 would have been approximately R$25.0
million (assuming that we would have made capital expenditures as originally
planned, despite such unfavorable change in rates). In addition, if such a
change were to be experienced by us, our cost of financing would increase in
proportion to the change.

Interest Rate Risk

At December 31, 2002, R$337.7 million, or 100%, of our interest-bearing
liabilities bore interest at floating rates. Our floating-rate interest
obligations are primarily at CDI. We also have entered into hedging
arrangements under which we have undertaken fixed-rate obligations in place of
some of our floating rate obligations in order to reduce our exposure to
interest rate risk. Our cash and cash equivalents (R$414.4 million at December
31, 2002) are held in bank accounts, which also bear interest at CDI. Over a
one year period, the potential loss to us, before accounting for tax expenses
and minority interests, that would have resulted from a hypothetical,
instantaneous and unfavorable change of 100 basis points in interest rates
applicable to our financial assets and liabilities on December 31, 2002 would
have been R$4.0 million (assuming that such unfavorable 100 basis point
movement in interest rates uniformly applied to each homogenous category of
our financial assets and liabilities and that such movement in interest rates
were sustained over a period of one year). For purposes of this interest rate
risk sensitivity analysis, financial assets and liabilities denominated in the
same currency (e.g., U.S. dollars) are grouped in separate homogenous
categories. This interest rate risk sensitivity analysis may therefore
overstate the impact of interest rate fluctuations to us, as unfavorable
movements of all interest rates are unlikely to occur consistently among
different homogenous categories.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

We are party to certain credit agreements that contained covenants
restricting, among other things, (i) the ability of Telebrás to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebrás System and (ii) the ability of the
Federal Government to dispose of its
controlling interest in the Telebrás. The Breakup of Telebrás on May 22,
1998, the privatization of the New Holding Companies on July 29, 1998 and the
announced liquidation of Telebrás constituted events of default under such
credit agreements. During 2000, we renegotiated the terms of these credit
agreements in order to rectify these defaults. As a result, we have been in
compliance with our obligations under these credit agreements since 2000.

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

None.

ITEM 15. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our management,
including our President and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. There are
inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the

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circumvention
or overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon and as of the date of our
evaluation, our President and Chief Financial Officer concluded that the
disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed in the reports we file and
submit under the Exchange Act is recorded, processed, summarized and reported
as and when required.

Furthermore, there were no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

ITEM 16. CODE OF ETHICS

We have adopted a Code of Conduct and Transparency that applies to our
directors, officers, controlling shareholders and members of the Conselho
Fiscal in accordance with CVM rules satisfying the requirements of Brazilian
Law. Our Code of Conduct and Transparency does not address all of the
principles set forth by the Securities and Exchange Commission in Section 406
of the Sarbanes-Oxley Act. However, Brazilian Law no. 6.404 Article 156
specifies that an officer is prohibited from taking part in any corporate
transaction in which he has an interest that conflicts with the interests of
the company. This disqualification must be disclosed to the board. Moreover,
an officer may only contract with the company under reasonable and fair
conditions, conditions which are identical to those that prevail in the market
or under which the company would contract with third parties. Any business
which is contracted in violation of this article is voidable and requires the
offending officer to disgorge any benefits he received from such violation.

PART III

ITEM 17. FINANCIAL STATEMENTS

The Holding Company has responded to Item 18 in lieu of responding to this Item.

ITEM 18. FINANCIAL STATEMENTS

Reference is made to pages F-1 through F-61.

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| |  |                                             
| |  | --------------------------------------------
| |  | CONSOLIDATED FINANCIAL STATEMENTS           
| |  |                                             
| |  | TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.    
| |  |                                             
| |  | Years ended December 31, 2000, 2001 and 2002
| |  |                                             
| |  | with Report of Independent Auditors         

F - 1



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TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

|                                                                                                                |  |                 
|--------------------------------------------------------------------------------------------------------------- |  | ----------------
|Report of Independent Auditors                                                                                 |  | F-3 and F-4     
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                    |  | F-5             
|Consolidated Statements of Income for the Years Ended December 31, 2000, 2001 and 2002                          |  | F-6             
|Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31,
2000, 2001 and 2002 |  | F-7             
|Consolidated Statements of Changes in Financial Position for the Years Ended December 31,
2000, 2001 and 2002   |  | F-8             
|Notes to the Consolidated Financial Statements                                                                  |  | F-9 through F-61

F - 2



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REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
Tele Nordeste Celular Participações S.A.

We have audited the accompanying consolidated balance sheets of Tele Nordeste
Celular Participações S.A.(the Company) and its subsidiaries as of December
31, 2002 and 2001, and the related consolidated income statements, changes in
shareholders equity and changes in financial position for the years then
ended. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tele
Nordeste Celular Participações S.A. and its subsidiaries at December 31, 2002
and 2001, and the consolidated results of their operations and changes in
financial position for the years then ended in conformity with accounting
principles established under the Brazilian Corporate Law.

Accounting principles established under the Brazilian Corporate Law vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of the accounting principles
generally accepted in the United States of America would have affected
consolidated net income for the years ended December 31, 2002 and 2001 and
consolidated shareholders equity at December 31, 2002 and 2001, to the extent
summarized in Note 26 to the consolidated financial statements.

Recife, Brazil
January 15, 2003, except for Notes 3.m, 16 and 27.c, for which the date is February 28, 2003.

(ERNST & YOUNG LOGO)
Auditores Independentes S.C.

/s/ Aurivaldo Coimbra de
Oliveira

Partner

F - 3



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Independent Auditors Report

The Board of Directors and Shareholders
Tele Nordeste Celular Participações S.A.
Recife, Pernambuco

We have audited the accompanying consolidated statements of income, changes in
financial position and changes in shareholders equity of Tele Nordeste Celular
Participações S.A. and subsidiaries for the year ended 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 audit.

We conducted our audit 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
changes in financial position of Tele Nordeste Celular Participações S.A. and
subsidiaries for the year ended December 31, 2000 in conformity with generally
accepted accounting principles established under Brazilian Corporate Law.

Accounting principles established under Brazilian Corporate Law vary 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 and shareholders
equity as of and for the year ended December 31, 2000, to the extent summarized
in Note 26 to the consolidated financial statements.

February 2, 2001
Recife, Pernambuco

/s/ KPMG Auditores Independentes

F - 4



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TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2002
(Expressed in thousands of Brazilianreais-R$)

|                                           |                                       |  |      |    |      |  |           |         |  |  |           |         | 
|------------------------------------------ | ------------------------------------- |  | ---- | -- | ---- |  | --------- | ------- |  |  | --------- | ------- | 
|                                           |                                       |  | Note |    | 2001 |  | 2002     
|                                           |                                       |  |      |    |      |  |          
|Assets                                     |                                       |  |      |    |      |  |           |         |  |  |           |        
|Current assets                             |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Cash and cash equivalents             |  |      | 4  |      |  |           | 172,266 |  |  |           | 414,413 | 
|                                           | Trade accounts receivable, net        |  |      | 5  |      |  |           | 155,398 |  |  |           | 168,494 | 
|                                           | Deferred and recoverable taxes        |  |      | 6  |      |  |           | 71,282  |  |  |           | 81,538  | 
|                                           | Other                                 |  |      | 7  |      |  |           | 8,333   |  |  |           | 12,122  | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total current assets                  |  |      |    |      |  |           | 407,279 |  |  |           | 676,567 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Noncurrent assets                          |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Deferred and recoverable taxes        |  |      | 6  |      |  |           | 146,415 |  |  |           | 121,176 | 
|                                           | Other                                 |  |      | 7  |      |  |           | 10,782  |  |  |           | 12,521  | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total noncurrent assets               |  |      |    |      |  |           | 157,197 |  |  |           | 133,697 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Equity investee                       |  |      | 8  |      |  |           | 13,712  |  |  |           | 10,179  | 
|                                           | Property, plant and equipment, net    |  |      | 9  |      |  |           | 687,747 |  |  |           | 580,910 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total permanent assets                |  |      |    |      |  |           | 701,459 |  |  |           | 591,089 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Total assets                               |                                       |  |      |    |      |  | 1,265,935 |         |  |  | 1,401,353 |        
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Liabilities and shareholders equity       |                                       |  |      |    |      |  |           |         |  |  |           |        
|Current liabilities                        |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Payroll and related accruals          |  |      | 10 |      |  |           | 6,739   |  |  |           | 8,117   | 
|                                           | Accounts payable and accrued expenses |  |      | 11 |      |  |           | 100,508 |  |  |           | 93,441  | 
|                                           | Taxes other than income taxes         |  |      | 12 |      |  |           | 33,636  |  |  |           | 41,949  | 
|                                           | Proposed dividends                    |  |      | 13 |      |  |           | 31,060  |  |  |           | 47,217  | 
|                                           | Current portion of long-term debt     |  |      | 14 |      |  |           | 39,030  |  |  |           | 256,223 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total current liabilities             |  |      |    |      |  |           | 210,973 |  |  |           | 446,947 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Long-term
liabilities                      |                                      
|                                           | Long-term debt                        |  |      | 14 |      |  |           | 309,281 |  |  |           | 77,466  | 
|                                           | Provisions for contingencies          |  |      | 15 |      |  |           | 2,703   |  |  |           | 16,058  | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total long-term liabilities           |  |      |    |      |  |           | 311,984 |  |  |           | 93,524  | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Minority interests                         |                                       |  |      |    |      |  | 121,002   |         |  |  | 150,737   |        
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Shareholders equity                       |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Share capital                         |  |      | 17 |      |  |           | 186,054 |  |  |           | 288,443 | 
|                                           | Capital reserve                       |  |      | 17 |      |  |           | 193,083 |  |  |           | 169,532 | 
|                                           | Income reserves                       |  |      | 17 |      |  |           | 118,511 |  |  |           | 122,196 | 
|                                           | Retained earnings                     |  |      |    |      |  |           | 124,328 |  |  |           | 129,974 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|                                           | Total shareholders equity            |  |      |    |      |  |           | 621,976 |  |  |           | 710,145 | 
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        
|Total liabilities and shareholders equity |                                       |  |      |    |      |  | 1,265,935 |         |  |  | 1,401,353 |        
|                                           |                                       |  |      |    |      |  |           |         |  |  |           |        

F - 5



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Expressed in thousands of Brazilianreais- R$, except earnings per share)

|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |          |  
|---------------------------------------------------------------------------------------------------------- | ---------------------------- |  | ---- | --- | ---- |  | ----------- | -------- | ---- |  | ----------- | -------- | - |  | ----------- | -------- | -
|                                                                                                           |                              |  | Note |     | 2000 |  | 2001        |          | 2002
|                                                                                                           |                              |  |      |     |      |  |             |          |     
|Net operating revenues                                                                                     |                              |  | 18   |     |      |  | 845,620     |          |      |  | 826,250     |          |   |  | 921,522     |         
|Cost of services and cellular handsets sold                                                                |                              |  | 19   |     |      |  | (380,702    | )        |      |  | (362,289    | )        |   |  | (389,383    | )       
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Gross profit                                                                                               |                              |  |      |     |      |  | 464,918     |          |      |  | 463,961     |          |   |  | 532,139     |         
|Operating expenses:                                                                                        |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|                                                                                                           | Selling expense              |  |      |     |      |  |             | (233,850 | )    |  |             | (187,996 | ) |  |             | (177,236 | )
|                                                                                                           | General and administrative   |  |      |     |      |  |             | (87,892  | )    |  |             | (95,986  | ) |  |             | (95,298  | )
|                                                                                                           | Other operating expense, net |  |      | 20  |      |  |             | (15,671  | )    |  |             | (28,502  | ) |  |             | (44,510  | )
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Operating income before interest                                                                           |                              |  |      |     |      |  | 127,505     |          |      |  | 151,477     |          |   |  | 215,095     |         
|                                                                                                           | Financial expense, net       |  |      | 21  |      |  |             | (82,317  | )    |  |             | (42,158  | ) |  |             | (6,452   | )
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Operating income                                                                                           |                              |  |      |     |      |  | 45,188      |          |      |  | 109,319     |          |   |  | 208,643     |         
|Nonoperating income (expense), net                                                                         |                              |  |      |     |      |  | 2,441       |          |      |  | (2,155      | )        |   |  | (3,120      | )       
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Income before income taxes                                                                                 |                              |  |      |     |      |  | 47,629      |          |      |  | 107,164     |          |   |  | 205,523     |         
|Income and social contribution tax expense                                                                 |                              |  | 22   |     |      |  | (9,915      | )        |      |  | (20,123     | )        |   |  | (48,402     | )       
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Income before minority interests                                                                           |                              |  |      |     |      |  | 37,714      |          |      |  | 87,041      |          |   |  | 157,121     |         
|Minority interests                                                                                         |                              |  |      |     |      |  | (11,060     | )        |      |  | (21,511     | )        |   |  | (38,547     | )       
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Net income                                                                                                 |                              |  |      |     |      |  | 26,654      |          |      |  | 65,530      |          |   |  | 118,574     |         
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Shares outstanding at the balance sheet date (thousands)                                                   |                              |  |      |     |      |  | 334,399,028 |          |      |  | 337,768,636 |          |   |  | 345,739,620 |         
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         
|Earnings per lot of twenty thousand shares outstanding
at the balance sheet date (in Brazilian Reais  R$) |                              |  | 3    | (s) |      |  | 1.59        |          |      |  | 3.88        |          |   |  | 6.86        |         
|                                                                                                           |                              |  |      |     |      |  |             |          |      |  |             |          |   |  |             |         

See notes to consolidated financial statements.

F - 6



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Expressed in thousands of Brazilianreais-R$)



|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |   | 
|-------------------------------------------------------------------- | ----------------- |  | ------- | - | ------- |  | -------- | - | --------------- |  | ------- | - | --------- |  | ------ | - |  |  | ---------- | - |  |  | ------ | - | 
|                                                                     |                   |  |         |   |         |  | Capital  |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |       
|                                                                     |                   |  |         |   |         |  | Reserves |   | Income reserves
|                                                                     |                   |  |         |   |         |  |          |   |                
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  | Unrealized |   |  |  |       
|                                                                     |                   |  | Share   |   | Share   |  | Legal    |   | Statutory       |  | Income  |   | Dividends
|                                                                     |                   |  | capital |   | Premium |  | reserve  |   | reserve         |  | Reserve |   | payable  
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |          
|Balances at December 31, 1999                                        |                   |  | 108,943 |   |         |  |         |   |                 |  | 11,848  |   |           |  | 87,154 |   |  |  | 79,920     |   |  |  |       |  
|Consolidation adjustment:                                            |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  
|                                                                     | Fiscal incentives |  |         |  |         |  |          |  |                 |  |         |  |           |  |        |  |  |  |            |  |  |  |        |  | 
|Net income                                                           |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Allocation between accounts approved by Shareholders
on May 30, 2000 |                   |  | (100    | ) |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Share premium reserve (Note 17)                                      |                   |  |        |   |         |  | 204,068  |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  
|Transfer to and from reserves (Note 17)                              |                   |  |        |   |         |  |         |   |                 |  | 1,407   |   |           |  |       |   |  |  | (9,924     | ) |  |  |       |  
|Dividends                                                            |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  
|Balances at December 31, 2000                                        |                   |  | 108,843 |   |         |  | 204,068  |   |                 |  | 13,255  |   |           |  | 87,154 |   |  |  | 69,996     |   |  |  |       |  
|Capitalization of reserves and retained earnings                     |                   |  | 77,211  |   |         |  | (10,985  | ) |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Net income                                                           |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Transfer to and from reserves (Note 17)                              |                   |  |        |   |         |  |         |   |                 |  | 3,277   |   |           |  |       |   |  |  | (69,996    | ) |  |  | 14,825 |  
|Dividends                                                            |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  
|Balances at December 31, 2001                                        |                   |  | 186,054 |   |         |  | 193,083  |   |                 |  | 16,532  |   |           |  | 87,154 |   |  |  |           |   |  |  | 14,825 |  
|Capitalization of reserves and retained earnings                     |                   |  | 102,389 |   |         |  | (23,551  | ) |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Realization of a portion of the reserve for dividends payable        |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  | (2,244 | )
|Net income                                                           |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|Transfer to and from reserves (Note 17)                              |                   |  |        |   |         |  |         |   |                 |  | 5,929   |   |           |  |       |   |  |  |           |   |  |  |       |  
|Dividends                                                            |                   |  |        |   |         |  |         |   |                 |  |        |   |           |  |       |   |  |  |           |   |  |  |       |  
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  
|Balances at December 31, 2002                                        |                   |  | 288,443 |   |         |  | 169,532  |   |                 |  | 22,461  |   |           |  | 87,154 |   |  |  |           |   |  |  | 12,581 |  
|                                                                     |                   |  |         |   |         |  |          |   |                 |  |         |   |           |  |        |   |  |  |            |   |  |  |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                     |                   |  |          |       |       |  |         |       | 
|-------------------------------------------------------------------- | ----------------- |  | -------- | ----- | ----- |  | ------- | ----- | 
|                                                                     |                   |  | Retained |       |       |  |        
|                                                                     |                   |  | earnings |       | Total
|                                                                     |                   |  |          |       |      
|Balances at December 31, 1999                                        |                   |  | 66,226   |       |       |  | 354,091 |      
|Consolidation adjustment:                                            |                   |  |          |       |       |  |         |      
|                                                                     | Fiscal incentives |  |          | 1,490 |       |  |         | 1,490 | 
|Net income                                                           |                   |  | 26,654   |       |       |  | 26,654  |      
|Allocation between accounts approved by Shareholders
on May 30, 2000 |                   |  |         |       |       |  | (100    | )    
|Share premium reserve (Note 17)                                      |                   |  |          |       |       |  | 204,068 |      
|Transfer to and from reserves (Note 17)                              |                   |  | 8,517    |       |       |  |        |      
|Dividends                                                            |                   |  | (10,319  | )     |       |  | (10,319 | )    
|                                                                     |                   |  |          |       |       |  |         |      
|Balances at December 31, 2000                                        |                   |  | 92,568   |       |       |  | 575,884 |      
|Capitalization of reserves and retained earnings                     |                   |  | (66,226  | )     |       |  |        |      
|Net income                                                           |                   |  | 65,530   |       |       |  | 65,530  |      
|Transfer to and from reserves (Note 17)                              |                   |  | 51,894   |       |       |  |        |      
|Dividends                                                            |                   |  | (19,438  | )     |       |  | (19,438 | )    
|                                                                     |                   |  |          |       |       |  |         |      
|Balances at December 31, 2001                                        |                   |  | 124,328  |       |       |  | 621,976 |      
|Capitalization of reserves and retained earnings                     |                   |  | (78,838  | )     |       |  |        |      
|Realization of a portion of the reserve for dividends payable        |                   |  |         |       |       |  | (2,244  | )    
|Net income                                                           |                   |  | 118,574  |       |       |  | 118,574 |      
|Transfer to and from reserves (Note 17)                              |                   |  | (5,929   | )     |       |  |        |      
|Dividends                                                            |                   |  | (28,161  | )     |       |  | (28,161 | )    
|                                                                     |                   |  |          |       |       |  |         |      
|Balances at December 31, 2002                                        |                   |  | 129,974  |       |       |  | 710,145 |      
|                                                                     |                   |  |          |       |       |  |         |      

See notes to consolidated financial statements.

F - 7



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(Expressed in thousands of Brazilianreais-R$)

|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |         | 
|---------------------------------------------------------------------------------- | ----------------- |  | ------- | -------- | ---- |  | ------- | ------- |  |  | ------- | ------- | 
|                                                                                   |                   |  | 2000    |          | 2001 |  | 2002   
|                                                                                   |                   |  |         |          |      |  |        
|Sources of working capital                                                         |                   |  |         |          |      |  |         |         |  |  |         |        
|From operations                                                                    |                   |  |         |          |      |  |         |         |  |  |         |        
|Net income for the year                                                            |                   |  | 26,654  |          |      |  | 65,530  |         |  |  | 118,574 |        
|Items not affecting working capital                                                |                   |  |         |          |      |  |         |         |  |  |         |        
|Depreciation                                                                       |                   |  | 124,889 |          |      |  | 155,367 |         |  |  | 179,472 |        
|Residual value of property, plant and equipment disposals                          |                   |  | 2,664   |          |      |  | 7,441   |         |  |  | 2,231   |        
|Equity in net income of affiliated companies                                       |                   |  |        |          |      |  | 1,888   |         |  |  | 4,288   |        
|Price-level restatement increments to long term liabilities                        |                   |  | 10,118  |          |      |  | 38,716  |         |  |  | 6,763   |        
|Minority interests                                                                 |                   |  | 11,060  |          |      |  | 21,511  |         |  |  | 38,547  |        
|Provision for contingencies                                                        |                   |  |        |          |      |  | 1,800   |         |  |  | 13,355  |        
|Other                                                                              |                   |  |        |          |      |  |        |         |  |  | (755    | )      
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|                                                                                   |                   |  | 175,385 |          |      |  | 292,253 |         |  |  | 362,475 |        
|From shareholders                                                                  |                   |  |         |          |      |  |         |         |  |  |         |        
|Net assets incorporated from the partial spin-off
of parent company                |                   |  | 204,068 |          |      |  |        |         |  |  |        |        
|From third parties                                                                 |                   |  |         |          |      |  |         |         |  |  |         |        
|Debentures                                                                         |                   |  | 200,000 |          |      |  |        |         |  |  |        |        
|Loans                                                                              |                   |  | 178,163 |          |      |  |        |         |  |  |        |        
|Transfer from noncurrent assets to current assets                                  |                   |  | 46,610  |          |      |  | 26,618  |         |  |  | 30,494  |        
|Other liabilities                                                                  |                   |  | 3,373   |          |      |  |        |         |  |  |        |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|                                                                                   |                   |  | 428,146 |          |      |  | 26,618  |         |  |  | 30,494  |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|Total sources                                                                      |                   |  | 807,599 |          |      |  | 318,871 |         |  |  | 392,969 |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|Applications of working capital                                                    |                   |  |         |          |      |  |         |         |  |  |         |        
|Noncurrent assets                                                                  |                   |  | 215,569 |          |      |  | 13,915  |         |  |  | 6,994   |        
|Investments                                                                        |                   |  |        |          |      |  | 11,100  |         |  |  |        |        
|Property, plant and equipment                                                      |                   |  | 202,111 |          |      |  | 131,977 |         |  |  | 74,866  |        
|Dividends                                                                          |                   |  | 2,629   |          |      |  | 11,438  |         |  |  | 28,161  |        
|Interest on own capital                                                            |                   |  | 7,690   |          |      |  | 8,000   |         |  |  |        |        
|Transfer from long term liabilities to current liabilities                         |                   |  | 92,427  |          |      |  | 79,637  |         |  |  | 238,578 |        
|Minority interests                                                                 |                   |  | 5,245   |          |      |  | 3,974   |         |  |  | 8,812   |        
|Partial spin-off                                                                   |                   |  | 100     |          |      |  |        |         |  |  |        |        
|Realization of a portion of the special reserve for dividend
payable               |                   |  |        |          |      |  |        |         |  |  | 2,244   |        
|Net effect on assets and liabilities for dilution
of shareholdings in subsidiaries |                   |  |        |          |      |  | 2,762   |         |  |  |        |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|Total applications                                                                 |                   |  | 525,771 |          |      |  | 262,803 |         |  |  | 359,655 |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|                                                                                  
|Increase in net working capital                                                    |                   |  | 281,828 |          |      |  | 56,068  |         |  |  | 33,314  |        
|Changes in working capital                                                         |                   |  |         |          |      |  |         |         |  |  |         |        
|                                                                                   | Beginning of year |  |         | (141,590 | )    |  |         | 140,238 |  |  |         | 196,306 | 
|                                                                                   | End of year       |  |         | 140,238  |      |  |         | 196,306 |  |  |         | 229,620 | 
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        
|Increase in net working capital                                                    |                   |  | 281,828 |          |      |  | 56,068  |         |  |  | 33,314  |        
|                                                                                   |                   |  |         |          |      |  |         |         |  |  |         |        

See notes to consolidated financial statement

F - 8



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in thousands of Brazilian reais unless therwise indicated)



|1. |  | The Company and its principal operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|a. |  | Formation of the Company and its subsidiaries and nature of business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Beginning in 1995, the federal government of Brazil (the Federal
Government) undertook a comprehensive reform of the Brazilian regulation
of the telecommunications industry. In July 1997 the Federal Congress
adopted a General Telecommunications Law providing for the privatization of
Telecomunicações Brasileiras S.A. (Telebrás) which, through its 28
operating subsidiaries, was the primary supplier of public
telecommunications services in Brazil.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | As part of the privatization of the Telebrás system, the operating
companies were divided into twelve separate groups: (a) three regional
fixed line groups, (b) eight regional cellular operators and (c) one
national long-distance operator. The cellular telecommunications businesses
were separated from the operating subsidiaries and subsequently, the fixed
line businesses, the new cellular businesses and the long-distance operator
were combined into the twelve separate groups (the New Holding
Companies). Both the separation of the cellular businesses and the
subsequent grouping of the former Telebrás subsidiaries were performed
using a procedure under Brazilian corporate law called cisãoor spin-off.
As part of this process Tele Nordeste Celular Participações S.A. (Tele
Nordeste Celular or the Holding Company) was formed on May 22, 1998.                                                                                                                                                                                                                                                                                                           
|  
|   |  | Tele Nordeste Celular was formed through the spin-off of certain assets and
liabilities of Telebrás, including 78.5%, 79.3%, 75.4%, 77.2%, 77.6% and
71.5% of the share capital of Telepisa Celular S.A. (Telepisa Celular),
Teleceará Celular S.A. (Teleceará Celular), Telern Celular S.A. (Telern
Celular), Telpe Celular S.A. (Telpe Celular), Telasa Celular S.A.
(Telasa Celular) and Telpa Celular S.A. (Telpa Celular and,
collectively with Telepisa Celular, Teleceará Celular, Telern Celular,
Telpe Celular and Telasa Celular, the Subsidiaries), respectively. Until
August 4, 1998, the Company was controlled by the Federal Government. On
July 29, 1998, the Federal Government sold to twelve buyers (the New
Controlling Shareholders) its rights to receive shares of the twelve New
Holding Companies upon the distribution of such shares. In connection with
this sale, the Federal Government assigned to the New Controlling
Shareholders substantially all its economic and voting rights with respect
to the New Holding Companies and, as a consequence, effective August 4,
1998 the New Controlling Shareholders control the New Holding Companies.

F - 9



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



| |  | Tele Nordeste Celular Subsidiaries were formed on January 5, 1998 and
subsequently received on January 30, 1998 from Telecomunicações do Piauí
S.A. (Telepisa), Telecomunicações do Ceará S.A. (Teleceará),
Telecomunicações do Rio Grande do Norte S.A. (Telern), Telecomunicações
de Pernambuco S.A. (Telpe), Telecomunicações de Alagoas S.A. (Telasa)
and Telecomunicações da Paraíba S.A. (Telpa) the assets and liabilities
comprising their respective cellular telecommunications business.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Tele Nordeste Celular Participações S.A. and its Subsidiaries
(collectively, the Company) are the primary suppliers of cellular
telecommunications services in the states of Piauí, Ceará, Rio Grande do
Norte, Pernambuco, Alagoas and Paraíba under the terms of concessions
granted by the Federal Government on November 4, 1997 (the Concessions).
The Concessions will expire as follows:                                                                                                            

Company
    
    Expire dateTelepisa Celular S.A.
    
    March 27, 2009Teleceará Celular S.A.
    
    November 28, 2008Telern Celular S.A.
    
    December 31, 2008Telpa Celular S.A.
    
    December 31, 2008Telpe Celular S.A.
    
    May 15, 2009Telasa Celular S.A.
    
    December 15, 2008




| |  | The Concessions may be renewed at the discretion of Anatel, as defined
below, for further periods of 15 years. Through their predecessors
Telepisa, Teleceará, Telern, Telpe, Telasa and Telpa, the Subsidiaries
began providing cellular telecommunications services in the states of
Piauí, Ceará, Rio Grande do Norte, Pernambuco, Alagoas and Paraíba between
November 1993 and March 1994.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Subsidiaries businesses, including the services they may provide and
the rates they may charge, are regulated by Agência Nacional de
Telecomunicações (Anatel), the regulatory authority for the Brazilian
telecommunications industry pursuant to Law No. 9,472 of July 16, 1997 and
related regulations, decrees, orders and plans.                                                   
|
| |  | In December 1998, the Company started selling cellular handsets in
connection with its cellular telecommunications service, both directly and
through its dealer network.                                                                                                                                                                                                                      
|
| |  | On June 13, 2000, the Company participated in the establishment of TIMNET.com
S.A. (TIMNET.com), an internet services company. The business purpose of
TIMNET.com is
to establish a common platform for the technological and commercial
development of value-added services and Wireless Application Protocol for
cellular telephone service providers.                                     

F - 10



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



| |  | The Company holds the following interests in operating subsidiaries and
investee:
| |  | ---------------------------------------------------------------------------------

Participation %2001
    
    2002Consolidated subsidiares:Telasa
Celular
    
    
    78.0
    
    
    
    78.8Teleceará
Celular
    
    
    79.6
    
    
    
    80.0Telepisa
Cecular
    
    
    78.9
    
    
    
    79.4Telern
Celular
    
    
    75.4
    
    
    
    76.2Telpa
Celular
    
    
    71.9
    
    
    
    71.9Telpe
Celular
    
    
    77.7
    
    
    
    78.7Equity
investee:TIMNET.com
    
    
    33.3
    
    
    
    20.0




|b. |  | Corporate reorganization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Of the Companys two classes of capital stock outstanding, only its common
shares (the Common Shares) have full voting rights. In June 1998, the
UGB/Bitel consortium acquired 51.8% of the Common Shares. On December 15,
1998, UGB exercised a put option under the Shareholders Agreement entered
into by UGB and Bitel on July 24, 1998 pursuant to which it had the right
to sell its entire shareholding in the Company to Bitel, subject to the
approval of Anatel and the Conselho Administrativo de Defesa
Econômica  CADE, Brazils federal competition law enforcement agency. On October 6,
1999 the sale was approved, and Bitel became the controlling shareholder of
Tele Nordeste Celular Participações S.A. with 51.8% of the ordinary shares.
|  
|   |  | When UGB/Bitel purchased a majority of the Holding Companys common shares
in connection with the privatization of Telebrás, it paid a premium or
goodwill over the book value of the Common Shares. In the first quarter
of 2000, the Company and Bitel initiated a corporate reorganization to
transfer the goodwill to certain of the subsidiaries in order that the
amortization of the goodwill could be available as a deduction against
income for purposes of calculating income taxes and social contribution tax
on profits of the subsidiaries.                                                                                                                                                                                                      
|  
|   |  | As part of the reorganization process, the Holding Company spun-off to the
subsidiaries their respective shares of the goodwill. This second step was
approved by the Board of Directors of the Holding Company on May 30, 2000
and by the Extraordinary Shareholders General Meeting of each subsidiary on
June 30, 2000. The amortization of this premium for local statutory
purposes results in tax benefits for the subsidiaries by reducing its tax
base. The resulting tax benefit reverts to the benefit of the controlling
shareholder that originated the Goodwill without, however, causing any
effect on the profit or the flow of dividends to its minority shareholders.                                                                            

F - 11



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



| |  | In accordance with Brazilian Corporate Law, the subsidiaries issue shares
(pro-rata both common and preferred) up to the amount of the tax benefits
realized on an annual basis. At the time of the issuance of shares, the
non-controlling shareholders are given the right to purchase their pro-rata
share of the corresponding share capital increase in order to prevent
dilution. In case they do not accept the offer, shares are issued only to
the controlling shareholder. The increase in the Holding Companys
ownership percentage in each consolidated subsidiary, occurred in 2002, was
a consequence of the issuance of new shares to the Holding Company, due to
the above mentioned tax benefit realized in 2001, and for which the
minority shareholders purchase rights were not exercised.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The effect of the reorganization on the balance sheet and income statement
accounts as at December 31, 2001 and 2002 and for the years then ended is
shown below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Balance sheet effects:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                  |  |      |          |      |  |  |          |  
|------------------------------------------------- |  | ---- | -------- | ---- |  |  | -------- | -
|                                                  |  | 2001 |          | 2002
|                                                  |  |      |          |     
|Unamortized balance of goodwill                   |  |      | 487,566  |      |  |  | 413,506  |  
|Provision for maintenance of shareholders equity |  |      | (321,794 | )    |  |  | (272,914 | )
|                                                  |  |      |          |      |  |  |          |  
|Tax credit balance                                |  |      | 165,772  |      |  |  | 140,592  |  
|                                                  |  |      |          |      |  |  |          |  



| |  | Income statement effects:
| |  | -------------------------

|                      |  |      |         |      |  |  |         |  
|--------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                      |  | 2001 |         | 2002
|                      |  |      |         |     
|Goodwill amortization |  |      | (74,060 | )    |  |  | (74,060 | )
|Provision reversal    |  |      | 48,880  |      |  |  | 48,880  |  
|Tax credit balance    |  |      | 25,180  |      |  |  | 25,180  |  
|                      |  |      |         |      |  |  |         |  
|Net income
effect     |  |      |        |      |  |  |        |  
|                      |  |      |         |      |  |  |         |  



| |  | As of December 31, 2002 the remaining value of the resulting tax credit in
relation to both income taxes and social contribution tax on profits of the
Subsidiaries was R$140,592 (R$ 165,772 in 2001). This is shown in the
balance sheet as part of deferred and recoverable income and social
contribution taxes (R$25,180 as current and R$115,412 as noncurrent assets
on December 31, 2002 and R$25,180 and 140,592 on December 31, 2001,
respectively).                                               
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For statutory and tax purposes, the goodwill is being amortized over 10
years starting in August, 1998, at a rate of 4% p.a. in the first two years
with the balance being amortized straight line over the remaining eight
years. A provision was established at an amount sufficient to reduce the
unamortized balance of the goodwill to the estimated value of the future
tax benefits. The reversal of this allowance is also the amount necessary
to ensure no reduction in the earnings and dividends.

F - 12



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|2. |  | Basis of presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accounts of the Company and its subsidiaries and equity investee are
maintained in Brazilian reais and its consolidated financial statements are
prepared in accordance with the accounting principles established under
Brazilian Corporation Law, which differ in certain respects from the
accounting principles generally accepted in the United States of
America
US GAAP. The reconciliation between Companys statutory consolidated
financial statements as filed with the Brazilian Security Commission

Comissão de Valores Mobiliários  CVM and the application of the accounting
principles generally accepted in the United States is presented in Note 26
to the financial statements.
|  
|   |  | US GAAP disclosure requirements also differ from those required by
Brazilian Corporate Law. The level of disclosure in the financial
statements was adjusted and expanded and certain reclassifications were
made to comply with the US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Certain prior year amounts were reclassified to conform to the current
years presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|3. |  | Summary of principal accounting practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|a) |  | Basis of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The consolidated financial statements include the accounts of Tele Nordeste
Celular Participações S.A. and those of its majority owned subsidiaries as
listed in Note 1. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Companys 20.0% owned investee
TIMNET.com is accounted for by the equity method.                                                                                                                                                                                                                                                                                                                                                  
|  
|b) |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The preparation of financial statements in conformity with accounting
principles generally accepted in Brazil and in the United States of America
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                               
|  
|c) |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Revenues for all services are recognized when the services are provided or
when the equipment is sold. Revenues from cellular telecommunication
services consist of subscription charges, usage charges, network usage
charges and charges for maintenance and other customer services. Unbilled
revenues from the billing date to the month end are measured and recognized
during the month in which the service was provided.                                                                                                                                                                                                                                                                             
|  
|   |  | Revenues from pre-paid telecommunication services are recognized on the
accrual basis in the period in which they are utilized, based on the actual
usage recorded for each period. Revenues from sales of handsets are
recorded on the accrual basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 13



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|d) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company considers all highly liquid temporary cash investments with
original maturity dates of three months or less when purchased to be cash
equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|e) |  | Trade accounts receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Accounts receivable from mobile telephone subscribers are calculated at the
tariff rate on the date the services were rendered. Trade accounts
receivable also include services provided to customers up to the balance
sheet date but not yet invoiced and receivables from sales of handsets.                                                                                                                                                                                                                                                                                                                                                       
|  
|f) |  | Allowance for doubtful accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The allowance for doubtful accounts is recorded based on an analysis
prepared by management which considers the historical experience of
write-offs. Management believes the provision is sufficient to cover
estimated losses of the receivables.                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Allowances for uncollectible billed services are adjusted monthly. The
provision for such uncollectible accounts was R$ 17,799 for 2001 and R$
28,972 for 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|g) |  | Foreign currency transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the relevant transactions. Foreign currency denominated
assets and liabilities are adjusted using the exchange rate at the balance
sheet date. Exchange differences are recognized in the statement of income
as they occur.                                                                                                                                                                                                                                                                                                                             
|  
|h) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Inventories, comprising mainly handsets for resale, are valued at average
cost, which is not in excess of market value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|i) |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Property, plant and equipment is stated at acquisition and/or construction
cost, less accumulated depreciation calculated based on the straight-line
method at the rates shown in Note 9, which take into consideration the
estimated useful lives of the assets. Expenditures for repairs and
maintenance of existing property, plant and equipment, which extend the
useful lives of the related assets, as well as the interest computed on
debts that finance the construction of property, plant and equipment, are
capitalized and amortized over the remaining estimated useful life. Other
routine costs are charged to results of operations.
|  
|   |  | The Companys management reviews property, plant and equipment for possible
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset or group of assets may not be recoverable on the
basis of undiscounted future cash flows. The reviews are carried out at the
lowest level of asset groups to which                                                                                                                                                                                                                                                                                                    

F - 14



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | management is able to attribute
identifiable future cash flows. The Company analyzes the net book value of
the underlying assets and adjusts it if the sum of the expected future cash
flows is less than the net book value. These reviews have not indicated the
need to recognize any impairment losses during the years ended December 31,
2000, 2001 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|j) |  | Vacation pay accrual                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Cumulative vacation pay due to employees is accrued as earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|k) |  | Income and social contribution taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Income taxes are accounted for under the asset and liability method.
Deferred tax assets are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets 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 Company recorded in 2000 the tax credit related to the benefit arising
from the future amortization of the goodwill as described in Note 1(b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|l) |  | Loans and financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Loans and financing include accrued interest to the balance sheet date. As
discussed in Note 14, the Company enters into swaps related to its US
dollar denominated liabilities in order to hedge against risks associated
with unexpected real/US dollar exchange rates. The foreign currency and
interest rate swap agreements are recognized on the balance sheet at the
spot rates at December 31, 2002 and 2001 plus the coupon rate as stated in
the agreements and adjustments to contract value were recorded through
income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|m) |  | Pension and post-retirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Companys operating subsidiaries participated in a multi-employer plan
that provided pension and other post-retirement benefits for some of its
employees. At the beginning of 2000 the Company agreed on a basis for
transferring its active employees from the multi-employer pension and life
insurance plans into an individual defined benefit plan for the Company and
its operating subsidiaries. In 2002 the Company started to take actions to
form a new defined contribution plan permitting employees participating in
the individual defined benefit plan to migrate to this new plan. The
Brazilian Secretary of Complementary Pension approved this new plan on
November 13, 2002. The migration to the new plan is optional however, the
bonus incentives offered by the Company expired on January 29,
2003. The effective date for the curtailment when the participants
officially transferred to the new fund was February 28, 2003. As the
curtailment occurred subsequent to year end, its impact has not been
reflected in the benefit obligations and plan assets in 2002. The effect of
the curtailment in 2003 was a gain of approximately R$15,400.

F - 15



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | Until December 31, 2001, current costs have been determined as the amount
of required contribution for the period and recorded on the accrual basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On December 13, 2000 Regulatory Instruction CVM 371 was enacted,
establishing new rules for accounting for pension plans and defining rules
for the calculation of actuarial obligations, mandatory as from January 1,
2002. The Company elected to recognize adjustments to its actuarial assets
and liabilities directly in income for the year as from January 1, 2002
over a 5-year period or the remaining expected service life of employees if
these are less. Any future actuarial gains and losses related to the
pension plans sponsored by the Company will be recorded, based on the
excess over the higher of 10% of the present value of the actuarial
obligation or 10% of the fair value of the plan assets.
|  
|n) |  | Provisions for contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Provisions for contingencies are based on legal advice and managements
opinion as to the likely outcome of the outstanding matters at the balance
sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|o) |  | Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Interest expense represents interest incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|p) |  | Advertising and marketing expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Advertising and marketing costs are expensed as incurred and were R$
23,552, R$ 20,164 and R$19.522 for the years ended December 31, 2000, 2001
and 2002, respectively, which are reflected in the consolidated statements
of income under selling expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|q) |  | Research and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Research and development costs are charged to expense as incurred and were
R$ 1,041, R$707 and R$89 for 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|r) |  | Employees profit sharing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Accruals are made for granting employees the right to a share profits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|s) |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Interest attributed to shareholders equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Brazilian corporations are permitted to attribute interest on shareholders
equity similar to dividends declared, which is deductible for income tax
purposes. The Company elected to pay such interest to its shareholders from
December 31, 1998 and accrued the amount due with a direct charge to
shareholders equity. The distribution to the shareholders is subject to
withholding income tax at the rate of 15%.                                                                                                                                                                                                                                                                                                   
|  
|   |  | Basic earnings per share is calculated for each class of shares. The
calculation takes into account that the preferred shares are entitled to a
preferential, noncumulative dividend                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F - 16



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | equal to the greater of (i) 6% of
nominal capital value or (ii) 3% of net equity per share as per the latest
approved balance sheet. The computation has been made as if the net income
for each year will be fully distributed. Earnings may be used to increase
capital or otherwise appropriated, consequently such earnings would no
longer be available as dividends. In accordance with the Companys By Laws,
distribution of a minimum annual dividend per share to preferred
shareholders is compulsory. In the United States, the Preferred Shares
trade in the form of ADSs, each representing twenty thousand shares. For
2000, 2001 and 2002, earnings per share is thus disclosed per lot of twenty
thousand shares.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|t) |  | Minority interests                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | In the consolidated balance sheets at December 31, 2001 and 2002 and the
consolidated statements of income for the years ended December 31, 2000,
2001 and 2002, minority interests relate to the interests of shareholders
other than Tele Nordeste Celular Participações S.A. in Telepisa Celular,
Teleceará Celular, Telern Celular, Telpa Celular, Telpe Celular and Telasa
Celular.                                                                                                                                                                                                                                                                                                                                          
|  
|u) |  | Segment information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Subsidiaries operate solely in the segment of local and regional
cellular telecommunications. All revenues are generated in relation to
services provided in an area in the Northeast of Brazil comprising the
states of Piauí, Ceará, Rio Grande do Norte, Pernambuco, Alagoas and
Paraíba or in relation to the sales of cellular handsets in the same
region.                                                                                                                                                                                                                                                                                                                                                              
|  
|4. |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                       |  |      |         |      |  |  |         | 
|---------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                       |  | 2001 |         | 2002
|                       |  |      |         |     
|Cash on hand           |  |      | 36      |      |  |  | 43      | 
|Cash and bank balances |  |      | 8,914   |      |  |  | 13,668  | 
|Short-term deposits    |  |      | 163,316 |      |  |  | 400,702 | 
|                       |  |      |         |      |  |  |         | 
|                       |  |      | 172,266 |      |  |  | 414,413 | 
|                       |  |      |         |      |  |  |         | 



|5. |  | Trade accounts receivable, net
|-- |  | ------------------------------

|                                                    |  |      |         |      |  |  |         |  
|--------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                                    |  | 2001 |         | 2002
|                                                    |  |      |         |     
|Accrued amounts                                     |  |      | 28,463  |      |  |  | 33,599  |  
|Billed amounts                                      |  |      | 114,680 |      |  |  | 124,370 |  
|Amounts receivable under interconnection agreements |  |      | 30,054  |      |  |  | 39,497  |  
|Allowance for doubtful accounts                     |  |      | (17,799 | )    |  |  | (28,972 | )
|                                                    |  |      |         |      |  |  |         |  
|                                                    |  |      | 155,398 |      |  |  | 168,494 |  
|                                                    |  |      |         |      |  |  |         |  

F - 17



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | The changes in the allowance for doubtful accounts were as follows:
| |  | -------------------------------------------------------------------

|                                     |  |      |          |      |  |      |         |   |  |  |         |  
|------------------------------------ |  | ---- | -------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                     |  | 2000 |          | 2001 |  | 2002
|                                     |  |      |          |      |  |     
|Beginning balance                    |  |      | 24,811   |      |  |      | 22,002  |   |  |  | 17,799  |  
|Provision charged to selling expense |  |      | 105,199  |      |  |      | 44,578  |   |  |  | 46,729  |  
|Write-offs                           |  |      | (108,008 | )    |  |      | (48,781 | ) |  |  | (35,556 | )
|                                     |  |      |          |      |  |      |         |   |  |  |         |  
|Ending balance                       |  |      | 22,002   |      |  |      | 17,799  |   |  |  | 28,972  |  
|                                     |  |      |          |      |  |      |         |   |  |  |         |  



|6. |  | Deferred and recoverable taxes
|-- |  | ------------------------------

|                                                   |  |      |         |      |  |  |         | 
|-------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                   |  | 2001 |         | 2002
|                                                   |  |      |         |     
|Income and social contribution tax                 |  |      | 15,697  |      |  |  | 2,122   | 
|Deferred income and social contribution tax assets |  |      | 188,358 |      |  |  | 172,420 | 
|Withholding taxes                                  |  |      | 5,370   |      |  |  | 18,434  | 
|Value added taxes                                  |  |      | 8,272   |      |  |  | 9,738   | 
|                                                   |  |      |         |      |  |  |         | 
|                                                   |  |      | 217,697 |      |  |  | 202,714 | 
|                                                   |  |      |         |      |  |  |         | 
|                                                  
|Current                                            |  |      | 71,282  |      |  |  | 81,538  | 
|Noncurrent                                         |  |      | 146,415 |      |  |  | 121,176 | 



|7. |  | Other assets
|-- |  | ------------

|            |  |      |        |      |  |  |        | 
|----------- |  | ---- | ------ | ---- |  |  | ------ | 
|            |  | 2001 |        | 2002
|            |  |      |        |     
|Inventories |  |      | 6,147  |      |  |  | 8,774  | 
|Other       |  |      | 12,968 |      |  |  | 15,869 | 
|            |  |      |        |      |  |  |        | 
|Total       |  |      | 19,115 |      |  |  | 24,643 | 
|            |  |      |        |      |  |  |        | 
|           
|Current     |  |      | 8,333  |      |  |  | 12,122 | 
|Noncurrent  |  |      | 10,782 |      |  |  | 12,521 | 

F - 18



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|8. |  | Equity investee                                                     
|-- |  | --------------------------------------------------------------------
|  
|   |  | The investment in the affiliate TIMNET.com is summarized as follows:

|                                             |  |  |         |  
|-------------------------------------------- |  |  | ------- | -
|Ownership (%)                                |  |  | 20.0    | %
|Shareholders equity as of December 31, 2002 |  |  | 50,894  |  
|Loss for the year                            |  |  | (21,441 | )
|Equity in
loss                               |  |  | (4,288  | )
|Investment at December 31, 2002              |  |  | 10,179  |  

|                |  |      |        |  
|--------------- |  | ---- | ------ | -
|                |  | 2002
|                |  |     
|TIMNET.com      | 
|Opening balance |  |      | 13,712 |  
|Other           |  |      | 755    |  
|Equity in loss  |  |      | (4,288 | )
|                |  |      |        |  
|                |  |      | 10,179 |  
|                |  |      |        |  



|   |  | TIMNET.com was formed on June 13, 2000 and Tele Nordeste Celular
owns 20.0% of its shares as of December 31, 2002 (33.3% on December 31, 2001).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | Property, plant and equipment, net                                                                                                             

|                                     |  |              |          |      |  |      |           |   |  |  |           |  
|------------------------------------ |  | ------------ | -------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                     |  | Annual       |          |      |  |      |           |   |  | 
|                                     |  | depreciation |          |      |  |      |           |   |  | 
|                                     |  | rates %      |          | 2001 |  | 2002
|                                     |  |              |          |      |  |     
|Automatic switching equipment        |  |              | 14.3     |      |  |      | 192,396   |   |  |  | 221,659   |  
|Transmission equipment               |  |              | 14.3     |      |  |      | 695,648   |   |  |  | 706,308   |  
|Administrative hardware and software |  |              | 20.0     |      |  |      | 128,984   |   |  |  | 171,775   |  
|Buildings                            |  |              | 4.0      |      |  |      | 5,793     |   |  |  | 5,957     |  
|Other                                |  |              | 5.0-20.0 |      |  |      | 68,021    |   |  |  | 73,990    |  
|                                     |  |              |          |      |  |      |           |   |  |  |           |  
|Total cost                           |  |              |          |      |  |      | 1,090,842 |   |  |  | 1,179,689 |  
|Accumulated depreciation             |  |              |          |      |  |      | (459,739  | ) |  |  | (628,486  | )
|                                     |  |              |          |      |  |      |           |   |  |  |           |  
|                                     |  |              |          |      |  |      | 631,103   |   |  |  | 551,203   |  
|Land                                 |  |              |          |      |  |      | 1,261     |   |  |  | 1,318     |  
|Construction-in-progress             |  |              |          |      |  |      | 55,383    |   |  |  | 28,389    |  
|                                     |  |              |          |      |  |      |           |   |  |  |           |  
|Property, plant and equipment        |  |              |          |      |  |      | 687,747   |   |  |  | 580,910   |  
|                                     |  |              |          |      |  |      |           |   |  |  |           |  

F - 19



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|10. |  | Payroll and related accruals
|--- |  | ----------------------------

|                                |  |      |       |      |  |  |       | 
|------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                |  | 2001 |       | 2002
|                                |  |      |       |     
|Wages and salaries              |  |      | 1,300 |      |  |  | 1,981 | 
|Accrued social security charges |  |      | 4,349 |      |  |  | 3,692 | 
|Accrued benefits                |  |      | 1,090 |      |  |  | 2,444 | 
|                                |  |      |       |      |  |  |       | 
|                                |  |      | 6,739 |      |  |  | 8,117 | 
|                                |  |      |       |      |  |  |       | 



|11. |  | Accounts payable and accrued expenses
|--- |  | -------------------------------------

|                                                                       |  |      |         |      |  |  |        | 
|---------------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------ | 
|                                                                       |  | 2001 |         | 2002
|                                                                       |  |      |         |     
|Suppliers                                                              |  |      | 69,421  |      |  |  | 47,920 | 
|Interconnection charges                                                |  |      | 8,024   |      |  |  | 14,948 | 
|Consignments of third parties                                          |  |      | 10,504  |      |  |  | 8,259  | 
|Employees profit sharing                                              |  |      | 3,002   |      |  |  | 3,784  | 
|Advances from customers related to pre-paid telecommunication
services |  |      | 6,617   |      |  |  | 14,721 | 
|Others                                                                 |  |      | 2,940   |      |  |  | 3,809  | 
|                                                                       |  |      |         |      |  |  |        | 
|                                                                       |  |      | 100,508 |      |  |  | 93,441 | 
|                                                                       |  |      |         |      |  |  |        | 



|12. |  | Taxes other than income taxes
|--- |  | -----------------------------

|                                                                                          |  |      |        |      |  |  |        | 
|----------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|                                                                                          |  | 2001 |        | 2002
|                                                                                          |  |      |        |     
|Value-added taxes                                                                         |  |      | 24,976 |      |  |  | 22,580 | 
|Withholding tax related to dividends characterized as distribution of interest on
capital |  |      | 1,406  |      |  |  | 2,481  | 
|Other indirect taxes on operating revenues                                                |  |      | 7,254  |      |  |  | 16,888 | 
|                                                                                          |  |      |        |      |  |  |        | 
|                                                                                          |  |      | 33,636 |      |  |  | 41,949 | 
|                                                                                          |  |      |        |      |  |  |        | 



| |  | Dividends characterized as distribution of interest on capital are subject
to 15% withholding tax.
| |  | --------------------------------------------------------------------------------------------------

F - 20



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|13. |  | Proposed dividends and interest on capital
|--- |  | ------------------------------------------

|                                                      |                  |  |        |        |      |  |        |        | 
|----------------------------------------------------- | ---------------- |  | ------ | ------ | ---- |  | ------ | ------ | 
|                                                      |                  |  | 2001   |        | 2002
|                                                      |                  |  |        |        |     
|Tele
Nordeste Celular Participações S.A.
shareholders |                 
|                                                      | Common shares    |  |        | 6,898  |      |  |        | 11,498 | 
|                                                      | Preferred shares |  |        | 11,340 |      |  |        | 18,907 | 
|Minority shareholders                                 |                  |  | 5,409  |        |      |  | 11,374 |       
|Prior year dividends                                  |                  |  | 7,413  |        |      |  | 5,438  |       
|                                                      |                  |  |        |        |      |  |        |       
|                                                      |                  |  | 31,060 |        |      |  | 47,217 |       
|                                                      |                  |  |        |        |      |  |        |       



|    |  | Brazilian corporations may make payments to shareholders characterized as
interest on the Companys capital. 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 2000 and 2001 as interest on capital. This is a
deductible expense for income tax purposes, but is treated as dividends for
accounting purposes.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The above amounts are net of withholding tax of R$1,200 in 2001 for Tele
Nordeste Celular Participações S.A. shareholders and R$432 in 2001 for
minority shareholders, as discussed in Note 17. As the Company paid
dividends instead of interest on capital, no taxes were withheld in 2002.                                                                                                                                                                                 
|   
|14. |  | Loans and financing                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                   |  |      |         |      |  |  |         | 
|---------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                   |  | 2001 |         | 2002
|                                   |  |      |         |     
|Debentures                         |  |      | 208,132 |      |  |  | 208,225 | 
|Equipment financing                |  |      | 37,669  |      |  |  | 9,218   | 
|Working capital loans  US dollars |  |      | 102,510 |      |  |  | 116,246 | 
|                                   |  |      |         |      |  |  |         | 
|                                   |  |      | 348,311 |      |  |  | 333,689 | 
|                                   |  |      |         |      |  |  |         | 
|                                  
|Current
portion                    |  |      | 39,030  |      |  |  | 256,223 | 
|Long term                          |  |      | 309,281 |      |  |  | 77,466  | 



|   |  | The year end balances include accrued interest calculated in accordance
with the terms of the agreements.                                                                                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|a. |  | Debentures                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | On October 2, 2000 Telpe Celular S.A. issued 20,000 three year non
convertible debentures of R$10 each, totaling R$200,000. The debentures are
guaranteed by Tele Nordeste Celular and bear interest at 103% of the
Interbank Deposit Certificate (CDI) rate and mature in October 2003. The CDI rate at December 31, 2002 was
24.81% p.a. (19.02% in 2001). The interest is due semiannually. The Company
has complied with

F - 21



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | applicable financial covenants at December 31, 2002. Tele
Nordeste Celular Participações is subject to covenants under the agreement
evidencing and governing the debentures, and breach of any of these
covenants could result in an acceleration of the maturity date of the
debentures. Under these covenants, Tele Nordeste Celular Participações must
comply with requirements relating to its ratio of consolidated EBITDA to
consolidated net financial expense and its ratio of consolidated net
indebtedness to consolidated EBITDA.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company also is party to agreements that effectively allow the Company
to pay interest at a fixed rate on R$ 30,000 of its variable-rate
debentures debt, reducing the Companys exposure to interest rate risk.                                                                                                                                                                                                                                                                                                                         
|  
|b. |  | Equipment financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                        |  |      |        |      |  |  |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                                        |  | 2001 |        | 2002
|                                                        |  |      |        |     
|Equipment financing                                     |  |      | 38,975 |      |  |  | 13,469 |  
|Unrealized loss (gain) on CDI/US dollar swap operations |  |      | (1,720 | )    |  |  | (4,365 | )
|Accrued interest                                        |  |      | 414    |      |  |  | 114    |  
|                                                        |  |      |        |      |  |  |        |  
|                                                        |  |      | 37,669 |      |  |  | 9,218  |  
|                                                        |  |      |        |      |  |  |        |  
|                                                       
|Current portion                                         |  |      | 28,823 |      |  |  | 9,218  |  
|Long term                                               |  |      | 8,846  |      |  |  |       |  



| |  | Loans from suppliers of telecommunication equipment consist of loans
payable in annual and semi-annual installments. All such loans are denominated in US dollars and bear interest at rates of six-month US dollar
LIBOR plus 0.4% per annum. The LIBOR rate at December 31, 2001 and 2002 was
3.45 % and 1.79% per annum, respectively.                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As of December 31, 2001 and 2002 the Company was party to exchange rate
agreements with an aggregate notional principal amount of R$ 38,975 and R$
13,469 respectively, designed to protect its principal payment obligations
on its equipment financing debt from an unexpected fall in the real-US
dollar exchange rate. These agreements effectively convert U.S. dollars
debt into Reaisdenominated variable rate debt. This reduces the Companys
risk of incurring exchange losses in periods of volatility in the exchange
markets.

F - 22



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|c. |  | Working capital loans  US dollars
|-- |  | ----------------------------------

|                                                                          |  |      |         |      |  |  |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                                                          |  | 2001 |         | 2002
|                                                                          |  |      |         |     
|US$50 million loan at 3 month Libor, plus 1.775% p.a. (0.15% p.a
in 2000) |  |      | 116,020 |      |  |  | 176,665 |  
|Provision for swap contract gains                                         |  |      | (15,128 | )    |  |  | (62,254 | )
|Accrued interest                                                          |  |      | 1,618   |      |  |  | 1,835   |  
|                                                                          |  |      |         |      |  |  |         |  
|                                                                          |  |      | 102,510 |      |  |  | 116,246 |  
|                                                                          |  |      |         |      |  |  |         |  
|                                                                         
|Current portion                                                           |  |      | 1,618   |      |  |  | 38,780  |  
|Long term                                                                 |  |      | 100,892 |      |  |  | 77,466  |  



|   |  | The Company has complied with applicable financial covenants at December
31, 2002, specifically those covering the relationship between the
consolidated EBITDA and net financial expenses and net indebtedness. Non
compliance with these covenants may cause the due date of the working
capital loans to be brought forward.                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of December 31, 2001 and 2002 the Company had exchange rate agreements
with an aggregate notional principal amount of R$116,020 and R$ 176,665
respectively, designed to protect its principal payment obligations on its
short term working capital loans in US dollars from an unexpected fall in
the real-US dollar exchange rate. These agreements establish a fixed rate
at which the Company agrees to purchase U.S. dollars with Brazilian reais
at a future date to pay its U.S. dollars denominated principal payment
obligations with respect to its working capital loans. This reduces the
Companys risk of incurring exchange losses in periods of volatility in the
exchange markets.
|  
|d. |  | Repayment schedule                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Noncurrent loans are scheduled to be repaid as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|      |  |  |        | 
|----- |  |  | ------ | 
|2004  |  |  | 38,733 | 
|2005  |  |  | 38,733 | 
|      |  |  |        | 
|Total |  |  | 77,466 | 
|      |  |  |        | 

F - 23



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|e. |  | Currency analysis                                         
|-- |  | ----------------------------------------------------------
|  
|   |  | The total debt is denominated in the following currencies:

|                                  |  |                  |        |      |  |      |         |   |  |  |         |  
|--------------------------------- |  | ---------------- | ------ | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                  |  | Exchange rate at |        |      |  |      |         |   |  | 
|                                  |  | December 31,     |        |      |  |      |         |   |  | 
|                                  |  | 2002             |        |      |  |      |         |   |  | 
|                                  |  |                  |        |      |  |      |         |   |  | 
|                                  |  | (Units of one    |        |      |  |      |         |   |  | 
|                                  |  | Brazilian real)  |        | 2001 |  | 2002
|                                  |  |                  |        |      |  |     
|Reais                             |  |                  | 1.0000 |      |  |      | 208,132 |   |  |  | 208,225 |  
|US dollars                        |  |                  | 3.5258 |      |  |      | 157,027 |   |  |  | 192,083 |  
|Unrealized gain on swap contracts |  |                  |        |      |  |      | (16,848 | ) |  |  | (66,619 | )
|                                  |  |                  |        |      |  |      |         |   |  |  |         |  
|                                  |  |                  |        |      |  |      | 348,311 |   |  |  | 333,689 |  
|                                  |  |                  |        |      |  |      |         |   |  |  |         |  



|15. |  | Commitments and contingencies                         
|--- |  | ------------------------------------------------------
|   
|    |  | Provisions for contingent liabilities were as follows:

|             |  |      |       |      |  |  |        | 
|------------ |  | ---- | ----- | ---- |  |  | ------ | 
|             |  | 2001 |       | 2002
|             |  |      |       |     
|Civil claims |  |      | 1,800 |      |  |  | 11,651 | 
|Other claims |  |      | 903   |      |  |  | 4,407  | 
|             |  |      |       |      |  |  |        | 
|Total        |  |      | 2,703 |      |  |  | 16,058 | 
|             |  |      |       |      |  |  |        | 



| |  | ICMS taxes on activation fees and other services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On June 19, 1998 the secretaries of treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS (Imposto sobre Circulação de
Mercadorias e Serviços), a state value-added tax, to cover not only
telecommunications services but also other services, including cellular
activation, which had not been previously subject to such tax. Pursuant to
this new interpretation of tax law, the ICMS tax may be applied
retroactively for such services rendered during the last five years.                                                                                                               
|
| |  | The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject to taxation certain services which are not considered
telecommunications services; and (iii) new taxes may not be applied
retroactively. No provision for such taxes has been made in the
accompanying consolidated financial statements as the Company does not
believe it is probable that such taxes will be payable for services
rendered during the last five years.

F - 24



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | There can be no assurance that the Company will prevail in its position
that the new interpretation by the state treasury secretaries is unlawful.
If the ICMS tax were to be applied retroactively to activation fees earned
during the past five years, it would give rise to a maximum liability
estimated at R$5,900.                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Other Litigation                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company is party to certain legal proceedings arising in the normal
course of business. Based on legal advice, the Company has provided for its
estimated losses due to adverse legal judgments. In the opinion of the
Companys management, such actions, if decided adversely to the Company,
would not have a material adverse effect on the Companys business,
financial condition or results of operations.
|
| |  | Rentals                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Company rents equipment and premises through a number of agreements
that expire at different dates. Total annual rent expense under these
agreements which are operating leases was as follows:                                                                                                                                                                                                                  

|             |  |      |       |      |  |      |       |  |  |  |       | 
|------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|             |  | 2000 |       | 2001 |  | 2002
|             |  |      |       |      |  |     
|Rent expense |  |      | 3,965 |      |  |      | 4,912 |  |  |  | 4,398 | 



| |  | Rental commitments relating to facilities where the future minimum rental
payments under leases with remaining terms in excess of one year that are
non-cancelable without payment of a penalty are:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Year ending December 31, 2002                                                                                                                                                                       

|                       |  |  |        | 
|---------------------- |  |  | ------ | 
|2003                   |  |  | 8,796  | 
|2004                   |  |  | 9,544  | 
|2005                   |  |  | 10,355 | 
|2006                   |  |  | 11,235 | 
|2007 and thereafter    |  |  | 12,190 | 
|                       |  |  |        | 
|Total minimum payments |  |  | 52,120 | 
|                       |  |  |        | 

F - 25



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|16. |  | Pension Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company and its subsidiaries, together with substantially all of the
other companies in the former Telebras group, participate in a
multi-employer defined benefit and medical other post-retirement defined
benefit plans administrated by the Fundação Sistel de Seguridade Social 
SISTEL. Until December 1999, all sponsors of plans administrated by Sistel
were joint and several with regard to all plans then existent. On December
28, 1999 the sponsors of plans administrated by Sistel negotiated
conditions for the creation of individualized retirement plans for each
sponsor, maintaining the joint and several aspect only for the participants
already assisted under such condition at January 31, 2000, resulting in the
proposal for restructuring Sistels by-laws and regulations, which was
approved by the Complementary Pension Plan Office, on January 13, 2000.
With the discontinuation of the solidarity (i.e. multi-employer) concept in
January 2000, Tele Nordeste Celular and its subsidiaries commenced
sponsoring a defined benefit plan (Tele Nordeste Celular PBS Plan).
|   
|    |  | The Company created a separate defined contribution plan TIMPREV  NORDESTE
on November 13, 2002, through Notification 1,917 CGAJ/SPC. The Company has
encouraged the transfer of the existing employees in Tele Nordeste Celular
PBS Plan to the new plan through the use of bonus incentives. The
migration to the new plan is optional however, the bonus incentives offered
by the Company expired on January 29, 2003. The decision to change to the
TIMPREV plan if made by employees is irreversible and thus extinguishes
rights linked to the PBS benefit plan (defined benefit) and to the PAMA.
As of January 29, 2003, 89.32% of employees that had previous being
participants of the PBS benefit plan had transferred to TIMPREV  NORDESTE.                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In addition to this supplementary benefit, the Company also offers a
medical health plan (PAMA) to employees and retirees and their dependents,
at a shared cost. Contributions to the plans PBS Tele Nordeste Celular and
PAMA are determined based on actuarial studies prepared by independent
actuaries, in accordance with current regulations in Brazil. The
capitalization system is used for determining the cost, whereby the
contribution owed by the sponsor amounts to 13.5% of the payroll of
employees participating in the plan, of which 12% is destined to paying for
the PBS Tele Nordeste Celular Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | The Company contributed and charged to expense R$ 1,462 and R$ 1,497 and R$
1,178 during 2000 and 2001 and 2002 respectively, in respect of pension
fund contributions and other postretirement benefit contributions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Regulatory Instruction CVM 371  Accounting for Employee Benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | On December 13, 2000 Regulatory Instruction CVM 371 was enacted,
establishing new rules for accounting for pension plans and for the
calculation of actuarial obligations, mandatory as from January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | In accordance with Regulatory Instruction CVM 371 issued by the Brazilian
Securities Commission, the following tables set forth the information on
post-employment benefit plans sponsored by Tele Nordeste Celular.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F - 26



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | PBS  TNC and PBS  A                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The pension benefit is generally defined as the difference between (i) 90%
of the retirees average salary during the last 36 months indexed to the
date of retirement and (ii) the value of the retirement pension paid by the
Brazilian social security system. For retired employees, the initial
pension payment is subsequently adjusted upwards to recognize cost of
living increases and productivity awards granted to active employees. In
addition to the pension supplements, post-retirement health care benefit is
provided to eligible pensioners and their dependents. This health care plan
remains as a multi employer plan.
|
| |  | Contributions to the plan are based on actuarial studies prepared by
independent actuaries under Brazilian regulations. The actuarial studies
are revised periodically to identify whether adjustments to the
contributions are necessary.                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | In spite of showing a surplus as of December 31, 2002 and December 31,
2001, no plan asset was recognized by the sponsor as the stipulations of
NPC 26 issued by the Brazilian Institute of Certified Public Accountants
(IBRACON), which regulates the accounting of pension plans, were not
achieved.                                                                                                                                                                                                                                                                                                                                      

|                                                        |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |   | 
|------------------------------------------------------- |  | ------- | ------ | ----------- | ---- | ------- | ----- | ----------- |  |  | ------ | - |  |  | ---- | - | 
|                                                        |  |         | 2001   |             | 2002
|                                                        |  |         |        |             |     
|                                                        |  | PBS TNC |        | PBS A (*) |      | PBS TNC |       | PBS A (*)
|                                                        |  |         |        |             |      |         |       |            
|Reconciliation of assets and liabilities                |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  
|Actuarial present value of benefit obligations          |  |         | 26,233 |             |      |         | 921   |             |  |  | 29,404 |   |  |  | 988  |  
|Plan assets at fair value                               |  |         | 26,381 |             |      |         | 1,055 |             |  |  | 33,520 |   |  |  | 1235 |  
|                                                        |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  
|Plan assets in excess of benefit obligations            |  |         | 148    |             |      |         | 134   |             |  |  | 4,116  |   |  |  | 246  |  
|                                                        |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  
|Expected expense (income) for fiscal 2002/2003          |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  
|Current service cost (with interest)                    |  |         | 1,604  |             |      |         |      |             |  |  | 1,792  |   |  |  |     |  
|Projected contributions from participants for
2002/2003 |  |         | (577   | )           |      |         |      |             |  |  | (616   | ) |  |  |     |  
|Interest cost on obligations                            |  |         | 2,945  |             |      |         | 101   |             |  |  | 3,291  |   |  |  | 108  |  
|Expected return on plan assets                          |  |         | (3,898 | )           |      |         | (148  | )           |  |  | (4,902 | ) |  |  | (173 | )
|Cost of amortization                                    |  |         | (29    | )           |      |         | (26   | )           |  |  | (30    | ) |  |  | (27  | )
|                                                        |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  
|Total                                                   |  |         | 45     |             |      |         | (73   | )           |  |  | (464   | ) |  |  | (92  | )
|                                                        |  |         |        |             |      |         |       |             |  |  |        |   |  |  |      |  



| |  | (*) Relates to the Tele Nordeste Celulars proportional share in assets and
liabilities of the PBS - A plan, according to actuarial calculations, which
is the plan for inactive employees.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated



| |  | Actuarial assumptions used (2002 and 2001):
| |  | -------------------------------------------

|                                         |  |                                             
|---------------------------------------- |  | --------------------------------------------
|Actuarial discount rate for obligations: |  | 11.30% p.a. (6.0% actual and 5.0% inflation)
|                                         |  |                                             
|Expected rate of return on
plan assets:  |  | 14.45% p.a. (9.0% actual and 5.0% inflation)
|                                         |  |                                             
|Estimated rate of
remuneration increase: |  | 8.15% p.a. (3.0% actual and 5.0% inflation) 
|                                         |  |                                             
|Estimated rate of benefits
increase:     |  | 5.00% p.a. (0.0% actual and 5.0% inflation) 
|                                         |  |                                             
|General Mortality table:                 |  | UP84 with 1 year of serious sickness        
|                                         |  |                                             
|Disability table:                        |  | Mercer Disability Table                     
|                                         |  |                                             
|Expected rate of turnover:               |  | 15% / (Years of service + 1)                
|                                         |  |                                             
|Probability of retirement:               |  | 100% at first eligibility to benefit        



| |  | Additional Information                                                                                  
| |  | --------------------------------------------------------------------------------------------------------
|
| |  | 1)  Plan assets are measured at December 31, 2002 and December 31, 2001,
respectively.                  
|
| |  | 2)  The liabilities were calculated using population data as of September
30, 2002 and October 31, 2001.
|
| |  | 3)  Beneficiaries statistics consider spouse only ( excluding other
beneficiaries).                     

F - 28



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



|17. |  | Shareholders equity                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|a.  |  | Share capital                                                                                                                                                 
|   
|    |  | The capital stock of Tele Nordeste Celular Participações S.A. is comprised
of common and preferred shares, all without par value, as shown in the
table below:

|                        |                         |  |             |             |              |  |             |             |  |  |  |             | 
|----------------------- | ----------------------- |  | ----------- | ----------- | ------------ |  | ----------- | ----------- |  |  |  | ----------- | 
|                        |                         |  | Common in   |             | Preferred in |  | Total      
|                        |                         |  | circulation |             | circulation  |  | Outstanding
|                        |                         |  |             |             |              |  |            
|In thousands of shares: |                         |  |             |             |              |  |             |             |  |  |  |            
|                        | As of December
31, 2001 |  |             | 127,738,639 |              |  |             | 210,029,997 |  |  |  | 337,768,636 | 
|                        | As of December
31, 2002 |  |             | 130,753,136 |              |  |             | 214,986,484 |  |  |  | 345,739,620 | 

|                                                                  |  |      |       |      |  |  |       | 
|----------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                                  |  | 2001 |       | 2002
|                                                                  |  |      |       |     
|Shareholders equity per twenty thousand shares (Brazilian reais) |  |      | 36.83 |      |  |  | 41.08 | 



|   |  | The capital may be increased only by a decision taken at a shareholders
meeting or by the Board of Directors in connection with the capitalization
of profits or reserves previously allocated to capital increases at a
shareholders meeting.                                                                                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The preferred shares are non-voting except under limited circumstances and
are entitled to a preferential, noncumulative, 6% dividend based upon their
nominal capital value and to priority over the common shares in the case of
liquidation. Under the Brazilian Corporation Law, the number of non-voting
shares or shares with limited voting rights, such as the preferred shares,
may not exceed two-thirds of the total number of shares.                                                                                                                 
|  
|   |  | In the Extraordinary Shareholders Meeting of December 20, 2002, the Company
bylaws were amended to adapt them to the New Corporation Law, including the
first paragraph of article 10, which assures holders of preferred shares,
annually, the right to receive dividend per share corresponding to 3% of
net equity per share as per the latest approved balance sheet, whenever
the established dividend in accordance with this criterion is higher than
the dividend calculated in accordance with the prior criterion, described
in the preceding paragraph.
|  
|b. |  | Income reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Legal reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Brazilian companies are required to appropriate 5% of their annual net
income to a legal reserve until that reserve equals 20% of paid-up share
capital, or 30% of nominal paid-up
share capital plus capital reserves; thereafter, appropriations to this
reserve are not compulsory. This reserve can only be used to increase
capital or offset accumulated losses.                                                                                                                                                                                            
|  
|   |  | Statutory reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F - 29



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | This reserve represents the balance of net profit not allocated to minimum
compulsory dividends (or interest on capital) or to preferred dividends.
The reserve is limited to 80% of share capital.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 30



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



|   |  | Unrealized income reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | This reserve was received on the split-up of Telebrás and represents
unrealized income derived from indexation gains through 1995. The
realization of this reserve will occur, substantially, as the investments
in subsidiaries that gave rise to the indexation gains are realized through
the receipt of dividends or on disposal. Future realizations of this
reserve will be transferred to retained earnings.                                                                                                                                                                                                                                                                                                                
|  
|   |  | In 2000, a shareholders meeting approved the transfer to retained earnings
of part of this reserve. In 2001, a shareholders meeting approved the
transfer to retained earnings of the remaining balance of this reserve and
its inclusion in the basis of computation of dividends.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Capital reserve  share premium                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | This account arose out of the corporate reorganization described in Note
1(b) and represents the value of the tax credits which will be generated by
the future amortization of the goodwill. Each year an amount of 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.                                                       
|  
|   |  | On April 30, 2001 and April 4, 2002 shareholders meetings approved capital
increases of R$10,985 and R$23,551, respectively, corresponding to the 2000
and 2001 realized portion of the tax benefit as mentioned above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|c. |  | Dividends and dividends reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Pursuant to its By-laws, Tele Nordeste Celular Participações S.A. is
required to distribute as dividends in respect of each fiscal year ending
on December 31, to the extent amounts are available for distribution, an
aggregate amount equal to at least 25% of Adjusted Net Income (as defined
below) on such date. The annual dividend distributed to holders of
preferred shares (the Preferred Dividend) has priority in the allocation
of Adjusted Net Income. Remaining amounts to be distributed are allocated
first to the payment of a dividend to holders of common shares in an amount
equal to the Preferred Dividend and the remainder is distributed equally
among holders of preferred shares and common shares.

F - 31



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | Brazilian corporations may make payments to shareholders characterized as
interest on the Companys capital. 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 2000 and 2001 as interest on capital. This is a
deductible expense for income tax purposes, but is treated as dividends for
accounting purposes.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the purposes of the Brazilian Corporation Law, and in accordance with
Tele Nordeste Celular Participações S.A.s By-Laws, Adjusted Net Income
is an amount equal to Tele Nordeste Celular Participações S.A.s net
profits adjusted to reflect allocations to or from (i) the statutory and
legal reserves, (ii) a contingency reserve for anticipated losses, if any,
and (iii) an unrealized income reserve, if any.                                                  
|
| |  | The calculation of Adjusted Net Income is shown in the table below:                                                                                                                                                                                                                                                                                                                                                                                                           

|                                                                     |                                              |  |         |        |      |  |         |        |  
|-------------------------------------------------------------------- | -------------------------------------------- |  | ------- | ------ | ---- |  | ------- | ------ | -
|                                                                     |                                              |  | 2001    |        | 2002
|                                                                     |                                              |  |         |        |     
|Consolidated net income for the year                                 |                                              |  | 65,530  |        |      |  | 118,574 |       
|                                                                     | Add: Transfer from unrealized income reserve |  |         | 69,996 |      |  |         |       |  
|                                                                     | Less: Transfer to legal reserve              |  |         | (3,277 | )    |  |         | (5,929 | )
|                                                                     |                                              |  |         |        |      |  |         |       
|Adjusted Net Income                                                  |                                              |  | 132,249 |        |      |  | 112,645 |       
|                                                                     |                                              |  |         |        |      |  |         |       
|Minimum compulsory dividend (25% of distributable income)            |                                              |  | 33,063  |        |      |  | 28,161  |       
|                                                                     |                                              |  |         |        |      |  |         |       
|Dividends characterized as a distribution of interest                |                                              |  | 6,800   |        |      |  |        |       
|Remaining proposed dividends                                         |                                              |  | 26,263  |        |      |  | 28,161  |       
|Transfer to income reserve  dividends payable                       |                                              |  | (14,825 | )      |      |  |        |       
|                                                                     |                                              |  |         |        |      |  |         |       
|Final dividends proposed                                             |                                              |  | 18,238  |        |      |  | 28,161  |       
|                                                                     |                                              |  |         |        |      |  |         |       
|                                                                     | Common shares                                |  |         | 6,898  |      |  |         | 10,650 |  
|                                                                     | Preferred shares                             |  |         | 11,340 |      |  |         | 17,511 |  
|                                                                     |                                              |  |        
|Dividends and interest on capital per 20,000 thousand shares (reais) |                                              |  |         |        |      |  |         |        |  
|                                                                     | Common shares                                |  |         | 1.0799 |      |  |         | 1.6290 |  
|                                                                     | Preferred shares                             |  |         | 1.0799 |      |  |         | 1.6290 |  



| |  | As decided in the Shareholders General Meeting of April 4, 2002, a special
reserve for dividends payable of R$ 14,825 was established based on the net
income for 2001, granting shareholders owning shares as of April 5, 2002,
the right to receive such amount on a date yet to be determined.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Of this reserve R$2,244 will be paid to shareholders registered as of April
5, 2002. Such amount corresponds to the difference of the amount the
Company is receiving from its subsidiaries for 2002 and the amount computed
for payment of dividends also for 2002.                              

F - 32



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | The remaining balance of the special reserve for dividends payable R$12,581
(R$14,825  R$2,244) will be paid in the future to the shareholders
registered as of April 5, 2002, as approved in the Shareholders General
Meeting of April 4, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The amount of R$ 28,161, related to dividends for 2002, will be proposed
for payment to shareholders in the Shareholders General Meeting approving
the operating results for 2002.                                                               
|
| |  | The amounts of R$2,244 and R$28,161 will be restated by the Referential
Rate (TR) variation from January 1, 2003 up to the date of their effective
payment.                                                                                        
|
| |  | Accordingly, the distribution of dividends for the year ended December 31,
2002 will be as follows:                                                                                                                                                
|
| |  | a)  From the operating results for the year, R$ 28,161 to shareholders
owning shares at the date of the Shareholders General Meeting approving
the operating results for the year.                                                               
|
| |  | b)  From the realization of the portion of the special reserve for dividends
payable in the amount of R$ 2,244 to shareholders owning shares at April 5,
2002, as follows:                                                                         

|                                                                     |                  |  |      |        | 
|-------------------------------------------------------------------- | ---------------- |  | ---- | ------ | 
|                                                                     |                  |  | 2002
|                                                                     |                  |  |     
|                                                                     | Common shares    |  |      | 849    | 
|                                                                     | Preferred shares |  |      | 1,395  | 
|                                                                    
|Dividends and interest on capital per 20,000 thousand shares (reais) |                  |  |      |       
|                                                                     | Common shares    |  |      | 0.1298 | 
|                                                                     | Preferred shares |  |      | 0.1298 | 

F - 33



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



|18. |  | Net operating revenue
|--- |  | ---------------------

|                                                                                 |  |      |           |      |  |      |           |   |  |  |           |  
|-------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                                                                 |  | 2000 |           | 2001 |  | 2002
|                                                                                 |  |      |           |      |  |     
|Usage charges                                                                    |  |      | 490,050   |      |  |      | 439,197   |   |  |  | 557,598   |  
|Monthly subscription charge                                                      |  |      | 170,305   |      |  |      | 183,669   |   |  |  | 157,963   |  
|Interconnection charges                                                          |  |      | 302,452   |      |  |      | 376,225   |   |  |  | 394,451   |  
|Cellular handset sales                                                           |  |      | 116,554   |      |  |      | 47,976    |   |  |  | 68,834    |  
|Other                                                                            |  |      | 1,377     |      |  |      | 7,486     |   |  |  | 19,630    |  
|                                                                                 |  |      |           |      |  |      |           |   |  |  |           |  
|Total gross operating revenue                                                    |  |      | 1,080,738 |      |  |      | 1,054,553 |   |  |  | 1,198,476 |  
|Value added and other indirect taxes                                             |  |      | (235,118  | )    |  |      | (228,303  | ) |  |  | (276,954  | )
|                                                                                 |  |      |           |      |  |      |           |   |  |  |           |  
|Net operating revenue from cellular
Telecommunication services and handset sales |  |      | 845,620   |      |  |      | 826,250   |   |  |  | 921,522   |  
|                                                                                 |  |      |           |      |  |      |           |   |  |  |           |  



|    |  | Tele Norte Leste Participações S.A. contributed approximately 22% of total
gross operating revenues in 2000, 27% in 2001 and 22% in 2002. No other
customer contributed more than 5% of total gross operating revenues of the
Company.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|19. |  | Cost of services and cellular handsets sold                                                                                                                                                                                           

|                                     |  |      |         |      |  |      |         |  |  |  |         | 
|------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                     |  | 2000 |         | 2001 |  | 2002
|                                     |  |      |         |      |  |     
|Depreciation                         |  |      | 108,695 |      |  |      | 127,660 |  |  |  | 142,051 | 
|Personnel                            |  |      | 8,014   |      |  |      | 9,585   |  |  |  | 9,174   | 
|Materials and services               |  |      | 111,888 |      |  |      | 134,892 |  |  |  | 147,816 | 
|Circuit leasing and related expenses |  |      | 34,066  |      |  |      | 29,952  |  |  |  | 23,176  | 
|Leases and insurance                 |  |      | 9,922   |      |  |      | 11,762  |  |  |  | 11,470  | 
|Cellular handsets                    |  |      | 107,123 |      |  |      | 47,323  |  |  |  | 54,684  | 
|Fistel tax and other                 |  |      | 994     |      |  |      | 1,115   |  |  |  | 1,012   | 
|                                     |  |      |         |      |  |      |         |  |  |  |         | 
|                                     |  |      | 380,702 |      |  |      | 362,289 |  |  |  | 389,383 | 
|                                     |  |      |         |      |  |      |         |  |  |  |         | 



|20. |  | Other operating expense, net
|--- |  | ----------------------------

|                                      |  |      |         |      |  |      |         |   |  |  |         |  
|------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                      |  | 2000 |         | 2001 |  | 2002
|                                      |  |      |         |      |  |     
|Contingencies                         |  |      | (91     | )    |  |      | (2,411  | ) |  |  | (12,657 | )
|Fines and expenses recovered          |  |      | 7,742   |      |  |      | 15,769  |   |  |  | 15,041  |  
|Goodwill amortization net (Note 1(b)) |  |      | (13,115 | )    |  |      | (25,183 | ) |  |  | (25,180 | )
|Equity in investee                    |  |      |        |      |  |      | (1,888  | ) |  |  | (4,288  | )
|Clone and subscripition               |  |      | (5,186  | )    |  |      | (3,654  | ) |  |  | (11,399 | )
|PIS / COFINS over other revenues      |  |      | (2,010  | )    |  |      | (2,626  | ) |  |  | (7,033  | )
|Employees profit sharing             |  |      | (2,117  | )    |  |      | (3,832  | ) |  |  | (3,700  | )
|Other                                 |  |      | (894    | )    |  |      | (4,677  | ) |  |  | 4,706   |  
|                                      |  |      |         |      |  |      |         |   |  |  |         |  
|                                      |  |      | (15,671 | )    |  |      | (28,502 | ) |  |  | (44,510 | )
|                                      |  |      |         |      |  |      |         |   |  |  |         |  

F - 34



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



|21. |  | Financial expenses, net
|--- |  | -----------------------

|                          |                         |  |         |         |      |  |         |         |   |  |        |         |  
|------------------------- | ----------------------- |  | ------- | ------- | ---- |  | ------- | ------- | - |  | ------ | ------- | -
|                          |                         |  | 2000    |         | 2001 |  | 2002   
|                          |                         |  |         |         |      |  |        
|Financial
income          |                        
|                          | Interest income         |  |         | 12,852  |      |  |         | 21,962  |   |  |        | 56,008  |  
|Financial
expenses        |                        
|                          | Interest expense        |  |         | (64,808 | )    |  |         | (55,999 | ) |  |        | (44,958 | )
|                          | Foreign exchange losses |  |         | (16,011 | )    |  |         | (4,131  | ) |  |        | (12,996 | )
|                          | Others                  |  |         | (14,350 | )    |  |         | (6,177  | ) |  |        | (5,170  | )
|                         
|Less capitalized interest |                         |  |        |         |      |  | 2,187   |         |   |  | 664    |        
|                          |                         |  |         |         |      |  |         |         |   |  |        |        
|Net financial expenses    |                         |  | (82,317 | )       |      |  | (42,158 | )       |   |  | (6,452 | )      
|                          |                         |  |         |         |      |  |         |         |   |  |        |        



|22. |  | Income and social contribution taxes                                                                                                                                                                                            
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Under Brazilian Tax Law, the Company and its subsidiaries are required to
file individual tax returns. Brazilian income taxes comprise federal income
tax and social contribution tax which is an additional Federal Income Tax.
|   
|    |  | The statutory rates applicable in each period were as follows (in
percentages):                                                                                                                                                 

|                             |  |      |    |      |  |      |    |   |  |  |    |  
|---------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                             |  | 2000 |    | 2001 |  | 2002
|                             |  |      |    |      |  |     
|Federal income tax           |  |      | 25 | %    |  |      | 25 | % |  |  | 25 | %
|Social contribution          |  |      | 9  | %    |  |      | 9  | % |  |  | 9  | %
|                             |  |      |    |      |  |      |    |   |  |  |    |  
|Composite Federal income tax |  |      | 34 | %    |  |      | 34 | % |  |  | 34 | %
|                             |  |      |    |      |  |      |    |   |  |  |    |  



| |  | Under the Brazilian constitution, the President of the Federative Republic
of Brazil may issue provisional measures having the force of law for 30
days or less, which is only enacted after approval by Congress. Provisional
measures are frequently re-issued by the President after the 30-day period.
On December 31, 2000, the enacted social contribution rate was 8%; however,
provisional measures set forth rates of 12% for the period from May 1, 1999
to January 31, 2000 and 9% for the period from February 1, 2000 to December
31, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The composition of the income tax expense in 2000, 2001 and 2002 is:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                               |  |      |        |      |  |      |         |   |  |  |         |  
|------------------------------ |  | ---- | ------ | ---- |  | ---- | ------- | - |  |  | ------- | -
|                               |  | 2000 |        | 2001 |  | 2002
|                               |  |      |        |      |  |     
|Income tax charge              |  |      | (8,820 | )    |  |      | (18,280 | ) |  |  | (42,341 | )
|Social contribution tax charge |  |      | (954   | )    |  |      | (6,693  | ) |  |  | (15,304 | )
|Deferred tax benefit (expense) |  |      | (141   | )    |  |      | 4,850   |   |  |  | 9,243   |  
|                               |  |      |        |      |  |      |         |   |  |  |         |  
|Total tax charge               |  |      | (9,915 | )    |  |      | (20,123 | ) |  |  | (48,402 | )
|                               |  |      |        |      |  |      |         |   |  |  |         |  



| |  | The amount reported as income tax expense in the accompanying consolidated
statements at income is reconciled to the statutory rate as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------

F - 35



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)

|                                                                         |                                                                                           |  |         |        |      |  |         |        |  |  |         |        | 
|------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------- |  | ------- | ------ | ---- |  | ------- | ------ |  |  | ------- | ------ | 
|                                                                         |                                                                                           |  | 2000    |        | 2001 |  | 2002   
|                                                                         |                                                                                           |  |         |        |      |  |        
|Income before taxes as reported in the accompanying
Financial
statements |                                                                                           |  | 47,629  |        |      |  | 107,164 |        |  |  | 205,523 |       
|                                                                         |                                                                                           |  |         |        |      |  |         |        |  |  |         |       
|Effect of rate change on deferred social contribution tax                |                                                                                           |  | (156    | )      |      |  |        |        |  |  |        |       
|Tax charge at the combined statutory rate (at the end
of the
year)       |                                                                                           |  | (16,194 | )      |      |  | (36,436 | )      |  |  | (69,878 | )     
|Permanent additions (exclusions):                                        |                                                                                           |  |         |        |      |  |         |        |  |  |         |       
|                                                                         | Dividends characterized as distribution of interest                                       |  |         | 3,616  |      |  |         | 3,700  |  |  |         | 2,037  | 
|                                                                         | Non taxable reversal of the provision for
Maintenance of shareholders equity (Note 1(b)) |  |         | 8,656  |      |  |         | 16,618 |  |  |         | 16,618 | 
|                                                                         | Write-off of miscellaneous assets                                                         |  |         | (3,076 | )    |  |         |       |  |  |         |       | 
|Other                                                                    |                                                                                           |  | (2,761  | )      |      |  | (4,005  | )      |  |  | 2,821   |       
|                                                                         |                                                                                           |  |         |        |      |  |         |        |  |  |         |       
|Income tax charge as reported                                            |                                                                                           |  | (9,915  | )      |      |  | (20,123 | )      |  |  | (48,402 | )     
|                                                                         |                                                                                           |  |         |        |      |  |         |        |  |  |         |       
|Effective
rate                                                           |                                                                                           |  | 20.8    | %      |      |  | 18.8    | %      |  |  | 23.6    | %     



| |  | At December 31, 2000, 2001 and 2002, the Company characterized part of its
dividends proposed for payment as interest on shareholders funds. As a
result, under Brazilian tax law, it was entitled to treat this part of the
dividend as a deduction for income tax purposes.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The composition of the deferred tax asset is as follows:                                                                                                                                                                                                                      

|                                            |  |      |         |      |  |  |         | 
|------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                            |  | 2001 |         | 2002
|                                            |  |      |         |     
|Unamortized balance of goodwill (Note 1(b)) |  |      | 165,772 |      |  |  | 140,592 | 
|Allowance for doubtful accounts             |  |      | 5,233   |      |  |  | 9,851   | 
|Tax loss carryforwards                      |  |      | 11,038  |      |  |  | 7,620   | 
|Non deductible provisions                   |  |      | 6,315   |      |  |  | 14,357  | 
|                                            |  |      |         |      |  |  |         | 
|                                            |  |      | 188,358 |      |  |  | 172,420 | 
|                                            |  |      |         |      |  |  |         | 
|Current Portion                             |  |      | 41,943  |      |  |  | 51,244  | 
|Noncurrent                                  |  |      | 146,415 |      |  |  | 121,176 | 



| |  | According to the projections prepared by the Companys management, the
long-term deferred income and social contribution taxes existing at
December 31, 2002 will be realized over the following years:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |              |         | 
|---- |  | ------------ | ------- | 
|     |  | Consolidated
|     |  |             
|2004 |  |              | 28,244  | 
|2005 |  |              | 27,880  | 
|2006 |  |              | 25,180  | 
|2007 |  |              | 25,180  | 
|2008 |  |              | 14,692  | 
|     |  |              |         | 
|     |  |              | 121,176 | 
|     |  |              |         | 

F - 36



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



|    |  | Brazilian tax law allows tax losses to be carried forward indefinitely to
be utilized to offset future taxable income. Tax legislation enacted in
1995 limits the utilization of tax loss carryforwards in a given year to
30% of taxable income. At December 31, 2002, the Company and its
subsidiaries had tax loss carryforwards of approximately R$22,500.                                                                                                                                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|23. |  | Transactions with related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The main transactions between the Company and subsidiaries, which have been
eliminated in these consolidated financial statements, are represented by
network use services and loans, and were carried out under agreed upon
terms.                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Company has also entered into two contracts with its controlling
shareholder Telecom Italia Mobile S.p.A., a Management Assistance
Agreement and a Technical Assistance Services Agreement. The Management
Assistance Agreement encompasses marketing services and business
development advice. This contract was approved by the General Shareholders
Meeting that took place in November/2000 and basically establishes
quarterly remuneration as of 1% of net consolidated operating revenues and
expires in September/2003.
|   
|    |  | The Technical Assistance Services Agreement covers the services provided
by the parent Companys employees to the Company. This contract was
approved by the Brazilian Central Bank for the first time in June/1999 and
basically establishes quarterly remuneration according to specific hourly
rates and expired in September/2001.                                                                                                                                                                                                  
|   
|    |  | A summary of the transactions with this related party is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                                     |  |      |        |      |  |  |       |  | 
|---------------------------------------------------- |  | ---- | ------ | ---- |  |  | ----- |  | 
|                                                     |  | 2001 |        | 2002 | 
|                                                     |  |      |        |      | 
|Cost, selling and general and administrative expense |  |      | 13,195 |      |  |  | 9,416 |  | 
|Accounts payable and accrued
expenses                |  |      | 2,055  |      |  |  | 2,507 |  | 



|    |  | The Company enters into various financial transactions with Latin Invest
Holdings, a minority shareholder. All such transactions are madeunder
agreed upon terms. Quotations are obtained from other financial
institutions on equal conditions. Investments with Latin Invest Holdings
were R$27,432 in 2001 and R$31,127 in 2002. In 2003, these investments were
transferred out of Latin Invest Holdings.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Beginning in October 2001, the Company started to offer to some of its
customers internet services through its investee TIMNET.com. As of December
31, 2002, the Company holds 20.0% of TIMNET.com.                                                                                                                                                                                                          
|   
|24. |  | Insurance                                                                                                                                                                                                                                                                                                                                                                                                    

F - 37



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of
Brazilian reais unless otherwise indicated)



|    |  | At December 31, 2002, in the opinion of management, all significant and
high risk assets and obligations were insured.                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|25. |  | Financial instruments                                                                                                                                                                                                                                                                                                   
|   
|    |  | The Company carries out operations involving financial instruments with the
aim of reducing risks relating to market, foreign exchange and interest
rates. Such risks are controlled through specific policies, the
establishment of operating strategies and limits, and other techniques for
monitoring the positions.
|   
|    |  | The estimated market value of the financial instruments, primarily cash and
cash equivalents, trade accounts receivable, and short-term financing
instruments, approximates their book values because of the short maturity
of those instruments.                                                                       
|   
|    |  | On December 31, 2001 and 2002, the Company and its subsidiaries invested
their financial resources mainly in investments backed by Certificados de
Depósito Interbancário (CDIs - Interbank Deposit Certificates). There are
no financial assets indexed to foreign currencies.                                         
|   
|    |  | The Company and its subsidiaries appropriated to income the full net effect
(substantially foreign exchange losses) of the significant real devaluation
in 2001, and did not defer the effect as permitted by CVM Instruction
404/01.                                                                                   
|   
|    |  | The estimated fair value of long-term loans and financings are based on
interest rates as of December 31, 2001 and 2002 for transactions with
similar characteristics, as below.                                                                                                                                        

| |                      |                     |       |          |         |      |       |          |         |      |  |  |         |  |  |  |         |  | 
| | -------------------- | ------------------- | ----- | -------- | ------- | ---- | ----- | -------- | ------- | ---- |  |  | ------- |  |  |  | ------- |  | 
| |                      |                     |       | 2001     |         | 2002
| |                      |                     |       |          |         |      |      
| |                      |                     |       | Carrying |         | Fair |       | Carrying |         | Fair | 
| | Description          |                     | Value |          | Value   |      | Value |          | Value   |     
| |                      |                     |       |          |         |      |       |          |         |     
| | Loans and financing: |                     |       |          |         |      |       |          |         |      |  |  |         |  |  |  |         | 
| |                      | In foreign
currency |       |          | 139,722 |      |       |          | 133,614 |      |  |  | 123,735 |  |  |  | 146,762 |  | 



| |  | Loans and financing                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair values of loans and financing, presented above were determined by
means of future cash flows, and by using interest rates applicable to
instruments of a similar nature involving similar terms and risks or based
on market quotations for these securities.
|
| |  | Limitations                                                                                                                                                                                                                                                           
|
| |  | The fair values were estimated at a specific time, based on relevant market
information. Changes in assumptions could significantly affect the
estimates presented.                                                                                                   
|
| |  | Risk Factors                                                                                                                                                                                                                                                          
|
| |  | The risk factors affecting the Companys financial instruments are
the following:                                                                                                                                                                                     

F - 38



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | (i)     Exchange rate and interest rate risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Exchange rate and interest rate risks relate to the possibility of the
Company computing losses derived from foreign exchange rate and interest
rate fluctuations, increasing the debt balances of loans obtained in the
market and the corresponding financial expenses. In order to reduce
these type of risks, the Company enters into hedge contracts with
financial institutions.                                                                                                                                                                                                                                                                                  
|
| |  | At December 31, 2002, part of the Companys loans and financing were
denominated in U.S. dollars and 100% of such loans and financing were
covered by hedge contracts. The gains or losses resulting from these
hedge contracts are recorded in the statement of income. The Company is
also party to agreements that effectively allow the Company to pay interest
at fixed rate on some of its variable rate debt.                                                                                                                                                                                                                                                    
|
| |  | (ii)     Operating credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The risk relates to the possibility of the Company computing losses
derived from difficulties in collecting the amounts billed to
customers, represented by cellular equipment dealers and distributors of
prepaid telephone cards. In order to reduce this type of risk, the Company
performs credit analyses supporting the risk management over collection
problems and monitors the accounts receivable from subscribers,
blocking the calling capacity in case customers fail to pay their debts.
With respect to distributors, the Company maintains individual credit
limits based on the analysis of sales potential, risk history and
collection problem risks.
|
| |  | Credit risk linked to rendering of services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Concentration of credit risk with respect to accounts receivable is
limited to Tele Norte Leste Participações S.A., which contributed
with approximately 69% and 58% of amounts receivable under
interconnection agreements in 2001 and 2002, respectively and 22%, 27%
and 22% in 2000, 2001 and 2002 of total gross operating revenue,
respectively. Usually the Company does not require collateral for its trade
receivables.                                                                                                                                                                                                                                       
|
| |  | Credit risk linked to the sale of equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The Companys policy for selling equipment and distributing prepaid
telephone cards is closely related to the credit risk levels accepted
during the normal course of business. The selection of partners, the
diversification of receivables portfolio, the monitoring of loan
terms, position and request limits established for dealers,
constitution of actual guarantees are procedures adopted by the
Company in order to minimize possible collection problems with its
trading partners                                                                                                                                                                         
|
| |  | (iii)     Financial credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The risk relates to the possibility of the Company computing losses
derived from difficulties in the realization of short-term investments and
hedge contracts. The Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F - 39



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|    |  | and subsidiaries minimize the risks associated with these financial
instruments by investing with reputable financial institutions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | There is no concentration on available sources of labor, services,
concessions or rights other than those mentioned above that could, if
suddenly eliminated, severely impact the Companies operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|26. |  | Summary of the differences between Brazilian Corporate Law and US GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The Companys accounting policies comply with accounting principles
established under Brazilian Corporate Law. In July 1997, the three-year
cumulative inflation rate for Brazil fell below 100%. Thus, at that time,
Brazil was not considered to be a highly inflationary economy for United
States reporting purposes. For generally accepted accounting principles in
the United States (US GAAP) purposes only, the constant currency method
(Brazilian GAAP) continued to be applied through December 31, 1997.
Brazilian Corporate Law did not require the use of monetary correction for
accounting periods after December 31, 1995, which gives rise to a different
basis for fixed assets.                                                                                                                                                                        
|   
|    |  | Accounting policies which differ significantly from US GAAP are described
below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|a.  |  | Different criteria for capitalizing and amortizing capitalized interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | Under Brazilian Corporate Law, until December 31, 1993 capitalized interest
was not added to the individual assets in property, plant and equipment;
instead it was capitalized separately and amortized over a time period
different from the useful lives of the related assets. Under US GAAP,
capitalized interest is added to the individual assets if appropriate and
is amortized over their useful lives. Also, under Brazilian Corporate Law
as applied to telecommunications companies, through December 31, 1997
interest attributable to construction-in-progress was computed at the rate
of 12% per annum of the balance of construction-in-progress, and that part
which related to interest on third party loans was credited to interest
expense based on actual interest costs, with the balance relating to own
capital being credited to capital reserves.
|   
|    |  | Under US GAAP, in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 34 Capitalization of Interest Costs,
interest incurred on borrowings is capitalized to the extent that
borrowings do not exceed construction-in-progress. The credit is a
reduction of interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 40



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | The effects of these different criteria for capitalizing and amortizing
capitalized interest are presented below:
| |  | -----------------------------------------------------------------------------------------------------------------

|                                                   |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |        |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                   |                                                                                                                                                                         |  | 2000 |        | 2001 |  | 2002
|                                                   |                                                                                                                                                                         |  |      |        |      |  |     
|                                                   | Capitalized interest difference:                                                                                                                                        |  |      |        |      |  |      |        |   |  |  |        |  
|US GAAP capitalized interest:                      |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |       
|                                                   | Interest which would have been capitalized and credited
to income (interest incurred on loans, computed up to the
amount of construction in progress), net of disposals |  |      | 20,492 |      |  |      | 4,400  |   |  |  | 1,442  |  
|Less Brazilian Corporate Law capitalized interest: |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |       
|                                                   | Interest capitalized and credited to income (up to the limit
of interest incurred on loans obtained for financing capital
investments)                                  |  |      |       |      |  |      | (2,187 | ) |  |  | (852   | )
|                                                   |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |        |  
|                                                   | US GAAP difference                                                                                                                                                      |  |      | 20,492 |      |  |      | 2,213  |   |  |  | 590    |  
|                                                   |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |        |  
|Amortization of capitalized interest difference    |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |       
|                                                   | Amortization under Brazilian Corporate Law                                                                                                                              |  |      | 3,353  |      |  |      | 3,404  |   |  |  | 3,863  |  
|                                                   | Less amortization under US GAAP net of disposals                                                                                                                        |  |      | (5,797 | )    |  |      | (7,587 | ) |  |  | (8,354 | )
|                                                   |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |        |  
|                                                   | US GAAP difference                                                                                                                                                      |  |      | (2,444 | )    |  |      | (4,183 | ) |  |  | (4,491 | )
|                                                   |                                                                                                                                                                         |  |      |        |      |  |      |        |   |  |  |        |  



|b. |  | Pension and other post-retirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The provisions of SFAS No. 87, Employers Accounting for Pensions, for
the purpose of calculating the funded status, were applied with effect from
January 1, 1992, because it was not feasible to apply them from the
effective date in the standard.                                                                                                                                                                                                                                                             
|  
|   |  | With the implementation of Regulatory Instruction CVM 371 in 2001, benefit
obligations and funded status are now calculated using the same actuarial
assumptions under Brazilian and US GAAP. The funded status of the pension
and post-retirement plans however continues to differ for Brazilian
purposes GAAP due the surplus of plan assets on implementation of the
Regulatory Instruction CVM being amortized over a different period compared
to US GAAP. See details at the US GAAP adjustment in Note 27(c).
|  
|   |  | On November 13, 2002, the Company adopted a defined contribution plan,
TIMPREV NORDESTE. See details in Note 27 (c).                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|c. |  | Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | Brazilian Corporate Law requires interest and foreign exchanges losses
(gains) to be shown as part of operating income. Under US GAAP interest
expense would be shown after                                                                                                                                                                                                                                                                                                                                          

F - 41



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | operating income, and accrued interest would be excluded from loans and
financing and included in accounts payable and accrued expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|d. |  | Permanent assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Brazilian Corporate Law 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 Law accounts of Brazilian companies until
December 31, 1995. Under US GAAP the assets in this classification would be
noncurrent assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|e. |  | Price-level adjustments and US GAAP presentation in respect of accounting
periods through December 31, 1997                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Until December 31, 1995, publicly traded companies in Brazil were required
to prepare their financial statements according to two sets of accounting
principles: (a) the Brazilian Corporate Law, which was and remains in full
force and is valid for all legal purposes, including the basis for
calculating the income tax and mandatory minimum dividends; and (b)
generally accepted accounting principles in Brazil (Brazilian GAAP), which
require the application of the constant currency method of accounting to
reflect the effect of inflation in the preparation of supplementary
financial statements, in accordance to the standards recommended by the
Comissão de Valores Mobiliários (CVM), the Brazilian securities commission.
The accounting principles under the Brazilian Corporate Law and the
Brazilian GAAP differ mainly in the method of recognizing the effect of
inflation in the financial statements.                                                                                                                                                                         
|  
|   |  | Brazilian Corporate Law                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Under the Brazilian Corporate Law, until December 31, 1995 a simplified
method was used to recognize the effects of inflation, which consisted in
indexing permanent assets (investments, property, plant and equipment and
deferred charges) and shareholders equity accounts using indices set forth
by the Federal Government, based on the variation of the Unidade Fiscal de
Referência (UFIR). The net effect of the indexation was stated in the
statement of income under a single account. The Brazilian corporate law,
however, does not recognize the effect of inflation in certain balance
sheet accounts, such as inventories and customer advances; this method also
does not require the indexation of information from the preceding years
when presenting comparative financial information. In the highly
inflationary environment prevailing in Brazil until July 1, 1994, the
financial statements prepared according to accounting principles set forth
in the Brazilian Corporate Law did not allow a consistent comparison of
financial information concerning two different periods.
|  
|   |  | Under the Brazilian Corporate Law and the CVM rules, the application of the
method to account for the effects of inflation described above was
prohibited, beginning January 1, 1996 and, therefore, the financial
statements prepared according to the Brazilian Corporate Law do not include
the recognition of the effects of inflation since then.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Constant currency method (Brazilian GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F - 42



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | Under the constant currency method required by the Brazilian GAAP, all
amounts stated in Reais are stated in constant purchasing power currency on
the date of the latest balance sheet presented, pursuant to the CVM rules
for publicly traded companies. Brazilian GAAP requires application of the
constant currency method also after January 1, 1996.                                                                                                                                                                                                                                                                      
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The constant currency method requires the recognition of the following
effects of inflation in the financial statements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | - Adjustment of the opening balances, non-monetary assets additions and
depreciation by applying a general inflation index, recognizing the gain by
means of a credit to the income.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | - Adjustment of the shareholders equity opening balances and movements for
the period by applying a general inflation index, recognizing the loss by
means of a debit to income.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | -Allocation of inflationary gains and losses of other non-monetary items to
the corresponding income and expenses. Gains and losses for which the
corresponding income and expenses were not identified are allocated to a
specific account under Other net operating income (expenses), net.                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | US GAAP adjustment presented in the reconciliations of the differences
between Brazilian Corporat Law and US GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The effects of price-level adjustments from January 1, 1996 through
December 31, 1997 has been presented in the reconciliation to US GAAP
because the application of inflation restatement as measured by the UFIR
and the IGP-M represents a comprehensive measure of the effects of price
level changes in Brazilian economy and, as such, is considered a more
meaningful presentation than historical cost-based financial reporting for
both Brazilian and US accounting purposes                                                                                                                                           
|  
|f. |  | Items posted directly to shareholders equity accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Under Brazilian Corporate Law various items are posted directly to
shareholders equity accounts that under US GAAP would be posted to the
income statement. Examples include tax incentive investment credits
received. The posting of such items to shareholders equity gives rise to
adjustments in the consolidated statements of changes in shareholders
equity. Since the original postings by the subsidiaries to their equity
accounts would, under US GAAP, be made directly to the income statement,
these consolidation adjustments must be included in the reconciliation of
net income in accordance with US GAAP.
|  
|g. |  | Income and social contribution taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | For 2001 and 2002 the Company has fully accrued for deferred income taxes
on temporary differences between tax and accounting records. The policy
for providing for deferred taxes is in accordance with SFAS 109,
Accounting for Income Taxes. Under SFAS 109, the provisional measures
discussed in Note 22 are not considered to be a enacted law. Therefore, the
social contribution deferred tax asset effect calculated on the timing
differences would be computed at a rate of 8%, not 9% for fiscal 2001. The
effects of the adoption of this procedure would not be significant at any
period presented.             

F - 43



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | The net goodwill amortization of R$13,155 in 2000, R$25,180 in 2001 and
R$25,180 in 2002, which originated from the corporate reorganization
mentioned in Note 1(b), has been recorded in other net operating expense in
the consolidated statement of income for the years ended December 31, 2001,
2001 and 2002, according to Brazilian Corporate Law. For US GAAP purposes,
this amount would be presented as a deferred income tax charge in the
accompanying consolidated statement of income, because it represents the
realization of the deferred tax asset. Accordingly, for US GAAP purposes
the operating income before interest, the operating income and the
income before tax amounts in the consolidated statement of income would
be increased by R$13,155 in 2000, R$25,180 in 2001 and R$25,180 in 2002 and
the income and social contribution taxes amount would be increased by the
same amounts. However, there is no effect on US GAAP net income from these
adjustments.                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|h. |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Earnings per share under Brazilian Corporate Law is calculated on the
number of shares outstanding at the balance sheet date. Under US GAAP
earnings per share is calculated on a weighted average basis as
demonstrated in Note 27.f.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|i. |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 44



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|j. |  | Stock Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Offer made by the Company in 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | At May 4 2001, the Company shareholders approved an employee stock option
plan, with the following objectives:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | i) to retain the services and advice of key employees, upon whose judgment,
initiative and efforts the Company depends;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | ii) to make available to key employees certain compensatory arrangements
based on market value increase; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | iii) to align generally the interests of key employees and the interests of
shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Board of Executive Officers may authorize future capital increases,
within the limit of the authorized capital, with the issuance of preferred
shares for the benefit of the directors and key officers. The amount of
shares that may be issued under the stock option plan is limited to 1.5% of
the Companys capital stock on May 4, 2001.                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The option exercise price per 1,000 Preferred Shares was set at R$3.21, the
closing price of 1,000 Preferred Shares at the São Paulo Stock Exchange
(Bovespa), on May 4, 2001. At December 31, 2002, there were 2,823
thousand additional shares available under the Plan.                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | The options may not be exercised before one year from the date they are
granted. The exercise of the option may occur in the end of the fourth year
after the granted date, but can be accelerated depending upon the
achievement of certain results, which are based on certain EBIT (earnings
before interest and taxes). The expected EBIT was achieved during the years
ended December 31, 2002 and December 31, 2001.                                                                                                                                                                                                                                                                              
|  
|   |  | The Company applies APB Opinion No. 25 in accounting for this variable
Plan. No compensation cost has been recognized for its stock options in the
financial statements in 2001 and 2002. In 2002, the year end market price
was below the exercise price. In 2001, the year end market price was
slightly above the exercise price, resulting in an amount of compensation
cost that was not material.                                                                                                                                                                                                                                                                                                 
|  
|   |  | Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the per share
weighted-average fair value of stock options granted would have been $1.91 on the date of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: expected dividends of R$20,655 thousand in 2002, R$20,029
thousand in 2003, R$26,112 thousand in 2004 and R$36,452 thousand in 2005,
a risk-free interest rate of 19.0%, expected life of 5 years, and expected
volatility of 38%. The Companys net income also would have been reduced
to the pro forma amounts indicated below for the respective years:

F - 45



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)

2001
    
    2002Net incomeNet income as reported
    
    $
    61,365
    
    
    $
    102,466Deduct: Total stock-based employee compensation
expense determined under fair value based net of
related tax effects
    
    $
    (716
    )
    
    $
    (1,075
    )Pro forma net income
    
    $
    60,649
    
    
    $
    101,391Earnings per shareBasic and diluted earnings (losses), in Reais
per thousand preferred and common shares as reported
    
    $
    3.65
    
    
    $
    5.99Proforma Basic and diluted earnings (losses), in Reais
per thousand preferred and common shares as reported
    
    $
    3.61
    
    
    $
    5.93




| |  | Stock option activity during the periods indicated is as follows:
| |  | -----------------------------------------------------------------

Number of shares
    
    Weighted-average(thousands)
    
    exercise priceBalance at December 31, 2000
    
    
    
    
    
    
    
    Granted
    
    
    2,823
    
    
    
    
    3.21Exercised
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    Balance at December 31, 2001
    
    
    2,823
    
    
    
    
    3.21GrantedExercised
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    2,823
    
    
    
    
    3.21




|k. |  | Proposed dividends and interest on capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Although under Brazilian Corporate Law proposed dividends require approval
at a shareholders meeting, under Brazilian Corporate Law 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
2000, 2001 or 2002.

F - 46



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|l. |  | Accounting for derivative instruments and hedging activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As of January 1, 2001, the Company adopted Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments and for
Hedging Activities (SFAS 133), which was issued in June, 1998 and its
amendments Statements 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 and 138, Accounting for Derivative Instruments and Certain Hedging
Activities issued in June 1999 and June 2000, respectively (collectively
referred to as Statement 133). Under Brazilian Corporate Law, the Company
has been recording its hedging activities in the balance sheet as either an
asset or liability measured at the spot rates at December 31, 2002 plus the
coupon rate as stated in the agreements and adjustments to contract value
were recorded through income.
|  
|   |  | As a result of adoption of Statement 133, the Company recognizes its
foreign currency and interest rate swap agreements at fair value and
adjustments to fair value are recorded through income as presented on the
net income and shareholders equity reconciliation. The Company accounted
for the accounting change as a cumulative effect of a change in an
accounting principle. The adoption of Statement 133 as of January 1, 2001,
resulted in an effect of accounting change of R$ 1,199, net of applicable
tax expense of R$ 541.                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Swaps                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | At December 31, 2001 and 2002 the Company had entered into swaps whereby
the Company earns the exchange variation between the United States dollar
and the Brazilian Real plus 10.00% to 13.05% and pays interest based on a
short term interbank rate. At December 31, 2001 and 2002 these agreements
have total notional amounts of R$ 184,995 and R$ 220,134, and expire on
various dates through 2005. The fair values adjustments of the Companys
foreign currency and interest rate swap contracts were estimated based on
quoted market prices of comparable contracts, and at December 31, 2001 and
2002 were approximately R$ 6,108 and R$ (29,135), before tax.                                                                                                                                                                                            
|  
|m. |  | Enterprises in the pre-operating stage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Under Brazilian Corporate Law all costs of an enterprise in the
pre-operating stage besides costs normally capitalized as fixed assets are
capitalized as pre-operating expenses and amortized over a period on the
start-up date and extending over a minimum of 5 and a maximum of 10 years.
US GAAP requires that companies in the development stage follow generally
accepted accounting principles applicable to established operating
enterprises. When the affiliate TIMNET.com S.A. was in a pre-operating
stage its pre-operating costs were capitalized as non-current assets under
Brazilian Corporate Law. For US GAAP purposes these costs have been charged
to income of the year in 2000 and 2001.                                                                                                                                                     
|  
|   |  | In the financial statements prepared under Brazilian Corporate Law, the
proportional consolidation criterion was adopted for the consolidation of
the investment in TIMnet.com S.A as of December 31, 2000. Under US GAAP
this investment would be valued by the equity method as of December 31,
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F - 47



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##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



| |  | Although the different accounting criteria generates differences in the
presentation of individual captions of the income statement and statement
of changes in financial condition, it does not affect the amounts of net
equity or net income. The summarized changes in financial position
information, corresponding to our 50% interest in TIMnet.com S.A. that was
consolidated in the financial statements prepared in accordance with
Brazilian Corporate Law, is presented below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in financial position:2000Sources
of working capitalFrom
shareholdersCapital increase
    
    
    4,5004,500Applications
of working capital2000Noncurrent
assets
    
    
    1,738Property, plant and equipment
    
    
    1,748Total
applications
    
    
    3,4862000Increase in net working capital
    
    
    1,014Changes in working capitalBeginning of year
    
    
    End of
year
    
    
    1,014Increase in net working capital
    
    
    1,014




|   |  | In the 2000 consolidated financial statements prepared under Brazilian
Corporate Law we have not recognized any amount corresponding to net income
generated by our investment in TIMNET.com S.A. since net income of the
joint-venture amounted to zero in accordance with Brazilian corporate law
due to the pre-operating stage of its activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|n. |  | Incorporation of tax benefit of goodwill by Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | According to the Brazilian Corporate Law accounting principles, companies
may assign the tax benefit of the goodwill to their subsidiaries in order
to receive the tax benefit generated by the amortization of such goodwill.
The tax benefit is shown as deferred and recoverable taxes with a contra
account in a special reserve within Shareholders equity. The deferred tax
is amortized and recognized as an expense in the statement of income for
the amount of the tax benefit. The tax benefit of the deduction of the
amortization from the tax basis for income tax and social contribution
generates a reduction of income tax and social contribution payable.
Therefore, the amount recognized as an expense resulting from tax
deductible amortization of goodwill is equal to the reduction in tax on
taxable income.

F - 48



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|   |  | Such accounting generates a reduction in taxes payable, but has no effect
on the determination of net income for the period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Once the benefit is realized, shares will be issued to the controlling
shareholder for the amount of the realized benefit; minority shareholders
will be entitled to buy shares in proportion to their interests by paying
them directly to the controlling shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Under USGAAP, goodwill generated internally is not recognized; however, the
future tax benefit generated by the amortization of goodwill is recognized
as a contribution from the controlling shareholder within additional
paid-in capital, similarly to the accounting principles under the Brazilian
Corporate Law. The realization of the tax benefit by the amortization of
the goodwill is recognized as a decrease in the value of the deferred tax
with a consequent decrease in the tax payable, and does not affect the
determination of income for the period, similar to the accounting
principles under the Brazilian Corporate Law. Accordingly, under US GAAP
the deduction in the tax provision does not gross up the expenses, since
under US GAAP the amortization of Goodwill is not recorded in the
statements of operations. The additional capital paid is transferred to
Capital upon the issuance of the shares.
|  
|o. |  | Financial revenues (expenses)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Accounting principles under the Brazilian Corporate Law require such
amounts to be stated as part of operating profit. Under US GAAP, financial
revenue and expenses is presented after operating profit in the statement
of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|p. |  | Goodwill amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Accounting principles under the Brazilian Corporate Law require that the
amortization of the deferred tax benefit related the goodwill amortization
be stated as an appropriation of income for the year as other operating
expenses. Under US GAAP, such amortization is shown as a reduction of the
provision for income tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 49



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - (Continued)

(Amounts expressed in thousands of Brazilian reaisunless otherwise indicated)



|q. |  | Retained earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Under Brazilian Corporate Law, a company formed as a result of a cisãomay
have retained earnings in its balance sheet if the parent company
shareholders resolution adopting the cisãoallocates retained earnings
from the parent company. Under US GAAP, retained earnings allocated in
the cisãois not considered to be historical retained earnings as such
amount represents capital allocated from the parent company and would be
described as distributable capital

F - 50



---



##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.Reconciliations of the differences between net income (for the years ended
December 31, 2000, 2001 and 2002)
in Brazilian Corporate Law and US GAAP

(In thousands of Brazilianreais- R$)

|                                                                                       |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |         |        |  
|-------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------ |  | ---- | --- | ---- | ----------- | ------- | ------ | ---- | ----------- | ------ | ------ | - | ----------- | ------- | ------ | -
|                                                                                       |                                                  |                                      |  | Note |     | 2000 |             | 2001    |        | 2002
|                                                                                       |                                                  |                                      |  |      |     |      |             |         |        |     
|Net income as reported                                                                 |                                                  |                                      |  |      |     |      | 26,654      |         |        |      | 65,530      |        |        |   | 118,574     |        
|                                                                                      
|Add/(deduct):                                                                          |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |        
|                                                                                       | Indexation of property, plant and equipment, net |                                      |  | 26   | (e) |      |             | (11,350 | )      |      |             | (6,965 | )      |   |             | (2,797  | )     
|                                                                                       | Different criteria for:                          |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |         |       
|                                                                                       |                                                  | Capitalized interest                 |  |      | 26  | (a)  |             |         | 20,492 |      |             |        | 2,213  |   |             |         | 590    |  
|                                                                                       |                                                  | Amortization of capitalized interest |  |      | 26  | (a)  |             |         | (2,444 | )    |             |        | (4,183 | ) |             |         | (4,491 | )
|                                                                                       | Provision for loss on pension plan               |                                      |  | 26   | (b) |      |             | (687    | )      |      |             | 1,600  |        |   |             | 1,260   |       
|                                                                                       | Hedging and derivative financial instruments     |                                      |  | 26   | (l) |      |             |        |        |      |             | 6,108  |        |   |             | (29,135 | )     
|                                                                                       | Pre-operational expenses (TIMNET.com)            |                                      |  | 26   | (m) |      |             | (1,738  | )      |      |             | (5,268 | )      |   |             | 2,802   |       
|                                                                                       | Item posted directly to shareholders equity:    |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |         |       
|                                                                                       |                                                  | Tax incentive credits                |  |      | 26  | (f)  |             |         | 1,490  |      |             |        |       |   |             |         |       |  
|                                                                                       | Deferred tax effect of the above adjustments     |                                      |  |      |     |      |             | (1,410  | )      |      |             | 2,143  |        |   |             | 10,802  |       
|                                                                                       | Minority interest in above adjustments           |                                      |  |      |     |      |             | (947    | )      |      |             | 187    |        |   |             | 4,861   |       
|                                                                                       |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |        
|Net income under US GAAP                                                               |                                                  |                                      |  |      |     |      | 30,060      |         |        |      | 61,365      |        |        |   | 102,466     |        
|                                                                                       |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |        
|                                                                                      
|Basic and diluted earnings (losses), in Reais per thousand preferred
and common shares |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |        
|Before cumulative effect of accounting change                                          |                                                  |                                      |  |      |     |      | 1.80        |         |        |      | 3.46        |        |        |   | 5.99        |        
|Cumulative effect of accounting change                                                 |                                                  |                                      |  |      |     |      |            |         |        |      | 0.19        |        |        |   |            |        
|Net income                                                                             |                                                  |                                      |  |      |     |      | 1.80        |         |        |      | 3.65        |        |        |   | 5.99        |        
|                                                                                      
|Weighted average number of shares outstanding                                          |                                                  |                                      |  |      |     |      |             |         |        |      |             |        |        |   |             |        
|Preferred shares                                                                       |                                                  |                                      |  |      |     |      | 124,369,031 |         |        |      | 126,150,769 |        |        |   | 129,390,418 |        
|Common shares                                                                          |                                                  |                                      |  |      |     |      | 210,029,997 |         |        |      | 210,029,997 |        |        |   | 212,745,880 |        

F - 51



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##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

Reconciliations of the differences in shareholders equity
(as of December 31, 2001 and 2002) in Brazilian Corporate Law and US GAAP

(In thousands of Brazilianreais- R$)

|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |           |         |  
|----------------------------------------- | ------------------------------------------------ | ------------------------------------ |  | ---- | --- | ---- | --------- | --------- | ------ | - | --------- | --------- | ------- | -
|                                          |                                                  |                                      |  | Note |     | 2001 |           | 2002     
|                                          |                                                  |                                      |  |      |     |      |           |          
|Total shareholders equity as reported    |                                                  |                                      |  |      |     |      | 621,976   |           |        |   | 710,145   |          
|Add/(deduct):                             |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|                                          | Indexation of property, plant and equipment, net |                                      |  | 26   | (e) |      |           | 13,689    |        |   |           | 10,892    |        
|                                          | Different criteria for:                          |                                      |  |      |     |      |           |           |        |   |           |           |        
|                                          |                                                  | Capitalized interest                 |  |      | 26  | (a)  |           |           | 30,211 |   |           |           | 30,801  |  
|                                          |                                                  | Amortization of capitalized interest |  |      | 26  | (a)  |           |           | (6,003 | ) |           |           | (10,494 | )
|                                          | Provision for loss on pension plan               |                                      |  | 26   | (b) |      |           | (17,511   | )      |   |           | (16,251   | )      
|                                          | Hedging and derivative financial instruments     |                                      |  | 26   | (l) |      |           | 6,108     |        |   |           | (23,027   | )      
|                                          | Pre-operational expenses (TIMNET.com)            |                                      |  | 26   | (m) |      |           | (7,006    | )      |   |           | (4,204    | )      
|Deferred tax effects of above adjustments |                                                  |                                      |  |      |     |      | (6,431    | )         |        |   | 4,371     |          
|Minority interest in above adjustments    |                                                  |                                      |  |      |     |      | (4,688    | )         |        |   | 173       |          
|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|US GAAP shareholders equity              |                                                  |                                      |  |      |     |      | 630,345   |           |        |   | 702,406   |          
|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|Supplementary information:                |                                                  |                                      |  |      |     |      | 1,299,982 |           |        |   | 1,428,348 |          
|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|Total assets under US GAAP                |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|                                         
|                                          | Property, plant and equipment                    |                                      |  |      |     |      |           | 1,234,904 |        |   |           | 1,305,674 |        
|                                          | Accumulated depreciation                         |                                      |  |      |     |      |           | (509,260  | )      |   |           | (693,565  | )      
|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |          
|                                          | Net property, plant and equipment                |                                      |  |      |     |      |           | 725,644   |        |   |           | 612,109   |        
|                                          |                                                  |                                      |  |      |     |      |           |           |        |   |           |          

F - 52



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##### 



TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002)
IN ACCORDANCE WITH US GAAP

(In thousands of Brazilian reais -R$)

|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  |  |         |  
|-------------------------------------------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | --------- |  | -------- | ------ | --------- |  | -------- | ------ | ----- |  | ---------- | ------- | - |  |  | ------ | - |  |  | ------- | - |  |  | ------- | -
|                                                                     |  |         |         |         |  |         |         |           |  | Capital  |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  | 
|                                                                     |  |         |         |         |  |         |         |           |  | reserves |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  | 
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  | 
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  | Unrealized |         |   |  |  |        |   |  |  |         |   |  | 
|                                                                     |  | Share   |         | Share   |  | Legal   |         | Statutory |  | income   |        | Dividends |  | Retained |        |       |  |           
|                                                                     |  | Capital |         | Premium |  | Reserve |         | Reserve   |  | reserve  |        | reserve   |  | earnings |        | Total
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |      
|Balances at December 31, 1999                                        |  |         | 108,943 |         |  |         |        |           |  |          | 11,848 |           |  |          | 87,154 |       |  |            | 79,920  |   |  |  |       |   |  |  | 76,844  |   |  |  | 364,709 |  
|                                                                    
|Net income                                                           |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | 30,060  |   |  |  | 30,060  |  
|Allocation between accounts
approved by shareholders on
May 30, 2000 |  |         | (100    | )       |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  |        |   |  |  | (100    | )
|                                                                    
|Share premium reserve (Note
17)                                      |  |         |        |         |  |         | 204,068 |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  |        |   |  |  | 204,068 |  
|                                                                    
|Transfer to and from reserves
(Note 17)                              |  |         |        |         |  |         |        |           |  |          | 1,407  |           |  |          |       |       |  |            | (9,924  | ) |  |  |       |   |  |  | 8,517   |   |  |  |        |  
|Dividends                                                            |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | (10,319 | ) |  |  | (10,319 | )
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  |  |         |  
|Balances at December 31, 2000                                        |  |         | 108,843 |         |  |         | 204,068 |           |  |          | 13,255 |           |  |          | 87,154 |       |  |            | 69,996  |   |  |  |       |   |  |  | 105,102 |   |  |  | 588,418 |  
|                                                                    
|Capitalization of reserves and
retained earnings                     |  |         | 77,211  |         |  |         | (10,985 | )         |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | (66,226 | ) |  |  |        |  
|Net income                                                           |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | 61,365  |   |  |  | 61,365  |  
|Transfers to and from reserves
(Note 17)                             |  |         |        |         |  |         |        |           |  |          | 3,277  |           |  |          |       |       |  |            | (69,996 | ) |  |  |       |   |  |  | 66,719  |   |  |  |        |  
|Dividends                                                            |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  | 14,825 |   |  |  | (34,263 | ) |  |  | (19,438 | )
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  |  |         |  
|Balances at December 31, 2001                                        |  |         | 186,054 |         |  |         | 193,083 |           |  |          | 16,532 |           |  |          | 87,154 |       |  |            |        |   |  |  | 14,825 |   |  |  | 132,697 |   |  |  | 630,345 |  
|                                                                    
|Capitalization of reserves and
retained earnings                     |  |         | 102,389 |         |  |         | (23,551 | )         |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | (78,838 | ) |  |  |        |  
|Reduction of dividends reserve                                       |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  | (2,244 | ) |  |  |        |   |  |  | (2,244  | )
|Net income                                                           |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | 102,466 |   |  |  | 102,466 |  
|Transfers to and from reserves
(Note 17)                             |  |         |        |         |  |         |        |           |  |          | 5,929  |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | (5,929  | ) |  |  |        |  
|Dividends                                                            |  |         |        |         |  |         |        |           |  |          |       |           |  |          |       |       |  |            |        |   |  |  |       |   |  |  | (28,161 | ) |  |  | (28,161 | )
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  |  |         |  
|Balances at December 31, 2002                                        |  |         | 288,443 |         |  |         | 169,532 |           |  |          | 22,461 |           |  |          | 87,154 |       |  |            |        |   |  |  | 12,581 |   |  |  | 122,235 |   |  |  | 702,406 |  
|                                                                     |  |         |         |         |  |         |         |           |  |          |        |           |  |          |        |       |  |            |         |   |  |  |        |   |  |  |         |   |  |  |         |  

See notes to consolidated financial statements.

F - 53



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TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)

27. Additional disclosures required by US GAAP



|a. |  | Consolidated Statement of Cash Flow for the years ended December 31,
2000, 2001 and 2002                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Accounting principles under the Brazilian Corporate Law require
presentation of a statement of changes in financial position reflecting the
sources and uses of funds. A statement of cash flows to complement the
information disclosed under Brazilian Corporate Law is presented below:

|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         |  |         |         |  
|------------------------------------------------ | ---------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------------------- |  | -------- | -------- | ------ |  | -------- | ------- | ------- |  | ------- | ------- | -
|                                                 |            |                                                                                               |                                                                      |                                                                           |  | 2000     |          | 2001   |  | 2002    
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |         
|Operating activities:                            |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |        
|                                                 | Net income |                                                                                               |                                                                      | 26,654                                                                    |  |          |          | 65,530 |  |          |         | 118,574 | 
|                                                 |            | Adjustments to reconcile net income for the year to net cash provided by operating
activities |                                                                      |                                                                           |  |          |          |        |  |          |         |         |  |        
|                                                 |            |                                                                                               |                                                                      | Depreciation                                                              |  |          | 124,889  |        |  |          | 155,367 |         |  |         | 179,472 |  
|                                                 |            |                                                                                               |                                                                      | Minority interests                                                        |  |          | 11,060   |        |  |          | 21,511  |         |  |         | 38,547  |  
|                                                 |            |                                                                                               |                                                                      | Foreign exchange losses (on loans)                                        |  |          | 10,964   |        |  |          | 10,640  |         |  |         | 21,053  |  
|                                                 |            |                                                                                               |                                                                      | Losses on disposal of fixed assets                                        |  |          | 2,664    |        |  |          | 7,441   |         |  |         | 2,231   |  
|                                                 |            |                                                                                               |                                                                      | Allowance for doubtful accounts                                           |  |          | 105,199  |        |  |          | 44,578  |         |  |         | 46,729  |  
|                                                 |            |                                                                                               |                                                                      | Tax incentive investment credits                                          |  |          | 1,490    |        |  |          |        |         |  |         |        |  
|                                                 |            |                                                                                               |                                                                      | Equity loss of investee                                                   |  |          |         |        |  |          | 1,888   |         |  |         | 4,288   |  
|                                                 |            |                                                                                               |                                                                      | Net effect on assets and liabilities for dilution of interest in investee |  |          |         |        |  |          | (4,500  | )       |  |         | (755    | )
|                                                 |            |                                                                                               |                                                                      | (Increase) in accounts receivable                                         |  |          | (97,068  | )      |  |          | (7,074  | )       |  |         | (59,825 | )
|                                                 |            |                                                                                               |                                                                      | Decrease in deferred and recoverable taxes                                |  |          | 25,246   |        |  |          | 20,144  |         |  |         | 14,983  |  
|                                                 |            |                                                                                               |                                                                      | (Increase) decrease in other current assets                               |  |          | 14,968   |        |  |          | 23,749  |         |  |         | (3,789  | )
|                                                 |            |                                                                                               |                                                                      | (Increase) in other noncurrent assets                                     |  |          | (2,096   | )      |  |          | (6,007  | )       |  |         | (1,739  | )
|                                                 |            |                                                                                               |                                                                      | Increase in payroll and related accruals                                  |  |          | 1,221    |        |  |          | 1,205   |         |  |         | 1,378   |  
|                                                 |            |                                                                                               |                                                                      | (Decrease) in accounts payable and accrued expenses                       |  |          | (22,048  | )      |  |          | (4,959  | )       |  |         | (7,067  | )
|                                                 |            |                                                                                               |                                                                      | Increase (decrease) in taxes other than income taxes                      |  |          | (15,550  | )      |  |          | 11,891  |         |  |         | 8,313   |  
|                                                 |            |                                                                                               |                                                                      | Increase in accrued interest                                              |  |          | 5,171    |        |  |          | 339     |         |  |         | 1,282   |  
|                                                 |            |                                                                                               |                                                                      | Increase in other long term liabilities                                   |  |          | 813      |        |  |          | 1,800   |         |  |         | 13,355  |  
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|                                                 |            |                                                                                               | 193,577                                                              |                                                                           |  |          | 343,543  |        |  |          | 377,030 |        
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|Investing activities:                            |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |        
|                                                 |            |                                                                                               | Acquisition of property, equipment and plant                         |                                                                           |  | (202,111 | )        |        |  | (129,790 | )       |         |  | (74,014 | )      
|                                                 |            |                                                                                               | Investment in equity investee                                        |                                                                           |  |         |          |        |  | (11,100  | )       |         |  |        |        
|                                                 |            |                                                                                               | Capitalized
interest                                                 |                                                                           |  |         |          |        |  | (2,187   | )       |         |  | (852    | )      
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|                                                 |            |                                                                                               | (202,111                                                             | )                                                                         |  |          | (143,077 | )      |  |          | (74,866 | )      
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|Financing activities:                            |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |        
|                                                 |            |                                                                                               | Repayments of loans                                                  |                                                                           |  | (311,119 | )        |        |  | (69,711  | )       |         |  | (36,956 | )      
|                                                 |            |                                                                                               | Allocation between accounts approved by shareholders on May 30, 2000 |                                                                           |  | (100     | )        |        |  |         |         |         |  |        |        
|                                                 |            |                                                                                               | Proceeds from issuance of long-term loans                            |                                                                           |  | 378,163  |          |        |  |         |         |         |  |        |        
|                                                 |            |                                                                                               | Dividends paid                                                       |                                                                           |  | (7,858   | )        |        |  | (7,590   | )       |         |  | (14,249 | )      
|                                                 |            |                                                                                               | Minority share of dividends                                          |                                                                           |  | (5,245   | )        |        |  | (3,974   | )       |         |  | (8,812  | )      
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|                                                 |            |                                                                                               | 53,841                                                               |                                                                           |  |          | (81,275  | )      |  |          | (60,017 | )      
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|                                                 |            |                                                                                               | Increase in cash and cash equivalents                                |                                                                           |  | 45,307   |          |        |  | 119,191  |         |         |  | 242,147 |        
|                                                 |            |                                                                                               | Cash and cash equivalents at beginning of year                       |                                                                           |  | 7,768    |          |        |  | 53,075   |         |         |  | 172,266 |        
|                                                 |            |                                                                                               | Cash and cash equivalents at end of year                             |                                                                           |  | 53,075   |          |        |  | 172,266  |         |         |  | 414,413 |        
|                                                 |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |         | 
|Supplemental disclosure of cash flow information |            |                                                                                               |                                                                      |                                                                           |  |          |          |        |  |          |         |        
|Interest paid                                    |            |                                                                                               | 70,969                                                               |                                                                           |  |          | 56,536   |        |  |          | 43,080  |        
|Income and social contribution tax paid          |            |                                                                                               | 9,439                                                                |                                                                           |  |          | 22,471   |        |  |          | 44,498  |        
|Tax incentive investments received               |            |                                                                                               | 1,490                                                                |                                                                           |  |          |         |        |  |          |        |        

F - 54



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##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



|b. |  | 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.
|  
|c. |  | Pension and other post-retirement benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | In December of 1999, the Company and the other companies which partipate in
the Sistel plan, reached an agreement to withdraw the active participants
from the pension plan and establish a new plan for each of the companies.
The parties agreed to allocate the plan assets based on an independent
actuarial calculation. 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 inactives employees of all the New Holding
Companies which participated in the Sistel defined benefit pension plan
remain as part of the multiemployer plan in Sistel. The postretirement
benefit plans also remain as a multiemployer plan, however, Sistel will no
longer subsidize life insurance premiums for inactive (retired) employees.                                                                                                      
|  
|   |  | Since withdrawal of the active participants from the plan was probable as
of December 31, 1999, and the liability could be estimated, the Company
recorded a charge to net income under US GAAP in 1999 for the estimated
liability for the active employees, which totaled R$ 18,424. The Company
remains jointly and severally liable for the multiemployer portion of the
plan, therefore, no amounts were recorded under those plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | F
- 55                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | The changes in the benefit obligation and plan assets and the annual
pension cost of the active employees Companys sponsored defined benefit
plan pension and the related actuarial assumptions in accordance with US
GAAP, are as follows :
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  |      |        |      |  |  |        |  
|---------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | -
|                                               |  | 2001 |        | 2002
|                                               |  |      |        |     
|Change in benefit obligation                   |  |      |        |      |  |  |        |  
|Benefit obligation at beginning of year        |  |      | 23,852 |      |  |  | 26,364 |  
|Service cost                                   |  |      | 1,573  |      |  |  | 1,655  |  
|Interest cost                                  |  |      | 2,656  |      |  |  | 2,959  |  
|Benefits paid and administrative expenses      |  |      | (368   | )    |  |  | (862   | )
|Actuarial losses                               |  |      | (1,349 | )    |  |  | (713   | )
|                                               |  |      |        |      |  |  |        |  
|Benefit obligation at end of year              |  |      | 26,364 |      |  |  | 29,403 |  
|                                               |  |      |        |      |  |  |        |  
|Change in plan assets                          |  |      |        |      |  |  |        |  
|Fair value of plan assets at beginning of year |  |      | 22,615 |      |  |  | 26,512 |  
|Employer contribution                          |  |      | 1,307  |      |  |  | 818    |  
|Plan participants contributions               |  |      | 752    |      |  |  | 712    |  
|Benefits paid and administrative expenses      |  |      | (368   | )    |  |  | (862   | )
|Actual return on plan assets                   |  |      | 2,206  |      |  |  | 6,957  |  
|                                               |  |      |        |      |  |  |        |  
|Fair value of plan assets at end of year       |  |      | 26,512 |      |  |  | 34,137 |  
|                                               |  |      |        |      |  |  |        |  

|                                                            |  |      |       |      |  |  |       |  
|----------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|                                                            |  | 2001 |       | 2002
|                                                            |  |      |       |     
|Actuarial assumptions as of December 31:                    |  |      |       |      |  |  |       |  
|Discount rate for determining projected benefit obligations |  |      | 11.30 | %    |  |  | 11.30 | %
|Rate of increase in compensation levels                     |  |      | 8.15  | %    |  |  | 8.15  | %
|Expected long-term rate of return on plan assets            |  |      | 14.45 | %    |  |  | 14.45 | %

|                                        |  |      |         |      |  |  |         |  
|--------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | -
|                                        |  | 2001 |         | 2002
|                                        |  |      |         |     
|Funded status                           |  |      | 148     |      |  |  | 4,374   |  
|Unrecognized net gains                  |  |      | (22,516 | )    |  |  | (25,231 | )
|Unrecognized net transitions obligation |  |      | 4,857   |      |  |  | 4,246   |  
|                                        |  |      |         |      |  |  |         |  
|Net amount recognized                   |  |      | (17,511 | )    |  |  | (16,251 | )
|                                        |  |      |         |      |  |  |         |  



| |  | Amortization of the unrecognized liability at transition: 18.84 years
commencing on January 1, 1992.
| |  | ----------------------------------------------------------------------------------------------------

F - 56



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | The composition of net pension costs for the Company sponsored benefit plan
is as follow:
| |  | -----------------------------------------------------------------------------------------

|                               |  |      |        |      |  |      |        |   |  |  |        |  
|------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                               |  | 2000 |        | 2001 |  | 2002
|                               |  |      |        |      |  |     
|Service cost                   |  |      | 1,573  |      |  |      | 1,573  |   |  |  | 1,655  |  
|Expected employee contribution |  |      | (533   | )    |  |      | (689   | ) |  |  | (592   | )
|Interest cost                  |  |      | 2,952  |      |  |      | 2,656  |   |  |  | 2,959  |  
|Expected return on plan assets |  |      | (2,210 | )    |  |      | (3,300 | ) |  |  | (3,918 | )
|Net amortization               |  |      | (39    | )    |  |      | (533   | ) |  |  | (545   | )
|                               |  |      |        |      |  |      |        |   |  |  |        |  
|                               |  |      | 1,831  |      |  |      | (293   | ) |  |  | (441   | )
|                               |  |      |        |      |  |      |        |   |  |  |        |  



| |  | Following the creation of a
separate defined contribution plan TIMPREV  NORDESTE on November 13, 2002, the Company has encouraged the transfer of
the existing employees in the existing Tele Nordeste Celular defined PBS
Plan to the new plan through the use of bonus incentives. The migration to
the new plan is optional however, the bonus incentives offered by the
Company expired on January 29, 2003. The effective date for the
curtailment when the participants officially transferred to the new fund
was February 28, 2003. As the curtailment occurred subsequent to year end,
its impact has not been reflected in the benefit obligations and plan
assets below. The effect of the curtailment in 2003 was a gain of
approximately R$15,400.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A summary of the Sistel pension plan as of December 31, 2000 and 2001 for
the multi employer portion (inactive employees pension plan) is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                                                    |        |  |            |           |      |  |            |           | 
|------------------------------------------------------------------- | ------ |  | ---------- | --------- | ---- |  | ---------- | --------- | 
|                                                                    |        |  | 2001       |           | 2002
|                                                                    |        |  |            |           |     
|Funded status                                                       |        |  |            |           |      |  |            |          
|Accumulated benefit obligation:                                     |        |  |            |           |      |  |            |          
|                                                                    | Vested |  |            | 2,809,643 |      |  |            | 2,922,542 | 
|Projected benefit obligation                                        |        |  | 2,809,643  |           |      |  | 2,22,542   |          
|Fair value of plan assets to be allocated to the Companys
new plan |        |  | (3,214,439 | )         |      |  | (3,684,883 | )        
|                                                                    |        |  |            |           |      |  |            |           | 
|Projected obligation less than of assets                            |        |  | (404,796   | )         |      |  | (762,342   | )        
|                                                                    |        |  |            |           |      |  |            |           | 



| |  | A summary of the post-retirement benefits plan (which remains as a multi
employer plan) is as follows:
| |  | ------------------------------------------------------------------------------------------------------

|                                                 |                     |  |          |         |      |  |          |         | 
|------------------------------------------------ | ------------------- |  | -------- | ------- | ---- |  | -------- | ------- | 
|                                                 |                     |  | 2001     |         | 2002
|                                                 |                     |  |          |         |     
|Funded status                                    |                     |  |          |         |      |  |          |        
|Accumulated post-retirement benefit obligations: |                     |  |          |         |      |  |          |        
|                                                 | Active participants |  |          | 69,212  |      |  |          | 46,107  | 
|                                                 | Inactive partipants |  |          | 812,148 |      |  |          | 867,041 | 
|                                                 |                     |  |          |         |      |  |          |         | 
|                                                 |                     |  | 881,360  |         |      |  | 913,149  |        
|Fair value of plan assets                        |                     |  | (358,619 | )       |      |  | (404,507 | )      
|                                                 |                     |  |          |         |      |  |          |         | 
|Obligations in excess of plan assets             |                     |  | 522,741  |         |      |  | 508,642  |        
|                                                 |                     |  |          |         |      |  |          |         | 

F - 57



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | As a result of the New Holding Companies negotiating the conditions to
create individual plans by each sponsor, during 2000 some of the sponsors
decided to leave the Medical Postretirement Benefit Plan. Consequently,
there was a curtailment of the plan which resulted in a reduction in the
accumulated postretirement benefit obligation of R$548,520 as of December
31, 2000.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Actuarial assumptions used were as follows:                                                                                                                                                                                                                                                                                                                                           

|                                                            |  |      |       |      |  |  |       |  
|----------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|                                                            |  | 2001 |       | 2002
|                                                            |  |      |       |     
|Discount rate for determining projected benefit obligations |  |      | 11.3  | %    |  |  | 11.3  | %
|Rate of increase in compensation levels                     |  |      | 8.15  | %    |  |  | 8.15  | %
|Expected long-term rate of return on plan assets            |  |      | 14.45 | %    |  |  | 14.45 | %



| |  | Health care cost trend rates of increase were projected at annual rates
excluding inflation ranging from 11.1% in 2001 decreasing to 7.8% in 2051.
The effect of a one percent annual increase (reduction) in the assumed
health care cost trend rates would increase (reduce) the accumulated
post-retirement benefits obligation at December 31, 2001 and 2002 by
R$140,036 (R$118,900) and R$148,571 (R$119,485) respectively. Measurement
of the accumulated post-retirement benefit obligation was based on the same
assumptions as were used in the pension fund liability calculations.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  |  |                |   |      |  |         |   | 
|---------------------------------------------- |  |  | -------------- | - | ---- |  | ------- | - | 
|                                               |  |  | Other Benefits
|                                               |  |  |               
|                                               |  |  | 2001           |   | 2002
|                                               |  |  |                |   |     
|Change in benefit obligation                   |  |  |                |   |      |  |         |  
|Benefit obligation at beginning of year        |  |  | 859,342        |   |      |  | 881,360 |  
|Service cost                                   |  |  | 5,322          |   |      |  | 3,852   |  
|Interest cost                                  |  |  | 96,478         |   |      |  | 97,985  |  
|Benefits paid and administrative expenses      |  |  | (25,143        | ) |      |  | (32,881 | )
|Curtailment of medical plan                    |  |  |               |   |      |  |         |  
|Actuarial gains (losses)                       |  |  | (54,639        | ) |      |  | (37,168 | )
|                                               |  |  |                |   |      |  |         |  
|Benefit obligation at end of year              |  |  | 881,360        |   |      |  | 913,149 |  
|                                               |  |  |                |   |      |  |         |  
|Change in plan assets                          |  |  |                |   |      |  |         |  
|Fair value of plan assets at beginning of year |  |  | 352,373        |   |      |  | 358,619 |  
|Employer contribution                          |  |  | 10,101         |   |      |  | 1,071   |  
|Benefits paid and administrative expenses      |  |  | (25,143        | ) |      |  | (32,881 | )
|Actual return on plan assets                   |  |  | 21,288         |   |      |  | 77,697  |  
|                                               |  |  |                |   |      |  |         |  
|Fair value of plan assets at end of year       |  |  | 358,619        |   |      |  | 404,507 |  
|                                               |  |  |                |   |      |  |         |  

F - 58



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



|   |  | Benefit obligations differed under Brazilian and US GAAP prior to 2001
because they were prepared using different actuarial assumptions permitted
under Brazilian Corporate Law and US GAAP. With the implementation of
Regulatory Instruction CVM 371 in 2001, benefit obligations and funded
status are now calculated using the same actuarial assumptions under
Brazilian and US GAAP. The funded status of the pension and
post-retirement plans however continues to differ due the surplus on plan
assets on implementation of the Regulatory Instruction CVM being amortized
over a different period than for US GAAP purposes.                                                                                                                         
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The net assets of the Companys plans available for payment of future
obligations under US GAAP are net of the accrual of income tax
contingencies of the pension fund provided for in the amount of R$4,199 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 Corporate Law, the income tax
contingencies are presented separately as a liability.                                                                                                                                                                                          
|  
|   |  | Following the creation of a
separate defined contribution plan TIMPREV  NORDESTE on November 13, 2002, the Company has encouraged the transfer of
the existing employees in the existing Tele Nordeste Celular defined PBS
Plan to the new plan through the use of bonus incentives. The migration to
the new plan is optional however, the bonus incentives offered by the
Company expired on January 29, 2003. The effective date for the
curtailment when the participants officially transferred to the new fund
was February 28, 2003. As the curtailment occurred subsequent to year end,
its impact has not been reflected in the benefit obligations and plan
assets below. The effect of the curtailment in 2003 was a gain of
approximately R$15,400.
|  
|d. |  | Concentration of risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The Company continually monitors the level of trade accounts receivable and
limits the exposure to bad debts by cutting access to the telephone network
if any invoice is fifteen days past due.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The Company maintains cash and cash equivalents with various financial
institutions and, as a policy, limits exposure to any one institution.
Concentration of credit risk with respect to accounts receivable is limited
to Tele Norte Leste Participações S.A. as described in Note 25.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | In conducting its businesses, the Company is fully dependent upon the
cellular telecommunications concession as granted by the Federal
Government.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Approximately 20% of all employees are members of state labor unions
associated with either the Federação Nacional dos Trabalhadores em
Telecomunicações(Fenattel), or with the Federação Interestadual dos
Trabalhadores em Telecomunicações(Fittel). The Company negotiates new
collective labor agreements every year with the local unions. The
collective agreements currently in force expire in December 2003.                                                                                                                                                                                                                                                                                                                                       

F - 59



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



|   |  | 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 Companys operations.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|e. |  | Comprehensive income                                                                                                                                                                                     
|  
|   |  | Under US GAAP, the Company adopted SFAS No 130, Reporting Comprehensive
Income. Comprehensive income is not different from net income under US
GAAP.                                                   
|  
|f. |  | Earnings per share                                                                                                                                                                                       

In these consolidated financial statements, information is disclosed per lot of
twenty thousand shares, because each American Depositary Share (ADS) is
equivalent to twenty thousands shares.

Since the preferred and common shareholders have different dividend, voting and
liquidation rights, basic earnings per share has been calculated using the
two-class method. The two-class method is an earnings allocation formula
that determines earnings per share for preferred and common shares according to
the dividends to be paid as required by the Companys by-laws and participation
rights in undistributed earnings.

Basic earnings per common share is computed by reducing net income by
distributable and undistributable net income available to preferred
shareholders and dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the period. Net
income available to preferred shareholders is the sum of the preferred
dividends distributable net income and the preferred shareholders portion of
undistributed net income.

Undistributed net income is computed by deducting preferred dividends and
common dividends from net income. Undistributed net income is shared equally on
a per share basis by the preferred and common shareholders. Options issued
under the Companys stock options plan are antidilutive for each of the years
presented. Therefore, diluted earnings per share equals basic earnings per
share.

Under the Companys bylaws, if the Company is able to pay dividends in excess
of the minimum requirement for preferred shareholders and the remainder of the
net income is sufficient to provide equal dividends to both common and
preferred shareholders, then the earnings per share will be the same for both
common and preferred shareholders.

F - 60



---



##### 



TELE NORDESTE CELULAR
PARTICIPAÇÕES S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Amounts expressed in thousands of Brazilian reais unless otherwise indicated)



| |  | The following table sets forth the computation of basic and diluted
earnings per thousand of common shares:
| |  | -----------------------------------------------------------------------------------------------------------

|             |                                                    |                                                                                                              |  |                         |             |      |  |        |             |   |  |         |             |  
|------------ | -------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ----------- | ---- |  | ------ | ----------- | - |  | ------- | ----------- | -
|             |                                                    |                                                                                                              |  | Year ended December 31,
|             |                                                    |                                                                                                              |  |                        
|             |                                                    |                                                                                                              |  | 2000                    |             | 2001 |  | 2002  
|             |                                                    |                                                                                                              |  |                         |             |      |  |       
|Numerator:   |                                                    |                                                                                                              |  |                         |             |      |  |        |             |   |  |        
|             | Net income for the year under US GAAP              |                                                                                                              |  | 30,060                  |             |      |  | 61,365 |             |   |  | 102,466 |            
|             |                                                    | Net income available to preferred shareholders
 numerator for basic and diluted earnings per
thousand share |  |                         | (18,880     | )    |  |        | (38,338     | ) |  |         | (63,715     | )
|             |                                                    |                                                                                                              |  |                         |             |      |  |        |             |   |  |         |            
|             |                                                    | Net
income available to common shareholders 
numerator for basic and diluted earnings per
thousand shares   |  |                         | 11,180      |      |  |        | 23,027      |   |  |         | 38.751      |  
|             |                                                    |                                                                                                              |  |                         |             |      |  |        |             |   |  |         |            
|Denominator: |                                                    |                                                                                                              |  |                         |             |      |  |        |             |   |  |        
|             | Weighted-average outstanding shares (in thousands) |                                                                                                              |  |                         |             |      |  |        |             |   |  |         |            
|             |                                                    | Common                                                                                                       |  |                         | 124,369,031 |      |  |        | 126,150,769 |   |  |         | 129,390,418 |  
|             |                                                    | Preferred                                                                                                    |  |                         | 210,029,997 |      |  |        | 210,029,997 |   |  |         | 212,745,880 |  
|            
|             | Earnings per 20,000 shares (basic and diluted)     |                                                                                                              |  |                         |             |      |  |        |             |   |  |         |            
|             |                                                    | Common shares                                                                                                |  |                         | 1.80        |      |  |        | 3.65        |   |  |         | 5.99        |  
|             |                                                    | Preferred shares                                                                                             |  |                         | 1.80        |      |  |        | 3.65        |   |  |         | 5.99        |  



|28. |  | Subsequent event (Unaudited)                                                                                                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On May 15, 2003, shareholders meetings approved capital increase of
R$25,180 (357,827,736 share without par value), corresponding to the 2002
realized portion of the tax benefit of the amortization of the goodwill, as
mentioned in the Note 17(b).

F - 61



---



##### 





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

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  | 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  | 
|1.1 |  | By-laws of the Holding Company as of May 15, 2003, in Portuguese and with a translation into
English.*                                                                                                                                                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|2.1 |  | Deposit Agreement, dated as of June 24, 2002, among the Holding Company, JPMorgan, as
Depositary, and Holders of American Depositary Receipts issued thereunder, filed as Exhibit
2.1 to the Holding Companys Annual Report on Form 20-F filed with the Commission on July 1,
2002 (File #001-14495), incorporated by reference.                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|2.2 |  | Subordinated Debentures Agreement, dated as of November 9, 2000, among Telpe Celular, as
Issuer, Aporte Distribuidora de Títulos e Valores Mobiliários Ltda., as Fiduciary Agent, and
the Holding Company, as Guarantor (Portuguese), filed as Exhibit 2.2 to the Holding
Companys Annual Report on Form 20-F filed with the Commission on July 1, 2002 (File
#001-14495), incorporated by reference.                      
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|2.3 |  | Subordinated Debentures Agreement, dated as of November 9, 2000, among Telpe Celular, as
Issuer, Aporte Distribuidora de Títulos e Valores Mobiliários Ltda., as Fiduciary Agent, and
the Holding Company, as Guarantor (English translation), filed as Exhibit 2.3 to the Holding
Companys Annual Report on Form 20-F filed with the Commission on July 1, 2002 (File
#001-14495), incorporated by reference.             
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|2.4 |  | Amendment to Subordinated Debentures Agreement, dated as of December 1, 2000, among Telpe
Celular, as Issuer, Aporte Distribuidora de Títulos e Valores Mobiliários Ltda., as
Fiduciary Agent, and the Holding Company, as Guarantor (Portuguese), filed as Exhibit 2.4 to
the Holding Companys Annual Report on Form 20-F filed with the Commission on July 1, 2002
(File #001-14495), incorporated by reference.         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|2.5 |  | Amendment to Subordinated Debentures Agreement, dated as of December 1, 2000, among Telpe
Celular, as Issuer, Aporte Distribuidora de Títulos e Valores Mobiliários Ltda., as
Fiduciary Agent, and the Holding Company, as Guarantor (English translation), filed as
Exhibit 2.5 to the Holding Companys Annual Report on Form 20-F filed with the Commission on
July 1, 2002 (File #001-14495), incorporated by reference.
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1 |  | Management Assistance Agreement, dated as of October 1, 2000, between the Holding Company
and TIM, filed as Exhibit 4.1 to the Holding Companys Annual Report on Form 20-F filed with
the Commission on July 2, 2001 (File #001-14495), incorporated by reference.                                                                                                                                                         
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.2 |  | Management Agreement (Contrato de Gestão), dated as of May 2, 2001, by and among the Holding
Company and the Subsidiaries (Portuguese), filed as Exhibit 4.2 to the Holding Companys
Annual Report on Form 20-F filed with the Commission on July 2, 2001 (File #001-14495),
incorporated by reference.                                                                                                                    
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.3 |  | Management Agreement (Contrato de Gestão), dated as of May 2, 2001, by and among the Holding
Company and the Subsidiaries (English translation).*                                                                                                                                                                                                                                                                           
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.4 |  | Standard Concession Agreement for Mobile Cellular Service, in Portuguese and with a
translation into English, filed as Exhibits 10.1 and 10.2 to the Holding Companys
Registration Statement on Form 20-F filed with the Commission on September 18, 1998 (File
#001-14495), incorporated by reference.                                                                                                                    
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.5 |  | Authorization Agreement for Mobile Cellular Service for Telpe Celular (Portuguese Version).*                                                                                                                                                                                                                                                                                                                                

74



---



##### 



|                     |  |                                                                                                                                               |  |  |  | 
|-------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|No.                  |  | Description                                                                                                                                   |  |  |  | 
|                     |  |                                                                                                                                               |  |  |  | 
|4.6                  |  | Authorization Agreement for Mobile Cellular Service for Telpe Celular
(English Translation).*                                                
|                     |  |                                                                                                                                              
|4.7                  |  | Authorization Agreement for Mobile Cellular Service for Teleceará Celular (Portuguese
Version).*                                             
|                     |  |                                                                                                                                              
|4.8                  |  | Authorization Agreement for Mobile Cellular Service for Teleceará Celular (English
Translation).*                                            
|                     |  |                                                                                                                                              
|4.9                  |  | Authorization Agreement for Mobile Cellular Service for Telasa Celular (Portuguese Version).*                                                
|                     |  |                                                                                                                                              
|4.10                 |  | Authorization Agreement for Mobile Cellular Service for Telasa Celular (English
Translation).*                                               
|                     |  |                                                                                                                                              
|4.11                 |  | Authorization Agreement for Mobile Cellular Service for Telpa Celular (Portuguese Version).*                                                 
|                     |  |                                                                                                                                              
|4.12                 |  | Authorization Agreement for Mobile Cellular Service for Telpa Celular (English Translation).*                                                
|                     |  |                                                                                                                                              
|4.13                 |  | Authorization Agreement for Mobile Cellular Service for Telern Celular (Portuguese Version).*                                                
|                     |  |                                                                                                                                              
|4.14                 |  | Authorization Agreement for Mobile Cellular Service for Telern Celular (English Translation).*                                               
|                     |  |                                                                                                                                              
|4.15                 |  | Authorization Agreement for Mobile Cellular Service for Telepisa Celular (Portuguese
Version).*                                              
|                     |  |                                                                                                                                              
|4.16                 |  | Authorization Agreement for Mobile Cellular Service for Telepisa Celular (English
Translation).*                                             
|                     |  |                                                                                                                                              
|8.1                  |  | List of Subsidiaries.*                                                                                                                       
|                     |  |                                                                                                                                              
|10.1                 |  | Certification of President and Financial Executive Officer of the Holding Company, pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|*  Previously filed.

75



---



##### 



INDEX OF DEFINED TERMS

|                                  |  |      |    | 
|--------------------------------- |  | ---- | -- | 
|                                  |  | Page
|                                  |  |     
|AD                                |  |      | 20 | 
|ADRs                              |  | iii 
|ADSs                              |  | iii 
|American Depositary Shares        |  | iii 
|Anatel                            |  |      | 12 | 
|Anatel Decree                     |  |      | 30 | 
|Bitel                             |  |      | 2  | 
|BONY                              |  |      | 65 | 
|Bovespa                           |  |      | 57 | 
|Brazilian GAAP                    |  |      | 1  | 
|Breakup                           |  |      | 12 | 
|Breakup of Telebrás               |  |      | 12 | 
|BSE                               |  |      | 27 | 
|CADE                              |  |      | 53 | 
|CDI                               |  |      | 37 | 
|Cellular Region                   |  |      | 13 | 
|Center                            |  |      | 30 | 
|Central Bank                      |  |      | 4  | 
|Code                              |  |      | 70 | 
|COFINS                            |  |      | 24 | 
|Commercial Market                 |  |      | 4  | 
|Commission                        |  |      | 1  | 
|Common Shares                     |  | iii 
|Company                           |  | iii 
|Concessions                       |  |      | 12 | 
|Consolidated Financial Statements |  |      | 1  | 
|Corporate Law Method              |  |      | 1  | 
|CSL                               |  |      | 24 | 
|Depositary                        |  |      | 57 | 
|dollars                           |  | iii 
|Draft Decree                      |  |      | 34 | 
|DSL1                              |  |      | 20 | 
|DSL2                              |  |      | 20 | 
|E&Y                               |  |      | 1  | 
|Embratel                          |  |      | 13 | 
|Federal Government                |  | iii 
|Fenattel                          |  |      | 51 | 
|FISTEL                            |  |      | 25 | 
|FISTEL Tax                        |  |      | 25 | 
|Fittel                            |  |      | 51 | 
|Fixed-Line Region                 |  |      | 13 | 
|Floating Market                   |  |      | 4  | 
|FUNTTEL                           |  |      | 24 | 
|FUNTTEL Tax                       |  |      | 24 | 
|FUST                              |  |      | 24 | 
|FUST Tax                          |  |      | 24 | 
|GDP                               |  |      | 16 | 
|General Dividend                  |  |      | 54 | 
|General Telecommunications Law    |  |      | 12 | 
|Goodwill                          |  |      | 2  | 
|Holding Company                   |  | iii 
|IBGE                              |  |      | 16 | 
|ICMS                              |  |      | 23 | 
|IGP-DI                            |  |      | 33 | 
|IGPM                              |  |      | 10 | 
|Incoming Call                     |  |      | 6  | 
|IOF                               |  |      | 69 | 
|IOF/Títulos                       |  |      | 69 | 
|ISS                               |  |      | 24 | 
|JPMorgan                          |  |      | 57 | 
|KPMG                              |  |      | 1  | 
|non-U.S. holder                   |  |      | 70 | 
|off-peak calls                    |  |      | 20 | 
|Olivetti                          |  |      | 15 | 
|Outgoing Call                     |  |      | 6  | 
|Panel                             |  |      | 60 | 
|PBS-TNC Plan                      |  |      | 47 | 
|PCS                               |  |      | 5  | 
|PIS                               |  |      | 24 | 
|Predecessor Companies             |  | iii 
|Preferred Shares                  |  | iii 
|Protocol                          |  |      | 32 | 
|R$                                |  | iii 
|reais                             |  | iii 
|real                              |  | iii 
|Refinancing Agreements            |  |      | 53 | 
|Region                            |  |      | 12 | 
|Rio de Janeiro Stock Exchange     |  |      | 57 | 
|SEMA                              |  |      | 26 | 
|Shareholders Agreement            |  |      | 53 | 
|Sistel                            |  |      | 52 | 
|SMC                               |  |      | 5  | 
|SMS                               |  |      | 18 | 
|Stock Option Plan                 |  |      | 51 | 
|Subsidiaries                      |  | iii 
|tax haven                         |  |      | 68 | 
|Telasa Celular                    |  | iii 
|Tele Nordeste Celular PBS Plan    |  |      | 52 | 
|Telebrás                          |  | iii 
|Telebrás Pension Plan             |  |      | 47 | 
|Telebrás System                   |  |      | 12 | 
|Teleceará Celular                 |  | iii 
|Telecom Italia                    |  |      | 14 | 
|Telecommunications Regulations    |  |      | 12 | 

76



---



##### 



|                              |  |      |    | 
|----------------------------- |  | ---- | -- | 
|                              |  | Page
|                              |  |     
|Telepisa Celular              |  | iii 
|Telern Celular                |  | iii 
|Telpa Celular                 |  | iii 
|Telpe Celular                 |  | iii 
|TIM                           |  |      | 8  | 
|timnet.com                    |  |      | 17 | 
|TIMPREV                       |  |      | 52 | 
|TIMPREV-NORDESTE Pension Plan |  |      | 47 | 
|TJLP                          |  |      | 54 | 
|TNE                           |  |      | 13 | 
|U.S. dollars                  |  | iii 
|U.S. GAAP                     |  |      | 1  | 
|U.S. holder                   |  |      | 70 | 
|UGB                           |  |      | 13 | 
|US$                           |  | iii 
|VC1                           |  |      | 20 | 
|VC2                           |  |      | 20 | 
|VC3                           |  |      | 20 | 

77



---



##### 



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.

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

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.

Broadband
services:Services characterized by a transmission speed of
2 Mbit/s or more. According to international standards, these services are
as follows: Interactive services, including video
telephone/videoconferencing (both point-to-point and multipoint);

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

Channel:One of a number of discrete frequency ranges utilized by a radio
base station.

Cloning
fraud:Duplication of the cellular signal of a cellular phone
client, enabling the perpetrator of such duplication to make telephone calls
using the clients signal.

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

GSM (Global System Mobile):A standard of digital cellular
telecommunications technology.

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

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

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.

Penetration:The measurement of the take-up of services. At any date,
the penetration is calculated by dividing the number of clients by the
population to which the service is available and multiplying the quotient by
100.

Roaming:A function that enables clients to use their cellular telephone
on networks of service providers other than the one with which they signed
their initial contract.

78



---



##### 



Subscription fraud:The use of identification documents of another
individual, either real or forged, to obtain cellular services without paying
for them.

Switch:These are 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.

TDMA (Time Division Multiple Access):A standard of digital cellular
telecommunications technology.

Trunking:Special mobile switching and intercommunication services
undertaken for corporate clients.

Value Added Services:Value Added Services provide additional
functionality to the basic transmission services offered by a
telecommunications network.

Wireless Application Protocol:A specification for a set of
telecommunications protocols to standardize the way that wireless devices, such
as cellular telephones and radio transceivers, can be used to access the
Internet.

WLL (Wireless Local Loop):A technology that permits access to fixed-line
operators switching centers through radio base stations, operating in a
frequency similar to those of cellular service providers.

79



---



##### 



SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

| |  |                                          |  |                                                             
| |  | ---------------------------------------- |  | ------------------------------------------------------------
| |  | TELE NORDESTE CELULAR PARTICIPAÇÕES S.A.
| |  |                                          |  |                                                             
| |  | By:                                      |  | /s/ MÁRIO CÉSAR PEREIRA
DE ARAÚJO                           
| |  |                                          |  |                                                             
| |  |                                          |  | Name:    Mário César Pereira de Araújo
Title:      President

Date: June 18, 2003



---



##### 



CERTIFICATIONS

I, Mário César Pereira de Araújo, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Tele Nordeste
Celular Participações S.A.;                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to the Company by others
within those entities, particularly during the period in which this
annual report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                           
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                 



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 18, 2003

| |     |                                                             
| | --- | ------------------------------------------------------------
| | By: | /s/  MÁRIO CÉSAR PEREIRA
DE ARAÚJO                          
| |     |                                                             
| |     | Name:    Mário César Pereira de Araújo
Title:      President



---



##### 



CERTIFICATIONS

I, Walmir Urbano Kesseli, certify that:



|1. |  | I have reviewed this annual report on Form 20-F of Tele Nordeste
Celular Participações S.A.;                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:                                                                                                  



| | a. |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to the Company by others
within those entities, particularly during the period in which this
annual report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                           
|
| | c. |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                 



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: June 18, 2003

| |     |                                                                       
| | --- | ----------------------------------------------------------------------
| | By: | /s/ Walmir Urbano Kesseli                                             
| |     |                                                                       
| |     | Name:    Walmir Urbano Kesseli
Title:      Financial Executive Officer