---

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

| | REGISTRATION STATEMENT
PURSUANT TO SECTION 12(b)OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934OR                                   | 
| | ----------------------------------------------------------------------------------------------------------------------------------- | 
| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2003OR | 
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number: 0-28860             | 

---

NET SERVIÇOS DE COMUNICAÇÃO S.A.

(Exact name of registrant as specified in its charter)

|Net Communications Services Inc.(Translation of reguistrants name into English) | The Federative Republic of Brazil(Jurisdiction of incorporation or organization)
|-------------------------------------------------------------------------------- | --------------------------------------------------------------------------------

Rua Verbo Divino, 1356
São Paulo-SP-04719-002 Brazil (Telephone:+55-11-5186-2606)(Address and telephone number of principal executive offices)


---

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


None
(Title of Class)

|Title of each class                                                                                                         | Name of each Exchange on which registered
|--------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------
|American Depositary Shares, evidenced by American Depositary
Receipts, each representing ten preferred shares, no par value | Nasdaq National Market                   
|Preferred shares, no par value                                                                                              | Nasdaq National Market*                  
|                                                                                                                           
|*Not for trading but only in connection with the registration of the American Depositary Shares.                           

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

None
(Title of Class)

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

828,371,343 Common Shares
1,198,784,187 Preferred Shares

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

Yes         
         No

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

Item 17  
         Item 18

---



|Part I                                                                               
|-------------------------------------------------------------------------------------
|                                                                                     
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        
|                                                                                     
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|                                                                                     
|ITEM 3. KEY INFORMATION                                                              
|Selected Financial Data                                                              
|Exchange Rate Information                                                            
|Risk Factors                                                                         
|                                                                                     
|ITEM 4. INFORMATION ON THE COMPANY                                                   
|Recent Developments                                                                  
|Business Overview                                                                    
|Strategy                                                                             
|History and Development of the Company                                               
|Our Services                                                                         
|Operations                                                                           
|Network Technology                                                                   
|Pay-Television Customer Care                                                         
|Sales and Marketing                                                                  
|Competition                                                                          
|Licenses                                                                             
|Description of Property                                                              
|Legal Proceedings                                                                    
|Regulation                                                                           
|Corporate Structure                                                                  
|                                                                                     
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|Overview                                                                             
|Results of Operations                                                                
|Liquidity and Capital Resources                                                      
|Brazilian Economic Environment                                                       
|                                                                                     
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|Directors                                                                            
|Executive Officers and Senior Managers                                               
|Compensation of Directors, Officers and Senior Managers                              
|Employees                                                                            
|Share Ownership                                                                      
|                                                                                     
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|Major Shareholders                                                                   
|Shareholders Agreement                                                              
|Related Party Transactions                                                           
|                                                                                     
|ITEM 8. FINANCIAL INFORMATION                                                        
|                                                                                     
|ITEM 9. THE OFFER AND LISTING                                                        
|General                                                                              
|Trading Markets                                                                      
|ITEM 10. ADDITIONAL INFORMATION                                                      
|Memorandum and Articles of Association                                               
|Material Contracts                                                                   
|Exchange Controls                                                                    
|Dividend Policy                                                                      
|Taxation                                                                             
|Documents on Display                                                                 
|                                                                                     
|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 SECURITY HOLDERS AND USE OF PROCEEDS
|                                                                                     
|ITEM 15. CONTROLS AND PROCEDURES                                                     
|                                                                                     
|ITEM 16. [RESERVED]                                                                  
|                                                                                     
|ITEM 16A. Audit Committee Financial Expert                                           
|                                                                                     
|ITEM 16B. Code of Ethics                                                             
|                                                                                     
|ITEM 16C. Principal Accountant Fees and Services                                     
|Audit Fees                                                                           
|Audit-Related Fees                                                                   
|Tax Fees                                                                             
|All Other Fees                                                                       
|Pre-Approval Policies and Procedures                                                 
|Part III                                                                             
|                                                                                     
|ITEM 17. FINANCIAL STATEMENTS                                                        
|                                                                                     
|ITEM 18. FINANCIAL STATEMENTS                                                        
|                                                                                     
|ITEM 19. EXHIBITS                                                                    



Certain References and
Information

In this Form 20-F,
 references to Net  Serviços,  we, us and our are to Net Serviços de Comunicação
 S.A. and,  unless the context  requires  otherwise,  include the consolidated
 subsidiaries of Net Serviços de Comunicação S.A.  References to our ADSsare to our
American Depositary Shares, each of which represents 10 of our preferred shares.

All  references  in
this Form  20-F to U.S.  dollars,  $ or US$ are to United  States  dollars,  and
all  references  to reais, real or R$ are to Brazilian reais. The accounts of Net
Serviços,  which are maintained in reais,  were adjusted to conform with accounting
 principles  generally accepted in the United States of America,  or U.S. GAAP, and
translated into U.S. dollars on the basis set forth in note 2 to our  consolidated
 financial  statements as of and for each of the years ended December 31, 2001, 2002 and
2003.  Unless  otherwise  specified,  certain  amounts  stated  in this  Form  20-F in
U.S.  dollars  (other  than as set  forth in our consolidated  financial  statements and
financial  information  derived  therefrom)  have been  translated,  for the convenience
of the reader,  from reais at the rate in effect on December 31, 2003 of R$2.8892 =
US$1.00.  These translations  should not be construed as a representation  that reais
could have been  converted  into U.S.  dollars at that rate on that date or on any other
 date.  On June 25, 2004, the rate of exchange was R$3.1096 = US$1.00.  See Item 3. Key
InformationExchange Rate Information.

Data concerning total
cable subscribers,  total subscription  television  subscribers and total penetration
rates in Brazil as of December  31,  2003 are based on Pay-TV  Survey No. 85,  published
 in March,  2004 by Pay-TV,  a  Brazilian  industry  publication, and also on our
 knowledge  of the cable  systems  of Net  Serviços  and  related  parties  as well as on
claims by other  subscription television  providers.  While we believe these  estimates
to be reasonable,  we cannot assure you of their accuracy.  Unless  otherwise specified
 and other than with  respect to  historical  financial  statement  information,  we
present  all  operating  statistics  and subscriber information concerning Net Serviços
as of December 31, 2003.

Forward-Looking
Statements

This Form 20-F
 contains  forward-looking  statements,  within the meaning of Section 21E of the
 Securities  Exchange  Act of 1934,  as  amended,  or the  Exchange  Act,  that are
 intended to enhance  your  ability to assess our future  financial  performance.
Forward-looking  statements  include,  but are not limited to,  statements  that
represent our beliefs  concerning  future  operations, strategies,  financial  results
and other  developments,  and  contain  words such as may,  might,  should,  intend,  expect,anticipate,  plan and
similar  expressions.  Because these  forward-looking  statements are based on estimates
and assumptions that are subject to significant  business,  economic and competitive
 uncertainties,  many of which are beyond our control or are subject to change,  our
 actual  results  could be  materially  different  from the  beliefs we express  in our
 forward-looking  statements.  The following uncertainties, among others, may have such
an impact:

- our
consolidated  financial  statements  included  elsewhere in this Form 20-F have been
prepared under the assumption that we               will  continue as a going  concern,  even
though there is  substantial  doubt about our ability to continue as a going
              concern due to the fact that we have not made any interest or principal
 payments on our outstanding  indebtedness since               prior to December 2002 and
that there can be no assurance that the results of the current  negotiations  with our
various               lenders and debt holders regarding the restructuring of such
indebtedness will be successful;

- our
significant amount of debt, and our ability to repay, refinance or restructure our debt;

- adverse
changes in our liquidity position;

- changes in
 Brazilian  economic  conditions,  including  changes in interest  rates,  exchange
 rates and the  performance  of               financial markets;

- changes in
governmental regulations applicable to our activities;

- the advent of
new communication technologies or distribution systems that compete with our own;

- competitive
 pressures on product  pricing and services,  industry  consolidation  and the relative
 success and timing of our               business strategies;

- our continued
access to the capital we need to implement our business plan; and

- the other
matters discussed under Item 3.  Key InformationRisk Factors.



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
 consolidated  statement of operations data for each of the three years in the period
ended December 31, 2003 and the  selected  consolidated  balance  sheet  data as of
 December  31,  2002 and 2003 set forth  below  are  derived  from our  audited
consolidated  financial  statements  included  elsewhere in this Form 20-F.  Statement of
operations  data for the years ended December 31, 1999 and 2000 and the balance sheet
data as of December 31, 1999, 2000 and 2001 are derived from our previously  published
 audited consolidated  financial  statements,  which are not included in this Form 20-F.
All of our consolidated  financial statements have been prepared in accordance  with U.S.
GAAP. The selected  consolidated  financial data set forth below should be read in
conjunction  with, and is qualified in its entirety by  reference  to, Item 5.
 Operating  and  Financial  Review and  Prospects,  and our  consolidated financial
statements and notes thereto included elsewhere in this Form 20-F.

The selected financial
data below give effect to:

- the
consolidation of Unicabo Participações e Comunicações S.A., or Unicabo, from January 1,
2000;

- the
consolidation of Vicom S.A., or Vicom, from July 1, 2000; and

- the
consolidation of Net Sul Comunicações Ltda., or Net Sul, from September 1, 2000.

The  unaudited
 selected pro forma  statement  of  operations  data for the year ended  December 31,
2000 are derived from our consolidated  statements of operations and adjusted to give
effect to our acquisitions of Unicabo,  MDS  Telecomunicações  Ltda. (which held  100%
 ownership  of  Vicom)  and Net Sul  Holding  S.A.  (which  held  99.99%  ownership  of
Net Sul) as if each of  these  three acquisitions  had occurred as of January 1, 2000. We
accounted for the  acquisitions  of Unicabo,  Vicom and Net Sul using the purchase method
in accordance with U.S. GAAP.

We maintain our
 financial  records in  Brazilian  reais.  However,  our audited  consolidated  financial
 statements  and the selected financial data set forth below are presented in U.S.
dollars. In order to prepare our consolidated  financial  statements,  we translated our
accounts from reais to U.S.  dollars,  on the basis described in note 2 to our
 consolidated  financial  statements.  In comparing  amounts in U.S.  dollars in
different  periods,  you should  consider the historical  fluctuations  in the Brazilian
rate of inflation and in the rate of exchange between the real and the U.S. dollar.  See
note 2 to our consolidated financial statements.

|                                                                                          | Net
            Serviços
          de Comunicação S.A. 
      Consolidated Statements of Operations
|----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------
|                                                                                          | For the
          Year Ended December 31,                                                          
|                                                                                          |                                                                                                    
|                                                                                          | Actual 
      1999                                                                                 
|                                                                                          |                                                                                                    
|                                                                                          | (U.S. dollars
          in thousands, except per share and per ADS data)                           
|                                                                                          |                                                                                                    
|Revenues:                                                                                 |                                                                                                    
|Subscriptions                                                                             | US$369,598                                                                                         
|Sign-on and hook-up fee revenues(2)                                                       | 8,837                                                                                              
|Telecommunication service revenues                                                        |                                                                                                   
|Other services                                                                            | 20,035                                                                                             
|Taxes and other deductions from revenues(3)                                               | (40,022)                                                                                           
|                                                                                          |                                                                                                    
|Net operating revenues                                                                    | 358,448                                                                                            
|                                                                                          |                                                                                                    
|Operating cost and expenses:                                                              |                                                                                                    
|Programming and other direct operating
        costs                                      | (183,101)                                                                                          
|Selling, general and administrative expenses                                              | (86,219)                                                                                           
|Depreciation and 
      amortization(4)                                                   | (175,180)                                                                                          
|Non-recurring severance charges                                                           |                                                                                                   
|Impairment of Goodwill                                                                    |                                                                                                   
|Other                                                                                     | (815)                                                                                              
|                                                                                          |                                                                                                    
|Total operating costs and expenses                                                        | (445,315)                                                                                          
|                                                                                          |                                                                                                    
|Operating loss                                                                            | (86,867)                                                                                           
|Other income (expenses)                                                                   |                                                                                                    
|Monetary indexation expense, net; Gain
        (loss) on exchange rate, net               | (115,351)                                                                                          
|Loss on translation, net                                                                  |                                                                                                   
|Financial expense, net                                                                    | (98,478)                                                                                           
|Other non-operating expenses, net                                                         | (2,147)                                                                                            
|                                                                                          |                                                                                                    
|Total other 
      expenses                                                               | (215,976)                                                                                          
|                                                                                          |                                                                                                    
|Equity loss of investees                                                                  | (20,739)                                                                                           
|Minority interest                                                                         |                                                                                                   
|Income tax benefit (expense)                                                              | (1,444)                                                                                            
|Cumulative effect of accounting change(5)                                                 |                                                                                                   
|Net loss                                                                                  | US$ (325,026)                                                                                      
|                                                                                          |                                                                                                    
|Loss per share, basic and diluted(6)                                                      | (1.86)                                                                                             
|Weighted average number of common and
        preferred shares outstanding (thousands)(6) | 174,462                                                                                            
|Loss per ADS(6)                                                                           | (18.60)                                                                                            
|OTHER FINANCIAL DATA:                                                                     |                                                                                                    
|Cash flows provided by (used in) operating
        activities                             | 128,551                                                                                            
|Cash flows provided by (used in) investing
        activities                             | (92,888)                                                                                           
|Cash flows provided by (used in) financing
        activities                             | 87,077                                                                                             

|                                                          | As of December
31,                                            
|--------------------------------------------------------- | --------------------------------------------------------------
|                                                          |                                                               
|                                                          | 1999                                                          
|                                                          |                                                               
|                                                          | (U.S. dollars
in thousands, except per share and per ADS data)
|                                                          |                                                               
|BALANCE SHEET DATA:                                       |                                                               
|Assets:                                                   |                                                               
|Current assets                                            | US$157,616                                                    
|Due from related companies                                | 66                                                            
|Property and equipment, net                               | 474,390                                                       
|Investments and advances to equity investees              | 40,147                                                        
|Goodwill on acquisition of consolidated
subsidiaries, net | 143,593                                                       
|Other assets(7)                                           | 44,780                                                        
|                                                          |                                                               
|Total assets                                              | US$860,592                                                    
|                                                          |                                                               
|Liabilities:                                              |                                                               
|Current liabilities                                       | 360,767                                                       
|Long-term debt, less current portion                      | 206,377                                                       
|Accounts payable to programmers                           | -                                                             
|Due to related companies                                  | 334                                                           
|Deferred sign-on and hook-up fee revenues                 | 38,913                                                        
|Other liabilities                                         | 44,054                                                        
|                                                          |                                                               
|Total liabilities                                         | 650,445                                                       
|                                                          |                                                               
|Advances for future capital Stock:                        | -                                                             
|Stockholders' Equity:                                     | US$210,147                                                    
|                                                          |                                                               
|OPERATING DATA: 
(at end of period, except for average)   |                                                               
|Total homes passed by cable                               | 4,986,901                                                     
|Total connected 
subscribers(8)                           | 1,012,980                                                     
|Cable penetration(9)                                      | 20.3%                                                         
|Average monthly revenue per cable subscriber(10)          | US$30                                                         

---

(1) The unaudited
selected pro forma data give effect to the acquisitions of Unicabo, Vicom and Net Sul as
if each acquisition had occurred as of January 1, 2000 and reflect the following
assumptions:


- fair market
value of US$37.9  million for the assets and  liabilities  acquired,  consisting  mainly
of property and equipment               held by Net Sul;

- goodwill of
US$738.9  million related to the acquisition of Net Sul, based on the fair market value
of the shares we issued as               acquisition consideration and the fair market
value of assets and liabilities acquired;

- an  increase
 of  US$822.9  million  in  stockholders  equity,  based on the fair  market  value of
the  shares  we issued as               acquisition consideration at the date of each
transaction (relates to acquisitions of Unicabo, Vicom and Net Sul);

- depreciation
 charges of US$6.8  million in 2000 to reflect  additional  depreciation  on the fair
 market  value of  property               acquired; and

- amortization
 charges of US$49.3 million in 2000 to reflect the  amortization of the goodwill as if
the  acquisitions had been               completed on January 1, 1999.

In the opinion of our
 management,  all  adjustments  necessary to present  fairly this  unaudited pro forma
 financial  data have been made. The unaudited pro forma combined  condensed  statement
of operations data are presented for  informational  purposes only and may not be
 indicative  of either the results that actually  would have  occurred if the three
 acquisitions  had occurred as of January 1, 2000,  or our  future  results.  In
 particular,  the  unaudited  pro forma  adjustments  are not  intended  to reflect  any
 operating efficiencies,  cost  savings or other  synergies  that may be  achieved  with
 respect to the  combined  operations.

(2)   Pursuant to
Statement of Financial Accounting  Standards,  or SFAS, No. 51, Financial Reporting by
Cable Television  Companies,      sign-on and hook-up fee revenues are recognized
 currently up to the amount of related direct selling  expenses,  with the excess
      deferred and recognized as revenue ratably over ten years (the estimated  average
period that  subscribers  will remain connected       to the network).  As of December
31, 1999, 2000, 2001, 2002 and 2003  accumulated  sign-on and hook-up fee revenues
 deferred for       future recognition aggregated US$38,913, US$39,448, US$29,890,
US$19,980 and US$23,899, respectively.

(3)   The ICMS,  which
is the  value-added  tax levied by the various  Brazilian  states on our  subscription
 revenues and sign-on and       hook-up fees, generally increased to 10% in 2001 from
7.5% in 2000 and 5% in 1999.  The ICMS remained 10% in 2002 and 2003.

(4)   From January 1,
1999 through  December 31, 1999 we  depreciated  our cable plant on a  straight-line
 basis at a 20% annual rate.       From  January 1, 2000  through  December  31,  2001,
 we  depreciated  our cable plant at a rate of 12.5% to 20.0% a year.  Since
      January 1, 2002,  we have  depreciated  our cable plant at 6.7% to 8.3% a year
because of the recent  upgrades  made to our cable       plant in connection with
building a two-way  communication  system that allowed us to introduce our broadband
 Internet  service,       Vírtua.  Based on external  independent  analysis,  we
concluded  that this upward  revision to the estimated  useful life of our       cable
plant was appropriate.  The decrease in depreciation  rate reduced our  depreciation
 expense by US$8.1 million in 2002. In       addition,  the adoption of SFAS, No. 142,  Goodwill
and Other  Intangible  Assets, in January 2002, we ceased  amortization  of
      Goowill, which decreased amortization expenses by US$63.7 million in 2002 when
compared to 2001.

(5)   Upon  adoption
of SFAS,  No. 142, we recorded this non-cash  charge to reduce the carrying  value of
goodwill.  Since this charge       was recorded for the first time in 2002, reflecting a
change in accounting  principles,  the impairment losses were recognized as
      non-operational.

(6)   Reflects the
ten-for-one reverse split of our preferred shares, common shares and ADSs, which occurred
on June 17, 2002.

(7)   Includes
judicial deposits, deferred income tax, income tax recoverable and other assets.

(8)   Includes
 temporarily blocked subscribers of 34,487 on December 31, 2000, 18,878 on December 31,
2001, 7,144 on December 31, 2002       and 21,208 on December 31, 2003, for a total
number of actively paying  subscribers of 1,470,046 on December 31, 2000,  1,428,373
      on December 31, 2001,  1,323,264  on December 31, 2002 and  1,331,266 on December
31, 2003.  We did not collect data on the total       number of blocked subscribers prior
to 2000.

(9)   Period-end
connected subscribers divided by homes passed.

(10)  Average  monthly
 revenue per  subscriber  is calculated by dividing our  subscription  revenues for the
period  presented by the       average number of connected subscribers for that period.

Exchange Rate
Information

The information  set
forth below with respect to exchange rates is based on the official  exchange rate of the
Central Bank of Brazil,  or the Central Bank.  These rates are provided  solely for the
 convenience  of the reader and are not the exchange rates used in the preparation of our
consolidated financial statements included in this Form 20-F.

The following table
shows the commercial selling rate in reais per U.S. dollar for the periods and dates
indicated:

Exchange Rate of
Brazilian Currency per U.S. Dollar

---

|Year                       
|---------------------------
|                           
|1999                       
|2000                       
|2001                       
|2002                       
|2003                       
|2004 (through June 25)     
|                           
|                           
|                           
|                           
|Month                      
|December 2003              
|January 2004               
|February 2004              
|March 2004                 
|April 2004                 
|May 2004                   
|June 2004 (through June 25)

---

Source:  Central Bank


(1)  Calculated by
using the average of the exchange rates on the last day of each month during the relevant
periods.


On December 31, 2003,
 the commercial  selling rate was R$2.8892 per U.S.  dollar.  On June 25, 2004,  the
commercial  selling rate was R$3.1096 per U.S. dollar.

Fluctuations  in the
 exchange  rate  between  the real and the U.S.  dollar  will affect the U.S.  dollar
 equivalent  of the real-denominated prices of our shares and, as a result, will affect
the market prices of our ADS in the United States.

Risk Factors

You should  carefully
 consider  the risks and  uncertainties  described  below and the other  information  in
this Form 20-F, including  the  discussions  set forth in Item 4.  Information  on the
 Company  and  Item 5.  Operating  and  Financial  Review and Prospects, as well as
our  consolidated  financial  statements  and related notes  included  elsewhere in this
Form 20-F. See Item 5. Operating and Financial  Review and  ProspectsLiquidity  and
Capital  Resources  for a discussion of the proposed debt  restructuring plan and for a
description of our debt.

Risks Related to the
Level of our Existing Debt

We have a significant
 amount of debt, which increases our  vulnerability to adverse economic and market
 conditions and adversely      affects our business, liquidity and results of operations.

The  aggregate  unpaid
 principal  balance of our debt  totaled  approximately  US$349.9  million as of December
 31, 2003 and approximately  US349.4 million as of March 31, 2004. In addition,  our
accrued but unpaid interest  totaled US$85.5 million and US$92.7 million as of December
31, 2003 and March 31, 2004,  respectively,  and other fees and penalties  totaled
 US$22.1  million and US$34.7 million as of  December  31,  2003 and March 31,  2004,
 respectively.  As a result of our  failure to make any  interest  or  schedule principal
payments on our debt since December 2002, all of our debt is classified as current.

As of December 31,
2003,  approximately  63% of our debt was denominated in U.S.  dollars.  Average interest
rates on our debt during  2003 were  approximately  26.3% in  respect  of our  Brazilian
 currency  debt and  approximately  7.8% in  respect of our U.S. dollar-denominated debt.

During 2002,  Standard
& Poors lowered our foreign and local currency  corporate credit and senior unsecured
debt ratings and placed us on credit  watch with  negative  implications.  Our rating was
lowered (i) to B+ from BB-, on February 8, 2002,  (ii) to CCC+ from B+, on June 28, 2002,
and (iii) to D from CCC+, on December 3, 2002.  Currently our rating is D.

Our significant amount
of debt has important consequences to holders of our preferred shares and ADSs, including:

- we may not be
able to continue as a going  concern if we are not able  successfully  to reduce the
level and restructure the               terms of our debt;

- our  creditors
 may seek to accelerate  and/or to exercise  other  remedies as a result of our failure
to make any interest or               principal  payments on our debt since  December
 2002;  this could result in the  liquidation  or sale of the company and
              would have a material adverse effect upon the value of our preferred shares
and ADRs;

- the holders of
our preferred shares and ADRs could experience  significant dilution in the event of
debt-for-equity  exchanges               with our lenders or debt holders;

- our debt
level,  and the fact that a significant  portion of our debt bears  floating  interest
rates and/or is denominated in               U.S. dollars,  increases our vulnerability
to adverse general economic and cable and television industry conditions,  and
              to fluctuations in exchange rates and interest rates;

- we have
limited or no ability to obtain additional financing to fund our working capital
 requirements,  capital expenditures,               acquisitions or other general
corporate activities; and

- we will need
to devote a substantial  portion of our cash flow from  operations to the payment of
principal of and interest on               debt, thus reducing future business
opportunities.

We are  currently  in
default  under all of our debt  facilities  and  instruments,  which  allows our lenders
and debt holders to      accelerate  payment on our such  facilities  and  instruments
 and/or to seek to exercise  legal  remedies to enforce their rights      thereunder and
in accordance with Brazilian law.

We have not made
scheduled  principal or interest  payments on any of our debt since prior to December
 2002. Our  non-payment of these scheduled principal and interest payments  constitutes
an event of default under these debt facilities and instruments,  which permits,  subject
to applicable  procedural  requirements,  our various  lenders and debt holders to
 accelerate  all amounts due under their  respective  debt  facilities  and  instruments.
 In December  2002,  União de Bancos  Brasileiros  S.A.,  or  Unibanco,  filed a
collection suit against us in the Central Court of São Paulo to recover  approximately
 R$72.2 million  (US$25.0  million)  relating to amounts  outstanding on a loan made to
us. Although this action has been  suspended,  we cannot assure you that such action will
not be reinstituted  or that our  other  lenders  or debt  holders  will not seek to
 accelerate  amounts  outstanding  under  any of our debt facilities or instruments or
seek to exercise  legal remedies to enforce their rights  thereunder or in accordance
 with Brazilian law. Any such action would have a material adverse effect on our business
and on the value of our preferred shares and ADSs.

We and our various
 lenders and debt holders are currently  engaged in  negotiations  with regard to a
 restructuring  of our debt      facilities and instruments.  If these negotiations are
not successful,  we will continue to be left with negative working capital,      and may
not be able to continue to operate as a going concern.

In early 2003, we and
various of our lenders and debt holders  commenced  negotiations  with regard to a
restructuring  of our debt  facilities and  instruments.  These  negotiations  are still
taking place.  The goals of these  negotiations  are to, among other things,  reduce our
near-term debt service  obligations  to levels that can be serviced with operating cash
flows,  limit the impact of future exchange rate volatility by reducing the amount of our
 dollar-denominated  debt, amend certain financial and other covenants in our debt
facilities and instruments, and establish a fully-funded business plan for the medium
term.

As further  described
in Item 4.  Information on the Company Recent  Developments,  on June 24 and June 25,
2004 we entered into  commitment  letters with creditors  holding in the aggregate
 approximately  70% principal  amount of our  outstanding  debt. The commitment  letters
outline the terms upon which we would exchange the indebtedness of Net Serviços and its
 subsidiaries  held by such creditors for a combination of Net Serviços new senior
 secured debt, new  subordinated  convertible  debt,  and/or new equity (or, in certain
 circumstances,  cash).  If the  restructuring  were to be consummated in accordance with
the terms set forth in the commitment letters with the  participation  of 100% of our
creditors,  and the  transactions  contemplated in the agreement  between  Globopar and
Teléfonos de México, S.A. de C.V., or Telmex (as further described in Item 4.
Information on the Company Recent Developments),  were likewise  consummated,  we
expect that we would issue 1,825,021,996 new equity shares, and reduce the aggregate
amount of our financial debt from  approximately  R$1,395 million (US$442.9
 million) as of June 30, 2004 to approximately  R$730.0  (US$231.7  million) (using an
exchange  rate of R$3.1500 =  US$1.00),  all of which debt would be secured and would
have terms set forth in the  commitment letters.  The  consummation  of the  transactions
 contemplated  by the  commitment  letters  are  subject  to a number of  significant
conditions that are beyond our control,  including  creditors  holding no less than 95%
of our outstanding debt agreeing to participate in the restructuring.

We can give no
assurance that the  restructuring  will be consummated or that our  outstanding  debt
will be  renegotiated  in full or in part. If the  restructuring  is not concluded in a
satisfactory  manner,  we will not be able to pay the unpaid amounts that have come due
on our debt since  December  2002 or to meet our ongoing  principal  and interest
 payment  obligations  without  further financing by third  parties.  This would result
in a liquidity  crisis for us, would have a material  adverse  impact on our  financial
condition,  and could result in our  inability to operate as a going  concern. If we
are unable to continue as a going  concern, we may be forced to pursue a sale or
liquidation of assets to satisfy our creditors.  This would  materially  adversely
 affect holders of our preferred shares and ADSs.

Even if we are able
 to successfully restructure  our existing debt, we may continue to have a significant
 amount of debt and the      agreements  governing our debt will continue to contain
 restrictions and limitations that could significantly  impact our ability      to
operate our business.

Even following a
successful restructuring of our existing debt, we may continue to have a significant debt
burden.  Much of this debt will be denominated in U.S. dollars.  Moreover, our Brazilian
currency debt will, at least initially, bear interest at high nominal rates.  As a
result, we will remain vulnerable to adverse general economic and pay-television industry
conditions and to fluctuations in exchange rates and interest rates.  We will also need
to continue to devote a substantial portion of our cash flow from operations to the
payment of principal of and interest on debt, thus reducing future business opportunities.

The  agreements  that
govern our existing  debt contain a number of  significant  covenants  that could
 adversely  impact our business.  Moreover,  the terms of the debt that we will continue
to have if we are able  successfully to restructure our existing debt are likely to be
even more  restrictive  than the terms contained in our existing debt  instruments.
 These terms  currently,  and will continue to, restrict our ability and the ability of
our subsidiaries to:

- pay dividends
or make other distributions;

- make certain
investments or acquisitions;

- make capital
expenditures above certain levels;

- dispose of
assets or merge;

- incur
additional debt;

- issue equity;

- repurchase or
redeem equity interests and debt;

- grant liens;
and

- pledge assets.

Furthermore,  in
accordance with a number of our existing debt  agreements,  we are required to maintain
 specified  financial ratios,  including  consolidated debt to consolidated  operating
cash flow, or adjusted EBITDA to consolidated net interest expense. If we are able
 successfully  to restructure our debt, we would expect to reset these covenants to a
level that we believe that we will be able to satisfy,  but there can be no assurance
that we will be able to do so or that,  even if so reset, we will in the future be able
to meet these covenants.

Risks Related to Net
Serviços

We may continue to
record net losses in the future.

We reported net losses
of US$349.5  million,  US$701.0  million and US$45.4 million in 2001, 2002 and 2003,
 respectively.  We may continue to record net losses in the future due to our financial
 expenses.  We cannot predict what impact  continued  losses might have on our ability to
finance our operations in the future or on the market value of our preferred shares and
ADSs.

Due to our losses so
far, we have never  declared or paid any cash  dividends on our shares,  including the
 preferred  shares underlying our ADSs.  We do not expect to pay any cash dividends in
the foreseeable future.

Any change  in our
relationship with Globopar and its affiliates could adversely affect our access to
programming.

Historically, we have
obtained all of our programming from Brazilian and international sources through Net
Brasil S.A., or Net Brasil, 60% of which is indirectly owned by Globopar and 40% of which
is owned by us.  Accordingly, we have not had any direct contracts with any programming
providers.  Although Net Brasil provides us with exclusive cable-television rights in our
licensed areas, it also provides programming to cable television companies outside our
licensed areas and to Sky Brasil Serviços Ltda. (formerly Net Sat Serviços Ltda.), or Sky
Brasil, a satellite-television provider that competes directly with us and in which
Globopar owns a significant interest.  Net Brasil provides programming to us and Sky
Brasil on substantially the same terms and conditions.  In addition, much of the
programming that we purchase through Net Brasil is produced by Globosat Programadora
Ltda. and its affiliates, or Globosat, which is wholly owned by Globopar.

On June 27, 2004, we
entered into an amended and restated programming agreement with Net Brasil whereby Net
Brasils role in acquiring programming for us has been altered as described below.  Under
the amended and restated agreement, Net Brasil will retain its role with regard to
obtaining all other programming, in particular content or channels produced in Brazil,
while we will directly obtain, for our own account and benefit, all new international
content from sources outside of Brazil, which corresponds to approximately one third of
our line-up.  Due to the above reduction in scope of the services provided by Net Brasil,
the compensation paid by us to Net Brasil will be reduced considerably.  See Item 7.
 Major Shareholders and Related Party TransactionsRelated Party TransactionsMaterial
Transactions with AffiliatesNet Brasil Programming Agreement.

Continued negative
financial or business developments at Globopar (for example, Globopars inability to
obtain necessary financing) or changes in our relationship with Globopar and its
affiliates (for example, if Globopar were no longer a  significant shareholder of Net
Serviços) could adversely affect our renewed programming arrangements with Net Brasil and
our ability to obtain programming whether from within the Globo group of companies or
elsewhere.  This could lead to the loss of our current cable television rights to Globosats
popular Brazilian programming or to the loss of access to all or some of such
programming, and therefore the ability to attract and retain subscribers.  In addition,
this could result in increases in our programming costs to the extent we lose the benefit
of Net Brasils market scale in negotiating programming fees on our behalf.  Increases in
programming costs would adversely affect our cash flows and operating margins.

Our debt restructuring
could result in a material change in our relationship with our current shareholders and
our governance.

Any debt for equity
 exchange  in  connection  with our debt  restructuring  could  result in a  significant
 dilution  of the ownership  interest in Net Serviços of Globopar and our other current
 major  shareholders.  The  recipients of equity issued in such a debt  for  equity
 conversion  could  hold in the  aggregate  more of our  equity  than  Globopar  or any
of our  other  current  major shareholders  and could  potentially  collectively  control
the largest  block of our voting  stock.  Our new  shareholders  could have significantly
 different  interests in Net Serviços and our operations  than our current major
 shareholders.  The recipients of equity issued in a debt for equity  exchange  may not
be willing or able to provide to us the  financial  and other  support  that our current
major shareholders have provided to us historically.

Holders of our common
shares are able to control most corporate transactions.

Entities affiliated
with our major shareholders:  Globopar,  BNDES Participações S.A., or BNDESPar,
 Bradesplan  Participações S.A., or Bradesplan,  RBS Participações  S.A., or RBS,
together own approximately 98% of our common shares.  Common shares are our only shares
of capital  stock that hold full  voting  rights.  As a result,  these  major
 shareholders,  acting  together,  will be able to control most corporate transactions.

In accordance  with
 Brazilian  corporate  law and our by-laws,  holders of the preferred  shares,  and thus
of the ADSs,  are entitled to vote at meetings of our  shareholders  in only  limited
 circumstances.  This  means,  among other  things,  that you, as a holder of preferred
shares or ADSs, are entitled to vote only on the following matters:

- our
transformation, consolidation, merger or spin-off;

- valuation of
assets used in increases in our capital;

- approval of
certain specified agreements between us and our controlling shareholder or its affiliates;

- choice of a
company skilled in the determination of the our economic value intended for the public
offering of our shares; and

- change or
repeal of  statutory  provisions  of our by-laws  that alter or modify any São Paulo
Stock  Exchange,  also known as               Bovespa, requirements.

Certain of our major
 shareholders  have interests in companies that currently or may in the future compete
with us, including the  interests  of  Globopar  and the Marinho  family in Sky Brasil,
 a satellite  pay-television  provider,  and in several  broadcast television  stations.
 Accordingly,  the  interests  of our major  shareholders  may  conflict  with the
 interests  of  holders of our preferred  shares,  and our major  shareholders  may cause
the company to act in a manner divergent with the interests of our preferred shareholders.

We depend on key
members of our senior  management.  Any  difficulty in retaining our current  senior
 management or in hiring new      employees could adversely affect our ability to operate
our business.

Our  business is
managed by a small  number of key senior  managers.  The loss of any of these
 individuals  could  materially affect our business.  In addition,  our success depends
on our ability to continue to attract,  recruit and retain sufficient qualified
scientific,  technical,  managerial and administrative  personnel as we grow.
 Competition for qualified personnel in Brazil is strong, and there is  generally a
limited  number of persons  with the  requisite  experience  in the  sectors in which we
 operate.  We cannot assure you that we will be able to retain senior management,
integrate new managers or recruit qualified personnel in the future.

Risks Related to Our
Business

The industry in which
we operate is highly competitive, which can adversely impact our business and results of
operations.

The television
industry in Brazil is highly competitive.  We currently compete with:

- cable  systems
in seven of the 44 cities in which we  operate,  including  systems in the  cities of São
Paulo,  Curitiba  and Florianópolis operated by TVA Sistema de Televisão
S.A., or TVA, and in Belo Horizonte operated by W@y Brasil;

- DBS services
offered in Brazil by Brazilian and international  media consortia,  including:  Galaxy
Brasil Ltda., a subsidiary               of DirecTV Latin  America LLC; and Sky Brasil,
 a joint venture  between News  Corporation  plc, a subsidiary of The News
              Corporation Limited, Globopar and Liberty Media International, Inc.;

- Brazilian
broadcast networks and their local affiliates; and

- multi-channel
 multi-point  distribution  systems, or MMDS,  including those systems operated by or
affiliated with TVA in São               Paulo and Rio de Janeiro.

We also compete with
movie theaters, video rental stores and other entertainment and leisure activities
generally.

Our broadband Internet
provider,  Vírtua, faces significant  competition from other broadband Internet
providers,  principally telephone companies, including Telefonica, Telemar and Brasil
Telecom, of asymmetric digital subscriber line technology, or ADSL.

Our corporate data
transmission service,  Vicom, competes with numerous providers of similar services,
 including Embratel and Telefonica.

A number of our
competitors have greater financial and other resources,  including access to the
financial  resources of their shareholders,  than we do. As a result,  we are unable to
assure you that we will have the  ability  to compete  successfully,  and any such
failure  could have a material  adverse  effect on our  business,  financial  condition
 and results of  operations.  In addition, changes in technology may affect our
competitiveness.  The pay-television  industry  historically has been, and likely will
continue to be, subject to rapid and significant  changes in technology.  In particular,
 the emergence of new, lower cost delivery  systems or the widespread use of digital
compression  technology,  which is currently  available for certain  transmission media
and under development for others,  would allow transmission of multiple channels on the
same frequency,  and therefore could result in increased  competition in the  Brazilian
 pay-television  industry.  We are unable to assure you as to the  ultimate  effect on us
of  possible  technological changes.  Technological  advances could require us to expend
 substantial  financial  resources in the development or implementation of new
technologies in order to prevent our services from becoming obsolete.

High rates of churn
could negatively affect our revenues and profitability.

Our ability to
generate  pay-television  subscription  revenue is dependent on our ability to attract
and retain  subscribers, which entails  significant  costs such as the programming fees
we must pay in order to assemble  attractive  programming  packages.  In addition, we
incur certain unrecoverable costs,  particularly  equipment installation costs, sales
commissions and marketing costs, for every new  subscriber  we  connect  to our cable
 network.  Subscriber  churn  is the total  number of net  disconnected  subscribers
(excluding  the  temporarily  blocked  subscribers)  for a period as a percentage  of the
average  number of  subscribers  for the same period.  The fact that we experience a
variety of significant  fixed costs for each new subscriber  means that high rates of
subscriber churn could have a material adverse effect on our revenues and profitability.

During 2003,  we
continued to experience  decreased  churn when compared to 2001 and 2002 levels.  This
 improvement  resulted from various  factors,  including  positive  results from the
 implementation  of a more selective  screening  process when determining whether to
accept new subscribers,  use of retention  islands,  a program that utilizes skilled
 customer  service  representatives  to target  subscribers  who may  discontinue  their
 subscription  due to  dissatisfaction  with our  service,  the creation of a customer
relationship  marketing area to address possible  conflicts  between us and our customers
that could result in churn and our heightened focus on customer  satisfaction by
continuing to improve the  performance of our customer  service  centers.  We cannot
assure you that our churn rates will not be higher in future periods or revert to the
levels experienced in prior years.

Increases in our
programming costs would adversely affect our cash flow and operating margins.

Programming has been,
and is expected to continue to be, our largest  operating  expense,  representing,
 including  trademark fees,  approximately 36.3% and 33.1% of our gross operating
revenues in 2002 and 2003,  respectively.  In addition, the amounts charged to us under
our programming  agreements have historically  been denominated in U.S.  dollars.  Such
amounts are then converted to reais as of the date of invoice.  Depreciation  of the real
against the U.S.  dollar has  increased  the cost of our  programming  under such
agreements.  Furthermore,  under  Brazilian  currency  rules,  our  contracts  with  our
 current  subscribers  allow  us  to  increase subscription  fees only once  every 12
months  and in  proportion  to  inflation.  Accordingly,  these  contracts,  along  with
 market constraints,  limit our ability to pass along increases in programming  costs to
our  subscribers.  Any increases in programming  costs that we are unable to pass on to
subscribers could adversely affect our cash flows and operating margins.

During 2003, we
entered into  negotiations with our programmers,  through Net Brasil,  to amend our
programming  agreements to provide  that we are  charged for  programming  in reais
 instead of in U.S  dollars,  thereby  reducing  the impact of  exchange  rate
fluctuations  on our  programming  costs.  Negotiations  with some of our  programmers
 are still taking  place.  As of March 31, 2004, programmers  representing  approximately
 95% of our  programming  costs,  were  accepting  payment  as if the  programming  costs
were contractually  fixed in reais instead of in U.S dollars.  However,  we have only
entered into definitive  agreements  with  programmers representing  approximately 67% of
our total  programming  costs. We cannot assure you that agreements will be reached with
each of our programmers so that we are charged for programming in reais instead of in U.S
dollars.

We operate our cable
systems under licenses that are non-exclusive and subject to conditional renewal.

Our  subsidiaries
 provide cable television  services  pursuant to the terms and conditions of licenses
granted and supervised by the Agência Nacional de Telecomunicações,  or Anatel, the
Brazilian  Telecommunication Agency under the applicable legislation.  See Item 4.
Information on the Company  RegulationCable  Television Services. Consequently,
 Anatel, could grant additional licenses to competitors in the same geographic  area. As
a result,  competing  operators may build systems in areas in which we hold licenses.
 The existence of more than one cable system  operating in the same territory is referred
to as an overbuild.  Overbuilds  could adversely affect our growth,  financial
condition and results of operations by increasing  competition or creating competition
where none existed previously.  We  experience  overbuild  in seven of the 44 cities in
which we  operate,  including  overbuilding  of 26% and 50% of our network in São Paulo
and Belo Horizonte, respectively.

In addition,  our
licenses are subject to periodic  renewal,  which is  conditioned  upon our having met
certain  requirements concerning our ownership,  system build-out,  our technical,
 financial and legal ability to operate the system and others.  Within its supervisory
 role,  Anatel  may  seek a  judicial  decision,  which  would  allow  it to  revoke  the
 license  of a  cable  television concessionaire  that,  due to the lack of  technical,
 financial  or legal  capacity,  fails to render cable  television  services on a regular
basis. We cannot assure you that our  subsidiaries  will have the necessary  working
capital to maintain the regular  rendering of cable  television  services in the event
our debt  restructuring is not completed in a satisfactory  manner.  Also, we cannot
assure you that in the event of a sale or  liquidation of assets,  our  subsidiaries
 would  maintain the technical and financial  capacity to render regular cable television
 services.  The failure to provide regular cable television services could, as explained
above, lead to the revocation of our subsidiaries  licenses by Anatel. If we were to
lose any of our licenses,  such loss could materially  adversely affect our business,
financial condition and results of operations.

We are subject to
extensive government regulations and changes in regulations could adversely affect our
operations.

Substantially  all of
our cable television  activities are regulated by Anatel.  Regulations cover all facets
of the Brazilian cable  industry and relate to, among other  topics,  licensing,  local
 access,  commercial  advertising  and foreign  investment.  For example, Brazilian cable
regulations:

- place limits
on the number of licenses that may be held by any single cable operator and its
affiliates;

- provide that
cable television licenses may not be transferred without approval of Anatel;

- require
pay-television operators to carry certain channels or content;

- limit the
provision of our broadband Internet service to existing cable subscribers; and

- prevent us
from acting as an Internet Service Provider, or ISP.

Under Brazilian
 currency rules, our contracts with our current  subscribers allow us to increase
 subscription fees only once every 12 months and in proportion to inflation.

In addition,
 Brazilian law requires that 51% of the voting rights of companies  holding  licenses to
provide cable television be held by Brazilian  citizens or by  companies  that
 themselves  have 51% of their voting  rights held by Brazilian  citizens.  These
ownership  restrictions  will limit the number of potential  buyers of or investors  in
Net  Serviços and could  therefore  depress the price of the preferred shares and the
ADSs.

The Brazilian
Congress,  from time to time,  considers  revisions to one or more aspects of regulations
 applicable to us. Any changes to the current Brazilian  regulatory  framework could have
a material adverse impact on our results of operations and financial condition.

The Internet access
portion of our business is subject to a number of factors that could effect its growth.

Our business  plan
depends in part on the  continued  growth of our  broadband  Internet  service,  Vírtua.
 Revenues from our broadband  Internet  service  totaled  US$17.9  million in 2003.  Only
a limited  number of  households  currently  use the Internet in Brazil.  If  Internet
 usage,  and  specifically  broadband  Internet  usage,  does not  increase,  declines
 or evolves  away from the technologies in which we are investing, our business and
results of operations could suffer an adverse effect.

The Internet industry
faces a number of related uncertainties.  These include but are not limited to the
following:

- a lack of
reliable security technologies;

- privacy
concerns;

- Internet
traffic congestion;

- evolving
industry standards which may make certain services obsolete;

- inconsistent
service quality;

- excessive or
unduly restrictive government regulation;

- network
infrastructure and risk of system failure, such as viruses;

- uncertainty
regarding intellectual property rights and other legal issues;

- the failure of
the Internet infrastructure, such as servers and modems, to support current levels of
usage growth;

- dependence on
partnerships with ISPs;

- claims of
liability against ISPs as a result of computer viruses or security breaches; and

- slower than
expected development and commercialization of performance improvements, such as
high-speed modems.

Any of these and other
 factors  could  negatively  affect our  ability to sell our  broadband  Internet
 service or any other Internet-based  services  we may  introduce  in the future.
 Finally,  our  broadband  Internet  service  faces a broad range of strong competition,
 including from major Brazilian  telephone  companies  providing ADSL services.  There
can be no assurance that we will be able to compete effectively in this market.

We and our
 subsidiaries  are party to several  legal  proceedings  arising out of our regular
 course of  business.  If we obtain     unfavorable outcomes in these proceedings, our
operating results could be materially and adversely affected.

We and our
 subsidiaries  are party to several  legal  proceedings  arising out of our regular
 course of business.  The legal proceedings  relate  predominantly  to tax matters and
labor and civil  disputes.  At December 31, 2003,  we have  provisioned  R$508.2 million
 (US$175.9  million),  R$462.6 million  (US$160.1  million) of which was provisioned to
cover losses relating to administrative and judicial tax proceedings.

In connection  with
certain  proceedings,  we were, and will continue to be,  required to place deposits with
a judicial court while awaiting the  adjudication of the  proceeding.  Judicial  deposits
are only released upon a favorable  final court  decision.  At December 31, 2003, the
aggregate  amount of judicial  deposits made by us totaled R$68.8 million  (US$23.8
 million).  We cannot assure you that we will obtain a favorable  court  decision  with
 regards to any  particular  proceeding  or that if we do obtain a favorable court
 decision  that the  favorable  court  decision  will not be appealed and  subsequently
 overturned.  In  addition,  although the majority of the proceedings against us have
been brought by government  agencies,  such as municipal,  state, and federal agencies,
 we cannot  assure you that such  agencies  will grant us the  ability to pay any
 imposed  judgment  over time.  If we obtain  unfavorable outcomes in these proceedings,
our operating results could be materially and adversely affected.

We may be subject to
substantial,  additional taxes on our network, which would have a material adverse impact
on our business and      results of operations.

In 1999,  several of
the principal  Brazilian  municipalities,  which  contained at that time 57% of our
 subscribers,  issued municipal decrees and laws imposing taxes for the use of public
 thoroughfares,  including  installation and passage of cables. We have filed lawsuits
challenging the constitutionality  and legality of this tax in each of these places,
 namely, São Paulo, Rio de Janeiro, Caxias do Sul, Anápolis, Campinas,  Florianópolis,
 Criciùma, São Carlos, Indaiatuba,  Brasília and Campo Grande. These taxes apply to,
among others, cable companies and telecommunication companies.

Two lawsuits have
already been decided in the lower courts.  In Rio de Janeiro,  we were released from any
payment  obligation in respect of the tax,  while in São Paulo the lower  court  ruled
 that we must pay the tax  retroactively  to the date the decree was issued. We
have filed an appeal in the São Paulo.

We have not
 established  any  reserves  for the payment of this tax. The tax varies by  municipality
 but in aggregate  would require monthly  payments,  on average,  in an amount equal to
R$1.04  (US$0.36) per meter of installed  cable.  We have  approximately 18,561,000
 meters of installed  cable in such  municipalities  where this tax exists.  If the
courts rule that the  collection of this tax by the municipalities is valid, the tax
would have to be paid  retroactively.  In addition,  if the municipalities  which
currently impose the tax are successful in implementing  and collecting  this tax,
 additional  municipalities  may seek to impose it as well. If our appeals fail and we
are required to pay this tax to the various  municipalities,  our operating  results
 would be  materially  and adversely affected.

We are party to
several other civil,  tax and labor  lawsuits.  Unfavorable  decisions in these lawsuits
may require us to pay significant  pecuniary amounts which may negatively impact our
business,  results of operations and financial  condition.  See Item 4. Information on
the CompanyLegal Proceedings.

Our success in
medium-term will depend in part on our ability to offer new services and to keep pace
with advances in technology.

We are in the  early
 stage  of  assessing  the  introduction  of new  services  such as  digital  cable
 television  and near video-on-demand.  We cannot be sure,  however,  that demand for our
new services  will be sufficient to recover our costs of developing and marketing  them.
 Moreover,  technology in the  communications  industry is changing very rapidly,  which
means it is possible that the  technology  in which we invest for  purposes of
 delivering  our new  services  could be rendered  uncompetitive  by the advent of
superior or cheaper  technology.  Finally,  it is likely  that many of the new  services
we offer in the future will also be offered by our  competitors.  Therefore,  our failure
to introduce these new services as rapidly,  or to market and sell them as  effectively,
 as our competitors could significantly harm our ability to generate significant revenues
from new services.

Risks Related to Brazil

A downturn or
volatility in the Brazilian economy or the depreciation of the real could adversely
affect our revenues,  cash flows      and profitability.

All of our  operations
 and customers are located in Brazil.  Therefore,  our results of  operations  and
financial  condition depend  upon the level of  economic  activity  in  Brazil,
 including  the rate of  economic  growth  and its  impact on demand for our services.
 The weakness in the Brazilian  economy has already  adversely  affected our subscriber
and revenue  growth.  There can be no assurance that the economic  weakness will not be
prolonged or become more severe.  Either  occurrence  would lead to shortfalls in our
revenues and subscriber levels and would have an adverse impact on the price of our
preferred shares and ADSs.

Although our revenues
are in reais, a substantial  portion of our debt  obligations and our equipment  costs,
 and to a lesser degree, our programming  costs, is denominated in other currencies,
 particularly U.S. dollars.  Accordingly,  depreciation of the real against the U.S.
 dollar would  provide us with a lower  amount of revenue to support our U.S.
 dollar-denominated  obligations,  which would in turn lead to  decreased  margins  and
have an adverse  impact on our  earnings  and cash flow and our  ability to service  our
debt.  As noted  above,  we are  currently  engaged in  negotiations  with some of our
 programmers,  through Net Brasil,  to amend our programming  agreements to provide that
we are charged for programming in reais instead of in U.S dollars,  thereby reducing the
impact of  exchange  rate  fluctuations  on  programming  costs.  As of March 31,  2004,
 we have  entered  into  definitive  agreements  with programmers  representing
 approximately  67% of our total programming  costs. We cannot assure you,  however,
 that agreements will be reached with each of our programmers so that we are charged for
programming in reais instead of in U.S dollars.

Moreover,  because our
revenues are  denominated in reais, a depreciation  of the real against the U.S.  dollar
would make our total revenue and average revenue per subscriber  grow more slowly (or
even decline) in U.S.  dollar terms than it does in reais.  This lower level of U.S.
dollar-denominated growth could have an adverse impact on the price of the preferred
shares and ADSs.

Although the real
 increased in value by  approximately  18.2% against the U.S.  dollar,  from an exchange
rate of R$3.5333 to US$1.00 on December  31, 2002 to an exchange  rate of R$2.8892 to
US$1.00 on December  31,  2003,  the real has  historically  suffered several major
 depreciations  against the U.S. dollar and has generally decreased against the U.S.
dollar since it was allowed to float by the Brazilian  government in 1999.  Within this
general trend of  depreciation,  the Brazilian  currency has shown high  volatility.
Depreciation of the real against the dollar could negatively impact the market price of
the preferred shares and the ADSs.

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

Our financial
condition and results of operations are substantially  dependent on Brazils economy.
 The Brazilian  government frequently intervenes in the Brazilian economy and
occasionally makes drastic changes in monetary,  fiscal,  taxation,  credit, tariff, wage
and price  controls and other  policies to  influence  the course of Brazils  economy.
 Our  business,  financial  condition  and results of operations may be adversely
affected by such changes in policy as well as other factors outside of our control such
as:

- currency
fluctuations;

- inflation;

- price
instability;

- interest rates;

- tax policy; and

- other
political, diplomatic, social and economic developments in or affecting Brazil.

Inflation  could
 threaten  our  revenues,  contribute  significantly  to economic  uncertainty  in
Brazil,  and cause  heightened      volatility in the Brazilian securities markets.

Brazil has, from time
to time,  experienced extremely high rates of inflation,  with annual rates of inflation
during the last ten years  reaching as high as  1,174.7%  in 1992,  2,567.3%  in 1993 and
869.8% in 1994,  according  to the Indice  Geral de Preços do Mercado,  or IGP-M, a
widely used indicator of inflation in Brazil  published by Fundação  Getúlio  Vargas.
 Since the  introduction of the real in July 1994,  Brazils  inflation rate has been
 substantially  lower than in previous  periods.  Brazils rate of inflation, according
 to  IGP-M,  was  20.1%  in 1999,  10.0% in 2000,  10.8%  in  2001,  25.3%  in 2002 and
8.7% in 2003.  Inflation  itself  and governmental  measures to combat inflation have, in
the past, had significant  negative effects on the Brazilian  economy.  Since 1999,
governmental  actions to combat  inflation,  including  interest rate increases and
intervention in the foreign exchange market through the sale of U.S.  dollars and
government  bonds linked to the U.S. dollar,  and public  speculation  about possible
future actions have also  contributed  to economic  uncertainty  in Brazil and to
 heightened  volatility in the Brazilian  securities  markets.  If Brazil experiences
 substantial  inflation in the future,  our costs may increase and our operating  and net
margins may  decrease,  which may adversely  affect our financial  condition  and results
of  operations.  Inflationary  pressures may also curtail our ability to access foreign
 financial  markets and may lead to further  government  intervention in the economy,
 including the introduction of government policies that may adversely affect the overall
performance of the Brazilian economy.

The  perception of
risk in emerging  economies may impede our access to  international  capital  markets and
adversely  affect the      market price of our preferred shares and ADSs.

International
 investors  generally  consider  Brazil to be an emerging  market.  Historically,
 adverse  developments  in the economies of certain  emerging  market  countries have
resulted in investors  perception of greater risk from  investments in emerging markets
in general.  Such  perceptions  regarding  emerging  market  countries  have
 significantly  affected the Brazilian  securities markets and the availability of credit
in the Brazilian  economy,  from both domestic and  international  sources of capital.
 Although economic  conditions  are  different  in each  country,  investors  reactions
to  developments  in one country can have effects on the securities of issuers in others,
 including  Brazil.  Economic and market  conditions in other emerging  market
 countries,  especially those in Latin  America and Asia,  have at times  resulted  in
 considerable  outflows  of funds and  declines in the amount of foreign investment in
Brazil,  have caused Brazilian  companies to face higher costs of raising funds,  and
have adversely  affected the market price of Brazilian  companies  securities.  Such
events have included the depreciation of the Mexican peso in December 1994, the Asian
economic  crisis of 1997 and the  Russian  currency  crisis of 1998.  These  events  were
 exacerbated  in Brazil by the 1999  currency depreciation and related economic
 developments.  Argentinas  instability in 2001 and 2002 increased  international
 financial markets volatility.

To the extent that
economic  problems in emerging  markets  countries or elsewhere  spread into Brazil or
adversely affect the Brazilian securities markets, our business and the price of the
preferred shares and ADSs will be adversely affected.

We cannot assure you
that, in the event of adverse  developments  in emerging  market  economies,  the
 international  capital markets will remain open to  Brazilian  companies or that
 prevailing  interest  rates in these  markets  will be  advantageous  to us. Decreased
 foreign  investment in Brazil could  negatively  affect growth and liquidity in the
Brazilian  economy,  which in turn could have a negative impact on our business.

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

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

The  Brazilian
 government  imposed  remittance  restrictions  for  approximately  six  months  in 1989
 and  early  1990.  If reintroduced,  these restrictions  would hinder or prevent the
conversion of dividends,  distributions or the proceeds from any sale of preferred
 shares,  as the case may be, from reais into U.S.  dollars and the remittance of the
U.S.  dollars abroad.  We cannot assure you that the Brazilian  government  will not take
similar  measures in the future.  In such a case, the custodian,  acting on behalf of the
 depositary  for the ADSs,  will hold the reais it cannot  convert for the  account of
the ADR holders who have not been paid.  The depositary  will not invest the reais and
will not be liable for  interest on those  amounts.  In  addition,  any reais so held
will be subject to depreciation risk.  We do not expect to pay dividends to our
shareholders for the foreseeable future.

Risks Related to Our
Securities

We are subject to
different corporate rules and regulations as a Brazilian company,  and the ADSs have
fewer and less well defined      shareholders rights.

Our corporate  affairs
are governed by our by-laws and the Brazilian  corporate law,  which differs from the
legal  principles that  would  apply if we were  incorporated  in a  jurisdiction  in the
 United  States,  such as  Delaware  or New  York,  or in other jurisdictions  outside
 Brazil.  In  addition,  your  rights or the rights of  holders  of the  preferred
 shares  under the  Brazilian corporate law to protect your  interests  relative to
actions by our board of directors may be fewer and less  well-defined  than under the
laws of those other jurisdictions outside Brazil.

The Brazilian
 securities  markets are not as highly  regulated and  supervised as the U.S.  securities
 markets or markets in other  jurisdictions.  In addition,  rules and policies against
 self-dealing  and regarding the  preservation of minority  shareholder interests may be
less well defined and enforced in Brazil than in the United States,  putting holders of
the preferred  shares and ADSs at a potential  disadvantage.  Corporate  disclosures may
be less complete or informative  than what might be expected of a U.S. public company.

You may face
difficulties in proceedings with respect to your interests as a shareholder, because we
are a Brazilian company.

We are a sociedade
 anonima,  or corporation,  organized under the laws of Brazil and all of our directors
and officers reside in  Brazil.  Substantially  all of our assets and those of these
 other  persons  are  located  in Brazil.  As a result,  it may not be possible for
 investors to effect  service of process upon us or these other persons  within the
United  States or other  jurisdictions outside Brazil or to enforce against us or these
other persons judgments obtained in the United States or other  jurisdictions  outside
Brazil.  Because  judgments of U.S. courts for civil  liabilities  based upon the U.S.
federal  securities laws may only be enforced in Brazil if  certain  requirements  are
met,  you may face  difficulties  in  protecting  your  interests  in the case of
 actions by our directors or officers than would shareholders of a corporation
incorporated in a state or other jurisdiction of the United States.

If you exchange the
ADSs for  preferred  shares,  you risk losing the ability to remit foreign  currency
 abroad and Brazilian tax      advantages.

The Brazilian
 custodian for the preferred shares must obtain an electronic  certificate of
registration from the Central Bank to be entitled to remit U.S.  dollars  abroad for
payments of dividends and other  distributions  relating to the  preferred  shares or
upon the disposition of the preferred  shares.  If you decide to exchange your ADSs for
the underlying  preferred  shares,  you will be entitled to continue to relyfor  five
 business  days from the date of the  exchangeon  the  custodians  electronic
 certificate  of registration.  Thereafter,  you may not be able to obtain and remit U.S.
 dollars  abroad  upon the  disposition  of, or  distributions relating to, the preferred
 shares unless you obtain your own electronic  certificate of  registration  or register
your  investment in the preferred  shares under  specified  regulations  that entitle
foreign  investors to buy and sell securities on the Bovespa.  If you obtain an
 electronic  certificate  of  registration,  you may be subject to  unfavorable  tax
 treatment  on gains with respect to the preferred  shares  unless  you are  resident  in
a tax  haven  jurisdiction.  See Item  10.  Additional  InformationTaxationMaterial
Brazilian Taxation  Considerations. If you attempt to obtain your own electronic
 certificate of registration,  you may incur expenses or suffer delays in the
 application  process,  which could delay your ability to receive  dividends or
 distributions  relating to the preferred  shares or the return of your capital in a
timely manner.  We cannot assure you that the custodians  electronic  certificate of
registration or any certificate of foreign capital  registration  obtained by you may not
be affected by future legislative changes, or that  additional  restrictions  applicable
to you, the  disposition of the underlying  preferred  shares or the  repatriation of the
proceeds  from  disposition  will not be imposed in the future.  In addition,  if you
exchange your ADSs for the  underlying  preferred shares you may be subject to a
Brazilian tax  (currently  imposed at the rate of 0.38%) upon the withdrawal of funds
from any Brazilian account in  connection  with the payment of  dividends  by Net  Serviços
or the  remittance  from Brazil of the proceeds of the sale of preferred shares.

You might be unable to
exercise preemptive rights with respect to the preferred shares.

You may not be able
 to  exercise  the  preemptive  rights  relating  to the  preferred  shares,  including
 preferred  shares underlying  ADSs,  unless a registration  statement  under the
Securities Act is effective with respect to those rights or an exemption from the
registration  requirements is available.  We are not obligated to file a registration
 statement with respect to the shares or other  securities  relating to these preemptive
 rights,  and we cannot assure you that we will file any such  registration  statement.
Unless we file a  registration  statement or an exemption  from  registration  applies,
 you may receive only the net proceeds from the sale of your preemptive rights by the
depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse.

Holders of ADSs may
find it difficult to exercise their voting rights.

You may find it
difficult to exercise  some of your rights as a  shareholder  if you hold ADSs rather
than  preferred  shares. For instance,  if we fail to timely provide the depositary with
voting  materials,  you may not be able to vote by giving  instructions to the depositary
on how to vote for you.

The preferred shares
and ADSs do not entitle you to a fixed or minimum dividend.

Holders of our
 preferred  shares  and ADSs are not  entitled  to a fixed or  minimum  dividend.
 Although  under our  current by-laws we are generally  obligated to pay our
 shareholders  25% of our annual net adjusted income,  our  shareholders,  acting at our
annual  shareholders  assembly,  have the  discretion to suspend this  mandatory
 distribution  of dividends if the board of directors advises  them that the payment of
the  dividend is not  compatible  with our  financial  situation.  Neither our by-laws
nor  Brazilian corporate law specifies the  circumstances  in which a  distribution
 would not be compatible  with our financial  situation.  However, general  Brazilian
 practice is that a company need not pay dividends if such payment would  threaten the
existence of the company as a going  concern  or would  harm its normal  course of
 operations.  We do not  expect to pay  dividends  to our  shareholders  for the
foreseeable future.

The sale by us or our
 shareholders  of a substantial  number of preferred or common shares,  including the
potential  issuance of      additional  preferred or common shares in connection  with
the  negotiations  regarding  restructuring  of our debt facilities and      instruments,
 could  decrease  the  market  prices of the  preferred  shares  and the ADSs,  and could
 significantly  dilute  our      shareholders.

Sales by us or our
shareholders of a substantial number of preferred or common shares, including the
issuance of additional preferred or common shares in connection with the restructuring of
our debt facilities and instruments, or the belief that any of these may occur, could
decrease the market prices of the preferred shares and the ADSs.  If we or our major
shareholders sell large blocks of preferred shares or common shares, the market prices of
the preferred shares and the ADSs could be adversely affected.

We may explore raising
additional capital by selling shares,  convertible  securities or other equity-linked
 securities.  The timing,  terms,  size and pricing of any such  transaction  will depend
on investor  interest  and market  conditions.  Any issuance of equity or  equity-related
 securities  that we may sell would  dilute  our  shareholders,  possibly  substantially
 to the extent  that pre-emptive rights are not made available to shareholders or
exercised by them.

Brazilian securities
markets are volatile and illiquid, which could negatively affect the market value of our
ADSs.

The Brazilian
 securities markets are substantially  smaller,  less liquid and more volatile than the
major securities markets in the United States and are not as highly  regulated or
supervised as those markets.  The relatively small market  capitalization  and
illiquidity  of the  Brazilian  equity  markets  may cause the price of  securities  of
 Brazilian  companies,  including  our ADSs and preferred shares, to fluctuate in both
the domestic and international  markets.  This may substantially  limit your ability to
sell the preferred  shares  underlying your ADSs at a price and time at which you wish to
do so. The Bovespa,  which is the principal  Brazilian stock  exchange and which
 accounted for  substantially  all of Brazils  2003 share trading  volume,  had a market
 capitalization  of approximately  US$234.2  billion as of December 31, 2003 and an
average  daily trading  volume of  approximately  US$220.1  million for 2003. In
comparison,  the Nasdaq National Market had a market  capitalization of US$2.9 trillion
as of December 31, 2003 and an average daily trading volume of approximately US$1.7
billion for 2003.

The market for our
 preferred  shares and the ADSs has  experienced  significant  price and volume
 fluctuations.  In 2001 and 2002,  the prices of the  preferred  shares and the ADSs
 declined  69% and 97%,  respectively.  In 2003,  the prices of the  preferred shares and
the ADSs increased 169%.

The liquidity
of the trading  market for ADSs in the United States is limited;  this could lead to
price  volatility and a lack of      buyers for the ADSs.

As of March 31, 2004,
 there were 1,960,273 ADSs  outstanding,  and their average daily trading volume on the
Nasdaq  National Market during 2003 was  approximately  145,000 shares per day and
US$320,700  per day.  Securities  that trade at such volumes and that have a similar
float  typically  have much lower levels of liquidity  than other  securities  traded in
the United  States.  This means there tend to be fewer  willing  buyers and sellers and
fewer trades for the ADSs than for other equity  securities;  as a result,  the prices
quoted for the ADSs may be less reliable and more volatile than those for other
securities traded in the United States.

ITEM 4.       INFORMATION
ON THE COMPANY

Recent Developments

On June 24 and June
25, 2004, we entered into commitment  letters with creditors  holding in the aggregate
 approximately  70% of our outstanding  debt. The commitment  letters  outline the terms
upon which we would exchange the  indebtedness of Net Serviços and its subsidiaries  held
by such creditors for a combination of new senior secured debt, new subordinated
 convertible  debt,  and/or new equity.  We refer to this exchange as the  restructuring.  The
form of the commitment  letters is attached as an exhibit to this Form 20-F.

Separately,  on June
27, 2004, our  controlling  shareholder,  Globopar,  announced that it had entered into
 agreements  with Telmex  contemplating  that Telmex would acquire a significant  equity
 interest in Net Serviços,  in a manner that would result in the replacement  of the
 equity and  subordinated  convertible  debt  portions  of our  restructuring  with
 cash.  We are not party to the agreements  between  Globopar and Telmex,  and the
 information  contained in this Form 20-F is based on information  provided to us by
Globopar regarding those agreements.

The closing of the
transactions  contemplated by the agreements  between Globopar and Telmex is not a
condition to the closing of our  restructuring  pursuant to the  commitment  letters,
 although  the closing of the Telmex  investment  in  connection  with our restructuring
 is  conditioned  upon the  closing  of the  restructuring.  However,  if the
 restructuring  were to be  consummated  in accordance  with  the  terms  set  forth  in
the  commitment  letters  with  the  participation  of 100% of our  creditors,  and if
the transactions  contemplated in the agreement between Globopar and Telmex were likewise
consummated,  we expect that the results would be as follows:

We would issue
 1,825,021,996  new equity shares,  the maximum number  permitted under our
 restructuring,  and would          receive aggregate proceeds of no less than
R$638,757,699  (US$202,780,222  using an exchange rate of R$3.15 = US$1.00),  which
         we would use to reduce our outstanding indebtedness; and

The aggregate amount
of our financial debt would be reduced from approximately  R$1,395 million (US$442.9
million) as          of June 30,  2004 to  approximately  R$730  million  (US$231.7
 million)  (in each  case  using an  exchange  rate of R$3.15 =          US$1.00), all of
which debt would be secured and would have the terms set forth in the commitment letters.

The terms of our
restructuring and of the proposed investment by Telmex are described further below.

The Restructuring

The commitment letters
provide that each of our creditors  (including creditors not party to the commitment
letters) will have the  following  options with respect to the  conversion  of the debt
held by them:  (i) the right to convert 60% of its debt claim into new senior secured
debt and 40% of its debt claim into equity,  (ii) in the case of creditors  holding
 reais-denominated  obligations, the right to convert  60% of its claim into new  senior
 secured  debt and 40% of its claim  into new  subordinated  convertible  debt, and/or
(iii) the right to convert 100% of its debt claim into equity.  The commitment  letters
 provide for various  limitations on the subscriptions  for these options;  in
 particular,  the number of equity shares that we will issue in the  restructuring  is
limited to 1,825,021,996  shares in the aggregate.  The commitment  letters  provide that
the equity  issuances in exchange for debt  contemplated above would be at a per share
price of R$0.35,  provided  that prior to issuing any such  equity to our  creditors  we
would  effect an offering in Brazil of all of such equity shares,  with the price of such
equity determined pursuant to a book-building  mechanism,  and in the event that
 bookbuilding  results in an issuance price of R$0.35 or more, we would  consummate the
sale of such equity  pursuant to such offering and pay to our  creditors  cash in the
amount of R$0.35 in lieu of each such share  otherwise  issuable to them in the
restructuring.  In  addition,  the  commitment  letters  provide  that we may make a
public or private  offering of equity prior to the consummation  of the  restructuring
 and use the proceeds of such  offering to pay our  creditors  cash in lieu of all (or,
 subject to certain restrictions, part) of the equity and subordinated convertible debt
otherwise issuable to such creditors in the restructuring.

The new senior secured
debt to be issued by us in connection with the  restructuring  will be denominated in
reais in the case of debt issued to creditors  that  currently  hold  reais-denominated
 instruments,  and in U.S.  dollars in the case of creditors that currently hold U.S.
dollar  instruments.  However,  creditors that currently hold Net Sul floating rate notes
or U.S. dollar  bilateral instruments may elect,  subject to certain  limitations,  to be
issued new senior secured debt that is denominated in reais rather than in U.S. dollars.
 We expect that  approximately 60% of the senior debt outstanding upon the consummation
of the restructuring  would be denominated in reais and that the remaining portion of the
new senior secured debt would be denominated in U.S. dollars.

The reais-denominated
 senior secured debt will bear interest at the Interbank Deposit Certificate
 (Certificados de Dep5sitos Interfinanceiros),  or CDI, rate plus 2.0%  (increasing to
3.0% after December 15, 2005).  CDI is a Brazilian  interest  reference rate published by
the Brazilian  Securities  Custody and Settlement  Center (Central de Custódia e Liquidação
 Financeira de Títulos) and is subject to change on a daily basis.  The CDI rate as of
May 31, 2004 was 15.8%.  The U.S. dollar  denominated  senior secured debt will bear
interest either at a fixed rate of 7% or, in the case of certain  creditors,  at the
three-month London interbank offered rate, or LIBOR, plus 3.0%. The three-month  LIBOR
rate as of May 31, 2004 was 1.3%.  Subject to the consummation of the  restructuring,  we
will pay to the holders of the new senior  secured  debt, in cash on the date of the
 restructuring,  the amount of interest that would have accrued  on the new  senior
 secured  debt from June 30,  2004  through  the  closing  of the  restructuring,  as if
such debt had been outstanding throughout such period.

The  principal  amount
of all new senior  secured  debt issued in  connection  with the  restructuring  will be
 repayable  in installments  commencing in March 2006, with the final  installment of
principal due no later than December 2010,  subject to mandatory and  optional
 prepayment  provisions  that may result in such debt being  fully  repaid  prior to this
 date.  The fixed  amortization requirements of the senior secured debt is subject to
certain  adjustments in order to protect us in the event that Brazilian  interest rates
or the U.S. dollar/reais exchange rate exceed projected levels.

As noted above,
 although the commitment letters provide that creditors holding  reais-denominated
 instruments would have the right to convert a portion of their existing credits into
subordinated  convertible debt, we would only issue subordinated  convertible debt if the
investment by Telmex that is contemplated by its purchase  agreement with Globopar is not
 consummated.  In that event, the subordinated convertible debt would have the following
terms:

The  subordinated
 convertible  debt would accrue interest from July 1, 2004 until the new senior secured
debt is repaid at an annual  rate equal to the  General  Market  Price Index  (Índice
 Geral de Preços - Mercado -- IGP-M)  plus 3.0%.  IGP-M is a Brazilian price index that
is  calculated  on a monthly basis and  published by Fundação  Getúlio  Vargas  FGV.
 IGP-M was 7.0% for the 12-month period  ending May 31, 2004.  Such interest  would not
be paid in cash but would be  capitalized  and added to the principal  amount of the
 subordinated  convertible  debt on an  annual  basis.  After  the new  senior  secured
 debt has  been  repaid,  the  subordinated convertible  debt would cease to be
convertible and would thereafter bear interest,  payable in cash quarterly,  at a rate
equal to CDI plus 3.0%.

Prior to the time that
the new senior secured debt has been repaid in full, each R$1,000 of original  principal
 amount of the subordinated  convertible  debt, and all interest accrued  thereon,  would
be convertible at the option of the holder into an aggregate of 555 common shares and
1,667 preferred shares of Net Serviços (subject to customary adjustments).

The principal  amount
of the subordinated  convertible  debt would be repayable in a single  installment on
December 15, 2012, subject to mandatory and optional prepayment provisions that could
result in earlier repayment.

All of the new senior
secured debt (and any subordinated  convertible debt) issued in connection with the
 restructuring  will be  guaranteed by all of our  wholly-owned  subsidiaries.  The new
senior  secured debt will be secured by the pledge of (a) all of the shares  of our
 subsidiaries,  (b) all of the  network  assets of our  operating  subsidiaries  and (c)
our  accounts  receivable  from subscribers in Sao Paulo,  Santos and Rio de Janeiro
 (although the foreclosure  rights of the creditors will in most  circumstances be
limited to 30% of those receivables).  The subordinated  convertible debt, if issued,
would initially be unsecured;  however,  once the new  senior  secured  debt is repaid
 the  collateral  that had  secured  the new  senior  secured  debt  would  thereafter
 secure the subordinated convertible debt.

The  instruments
 evidencing  the new  senior  secured  debt (and any  subordinated  convertible  debt)
will  contain  various covenants and  restrictions  that will limit the actions that we
may take in  connection  with our business and that will require us to maintain  certain
 financial  ratios.  The breach by us of any of these  covenants,  including the
obligation to pay interest and repay principal in accordance with the terms of such
 instruments,  would result,  in some cases after customary notice and cure periods,  in
an event of default  that would allow the holders of such  instruments  to  accelerate
 the  remaining  principal  amount of such debt, foreclose on the collateral pledged to
secure such debt, and otherwise to exercise their legal and contractual remedies against
us.

The commitment
 letters  provide that the equity to be issued to our creditors in connection  with the
 restructuring  will be issued in the form of common shares and preferred  shares in a
ratio of 25:75 (i.e.,  one common share for each three preferred  shares so issued),  and
that we will issue no more than 456,255,499  common shares and 1,368,766,497  preferred
 shares, in the aggregate,  in the  restructuring.  The  commitment  letters also
 provided  that prior to issuing any such equity to our  creditors we would effect a
public  offering  in Brazil of all of such  equity  shares,  with the  price of such
 equity  determined  pursuant  to a  book-building mechanism,  and in the event that
 bookbuilding  results in an issuance  price of R$0.35 or more, we would  consummate the
sale of such equity  pursuant to such offering and pay to our creditors cash in the
amount of R$0.35 in lieu of each such share  otherwise  issuable to them in the
 restructuring.  Accordingly,  we would  issue  equity to our  creditors  only in the
event that such  offering  did not result in a price of R$0.35 or more, in which event
our creditors  participating  in the  restructuring  would receive one equity share for
each R$0.35 of debt claim held by them that they have elected to have converted to equity.

As noted above,  the
foregoing  procedure would apply only if the Telmex  investment  discussed above is not
 consummated.  In that event, the commitment  letters  contemplate that the creditors may
deposit the common shares issued to them in connection with the restructuring  into one
of two special  purpose  holding  companies,  which holding  companies  would become
party to the  shareholders agreement among our current  controlling  shareholders.  The
commitment  letters further  contemplate that certain  amendments would be made to such
 shareholders  agreement,  including to provide the creditor  holding  companies  certain
 consent  rights over  specified matters and to allow the creditor holding companies to
appoint at least one member to our board of directors.

The obligations of the
creditors party to the commitment  letters to effect the  restructuring  described
 therein are subject to a number of significant conditions.  These include the following:

- We must
negotiate and execute definitive  documents  reflecting the terms of the commitment
letters and the substance and form                   of these documents must be
acceptable to the creditors.

- Creditors
holding no less than 95% of our outstanding debt must agree to participate in the
restructuring.

- There must not
have occurred any material adverse change relating to Net Serviços or to Brazil.

- The creditors
must have satisfied  themselves  with certain  remaining due  diligence  items relating
to us,  including with                   respect to the tax effects of the restructuring
and the terms of our programming contracts.

- We must have
obtained all governmental and third party consents necessary to consummate the
restructuring.

In addition, the
consummation of the restructuring is subject to the satisfaction of other customary
closing conditions.

The  commitment
 letters we have entered into with our  creditors  expire on September  30, 2004,
 although  such date will be automatically  extended to November 30, 2004 unless a
majority of the  creditors  party to the  commitment  letters  elect to veto such
extension.  While we think it is unlikely  that we will have  completed  the
 restructuring  by either of these dates,  we hope by this time to have entered into
 definitive  agreements  that  supercede the commitment  letters.  In the event that we
have not entered into definitive  agreements  prior to the date on which the  commitment
 letters  would  otherwise  terminate,  we would  seek to extend the effectiveness of the
commitment letters.

The Telmex Investment

We understand  Telmex
and Globopar have entered into a purchase  agreement that  contemplates (i) that the
shares that we plan to issue in  connection  with the  restructuring  would be issued in
the same  proportion  as the  current  outstanding  shares  (i.e., approximately  41%
common  shares  and  approximately  59%  preferred  shares),  rather  than in the 25:75
 ratio  contemplated  by the commitment  letters;  (ii) that Globopar  would  subscribe
 for, at a price of R$0.35 per share,  all of such common shares (other than shares
 purchased by other holders of common shares  exercising  their priority  rights),  and
(iii) that the preferred shares would be issued  pursuant to a public  offering in Brazil
with respect to which  Telmex  would  submit a bid for the entire  number of shares so
offered of not less than R$0.35 per share.

We understand that
this purchase  agreement  further  contemplates  that immediately  following the share
issuance referred to above,  Globopar would  establish a new special  purpose  company,
 or SPC, into which it would deposit 51% of our  outstanding  common shares.  Globopar
 would  retain  51% of the  voting  interest  of the SPC and would  sell the  remaining
 interest  in the SPC to TPC, including a minority voting interest.  Globopar would also
sell to Telmex,  pursuant to the purchase  agreement,  an additional  number of our
common and/or  preferred  shares that are held by Globopar.  Globopar would  therefore
 continue to control,  through the SPC, a majority of Net Serviços  outstanding  voting
shares and would  continue to hold common and/or  preferred  shares  outside of the SPC.
Under current Brazilian law, Telmex would not be permitted to own a controlling interest
in Net Serviços.

The price to be paid
by Telmex to Globopar  for the direct and  indirect  interest in our shares to be
acquired by it pursuant to the purchase  agreement is dependant upon a number of
variables,  including the exchange rate, the number of common shares issued by Net Serviços
and the amount of those common shares  effectively  subscribed for by Globopar,  but is
expected by Globopar to be between R$0.60 and R$0.80 per Net Serviços share. As a result
of these  transactions,  Telmex would own,  directly and indirectly,  between 30% and 60%
of our outstanding equity shares.

We understand that the
agreements  between Globopar and Telmex also contain,  as an alternative to the
transactions  described above,  the right of Globopar  to cause  Telmex to  purchase
 from it, at any time after  October 31, 2004 until the earlier of July 1, 2005 and the
closing of the transactions  described above, a combination of common and preferred
shares representing  approximately 34% of our outstanding  equity at a purchase price of
 approximately  US$130 million  (approximately  US$0.19 per share).  This alternative
transaction is referred to in this Recent Developments section as the put option.

In the event that
there were to be a change in  Brazilian  law that would allow  Telmex to own a
 controlling  interest in Net Serviços,  and assuming the closing of the investment of
Telmex  pursuant to the purchase  agreement or the exercise of the put option, Telmex
would have the right to acquire from  Globopar,  and Globopar  would have the right to
cause Telmex to purchase  from  Globopar, subject to certain conditions,  an additional
 interest in the SPC representing  approximately 2% of the voting capital of that entity.
This would give Telmex,  through the SPC, control over 51% of our common shares.  The
price of this additional  approximate 2% interest would be  equivalent,  if the closing
under the purchase  agreement has occurred,  to the price per share at which Telmex
 acquires our common shares from Globopar  pursuant to the purchase  agreement or, if the
put option has been  exercised,  the price per common share under the put option.
 Following  such a transfer,  Globopar would  continue to hold a significant  minority
stake in us,  directly and through its stake in the SPC, and so long as it held directly
or indirectly a specified  minimum level of our common  shares,  it would continue to
have the consent and other rights under the shareholders agreement described below.

We  believe  that the
 acquisition  by Telmex of this  additional  approximate  2%  interest  in the SPC would
 constitute  an acquisition  of a controlling  interest in Net Serviços that would
require  Telmex to make an offer to purchase all of our  outstanding common shares and
preferred  shares at a price equal to 100% of the price paid by Telmex for such
 controlling  interest.  See Item 10  Additional Information  Memorandum and Articles
of Association  Change of Control Provisions below.

The purchase
 agreement between Globopar and Telmex contains a number of undertakings  relating the
implementation of the deal between them and our  restructuring  as a general matter.
 Globopar and Telmex agree to use  commercially  reasonable  efforts to cause the
consummation of our restructuring, including, in the case of Globopar, undertaking as
follows:

- to use its
reasonable  efforts,  consistent with its fiduciary duties, not to change the
restructuring  terms in a manner that                   results in certain closing
conditions to the Telmex investment not being met,

- to approve or
cause its board  representatives  to approve the capital increase  necessary to effect
our restructuring and the                   Telmex  transaction,  and the issuance of
common and preferred  shares at the R$0.35 per share price  contemplated in
                  the  restructuring as the conversion  price for issuance of shares to
our creditors,  with the preferred shares being                   subject to a
bookbuilding process, and

- to exercise
fully  Globopars  priority rights with respect to any common shares issued in connection
 with our  restructuring                   and the Telmex investment.



Globopar also has
agreed,  subject to its fiduciary duties,  not to vote to approve certain changes in our
capital structure other than in a manner  consistent with the  capitalization  under the
restructuring and certain  extraordinary  compensation  arrangements or any increases in
our officers  severance  arrangements.  Globopar has agreed not to enter into any new
transactions  with us other than in the ordinary course, subject to certain exceptions.

Globopar  and Telmex
have each agreed to use its  commercially  reasonable  efforts to reach an agreement on a
proposal to Net Serviços  concerning the terms of a networking  agreement with Telmex
relating to the provision of voice,  data, and Internet  services through,  and the use
of the last mile of, our network facilities.  Globopar has agreed,  subject to its
fiduciary duties, to recommend and vote in favor of any such agreement,  provided that
any such  agreement,  if entered into, may be terminated by either us or Telmex in the
event Telmex does not acquire an interest in us as  contemplated  by its  agreements
 with Globopar.  Any  networking  agreement would be on arms-length  terms,  consistent
with the fiduciary duties of the board, and would require approval of our board,
 including any representatives not appointed by Globopar.

In connection  with
the closing of the  transactions  contemplated  by the purchase  agreement,  Globopar,
 Telmex and the SPC would enter into a shareholders  agreement containing  provisions
relating to transfer of shares,  rights of first refusal,  governance and others matters
 typical of such  arrangements,  including  rights of each of Globopar and Telmex to
appoint members of our board of directors.  Such an agreement would include consent
rights for shareholders  maintaining a specified  minimum level of shareholdings in us,
including the right to approve alterations in commercial  arrangements to which we are
party and certain  programming,  network and pay  television  concession  matters  and
other  consent  rights  typical  for  significant  minority  shareholders.  Also under
 these agreements,  subject to its fiduciary  duties,  Globopar would agree,  upon Telmexs
request for a period of two years from the date of the  shareholders  agreement,  to vote
its shares in support of future  issuances of preferred shares in a public offering with
pricing to be  established  through a bookbuilding  process,  and Telmex would agree to
provide a standby  underwriting  commitment to purchase such  preferred  shares at a
price of not less than R$0.70  (escalated by an inflation  index after the first year).
 Proceeds from any such issuance would be applied to prepay our restructured  debt in
accordance with the definitive  restructuring  agreements  described above.

The closing of the
transactions  contemplated  under the purchase agreement between Globopar and Telmex is
subject to a number of  significant  conditions,  which  include the approval of Anatel,
 the  agreement of the other  parties to our current  shareholders agreement of
 modifications  to, or the replacement of, that agreement on terms  acceptable to Telmex
and Globopar,  and the closing of our  restructuring.  The issuance of our common and
preferred  shares in the manner  contemplated  by the purchase  agreement will also
require the approval of our board of directors, which has not yet been obtained.

The purchase
 agreement  between Globopar and Telmex will expire on June 1, 2005 if our  restructuring
 has not been completed by that date or if the other conditions precedent toTelmexs
investment have not been achieved.

Business Overview

We are the largest
 pay-television  operator in Brazil,  based upon the number of  subscribers  and homes
 passed.  As of December  31,  2003,  we had over 1.3 million  connected  subscribers  in
44 cities in Brazil,  including São Paulo and Rio de Janeiro,  the two largest  Brazilian
cities. We are also the leading provider of  high-speed  cable modem  Internet  access
 through  the Vírtua  service,  which had over 91,400 subscribers  as of December 31,
 2003.  Our advanced  network of coaxial and  fiber-optic  cable covers over 35,000
 kilometers  and passes  more than 6.6  million  homes.  In 2003,  we had net  operating
 revenues of US$409.6 million.

During 1998, we
focused on building our cable infrastructure,  primarily in the most prosperous and
populous  regions of Brazil.  Our network  currently  operates in major cities  located
 throughout  Brazil, including São Paulo, Rio de Janeiro,  Brasilia,  Belo Horizonte,
 Porto Alegre and Curitiba, six of Brazils largest cities.  We  substantially  completed
the build-out of our network in 1998. Our  acquisitions of Net Sul,  Unicabo and Vicom in
2000 were  designed to add scope and scale to our network and new services to our
customers.  In 2001,  we focused on upgrading  the quality of our network to increase
 bandwidth and install two-way  communication  capability.  As of December 31, 2003,
 approximately  35% of our network had two-way communication capability.

Currently,  our
principal  services  include basic  pay-television  under the NET brand name with five
 separate  programming  packages,  pay-per-view  programs  and  broadband  Internet
 service  under the Vírtua brand name. We also offer corporate data transmission
 services to corporate  customers through our subsidiary, Vicom.

By expanding our
networks  capacity and upgrading its capabilities in targeted areas, we expect to have
 the  ability  to  offer  services  that  are   value-added  and   complementary   to
 our  traditional pay-television  packages.  During the second half of 2004, we plan to
begin offering  digital cable services in Rio de  Janeiro  and São  Paulo.  By  providing
 digital  cable  services,  we  will  be  able  to  offer subscribers premium programming
packages,  additional channels and more value-added  programming options and services,
 such as  audio  channels  containing  a  variety  of music  packages,  near
 video-on-demand  and interactive services.

Strategy

Our strategy is to
maintain our position as Brazils  leading provider of  pay-television  services and take
 advantage  of the  anticipated  demand  for  advanced  services  in  Brazil.  In doing
so, we will continue to focus on improving our cash flows and operating  margins,  on
providing  better quality services and playing a key role in industry  consolidation.  In
order to achieve our goals,  we are  undertaking  the following business and financial
initiatives.

Business Initiatives

- Improve
customer satisfaction by providing reliable,  high quality services and responsive
customer               interaction.  We view our business as a service business, and
therefore,  we have been working               hard to improve  customer  satisfaction,
 both in terms of our  existing  cable and  broadband               Internet service and
in our  responsiveness  to customer  inquiries.  To achieve this goal, in
              2002, we outsourced  our customer  service  centers.  Before the
 outsourcing  of our customer               service  centers,  only  approximately  75%
of the calls made to our customer  service centers               were  answered.  Our
 goal  was  for  95% of  calls  to our  customer  service  centers  to be
              answered.  During 2003, this goal was not consistently  achieved,  and we
changed the supplier               for the  service.  In  November  2003,  TNL Contax
 S.A.,  or Contax,  started to operate  our               customer  service centers with
 aggressive  targets on service  quality.  We have begun to see               improvement
 in customer  service  resulting  from our change to Contax.  For example,  in the
              first  quarter  of 2004,  80% of all calls  directed  to our  customer
 service  centers  were               answered in less than 20 seconds.

- Pursue
growth by increasing  revenue per  subscriber  and  penetration  along our existing
 network               through targeted  marketing.  We focus our marketing efforts on
our existing customer base and               on the potential  customers  already  passed
by our network.  Through this targeted  marketing               approach,  we hope to
 encourage  existing  customers  to  migrate to  higher-end  programming
              packages and  purchase  value-added  services,  and to increase
 penetration  of Class A and B               homes (the top two Brazilian  socio-economic
 tiers  established by IBGE) currently  passed by               our network.
 Approximately  48% of our homes passed, are Class A and B households.

- Continue
 the  growth of  Vírtua,  our  broadband  Internet  service.  In 2003,  we  increased
 our               investment in broadband by  relaunching  our broadband  Internet
 service,  Vírtua.  Broadband               Internet  has an  attractive  marginal
 return.  Furthermore,  subscribers  of  our  broadband               Internet  service
are 70% less likely to disconnect their  pay-television  service as compared
              to our other  pay-television  subscribers.  Within  Vírtua,  the main
 processes  involved  in               Vírtuas  operating  structure,  including the
cost of its link,  customer  service center and               cable  modem  technology,
 are  regularly  reviewed.  In 2003,  we also  invested  in Vírtuas
              marketing  and resumed media  advertising.  Moreover,  we initiated a
promotion  wherein cable               modem was  available  to customers  under a free
lease  agreement.  Also,  we  introduced  the               Plano de  Fidelidade,  or loyalty
 plan, whereby we waive the hook-up fee for Vírtuas new               subscribers  who
 commit to at least a  12-month  subscription.  In 2003,  we also  tested the
              Docsis  technology,  which is currently being used by most cable  operators
 around the world.               The tests presented  positive  results,  indicating the
 practicability  of implementing  this               technology in lieu of our propriety
 technology.  The Docsis technology will lower cable modem               costs, once
Docsis cable modems are produced on a large scale.

- Introduce
 digital  cable.  We plan to  introduce  digital  cable in Rio de  Janeiro  and São Paulo
              during the second  half of 2004.  This will allow us to  increase  the
number of  pay-per-view               channels  and  offer  new  services  such as audio
 channels  containing  a  variety  of music               packages,  near
 video-on-demand  and an  interactive  programming  guide.  This  strategy  is
              designed  to  increase  revenues  from  current  subscribers  and to make
us more  competitive               against DBS providers.  Currently,  more than 91% of
our  subscribers  belong to Class A and B               households.  In addition,  our
 subscriber  base has the following  characteristics:  (i) more               than 65%
have at least two  televisions;  (ii) more than 72% have at least one  computer;  and
              (iii)  approximately 62% are Internet users. With the offering of these new
services,  we have               the potential to capitalize on the amount our
subscribers spend on entertainment and leisure.

- Play
a key role in  industry  consolidation.  We believe  pay-television  market
 consolidation  in               Brazil will continue,  resulting in a small number of
companies  representing  the majority of               Brazils  pay-television
 marketplace.  As the largest cable service  provider in Brazil,  Net               Serviços
expects to play a key role in the consolidation of the cable industry.

Financial Initiatives

- Improve
our capital structure and liquidity position.  We are pursuing several measures,
 including               a proposed debt  restructuring,  designed to improve our capital
structure and to better align               our operating costs,  financial  expenses and
capital  investment  levels with our anticipated               future revenues and cash
flows.  These measures  include,  among other things,  seeking to (i)
              reduce our near-term  debt service  obligations  to levels that can be
serviced with operating               cash flows,  (ii) limit the impact of future
 exchange rate  volatility by reducing the amount               of our dollar-denominated
 debt, (iii) amend certain financial and other covenants in our debt
              facilities  and  instruments,  (iv)  increase  our equity  capital,  (v)
 optimize our capital               expenditures  and (vi)  optimize  our  operating
 costs.  Our  plans to  improve  our  capital               structure and  liquidity
 position are  described in greater  detail under Item 5.  Operating               and
Financial Review and ProspectsLiquidity and Capital Resources.

- Optimize
 capital  expenditures by making targeted  investments.  Our capital spending plan
targets               our capital  expenditures in geographic  areas and on services
where we believe we can achieve               higher returns on our investments.
 Pursuant to this plan,  whereby we made an analysis of our               network on a
node-by-node  basis, we will target our capital spending on selected  portions of
              our existing network,  principally in wealthy, urban areas, where we
anticipate greater demand               for  broadband,  digital cable and advanced
 services.  We believe such  targeted  investments               will allow us to reduce
our capital  expenditures  while providing  sufficient  investments to
              upgrade our network to enable us to offer  broadband,  digital cable and
advanced  services to               our targeted markets.

- Continue
 to focus on  Corporate  Governance.  Since June  2002,  our  shares  have been  listed
in               Bovespas  Special  Corporate  Governance Level 2. We believe that
trading our shares in these               listing segments brings several  benefits,
 including  promoting  improved  supervision of our               business  by  investors
 and  enhancing  the  rights of  minority  shareholders  in  corporate
              governance.  Consistent  with this approach,  we have  established  certain
voting rights with               regards to our preferred  shares,  and we offer 100%
tag-along rights to holders of our common               and  preferred  shares.  See  Item
 9.  The  Offer  and  ListingTrading  MarketsLevel  2 of               Bovespa.

History and
Development of the Company

Our  company  was
 founded  in 1994  by Mr.  Antonio  Dias  Leite  under  the  name  of  Multicanal
Participações  S.A.,  or  Multicanal.  Multicanal  began  operations  by acquiring
 several  existing  cable operators  in  northern  and  central  Brazil,  a pattern  it
 continued  through  1996.  In  October  1996, Multicanal  listed its ADSs on the Nasdaq
 National  Market.  In late 1997,  Mr.  Leite and our other  major shareholders at that
time sold their interests in Multicanal to Globopar.  Following that  transaction,  the
principal  shareholders of Multicanal were Globopar and União Comércio e Participações,
 the latter of which was at that time a wholly owned subsidiary of Banco Bradesco S.A.

In September 1998,
 Multicanal  acquired  certain cable assets and related  liabilities of Globopar and
changed its name to Globo Cabo S.A.  The assets we acquired  from  Globopar  included a
50%  interest in Unicabo and controlling  interests in three  significant
 metropolitan-area  cable operators:  Net São Paulo Ltda.,  Net Rio S.A.,  or Net Rio,
and Net Brasilia  Ltda.  In May 2000,  we acquired the  remaining  50% of Unicabo.  In
July 2000, we acquired 100% of MDS  Telecomunicações  S.A., which held 100% ownership in
Vicom, a company that provides  nationwide data  transmission  services to the corporate
 sector in Brazil by using satellite and  terrestrial  technologies.  In September  2000,
 we continued our strategy of growth  through acquisitions  and we acquired Net Sul
Holding S.A., the second largest cable  television  operator in Brazil at that time. The
Net Sul  acquisition  significantly  increased our subscriber  base and provided us
access to markets in southern  Brazil,  a region that we previously  had not served.
 During 2000,  we  experienced significant  growth,  both from the acquisition of Net Sul
and on our existing  subscriber  base. We did not experience  growth in 2001 due  mainly
to the  slowing  economy  in  Brazil,  or in 2002 due to the  slowing economy  in
 Brazil,  an  increase  in  hook-up  fees  that  took  effect  in June 2002 and as result
of the implementation  of a more selective  screening  process,  which places  increased
 emphasis on the potential subscribers  credit.  In May 2002, we changed our name from
Globo Cabo S.A. to Net Serviços de  Comunicação S.A.

Since these
 acquisitions  were made, we have been working  towards the  integration of operations.
During  2001,  we  completed  the  consolidation  of  administrative  and  commercial
 policies,   including conforming  disconnection  policies  and prices.  Since 2002,  we
have worked to improve and  integrate  the systems to these  operations.  In 2003, we
completed the  consolidation of our billing system.  During 2003, we also resumed media
advertising,  improved our sales  infrastructure  with the creation of local points of
sale, and changed both the supplier of our telemarketing and the way we compensate our
telemarketers.

We offer  corporate
 data  transmission  services to corporate  customers  through our  subsidiary, Vicom.
 Vicom offers data  transmission  services via  satellite,  hybrid  fiber-coax,  or HFC,
 network and radio circuits.

Vicom was founded in
1985 to establish a nationwide  data network using  satellite  technology.  We purchased
Vicom in July 2000 in order to take advantage of synergies  between Vicoms  satellite
network and our own terrestrial network.

Consistent  with our
strategy to focus on and  increase our  resources  toward  pay-television  and broadband
 Internet  service,  on November 4, 2003, we entered into an agreement  with Comsat
 International for the sale of Vicom.  The terms of the sale were  approved  by Anatel on
January  21,  2004.  Negotiations regarding the sale of Vicom are still taking place.

Our Services

We offer our customers
 traditional  pay-television  services and  programming,  as well as new and advanced
high  bandwidth  services such as broadband  Internet and corporate data  transmission.
 We plan to continue to enhance and upgrade the services we offer by adding,  on a
selective  basis, new programming and further  advanced  products  and  services as they
 become  available.  During the second  half of 2004,  we expect to begin our rollout of
digital  cable  television  services to our  customers  in Rio de Janeiro and São Paulo.
 As of December 31, 2003,  we had  approximately  1.3 million  pay-television
 subscribers,  over 91,400  broadband  Internet  subscribers  through Vírtua and over
5,800 corporate  network  stations through Vicom.

Most of our
 pay-television  subscribers  are in the  top two  Brazilian  socio-economic  tiers  as
established  by the IBGE, a Brazilian  federal  institute  that compiles  demographic
 and economic data. We refer  to  households  in these  tiers  as Class A and  Class B
 households.  Class A and B  households  are especially  attractive  to us, as we believe
 they will  demonstrate  significant  demand  over time for our premium  pay-television
 and Internet  services and have  relatively high  creditworthiness.  According to a
survey published by the Instituto  Brasileiro de Opinião Pública e Estatística,  or
IBOPE, a market research institute,  Class  A and  Class B  households  represented  at
 year-end  2003  approximately  31% and  49%, respectively, of the Brazilian
pay-television subscriber base.

Following our launch
of Vírtua in April 2000, our broadband  Internet service  subscriber base grew
considerably,  from  approximately  1,700 in April 2000 to over 91,400 at December 31,
2003. During 2003, we relaunched our broadband Internet service,  Vírtua.  Moreover,  we
initiated a promotion wherein cable modem was available to customers under a free lease
 agreement.  Also, we introduced the loyalty plan,  whereby we waive the hook-up fee for Vírtuas
new  subscribers  who commit to at least a 12-month  subscription.  Gross sales in
broadband  Internet  increased  181%,  when comparing 2003 to 2002,  principally due to
these added promotions.  We made  installations  for nearly  6,000  subscribers  during
 December  2003,  and we project having  installed  nearly 36,000 new  subscribers
 during the first quarter of 2004. In 2003, we also tested the Docsis  technology,  which
is currently being used by most cable operators  around the world.  The tests presented
 positive  results,  indicating the  practicability of implementing this technology in
lieu of our propriety  technology.  The Docsis  technology  will lower cable modem
 costs,  once Docsis cable modems are produced on a large scale.

Pay-Television

Currently,  most of
our operations  relate to providing  pay-television  services,  including cable
television and  pay-per-view  services.  We offer our  pay-television  services through
the NET brand name using our cable  television  network  and,  to a lesser  extent,
 through  MMDS.  We operate in 44 cities in Brazil,  including some of Brazils most
populated  metropolitan  areas,  such as São Paulo, Rio de Janeiro, Belo Horizonte,
 Porto Alegre, Recife, Brasília,  Goiânia,  Curitiba and Florianópolis.  In order to
attract and retain pay-television  subscribers,  we are committed to offering a broad
variety of quality programming coupled with a range of programming packages.

Our Programming
Packages

We offer our
 pay-television  service  through  three major  programming  packages that provide our
customers with a variety of price points and channel selection.  We also have two
additional  packages,  one that  is not  accepting  new  subscribers,  and  one  that  is
 offered  to  our  cable  modem  subscribers. Historically,  our  subscribers  have
 tended to choose our added  channel  packages  which  offer a greater number of total
channels over our more basic  packages.  The following  table shows  subscriber  figures
and other information for each of our various channel packages as of December 31, 2003.

Programming Packages as
of December 31, 2003

---

|Package     | Monthly Subscription Fee(1) | No. Channels(2) | No. of ConnectedSubscribers | % of TotalSubscribers
|----------- | --------------------------- | --------------- | --------------------------- | ---------------------
|            |                             |                 |                             |                      
|            | R$                          | US$             |                             | (in thousands)       
|            |                             |                
|Advanced(3) | 109.90                      | 38.04           | 66                          | 625.9                
|Plus(4)     | 109.89                      | 38.03           | 57                          | 133.6                
|Master      | 69.90                       | 24.19           | 50                          | 363.4                
|Standard    | 42.90                       | 14.85           | 33                          | 123.1                
|Vírtua Cabo | 19.90                       | 6.89            | 28                          | 27.1                 

---

(1) Monthly
subscription fees for São Paulo.


(2) Total
number of channels for São Paulo.


(3) Subscribers
to Advanced Conforto paid R$109.90 (US$38.04) in monthly subscription fees.
         Subscribers to Advanced Básico paid R$99.90 (US$34.58) in monthly subscription
fees.  As of          December 31, 2003, we had approximately 611,500 connected
subscribers to the Advanced Conforto          plan, totaling 46.0% of our total
subscribers, and approximately 14,400 connected subscribers to          the Advanced Básico
plan, totaling 1.0% of our total subscribers.


(4) Has
not been available for new subscriptions since 1996.


Our programming
packages include the programming we purchase,  together with other channels that we are
required to provide.  These required  channels  include free  broadcast  television
 stations  generally available in the service area in which a  subscriber  resides and
six  government  public  service  channels that  are  available  nationwide.  Outlined
 below  are the  current  programming  packages  we offer to our subscribers.  In each
package the monthly  subscription  price includes  rental of the set-top box needed to
receive our cable signal.

Advanced  package.
 Our  Advanced  package  is our  premium  package,  focused  on  Class A and B households
 which  generally  have a  higher  willingness  than  other  socio-economic  groups  to
 purchase value-added  services such as pay-per-view  television and broadband  Internet
 service.  It is our strategy to  encourage  subscribers  to our other  packages  to
 migrate to the  Advanced  package.  There  exist two different  plans for  subscribers
to choose from: the Advanced  Conforto plan and the Advanced  Básico plan. A key
 difference  between  the  plans is the  availability  of free  customer  service  and
free  repair to subscribers.  The Advanced  Conforto  plan offers free customer  service
and repair and the Advanced  Básico plan does not.  Both plans offer the same full range
of programming.

Plus  package.  Our
Plus package has not been available to new  subscriptions  since 1996. We are encouraging
 Plus  subscribers  to switch to the Advanced  package,  which  includes  more  channels
and has substantially  the same monthly  subscription  fee as that for the Plus  package.
 We are  encouraging  this migration  because we are in the process of replacing  the
Plus  packages  set-top boxes with the Advantage packages newer set-top boxes, which
allow us to send a coded signal to subscribers.

Master  package.
 The Master  package is our  mid-range  package,  and it is marketed to, and has proved
particularly popular among, Class B households.

Standard  package.
 Our  Standard  package  offers  subscribers  a basic  cable  service  that is targeted
to Class C households.  In an effort to eliminate  potential bad debt risks,  we offer
our Standard package only through prepaid subscriptions.

Vírtua Cabo  package.
 In accordance  with Brazilian  regulations,  a household must subscribe to our
 pay-television  service  in order to also use our  broadband  Internet  service,  Vírtua.
 We created a special  pay-television  option, the Vírtua Cabo package, for customers
that have not previously  subscribed to any of our  pay-television  packages  but that
now wish to  subscribe  in order to gain access to Vírtua. The  Vírtua  package  is
priced at less than half the price of our  Standard  package  and  carries  only 28
broadcast television channels.

While our  number of
 channel  offerings  for each  programming  package  varies by  location,  the following
 table generally  describes our channel line-up for each  programming  package.  Each
 programming package  described in this table also includes the channels listed in the
programming  package(s)  preceding it.

|                          
|--------------------------
|VÍRTUA CABO PACKAGE       
|                          
|Programming Service       
|                          
|S-TV                      
|Eventual 1                
|Eventual 2                
|CNT                       
|Canal Nacional Brasil     
|TV Justiça                
|TV Senado                 
|Câmara Federal            
|Assembléia Legislativa    
|Canal Comunitário         
|Canal Universitário       
|Rede Mulher               
|Cultura                   
|Globo                     
|Record                    
|Rede TV!                  
|CNT/Gazeta                
|Bandeirantes              
|SBT                       
|CBI                       
|Canal 21                  
|MTV                       
|Rede Vida                 
|Rede Gospel               
|Shoptime                  
|Futura                    
|NET TV                    
|Canal Local               
|                          
|STANDARD PACKAGE          
|                          
|Programming Service       
|                          
|Fox Kids                  
|USA                       
|Multishow                 
|Globo News                
|People and Arts           
|                          
|MASTER PACKAGE            
|                          
|Programming Service       
|                          
|Cartoon Network           
|Deutsche Welle            
|SPORTV                    
|CNN International         
|TNT                       
|TV Espanha                
|TV 5                      
|Sony Entertainment Network
|The Warner Channel        
|Fox                       
|GNT                       
|RAI                       
|AXN                       
|National Geographic       
|Canal Rural               
|Nickelodeon               
|Discovery Channel         
|                          
|PLUS PACKAGE              
|                          
|Programming Service       
|                          
|Bloomberg                 
|Boomerang                 
|BBC                       
|Discovery Health          
|ESPN International        
|Telecine Premium          
|Fox News                  
|                          
|ADVANCED PACKAGE          
|                          
|Programming Service       
|                          
|Animal Planet             
|Discovery Kids            
|Telecine Action           
|Telecine Emotion          
|Telecine Happy            
|Telecine Classic          
|Canal Brasil              
|MGM Gold                  
|ESPN Brasil               

We continuously
 monitor and update our packages based on the availability of programs and customer
demand.  Consistent with this strategy,  we launched a pilot project with  new-segmented
 packages providing pricing  and  channel  options  in the  cities  of  Campinas,
 Indaiatuba  and  Santos.  These  include  Net Informação (contains news, documentaries
and music channels); Net Variedades (Master package,  excluding the SPORTV  channel);
 Net Esportes (Net Variedades,  plus sports  channels);  Net Filmes (Net Variedades,
 plus movie channels);  and the complete package,  Net Opções (the Advanced package).
 Depending on the results of this product launch, the new-segmented packages will be
extended to other operations.

Moreover,  we offer
three  special  channels,  including TV Korea,  Playboy TV and Sexy Hot, for an
additional monthly subscription price.

Pay-Per-View
Alternatives

In addition to the
programming  packages described above, we also offer pay-per-view  alternatives. These
include a variety of sporting events,  musical  concerts by national and  international
 artists,  and movies.  The sporting events include  exclusive  broadcast rights to the
Brazilian  Soccer  Championship and certain popular State Soccer Championships, such as
the Rio de Janeiro Soccer Championship.

Our  revenues  from
 pay-per-view  events are  seasonal,  based  largely  on the soccer  season and accounted
 for  approximately  3.4% of our total  gross  revenues  for  2003.  We expect  our
 revenue  from pay-per-view  to grow  steadily  in the  future,  particularly  as we
start to offer  interactive  services, allowing subscribers to order pay-per-view
selections with their remote control units.

Digital Cable Services

We plan to  introduce
 digital  cable in Rio de Janeiro  and São Paulo  during  the second  half of 2004.  Our
digital cable  services  will carry  significantly  more  channels  than our current
 programming packages.  In addition,  digital cable will allow for high-quality
 broadcasting and will enable us to offer near video-on-demand, a service that offers
movies at pre-determined times.

In addition,  we plan
to offer basic digital  set-top boxes to  subscribers  and sell more advanced digital
set-top boxes in retail stores.  We will  simultaneously  collect old analog set-top
boxes and reuse them for new and existing  analog  subscribers.  We believe that this
 approach  will allow us to target our capital  expenditures  and other upfront costs to
households that have the greatest  likelihood to subscribe to digital service.

Hook-up and Upgrade
Fees

In addition to our
monthly  subscription  fees,  we charge our  subscribers  a one-time  hook-up or
installation  fee,  which as of  December  31,  2003 was  R$160  (US$55.38).  We also
 customarily  charge a service  upgrade  fee of up to R$60  (US$20.77)  to  subscribers
 requesting  an upgrade to a more  advanced programming  package.  We have  occasionally
 offered  discounts  under  special  marketing  promotions.  We expect  revenues  derived
from hook-up fees paid by new  subscribers  to decrease and revenues  from upgrade fees
to increase as a percentage of total  revenues,  due to the  introduction  of digital
 services and the resulting  introduction  of a wider variety of programming
 alternatives.  In 2003, we launched the loyalty plan, whereby we waive the hook-up fee
for  pay-television  and broadband  Internet  subscribers who commit to at least a
12-month subscription.

Programming Sources

Historically,  we have
obtained all of our  programming  from our  affiliate  Net Brasil,  which is indirectly
 owned  60% by  Globopar  and 40% by us.  Net  Brasil  acts  as our  intermediary  in
 purchasing programming  from both  Brazilian  and  international  sources.  Net Brasil
also  provides  this service for other  pay-television  companies,  including
 principally  Sky  Brasil,  a Brazilian  DBS  provider in which Globopar owns a
significant  interest,  along with cable  television  providers that operate  outside of
our licensed  territories.  Much of the programming we purchase  through Net Brasil is
produced by our affiliate Globosat,  which is  wholly  owned  by  Globopar.  Globosat  is
a  producer  of  mostly  Portuguese-language programming,  such as SportTV,  GNT,  Globo
News,  Shoptime,  Multishow, Telecine, USA, Futura and Canal Brasil.  Globosat also  purchases
 programming  from third  parties.  Our contract with Net Brasil also grants us the right
to use the NET brand name.

Up until June 27,
2004, we had been obtaining our programming  pursuant to a programming  agreement with
Net Brasil  under  which Net Brasil  obtained  on our  behalf  the rights to all
 programming  that our pay-television  operators  provided  to  subscribers.  Typically,
 Net Brasil  would  negotiate  programming contracts with content providers on behalf of
us, Sky Brasil,  and certain other  pay-television  providers, and we and Sky Brasil
 would be  consulted  with  regard to those  negotiations.  At the  conclusion  of the
negotiations,  we would have the  option,  independent  of any  decision  of Sky Brasil
and Net  Brasil,  to accept or reject  programming from that source.  We believe that by
aggregating  subscribers  across several different  pay-television  platforms,  Net
Brasil is able to create a better  negotiating  position  than we could on our own and to
obtain for us better  terms and  prices for our  programming  content.  Pursuant  to this
 arrangement,  we paid to Net  Brasil an amount  comprised  of two parts:  the reimborsement of programming costs equal to the
 amount  that programmers  charge Net Brasil  for  programming  provided  to us; and a
monthly  variable  fee to cover Net Brasils overhead equal to R$0.51 per subscriber per
month.

On June 27, 2004, we
entered into an amended and restated programming agreement with Net Brasil whereby Net Brasils role in
acquiring programming for us has been altered as described below.  Under the amended and restated agreement, Net Brasil will retain its role with regard to obtaining all
other programming, in particular content or channels produced in Brazil
, while we will directly obtain, for our own account and benefit, all new international content from
sources outside of Brazil, which corresponds to approximately one third of our line-up.
 Due to the above reduction in scope of the services provided by Net Brasil, the compensation paid by
us to Net Brasil will be reduced considerably.  Pursuant to this new programming
agreement, instead of R$0.51 per subscriber per month, we will now pay Net Brasil a fixed
amount equal to R$100,000 (US$34,600) per month, adjusted by IPC, the Consumer Price
Index, plus an additional monthly fee of R$24,000 (US$8,300) in 2004, R$16,000 (US$5,500)
in 2005, R$3,000 (US$1,040) in 2006 and R$1,500 (US$520) in 2007.

We have agreed to transfer our 40% interest in Net Brasil (which is in a loss position with certain
contingent liabilities) to Globopar in the near future for a nominal amount.

Our arrangements with
Net Brasil and the shareholders  agreement specify, among other things, that (i) in its
 dealings  with us, Net Brasil is not intended to operate at a profit;  and (ii) new
 programming contracts  and  renewals or  amendments  to  existing  programming
 contracts,  pursuant to which we will be receiving  programming,  must be approved by
our board of  directors,  including the  affirmative  vote of a director appointed by
either BNDESPar or Bradespar.

Pursuant to our
programming agreement,  we paid Net Brasil US$152.9 million,  US$131.0 and US$135.1 in
2001,  2002 and  2003,  respectively.  Included  in these  amounts  was a broker
 commission  paid to Net Brasil  in the  amount of  US$1.6  million,  US$1.9  million
 and  US$2.3  million  in 2001,  2002 and 2003, respectively, corresponding to the
payment of R$0.51 per subscriber per month.

Broadband

In April  2000,  we
 launched  Vírtua.  Vírtua is the fourth  largest  broadband  Internet  service provider
and the largest  high-speed  cable Internet access service  provider in Brazil.  As of
December 31, 2003,  Vírtua was  available in the following ten Brazilian  cities:  São
Paulo,  Rio de Janeiro,  Brasília, Belo  Horizonte,   Santos,  Sorocaba,   Curitiba,
 Porto  Alegre,  Campinas,  and  Florianópolis,   reaching approximately  2.3 million
 homes and serving  over  91,400  residential  subscribers.  In  accordance  with
regulations, we offer broadband Internet service only to subscribers of our
pay-television service.

Market  Opportunity.
 We believe the introduction of bi-directional,  high-speed  Internet services to Brazil
presents a business opportunity due to the following factors:

- more
than  72% of our subscriber households also include a personal computer;

- more
than  62% of our subscriber households also have Internet access; and

- the
existing capability of our cable network to provide high-speed cable Internet services.

According  to the
 Brazilian  Association  of Pay  TV,  or  ABTA,  in  2003,  approximately  62% of
pay-television  households in Brazil had personal  computers.  There is currently a low
penetration rate for broadband  services in Brazil when compared to demand for broadband
 services recorded recently in countries with more  developed  economies  than  Brazils.
 According to the Pay-TV  Survey No. 85, there were 205,083 cable and MMDS broadband
 services users in December 2003. This  represents a penetration  rate of only 5.8% over
the base of pay-television  subscribers  served by these two  technologies.  According to
International Telecommunication  Union,  the  penetration  rate per  inhabitant  was 0.7%
in Brazil,  a very low rate when compared to penetration of 21.3% in Korea, 14.6% in Hong
Kong and 6.5% in the United States.

Service  Packages.  As
with our  pay-television  offerings,  we try to tailor our  Internet  access offerings to
customer demand.  Toward that end, we currently offer four different  connection  speeds:
 128, 256,  384 and 512 Kbps.  The  following  tables set forth the  up-front
 installation  fees we charged as of December 31, 2003 for the Vírtua service,  as well
as the monthly  subscription rates for customers based on connection speed:

|Type of Fee                | Up-front Payment
|-------------------------- | ----------------
|                           |                 
|                           | R$              
|Standard installation(1) | 70.00           
|Complete installation(1) | 120.00          

---

(1) The
complete  installation includes the subscribers purchase of an Ethernet card, priced
at               R$50.00  that must be  installed  in the PC in order to permit  Internet
 access.  This is not               included in the standard installation.


|Speed    | Monthly subscription
|-------- | --------------------
|         |                     
|         | R$                  
|128 Kbps | 49.90               
|256 Kbps | 73.90               
|384 Kbps | 105.00              
|512 Kbps | 140.00              

Corporate Data
Transmission Services

We offer  corporate
 data  transmission  services to corporate  customers  through our  subsidiary, Vicom.
 Vicom offers data transmission services via satellite, HFC network and radio circuits.

Vicoms  integrated
 satellite and terrestrial  system allows clients to set up networks that fully serve
 Brazils  major  cities  while  also  reaching  more  remote  areas of the  country.
 Vicom  grew its corporate  data  transmission  customer  base over the past three years.
 Its  corporate  customers  include Nossa Caixa;  Carrefour;  Telecom Américas;  Cemig; Pão
de Açúcar;  Marisa; Tim; Perdigão and Cargill. As of December 31, 2003, Vicom had over
100 corporate customers.

On  November 4, 2003,
 we entered  into an  agreement  with  Comsat  International  for the sale of Vicom.  See
Item 4.  Information on the CompanyHistory and Development of the Company.

Operations

Subscriber and
Operational Data

In building our
network and  marketing  our  services,  we have focused  primarily on Class A and B
households,  which have the largest  percentage  of  disposable  income  available to
purchase our services, particularly  value-added  services.  The table below  provides
 certain  information  about our network and subscribers, both overall and by class.

|                            | Subscriber and Operational Data as of December 31, 2003
|--------------------------- | -------------------------------------------------------
|                            |                                                        
|                            | Total                                                  
|                            |                                                        
|Active subscribers (1)      | 1,352,474                                              
|Kilometers of cable network | 35,616                                                 
|Total homes passed          | 6,600,797                                              
|Average cable penetration   | 20.5%                                                  

---

|(1) | Includes
approximately 22,000 MMDS subscribers.
|--- | -----------------------------------------------

Regional Data

In 2003, we
reorganized our reporting segments to facilitate  operational review of the performance
of certain operations.  We now manage our operations as six regional clusters as follows:

- Region
1, consisting of São Paulo;

- Region
2, consisting of Rio de Janeiro;

- Region
3, consisting of Porto Alegre, Curitiba, Florianópolis and Litoral;

- Region
4, consisting of Campinas, Indaiatuba and Santos;

- Region
5, consisting of Belo Horizonte and Brasilia; and

- Region
6,  consisting of the remaining 33 cities in which we hold operating  licenses.  This
region               is referred to as Brasil Interior.

Set forth below is a
description of each of our six regional clusters.

Region 1. This cluster
covers São Paulo,  the largest  pay-television  market in Brazil as measured in terms of
homes passed and active  subscribers.  São Paulo is also the wealthiest city in Brazil,
 as well as  one  of  the  most  densely  populated.   São  Paulo  has  an  estimated
  population  of  approximately 10.7 million.  The  following  table sets forth,  as of
December 31, 2003,  the  percentage  of the homes in Region 1 passed by our cable
networks with the bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|23%        | 750 MHz           
|77%        | 550 MHz           
|0%         | 450 MHz or less   

Region 2. This cluster
covers the city of Rio de Janeiro,  representing an estimated  population of
approximately  6.0 million.  The following  table sets forth, as of December 31, 2003,
the percentage of the homes in Region 2 passed by our cable networks with the bandwidth
capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|66%        | 750 MHz           
|26%        | 550 MHz           
|8%         | 450 MHz or less   

Region 3. Region 3
includes Porto Alegre,  Curitiba,  Florianópolis  and Litoral,  representing  an
estimated  combined  population  of  approximately  3.4  million.  The  following  table
sets  forth,  as of December 31, 2003,  the  percentage of the homes in Region 3 passed
by our cable networks with the bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|78%        | 750 MHz           
|19%        | 550 MHz           
|3%         | 450 MHz or less   

Region 4. Region 4
includes  Campinas,  Indaiatuba and Santos,  representing an estimated  combined
population of  approximately  1.6 million.  The  following  table sets forth,  as of
December 31, 2003,  the percentage of the homes in Region 4 passed by our cable networks
with the bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|61%        | 750 MHz           
|39%        | 550 MHz           
|0%         | 450 MHz or less   

Region 5. Region 5
includes  Belo  Horizonte  and  Brasilia,  representing  an  estimated  combined
population of  approximately  4.5 million.  The  following  table sets forth,  as of
December 31, 2003,  the percentage of the homes in Region 5 passed by our cable networks
with the bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|27%        | 750 MHz           
|73%        | 550 MHz           
|0%         | 450 MHz or less   

Region 6. Region 6
includes  Anápolis,  Arapongas,  Bagé, Bauru, Bento Gonçalves,  Blumenau,  Campo Grande,
Caxias, Chapecó, Criciúma, Cruz Alta, Erechim,  Farroupilha,  Franca, Goiânia,
 Joinville,  Jundiaí, Lajeado,  Londrina,  Maringá, Novo Hamburgo, Passo Fundo, Pelotas,
 Piracicaba,  Recife, Ribeirão Preto, Rio Grande, Santa Cruz, Santa Maria, São Carlos, São
José do Rio Preto,  Sorocaba e Uruguaiana,  representing an estimated  combined
 population  of  approximately  10.3  million.  The  following  table sets forth,  as of
December 31, 2003,  the  percentage of the homes in Region 6 passed by our cable networks
with the bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|10%        | 750 MHz           
|50%        | 550 MHz           
|40%        | 450 MHz or less   

Network Technology

General

Cable  television
 utilizes  a  broadband  network  employing  radio  frequency  transmission  over
fiber-optic  and/or  coaxial  cable lines to transmit  multiple  channels  carrying
 images,  sound and data between a central  facility and the  subscribers  television
 set. A cable  system  consists of three major parts:

- A
headend,  which is a point from which a programming or other signal  originates  along a
network.               A headend typically includes a satellite dish,  satellite
 receivers,  modulators,  amplifiers               and video cassette playback machines.
 Our headends typically receive  programming content via               satellite  and
then  amplify,  process  and feed this  signal  into a  distribution  path that
              reaches the subscriber.

- A
distribution  network,  which consists of fiber-optic cable and coaxial cable. A signal
generally               travels most of its distance over  fiber-optic  cable and is
transferred to coaxial cable at a               node. As it approaches the  subscriber,
 the network  carries the signal over  progressively               smaller cables,
 terminating with the drop cable that connects to the subscribers  television
              receiver.

- A
home terminal, or set-top box, which allows an individual subscriber to receive the cable
signal.

Cable Network

Our current network
 architecture  utilizes advanced  technologies,  including a significant use of
fiber-optic  cable.  Our headends  send content via light  signals  through our optical
 cable to an optical node where an optical  receiver  translates the signals into an
electric signal that is transmitted over our coaxial  cable.  The coaxial  cable is then
 divided into  individual  cables that  terminate in  individual subscriber  households,
 each of which  has  been  equipped  with a set-up  box  and/or a cable  modem.  Our
network  consists  of  cables  having  bandwidth  capacities  of 450 MHz,  550 MHz and
750 MHz.  Most of our network has a capacity of at least 550 MHz. This capacity  allows
 subscribers  to access  numerous  premium services, including analog pay-per-view
services and Internet access.

At December 31, 2003,
 our cable  network  totaled  35,616  kilometers.  The  following  table sets forth,  as
of December 31, 2003,  the  percentage  of homes passed by our cable  network with the
 bandwidth capacity indicated:

|Percentage | Bandwidth Capacity
|---------- | ------------------
|           |                   
|32%        | 750 MHz           
|53%        | 550 MHz           
|15%        | 450 MHz or less   

As of December  31,
2003 we had coded,  or  scrambled,  the signal of 54% of the homes we passed, with the
objective of reducing piracy.

As of December 31,
2003, we had activated two-way,  or  bi-directional,  technology for 2.3 million homes
passed.  This technology  currently  permits us to offer broadband  Internet service
because it allows the user to send data from their computer to the network.  With the
 introduction  of interactive  services, bi-directionality  allows the cable  operator
to transmit to the  subscriber  the  specific  programs  the subscriber  has  ordered,
 and it  allows  the  subscriber  to use  their  remote  control  unit to  request
programming from, and to respond to, the cable operator.

At December 31, 2003,
 our network  consisted  of 2,862 fiber nodes that  generally  fed on average 2,300 homes
each. Each node is fed with sixteen fibers.  This  architecture  allows for future
 migration to 500  homes per fiber  node  design,  and is  designed  to create a
 platform  to  support  services  such as pay-per-view  television and near
 video-on-demand.  The platform may be used to support additional services as they become
 commercially  viable and is already being used to provide broadband Internet service
through Vírtua.

A substantial portion
of our network consists of aerial cables,  often strung on electrical utility poles,
 rather  than  buried  cables.  We  gain  access  to the  utility  poles  by pole
 attachment  rental agreements  with local  electrical  utilities  who are  generally
 required  to provide us this access for a negotiated  fee.  We are in  dispute  with a
number of these  utilities  in an effort to reduce  the fee.  A number of
 telecommuications  companies are involved in similar disputes,  and favorable legal
outcomes have been  reached in the majority of those  disputes.  However,  we cannot
 assure you that  favorable  outcomes will be reached with respect to our disputes.

Furthermore,  we have
entered into agreements  with Light Serviços de Eletricidade  S.A., or Light, in Rio de
Janeiro  and  Eletropaulo  Metropolitana  do Estado de São Paulo  S.A.  in São Paulo to
reduce the rental fees each company charges for use of their utility poles.  These
agreements  represent  approximately 30% of our utility pole rental  costs.  See Item 4.
 Information  on the Company  Legal  Proceedings  for details on our dispute with Light.

In Belo Horizonte,
 our cable network  incorporates  fiber-optic trunk line  distribution  capacity leased
 from  Telemar  Norte  Leste  S.A.,  or  Telemar,  one of the three  Brazilian
 fixed-line  telephone utilities.  We are required to pay Telemar a percentage of our
revenues in Belo Horizonte under this lease.

We believe that using
aerial  cables makes outages  easier to locate and repair.  The most frequent problems we
have  experienced  with our network relate to damage due to automobile  accidents in
urban areas and  deterioration  of cable  insulation.  We maintain our network by
employing a  maintenance  crew,  as of December 31, 2003, of approximately 1,163
employees, as well as by employing independent contractors.

Each of our cable
 systems  utilizes  one  headend,  with the  exception  of the São Paulo,  Rio de
Janeiro,  Campinas,  Brasília  and Belo  Horizonte  systems.  The São Paulo system is
served by two headends and six hub sites,  the only system in our network  with
 redundant  capacity.  All of our headends are less than five years old,  utilize either
Barco,  General  Instruments or  Scientific-Atlanta  equipment and have more than 60
active  channels per headend.  Each headend  utilizes seven antennae,  which presently
 receive C-Band  from  Brasilsat  BI, B2 and B3,  PanAmSat  3,  PanAmSat 5 and  Intelsat
 806.  Ku-Band  signals  are received from Intelsat Ku, Hispasat, PanAmSat 3 and PanAmSat
6 satellites.

MMDS

In addition to our
traditional cable network, we have a MMDS that operates in Recife,  Porto Alegre and
Curitiba,  with  approximately  22,000  subscribers.  MMDS is a microwave  transmission
 system  whereby programming is sent by microwave  transmitters  from an antenna  located
on a tower or a building to a small receiving antenna located at a subscribers premises
where the encoded microwave signals are decoded.

Information Technology
Systems

Since  August 2002,
 we have been  developing  a new system  structure  with the aim to improve all internal
 controls  and user  accesses.  This  structure  will  integrate  through our  systems
 with a view towards increasing our ability to effectively track all user access.

Capital Expenditures

Going  forward,  we
will  upgrade our network on a highly  targeted  basis in order to optimize the return
from our capital  investments.  We expect our  capital  expenditures  on our network in
2004 and 2005 to slightly  increase over that of 2003. Our capital  expenditure  plan is
more fully  described under Item 5.  Operating and Financial Review and ProspectsLiquidity
and Capital ResourcesCapital Expenditures.

Pay-Television
Customer Care

Customer Service,
Billing and Collection

Maximizing customer
satisfaction is a key element of our business strategy.

Up until July 2002, we
operated 12 customer  service centers  (including four centers for broadband Internet
 service).  These centers  allowed  subscribers  to easily  contact us with  questions
 about their bills,  as well as to request  pay-per-view  events or to change their
monthly  service  packages.  At these centers we  employed  service  representatives  who
are  trained to assist our  subscribers  and to sell our services in a helpful manner.

Since  the
 introduction  of  our  pay-per-view  service  and  the  expansion  of our  network,  we
experienced  a  significant  increase  in call  volume.  As a result of the  increase  in
call  volume,  and consistent with our goal of improving  customer  service,  in June
2002, we outsourced our customer  service centers.  Before the outsourcing of our
customer service centers,  only  approximately 75% of the calls made to our  customer
 service  centers  were  answered.  Our goal was for 95% of calls to our  customer
 service centers to be answered.  During 2003, this goal was not consistently  achieved,
 and we changed the supplier for the service.  In November 2003,  Contax started to
operate our customer  service centers with aggressive targets  on service  quality.  We
have begun to see  improvement  in  customer  service  resulting  from our change to
Contax.  For  example,  in the first  quarter of 2004,  80% of all calls  directed to our
customer service centers were answered in less than 20 seconds.

Subscriber Payment
Collection System

Our subscriber
 payment  collection system is intended to provide  accurate,  timely and convenient
billing to our subscribers  while  maintaining a cost-efficient  method of receiving
 payments.  Our monthly billing  system is  automated  and utilizes  computer  links with
large banks and, in certain  cases,  local telephone  companies,  whereby  they
 distribute  our bills to our  customers  and  collect  payment  on our behalf.

Most of our
 subscribers  pay for our  services by  personally  delivering  checks to a local bank,
which is how most  utility  payments  are made in  Brazil.  We also  offer  automatic
 withdrawal  from bank accounts,  and  credit  card  payment  options  via  telephone
 and the  Internet.  At  December  31,  2003, approximately  33.4% of our subscribers
were  participating in a direct withdrawal plan to pay their monthly bills.

Disconnection and
Delinquency Charge-off Policy

Because  we  were
 aggressively  building  our  subscriber  base  during  the  early  phase  of our
development,  credit delinquency became a significant  challenge for us, particularly in
connection with the economic  downturn in Brazil that began in October  1997.  In late
1997,  in order to minimize the impact of credit  delinquency  on our  financial
 results,  we began a program to strengthen  our credit  requirements policy and to
decrease  the number of days a customer  can stay past due before  blocking or
 disconnection. Until  that  point,  disconnection  generally  would not occur  until an
account  was 120 days past due.  We moved to a 90-day past due disconnection  policy in
late 1997 and to a 60-day past due disconnection  policy in early  1998.  In the fourth
 quarter of 2000,  we adopted a 30-day  past due  disconnection  policy,  and began
 temporarily  blocking  the signal of  subscribers  whose  payments  were at least five
days past due. Once a  subscriber  is  considered  to be  disconnected,  we will  send a
 representative  to  collect  that subscribers  set-top box. In order to further
minimize credit  delinquency  effects,  we have also enhanced our credit approval
requirements and strengthened our collection processes.

Management of Churn

We  calculate  churn
by taking the total  number of net  disconnected  subscribers  (excluding  the
temporarily  blocked  subscribers) for a period as a percentage of the average number of
paying  subscribers for the same period.  We include as disconnected  only those
 subscribers  whose payment has been in arrears for more than 30 days.  When a
 subscriber  becomes  reconnected,  that  subscriber  is netted  against  the number of
 disconnects  in that  period.  Our annual  churn rate has  declined in 2003,  as
indicated in the table below:

|Year | Churn Rate
|---- | ----------
|     |           
|2003 | 13.8%     
|2002 | 18.1%     
|2001 | 22.8%     
|2000 | 16.1%     
|1999 | 22.1%     

During  2003,  we
 continued  to  experience  decreased  churn when  compared to 2001 and 2002 levels due
to various  factors, including (i) positive results from the  implementation of a more
selective  screening  process when determining  whether to accept new subscribers;  (ii)
the use of  retention  islands,  a  program  that  utilizes  skilled  customer  service
 representatives  to  target subscribers  who may  discontinue  their  subscription  due
to  dissatisfaction  with our  service;  (iii) the  creation  of a customer relationship
 marketing  area to address  possible  conflicts  between us and our  customers  that
 could  result in churn;  and (iv) a heightened focus on customer satisfaction by
continuing to improve the performance of our customer service centers.

We rely on the
following factors and initiatives to continue to limit our churn:

- our
required credit reviews prior to accepting a new subscriber;

- the
introduction of a targeted marketing program to further develop pay-television content;

- the
improvement in the quality of our services;

- the
exclusive programming content we receive through our affiliate Net Brasil; and

- the
general lack of overbuilding of other cable systems in our service areas.

Piracy

All  pay-television
 providers must develop effective methods to prohibit piracy, which refers to a
household  purposefully  receiving the  providers  services  without paying for them. We
estimate that as of December 31, 2003,  there were households  equal to 4.7% of our homes
passed receiving but not paying for our  pay-television  services  compared to estimated
 piracy rates of 4.1%,  2.6%, 1.7% and 3.9% at December 31, 1999, 2000, 2001 and 2002,
respectively.

Although the 4.7%
estimated  piracy rate experienced at year-end 2003 is greater than the estimated piracy
 rates seen in prior  years,  this higher  rate may not  reflect an actual  increase in
piracy or may reflect only a partial  increase.  In 2003, we began  dedicating more
resources to detecting and eliminating piracy.  Such  added  vigilance  has  resulted  in
our  ability  to  identify  more  cases  of  piracy  than previously.  The 4.7% estimated
piracy rate for 2003,  therefore,  may reflect only our increased  vigilance in
identifying piracy rather than an actual increase in piracy itself.

Sales and Marketing

We have a  centralized
 team  responsible  for  overseeing  the sales and the  marketing of our six regions.  In
addition,  we have  dedicated  marketing  specialists  for each region  committed to
building a detailed  action  plan  for  each of our main  operations.  We  constantly
 monitor  subscriber  perception, competition, pricing and service preferences to
increase our responsiveness to our subscribers.

Our long-term
 marketing  objective is to increase our market  penetration,  subscriber loyalty and the
growth in revenue per  household.  We expect that our  subscribers  will  eventually
 come to view their cable  connection  as the best  pipeline  to the home.  To achieve
 this  objective,  we are  pursuing the following strategies:

- introducing
new value-added services;

- designing
our offerings to enable greater opportunity for subscriber  entertainment and information
              choices;

- packaging
 product  offerings to promote the sale of premium services and niche  programming and to
              provide an attractive price/value relationship with our subscribers;

- targeting
 marketing  opportunities  based on demographic data,  including a focus on Class A and B
              households for higher-end  packages and value-added  services,  including
 broadband  Internet               service; and

- employing
the NET and Vírtua brand names to promote subscriber
awareness and loyalty.

To  increase
 subscriber  penetration  and the  level of  services  used by our  customers,  we use
coordinated  marketing  techniques.  During  2003,  approximately  64% of our sales  were
made  through  our outsourced  customer  service  centers.  We  also  use a  number  of
 other  methods  to  contact  potential subscribers  including  telemarketing,  the
 Internet,  door-to-door  sales and direct  mail.  Each of these marketing techniques
focus on minimizing our cost of acquisition of new customers.

In addition,  we have
an ongoing marketing program in which we participate in community projects in areas in
which we  operate.  One of  these  programs  is Net  Educação  (Net  Education),  a
broad  social responsibility  project  emphasizing the training of public  schoolteachers
 throughout Brazil. Net Educação was  implemented  in January 2004 and is backed by the
United  Nations  Education,  Scientific  and Cultural Organization  and the São Paulo
State  Education  Secretary.  Net  Educação  oversees  the  installation  of
pay-television  stations in schools that join the project and provides  academic support
through an Internet portal  (www.neteducacao.tv.br).  Net Educação  also  transmits an
 educational  program  through one of our channels.

Competition

We provided service to
approximately 38% of Brazils pay-television  subscribers as of December 31, 2003.  In
addition to other  pay-television  providers,  such as DBS, we compete with  broadcast
 television and sources of home entertainment  generally,  including the Internet.  We
compete with these  organizations on the  basis  of  price,  service  offerings  and
 service  reliability.  We  expect  that new  sources  of competition,  including
 pay-television  providers,  may  emerge  as a result  of  changing  technology.  In
addition,  to the extent we expand into  additional  services  such as  interactive
 services,  we will face competition from other providers of each type of service.

The following
describes our key sources of competition.

Broadcast Television

Free broadcast
 television  remains the dominant media  provider in Brazil.  Brazil  represents the
largest free broadcast  television market in Latin America,  with  approximately 30
million urban television households  as of December  31,  2003,  according  to ABTA.  The
 majority of free  television  services are broadcast by six  privately-owned  national
broadcast  television  networks and a government-owned  national public  television
 network.   These  national  television  networks  utilize  one  or  more  satellites  to
retransmit their signals, which can be received by over 99% of Brazilian households with
televisions.

DBS

DBS systems use
medium- or  high-power  satellites  to deliver  signals to satellite  dish antennas
installed at residences,  hotels and other buildings.  Unlike MMDS signals,  which are
transmitted  locally, a DBS satellite  footprint  can be  transmitted  over large
areas.  Ku-Band DBS  technology,  which offers more  channels  and better  picture
 quality  than C-Band DBS  technology,  now accounts for 100% of all DBS service in
Brazil.

As is the case with
MMDS  (described  below),  establishing a DBS system is less capital  intensive than
 constructing  a cable  television  network.  This  competitive  advantage,  however,
 may be offset by several  factors.  Among these is that DBS tends to entail higher
monthly  subscription  fees than cable. In addition,  DBS requires the subscriber to own
a special  receiver  targeted at the  satellite,  which is not always possible in densely
populated areas.

Three DBS providers
are  currently  operating in Brazil.  Sky Brasil is the largest DBS operator in Brazil
and second largest  pay-television  provider,  with  approximately  727,000  subscribers
 and a 20.6% market  share in  pay-television  as of December 31,  2003.  Sky Brasil
 offers  Ku-Band  technology  to its subscribers  and operates  under the Sky brand.
 Galaxy Brasil Ltda. is the second largest DBS operator in Brazil,  with  approximately
 415,000  subscribers  as of December 31,  2003.  Galaxy  Brasil  Ltda.  offers Ku-Band
technology under the DirectTV brand.

Cable Overbuilds

As of December 31,
2003, the Brazilian cable industry  consisted of more than 50 cable operators in
approximately  280  municipalities,  serving an estimated  2.0 million  subscribers.
 Under  Brazilian  law, cable  television  service  licenses  in a  specific  service
 area are  nonexclusive  licenses.  In certain markets,  such as São Paulo, our licensed
 service areas overlap  completely with the service areas of other licensees.  There are
overbuilt  cable systems in São Paulo,  Curitiba and  Florianópolis,  where we compete
with TVA; in Pelotas and Rio Grande,  where we compete with Adelphia;  and in Santos,
 where we compete with Canbrás.  We also compete in Belo Horizonte with a small overbuilt
network operated by W@y Brasil.

Our main cable
 competitor is TVA,  which  provides  pay-television  services  using cable and MMDS
technology.  TVA provides  cable  service in the cities of São Paulo,  Curitiba and
 Florianópolis.  TVA has been  providing  pay-television  services  through cable and
MMDS in the city of São Paulo since 1994. As of December 31, 2003, TVAs operations
accounted for 8.0% of pay-television subscribers in Brazil.

MMDS

Pay-television
 utilizing MMDS technology became available in Brazil in 1991,  initially  targeting the
largest urban areas of the country.  As of December 31, 2003,  Pay-TV  estimated that
MMDS accounted for approximately  6.4% of  pay-television  services in Brazil.  TVA is
the leading MMDS  operator in Brazil and provides  MMDS services in São Paulo,  Rio de
Janeiro,  and  Curitiba.  As of December 31, 2003,  TVAs MMDS operations  accounted for
2.9% of  pay-television  subscribers and for 46.0% of MMDS  subscribers in Brazil. We
operate MMDS only in Recife,  Curitiba and Porto  Alegre.  As of December 31, 2003, we
accounted for 9.8% of all MMDS subscribers in Brazil.

Establishing  an MMDS
 system  is less  capital  intensive  than  constructing  a cable  television network.
 While this cost  differential  may give an MMDS operator some  competitive  advantage in
providing pay-television  services,  this  advantage  may be  offset  by  several
 factors.  Among  these is that MMDS generally  requires a clear  line-of-sight  because
 microwave  signals will not pass through  obstructions. MMDS, therefore,  can generally
not be received in shadowed areas where microwave  transmission is blocked by terrain,
 buildings or other physical  objects,  though sometimes blocked signals can be
retransmitted by low-power  repeaters that can send an otherwise blocked signal over a
limited area.  Moreover,  MMDS has the disadvantages  of limited channel  capacity,
 lower  reliability and lower quality of signal.  In key cities such as São  Paulo,  Rio
de  Janeiro  and Belo  Horizonte,  where  there  are a high  concentration  of tall
buildings and topographical barriers, MMDS is at a disadvantage to cable.

Broadband

Broadband  Internet
 access is currently being offered in Brazil  primarily by telephone  companies and cable
 television  operators.  The  broadband  service  providers  with which  Vírtua  competes
 include Speedy,  which is a service  offered  by  Telefonica;  BR  Turbo,  which is
a service  offered by Brasil Telecom;  Velox,  which is a service  offered by Telemar;
 and  Internet  Rápida TVA, which is a service offered by TVA.  Telefonica  competes
with us in São Paulo,  Santos,  Campinas and Sorocaba;  Brasil Telecom competes with us
in Porto Alegre, Brasília,  Florianópolis and Curitiba;  Telemar competes with us in Rio
de Janeiro and Belo  Horizonte  and TVA  competes  with us in São Paulo and Rio de
Janeiro.  As of December 31, 2003, Speedy had approximately  485,000 subscribers,  Brasil
Telecom had approximately  277,000 subscribers, Telemar had approximately 219,000
subscribers and TVA had approximately 19,000 subscribers.

Vicom

Two  companies,
 Embratel  and  Telefonica,  lead the  data  transmission  market  in  Brazil.  The
remainder  of the  Brazilian  data  transmission  market is divided  between many
 smaller  companies,  most notably MetroRed and Pegasus.  Embratel and Telefonica
 possess greater financial  resources than we do, and they also have well established
 relationships  with Brazilian  corporations and businesses and a history of providing
these corporations and businesses with  communications  services.  Many of our smaller
competitors are subsidiaries or joint ventures of foreign  corporations  that have
significant  financial  resources and extensive experience providing similar
communications services in other countries.

Licenses

We  currently  hold 46
 licenses  to operate  pay-television  systems in 44 cities.  Three of these licenses are
for MMDS service and the remaining 43 are for cable services.

The licenses are
issued on a non-exclusive  basis by Anatel,  the national  communications  agency. The
licenses are for a term of 15 years, and are automatically renewable, subject to:

- satisfactory
 fulfillment of all technical and financial  requirements  for  establishing a network
              and operating the business;

- compliance
with applicable laws and regulations; and

- payment
of a fee.

Description of Property

We own most of the
fixed assets essential to our operations.  Our major fixed assets are:

- 35,616
kilometers of coaxial cable, of which 5,555 kilometers have fiber-optic capability;

- set-top boxes
for subscribers homes;

- electronic
transmission, receiving, processing and distribution equipment;

- microwave
equipment; and

- antennas.

We lease  some of our
 distribution  facilities  from third  parties.  These  facilities  include  space on
utility  poles and underground  ducts where we place  portions  of our cable  systems,
 roof rights and land leases  which we use to place some of our hub sites and headends
and certain portions of the fiber-optic network of the Minas Gerais state telephone
company.

We lease most of our
office space,  including our  headquarters  located in São Paulo which  consists of
 approximately  3,200 square meters,  and data  processing  equipment from third parties,
 and we rely on more than 3,000  ground-based  satellite  stations, which we lease from
third  parties.  We  generally  own our  service  vehicles,  data  processing  facilities
 and test  equipment.  We anticipate that, upon the expiration of any of our current
leasing  arrangements,  we will be able to renew those arrangements or enter into
alternative leasing arrangements at comparable costs.

Legal Proceedings

We are party to
several civil,  tax and labor lawsuits,  both judicial and  administrative,  arising out
of our regular course of business.  We have  provisioned  to cover losses with respect to
such  lawsuits that we have deemed  probable,  based on the opinion provided by our
independent legal  consultants.  We believe that the provisions made with respect to such
 contingencies,  as described below, are sufficient to cover the losses deemed as
probable:

For the Year Ended
December 31, 2003                                                            (in
thousands)

|                                           | US$           
|------------------------------------------ | --------------
|                                           |               
|                                           | (Consolidated)
|Provisions for Administrative and Judicial
|Tax Proceedings                            | 160,073       
|Provisions for Labor Proceedings           | 10,116        
|Provisions for Civil Litigations           | 5,694         
|                                           |               
|Total                                      | 175,883       
|                                          

Administrative tax
proceedings

The Instituto
 Nacional de Seguridade  Social has brought actions  against us and our  subsidiaries Net
São Paulo  Ltda.  and  DR-Empresa  de  Distribuições  e Recepção  de TV Ltda.  claiming
 we owe,  in the aggregate,  R$2.9 million (US$1.0 million),  in respect of social
security  contributions.  We have presented our defense and are awaiting for the judgment.

Actions have also been
brought against us and our  subsidiaries  relating to amounts  allegedly due with
 respect to income tax and  Contribuição  Social  sobre o Lucro  Líquido,  or CSLL, a tax
levied upon a companys net profits.  The most  significant of such actions against our
 subsidiaries  Net São Paulo Ltda. and Net Santos Ltda. are described below.

Net São Paulo Ltda.
The Secretary of the Federal  Internal  Revenue  Service,  or Federal  Internal Revenue,
 has brought an action  against  Net São Paulo Ltda.  alleging  that it has  improperly
 treated as operational  expenses the depreciation of ongoing  installations  and
payments made with regard to royalties and technical  assistance.  The Federal  Internal
Revenue alleges that we have  under-calculated  our income tax basis,  as well as the
CSLL basis for the 1995, 1996 and 1997 fiscal years and owe  approximately  R$6.2 million
 (US$2.1  million).  We have filed a defense  with the Federal  Internal
 Revenue and are awaiting its decision.

The Federal  Internal
 Revenue has also  brought an action  against us claiming  that Net São Paulo Ltda.  has
 improperly  deducted  operational  expenses  related  to (i)  the  acquisition  of
 programming; (ii) discounts  offered to  subscribers;  and (iii) foreign  exchange
 variations.  According to the Federal Internal  Revenue,  such undue deductions  reduced
the amount of the income tax and CSLL due with respect to the 1996 fiscal year in the
approximate amount of R$1.8 million (US$623,000).

Net Santos Ltda.  The
Federal  Internal  Revenue has brought an action  against us alleging that we treated the
 acquisition  costs of fixed assets as an operational  expense,  which resulted in lower
profits for the fiscal year ended on December  31, 1995.  The Federal  Internal  Revenue
 claimed that we owed R$1.9 million  (US$658,000)  with  respect  to such  taxes as a
 result.  We  filed a  defense  with  the  Federal Internal  Revenue in 2003 and obtained
a favorable  decision.  No payment has been  required to be made with respect to this
action.

The Secretary of the
State of Rio de Janeiro Internal Revenue Service,  or State Internal  Revenue, has
brought  several actions  against us claiming that we have excluded  subscription  fee
payments from the ICMS  tax  basis.  The  aggregate  amount  allegedly  owed by us is
 approximately  R$17.0  million  (US$5.9 million).  In our defense,  we argued that we
adopted  procedures in accordance with  Resolution  2585/95 of the  State  Internal
 Revenue,   which  provides  that  subscription  fee  payments  should  not  be  deemed
program-providing.  Therefore,  the  subscription  fee  payments  should not be
 considered  as ICMS taxable income, which only applies to communication services.

Our subsidiary Net Rio
received a tax assessment  notice from the State Tax Authority in the amount of
 approximately  US$21.5 million  relating to the ICMS tax. The State Tax Authority has
taken the position that as a result of  delaying  the  payment of the ICMS tax during the
period from  September  2001  through October 2002, we lost its rate  reduction  benefit.
 Supported by the opinion of our external legal counsel, we have presented our defense to
the State Tax  Authoritys  position.  We believe that we have  meritorious and
substantial defense arguments.  However,  considering the risks involved,  we have
established a reserve in the amount of US$6.3 million for potential losses related to the
assessment.

The  Federal  Public
 Administration  has  imposed  a fine of R$7.7  million  (US$2.7  million)  on Cabodinâmica
 TV Cabo São Paulo S.A.,  or  Cabodinâmica,  a wholly owned holding  company of ours,
 alleging Cabodinâmica  owes  federal  corporate  income  tax,  or IRPJ,  and CSLL as a
result  of a loan  transaction Cabodinâmica  engaged in with Preferential  Holdings Ltd.
in 1998. At the time of the loan transaction,  the IRPJ was imposed only on domestic
 transactions.  Cabodinâmica  has presented a defense against such fine on the basis that
the loan  transaction with  Preferential  Holdings Ltd. was not a domestic  transaction,
 and Cabodinâmica  is  therefore  exempt  from  paying the tax.  In June 2004,  the lower
court ruled in favor of Cabodinâmica.  This decision is subject to appeal.

The Federal Public
 Administration  has imposed a tax assessment of R$25.3 million (US$8.8 million) on our
 subsidiary Net Rio,  alleging that it owes corporate  income tax, or IRRF, as a result
of an alleged inter-company  loan entered into between us and Net Rio.  IRRF is generally
 only due if a loan is supported by a banking  organization.  Net Rio has appealed  this
tax  assessment  on the basis that it did not engage in an  inter-company  loan with us
but,  rather,  transferred  money to us on a non-loan  basis.  Net Rio is awaiting
 determination  as to its appeal.  We have made  provisions in the amount of R$7.6
million  (US$2.6 million) with resect to this tax assessment.

During 2003 and 2004,
 two actions were brought  against us by The Federal  Public  Administration, each
 alleging that we failed to pay certain  Contribuição  ao Programa de  Integração
 Social,  or PIS, and Contribuição  para  Financiamento da Seguridade  Social,  or
COFINS,  taxes relating to wire transfers.  The fines levied against us total
 approximately  R$6.6 million  (US$2.3  million).  We have made  provisions in the amount
of  R$332,000  (US$115,000)  with  resect  PIS. We have not made any  provisions  with
 respect to COFINS.

Judicial Tax
Proceedings

In 1999,  several
 Brazilian  municipalities,  which contained at that time 57% of our subscribers, issued
 municipal  decrees  or laws,  seeking  collection  of  taxes  for the use of  public
 thoroughfares, including  installation  and passage of cables.  The tax is  assessed
 per meter of cable  installed  in the relevant  municipalities  and varies widely by
municipality.  The  municipalities  include São Paulo, Rio de Janeiro, Caxias do Sul, Anápolis,
Campinas,  Florianópolis,  Criciúma, São Carlos, Indaiatuba,  Brasília and Campo Grande.
 These taxes apply to, among others, cable companies and telecommunication companies.

We have filed
 lawsuits in each of these  municipalities  to challenge  the  constitutionality  and
legality of this tax. In these  lawsuits,  we argue that (i) the tax intrudes upon the
 exclusive  authority of the Brazilian  federal  government to legislate on
 telecommunications;  and (ii) the legal nature of the tax is not that of a public price,
 fee or  contribution,  as defined under  Brazilian  law. We believe this municipal tax
is  unconstitutional  since it is not included in the list of taxes within the
 jurisdictional authority of municipalities, as established in the Brazilian federal
constitution.

Two lawsuits  have
already been decided in the lower  courts.  In Rio de Janeiro,  we were released from any
 payment  obligation  in  respect  of this tax,  while in São Paulo we were  ordered to
pay the tax retroactively.

We have  already
 filed an appeal in São Paulo.  We have not made any  reserves  for the payment of this
tax, as it is probable  that the final  judgments  resulting  from these  lawsuits will
be favorable to us. The tax varies in each  municipality  but in aggregate would require
monthly  payments,  on average,  in an amount equal to R$1.04 (US$0.36) per meter of
installed cable. We have  approximately  18,561,000  meters of installed cable in the
 municipalities  where this tax exists.  If the courts rule that the collection of this
tax by the municipalities is valid, the tax would have to be paid  retroactively.  In
addition,  if the municipalities  which  currently  impose the tax were  successful in
 implementing  and collecting this tax, additional  municipalities  may seek to impose it
as well.  If our appeals  fail and we are  required to pay this tax, our  operating
 results  would be  materially  and  adversely  affected.  In light of the existing
precedent  at the higher  court  level,  all of which are in favor of our  defense,  we
do not intend to, or forsee making, reserves for such tax assessment.

The Imposto Sobre Serviços,
 or ISS, is a tax levied by municipal  governments on revenues  derived from the
provision of services.  The  Municipality  of São Paulo brought an action  against us
claiming that we owed ISS of  approximately  R$1.3 million  (US$450,000)  for the 1994
and 1995 tax years for installation and equipment assembly services.  We are defending
against this action.

Similar  lawsuits
 relating to the ISS tax have also been brought  against us in Rio Grande do Sul, Minas
Gerais, São Paulo, Santa Catarina, Goiás and the Federal District.

We have brought
 actions to dispute income tax retained on earnings  under our hedge  transactions. In
accordance with preliminary  injunctions  obtained in these actions,  we have not
collected or remitted a total amount of R$36.4  million  (US$12.6  million) on those
 transactions.  Of that amount,  R$11.6 million (US$4.0 million) has been deposited into
court.

We have filed lawsuits
 challenging  the 1988 law that expanded the  calculation  base for the PIS, and the
COFINS,  to include all gross  revenues  (rather than gross  revenues  earned in respect
of services rendered,  as had been the case  previously),  and that  increased  the rate
for  COFINS.  We claim that the federal  government  improperly  exceeded its taxing
 authority when it attempted to broaden the calculation base for PIS and COFINS  because
 this  calculation  base is not  consistent  with the  concept of income as defined in
the Federal  Constitution and that the COFINS rate increase was invalid as a
 discriminatory  tax because it permitted  taxpayers  that paid  certain  social  taxes
on profits to claim  credits  against the increased  liability.  As a result  of our
 having  deposited  with the  applicable  court  the  amounts  in dispute,  our
 obligation  to pay the  increases  in PIS and COFINS has been  suspended  in several of
these lawsuits.  Although Brazils Supreme Court has not yet decided this question,
 several  favorable  decisions have been issued by lower courts.  We have made judicial
 deposits in the amount of R$61.0 million  (US$21.0 million) and provisions in the amount
of R$104.0 million (US$36.0 million) in respect of these lawsuits.

We have  presented  a
defense  against  a federal  tax  assessment  notice in the  amount of US$7.3 million.
 This  assessment  is due to a  difference  in the way we and the  State Tax  Authorities
 classify analogical  decoders for use in  pay-television  systems. Management has
established a reserve of US$3.15 for losses related to this matter.

Our  subsidiaries  Net
Campinas Ltda. and Net São José do Rio Preto Ltda. have received  assessment notices from
the State Tax Authorities  suspending the previously  approved benefit of payment of
their ICMS tax  debt in  installments  as a result  of the  delay  in the  payment  of
 certain  installments.  We have presented a defense  against  the  assessments  and have
made a reserve in the amount of US$3.6  million for losses related to this matter.

Civil Litigation

Increase in monthly
subscription rates

There have been 11
lawsuits  filed  against our  subsidiaries  as a result of  increases in monthly
subscription  rates  beginning  April  1999.  Six of these  lawsuits  have been  brought
in the State of São Paulo.  The remaining  five lawsuits have been brought in some
 Brazilian  cities and against one or more of our  operations,  as  follows:  one
 lawsuit  filed in the City of São  Paulo;  one  lawsuit  filed in Campo Grande; one
lawsuit filed in Belo Horizonte;  one lawsuit filed under a jurisdiction  encompassing
the towns of Florianóplis,  Joinville,  Criciúma,  Chapecó and Blumenau;  and one lawsuit
filed in the cities in which our subsidiaries Net Sul,  Horizonte Sul Comunicações  Ltda.
and DR  Empresa de Distribuições e Recepção de TV Ltda.  operate.  All 11 lawsuits have
been filed by state or federal  public  attorneys  ministries or by consumer protection
organizations.

The  plaintiffs in
each lawsuit  allege that the  increases in monthly  subscription  rates,  which became
 effective in April 1999,  were abusive and  unjustified  and violate the principles of
the Brazilian Consumer  Defense Code and the legal rule  applicable to price  adjustment.
 The  plaintiffs  argue that the increases  were illegal,  that the amounts paid should
be reimbursed to  subscribers  and that the clause in our standard  subscription
 contract,  which provides for an increase in monthly  subscription  rates in the event
that the cost of providing services increases, should be declared null and void.

We made a provision of
R$1.9 million  (US$657,000) for two of the six lawsuits brought in the State of São
Paulo;  namely,  for a lawsuit  brought  against Net Sorocaba Ltda. and a lawsuit brought
against Net São Paulo Ltda. The
lower courts ruled against us in each of these  two  lawsuits.  We have  appealed
 these  judgments. No  provisions have been  recorded for the five other  lawsuits.
If we  obtain  unfavorable  final decisions in these and similar
lawsuits, our operating results would be materially and adversely affected.

In addition to the
above  lawsuits,  a lawsuit was brought in 1999 by the Attorney  General for the State of
Rio de Janeiro  against our subsidiary  Net Rio  concerning the legality of certain
 clauses in our standard  subscription  contract used by Net Rio, including a clause that
provided for unilateral  increases in monthly  subscription  rates.  Net Rio  complied
 with the  Attorney  Generals  request and modified its subscription  contract.  As a
result,  the Attorney General has ceased all legal action against Net Rio with regards to
this matter.

Lease and use of
utility poles

In 1999, our
subsidiary Net Rio brought an action against Light Serviços de  Eletricidade  S.A., or
Light,  the  electricity  supplier in Rio de Janeiro.  Net Rio  petitioned  for the
deposit into court of an amount  that it  believed  was owed to Light for the use of
 Lights  electricity  poles.  The  lower  court granted the  petition on the grounds
 that Net Rio was duly  performing  its  obligations.  The decision was affirmed on
appeal.  As of December  31,  2003,  the total  amount  deposited  into court was
 approximately R$7.3 million  (US$2.5  million).  In April 2004, we reached an agreement
 with Light,  whereby Light agreed to accept the amount deposited into court and to
reduce its pole rental fees in the future.

In  general,  we lease
and use  electric  utility  poles.  Most of our  subsidiaries  have  brought actions to
review and reduce the amounts  charged for the leasing of such  poles.  The most
 significant  of these  actions  relates to our  subsidiary  Net São Paulo  Ltda.,
 whereby  in the first  quarter of 2004 we obtained a favorable decision that resulted in
a significant reduction in the pole rental fee.

ECAD settlement

In 1996, the Escritório
 Central de Arrecadação e Distribuição,  or ECAD,  filed separate  lawsuits against each
member of the Brazilian  pay-television  trade  association  (including  separate suits
against Net  Serviços  and each of our  cable  operating  subsidiaries).  ECAD is an
 organization  that acts as the legal  representative  of artists and authors in
collecting and  distributing  royalty  payments due to them from the public  broadcast of
musical  compositions  in Brazil.  ECADs  complaints  sought  injunctions and damages on
the grounds  that the  defendant  pay-television  companies  had been using  copyrighted
 musical material in their programming without prior approval and without paying
royalties.

In February  2001,  we
entered  into a  settlement  agreement  with ECAD with respect to all of the lawsuits
 against us and our operating  subsidiaries.  The  settlement  provided  that the
 agreement  would expire in December  2003,  and beginning in January 2004, we would
 therefore  have to pay to ECAD a monthly amount to be negotiated.

In January 2004, we
entered into  negotiations with the ECAD regarding the montly amount to be paid to ECAD
under the  settlement  agreement.  However,  we have been  unable to reach an  agreement
 with ECAD. ECAD is  seeking a payment  equal to R$0.88  per  subscriber  per  month.  We
have  agreed to pay R$0.64 per subscriber.  In May 2004,  ECAD ceased  negotiating  with
us and filed a lawsuit against us alleging that we should be paying  R$0.88 per
 subscriber.  We are  defending  against such lawsuits and decided to deposited in court
the  lower amount per subscriber per month.

Labor Proceedings

We and our
subsidiaries are party to approximately  1,307 judicial labor  proceedings.  We estimate
that  the  total  contingency  with  respect  to  these  labor-related  proceedings  for
 which  we and  our subsidiaries  are  responsible is  approximately  R$29.2 million
 (US$10.1  million) and have  established a provision  in  this  amount.  The  majority
 of  these  claims  relate  to (i)  overtime  payment  and  (ii) recognition  of an
 employment  relationship  with  us  and  for  amounts  resulting  from  such  employment
relationship, made by employees of service companies.

Various  employees in
the sales and  telemarketing  sector have brought labor claims against us for payment of
overtime on the grounds  that their time worked was not  recorded.  Since their work is
performed off company  premises,  we do not record  their hours  worked.  In the great
 majority of these  cases,  the former employees have been successful.

We and our
 subsidiaries  have  engaged  service  companies  to perform  certain  installation  and
maintenance  tasks.  In connection  with these services,  we and our  subsidiaries  have
been ordered to pay claimants  all the  benefits  usually  granted  to  formally
 employed  personnel  and to pay any  debts  to claimants arising out of illegal
practices adopted by their employers.

Other

Unibanco

In December 2002,
Unibanco filed a collection suit against us with the Central Civil Court of São Paulo
with respect to amounts outstanding under a loan facility we entered into with Unibanco
on August 26, 2002.  The amount sought under this claim totals approximately R$72.2
million (US$25.0 million).  The Central Civil Court of São Paulo ordered the pledge of
certain of our assets as security for this loan. To date, Unibanco is the only creditor
who has filed a collection suit against us.  However, we cannot assure you that our other
creditors will not file similar suits against us in the future.

Each creditor that is
party to a commitment letter regarding the restructuring of our debt has agreed that for
so long as the term sheet relating to the restructuring is in effect, that it will not
take any action to collect its respective credits against us, either through court or
administrative proceedings or enforcement or collateral.  Unibanco is party to the
commitment letter, and thus has agreed to suspend its collection suit against us.

General

In addition,  we are
party to various legal actions arising in the ordinary course of our business, including
 disputes  regarding  contracts,  labor law and taxation.  However,  we do not expect
 significant losses from these actions or that any such losses,  individually  or in the
aggregate,  will have a material adverse effect on our liquidity or our consolidated
financial position or results of operations.

Regulation

Cable Television
Services

Cable  television
 services in Brazil are  licensed  and  regulated  by Anatel  pursuant to Law No. 8,977,
 enacted by the Brazilian Congress on January 6, 1995; Decree No. 2,206,  enacted by the
President of Brazil on April 14,  1997;  Ordinance  No. 256 issued by the Ministry of
 Communications  on April 18, 1997; and the General Law of  Telecommunications  No. 9,472
 enacted on July 16, 1997.  Prior to the  enactment of Law 8,977 in 1995,  the Brazilian
 cable  industry had been governed by two  principal  regulatory  measures since its
inception in 1989:  Ordinance No. 250,  issued by the Ministry of  Communications  on
December 13, 1989; and Ordinance No. 36, issued by the Ministry of Communications on
March 21, 1991.

Ordinance  No. 250,
 which was suspended  approximately  15 months after its enactment by Ordinance No. 36,
 regulated the  distribution  of television  signals,  or DISTV,  by physical means
(i.e.,  by cable television) to end-users.  DISTV services  generally are limited only to
the reception and  transmission  of signals  without any  interference  by a DISTV
operator with the signal  content.  Under  Ordinance No. 250, the Ministry of
Communications  granted 101 authorizations to local operators to commercially  exploit
DISTV services.  Although Ordinance No. 250 did not specifically  address cable
television  services,  a number of DISTV operators,  including our own cable operating
 subsidiaries,  began to offer cable television services based on DISTV  authorizations.
 With the  issuance  of  Ordinance  No. 36 in March  1991,  the  Ministry of
Communications  suspended Ordinance No. 250; however, the DISTV  authorizations  issued
during the preceding 15 months  remained  valid.  Proposed  regulations  relating to
cable  services  were  submitted  for public comment by the  Ministry of  Communications
 at the same time  Ordinance  No. 36 was issued,  but were never adopted and no further
 regulatory  action was taken until the  enactment of Law No. 8,977 in 1995.  Law No.
8,977,  together  with No. Decree 2,206 and Ordinance No. 256,  which provide  detailed
 procedures  for the implementation of Law No. 8,977,  constitute the current regulatory
 framework for cable television services in Brazil.  The  Brazilian  Congress is
currently  discussing  a series of bills,  which,  if accepted,  may modify the current
 regulatory  framework.  These legislative  discussions are at a preliminary stage and it
is unclear what modification, if any, to the current regulatory scheme might ultimately
be enacted.

Under Law No. 8,977
and Decree No.  2,206,  a cable  operator  must obtain a license from Anatel in order to
provide cable  television  services in Brazil.  All cable  licenses are  non-exclusive
 licenses to provide cable television  services in a service area.  Cable  television
 licenses are granted by Anatel for a period of 15 years and are renewable for equal and
 successive  periods.  Renewal of the cable  television license by Anatel is assured if
the cable  system  operator has  (i) complied  with the terms of the license grant and
 applicable  governmental  regulations  and  (ii) agrees  to meet certain  technical  and
economic requirements  relating to the furnishing of adequate service to subscribers,
 including system modernization standards.  The  renewal of the cable  television
 license  may also be subject to the  payment of a renewal fee in an amount agreed upon
by the licensee and Anatel.

Only  private  legal
 entities  which  provide  cable  television  services as their main  business activity,
 are  headquartered  in Brazil  and  controlled  as to at least  51% of their  voting
 capital  by Brazilian  citizens or  naturalized  Brazilian  citizens for over ten years,
 or companies  incorporated  in Brazil  controlled  by Brazilian  citizens,  are eligible
to receive a license to operate  cable  television systems in Brazil.  In the event that
no private entity displays an interest in providing  cable  television services in a
particular  service area,  Anatel may grant the local incumbent  telephone  operator a
license to provide cable television services.

Cable operators that
provided cable television services under a DISTV  authorization  granted under Ordinance
 No.  250  were  required  under  Law  No.  8,977  to  file   applications  to  have
 their  DISTV authorizations  converted into cable television licenses.  DISTV
authorizations  covering all of our service areas were converted into cable television
licenses in December 1996.

According to General
Law No. 9,472, the provision of each type of  telecommunication  service shall be subject
to a specific  bid for a relevant  license.  Decree No.  2,206  establishes  specific
 guidelines related to bids for cable licenses.  In general,  cable  television  licenses
will be granted  pursuant to a public bidding  process  currently  being  administered
 by Anatel.  All such licenses shall be nonexclusive licenses.  In order to submit a bid
for a license,  a bidder  must meet  certain  financial,  technical  and legal
 prerequisites.  After  such  prerequisites  are met,  a  bidder  then  must  submit  a
 detailed  bid describing its plan to provide cable television services in the service
area.

Once a cable
 television  license is granted,  the licensee has an 18-month period from the date of
the license  grant to complete  the initial  stage of the  installation  of the cable
system and to commence providing  cable services to  subscribers  in the service area.
 The 18-month  period is subject to a single 12-month extension at the request of the
licensee, to be granted at the discretion of Anatel.

Any transfer of a
cable  television  license is subject to the prior approval of Anatel. A licensee may not
be  transferred  by a license  until it has commenced  providing  cable  television
 services in its service  area.  The  license  may,  however,  be  transferred  to a
 subsidiary  company  controlled  by the licensee,  by  hereditary  succession  or  by a
 spin-off  transaction  before  the  commencement  of  cable television  services.
 Transfers  of shares  causing  a change in the  control  of a  licensee  or the legal
entity that  controls a licensee  also are  subject to the prior  approval  of Anatel.
 Anatel must  receive notice of any change in the  capital  structure  of a licensee
 within 60 days,  including  any  transfer of shares or increase of capital, which does
not result in a change of control.

Law No. 8,977 and
Decree No. 2,206 regulate  programming  content and access to cable  systems.  In
addition to channels  allocated for unrestricted  programming,  a cable  television
 operator is required to make  available  for use in its service area channels in the
following  categories:  (i) basic  channels for use free of charge;  (ii) channels
devoted to occasional services;  and (iii) channels  devoted to permanent services.  A
cable operator must provide access free of charge for the following basic channels:

- channels for
the distribution of programming by local uncodified VHF and UHF television stations;

- a channel for
transmitting the sessions and proceedings of state and municipal legislatures;

- a channel for
transmitting the sessions and proceedings of the federal House of Representatives;

- a channel for
transmitting the sessions and proceedings of the federal Senate;

- a channel for
use by local universities;

- a channel for
use by federal, state and municipal bodies for cultural and educational purposes;

- a community
channel for use by local non-profit private institutions; and

- a channel for
use by the Brazilian Supreme Court.



A cable  operator must
reserve at least two channels for occasional  services,  which are dedicated for the
 transmission  of seminars,  public  protests and  demonstrations,  meetings of Congress
and similar events of public  interest.  Thirty  percent of a cable  systems  available
 channels  must be reserved for permanent  services.  Permanent  services are dedicated
to the  transmission  of  programming  produced by companies  which are not affiliated
 with the cable  television  operator on a commercial  basis (except for the mere sale or
licensing of  programs).  Channels for  occasional  or permanent  services must be
publicly offered  by the  operator,  and  compensation  of the  operator  is to be
 established  pursuant  to  market practices and costs involved in the rendering of such
services.

Law No. 8,977 and
Decree No. 2,206 also limit the use by a cable  operator of its channels  devoted to
 unrestricted  programming.  A cable  television  operator may not (i) impose  conditions
 that result in participation  in the control or require any financial  interest in the
entity providing  programming;  (ii) compel  the  programming  entity to  provide  for
 exclusivity  rights  as a  condition  to the  programming agreement;  or (iii) restrict
the unaffiliated  programming entitys market competition  capacity.  Further, a cable
 television  operator  may acquire  programming  produced  outside of Brazil only
 through a company located in Brazil.  Cable  television  operators are also required to
offer at least one channel  consisting exclusively  of  independently  produced
 Brazilian  motion  pictures  and  features.  Decree No. 2,206 also specifies  that cable
system  operators  should make  available to  subscribers,  upon their  request and at
their expense, a device that blocks reception of certain subscription programming.

Cable system
 operators are permitted  under Ordinance No. 256 to offer  commercial  advertising on
channels other than the public basic channels for use free of charge, as discussed above.

Access to basic
television services is guaranteed to all those located within the relevant service area
upon the payment of an installation fee and a periodic subscription fee established by
the cable television operator.  Anatel is empowered to regulate installation and
subscription fees.  Under Law No. 8,977 and Decree No. 2,206, the fees shall be
reasonable and fair.

Anatel may revoke a
license upon the issuance of a judicial decision, if the licensee:

- lacks the
technical, financial or legal capacity to continue to operate a cable system;

- is under the
management of individuals,  or under the control of individuals or corporations,  who,
              according to Law No. 8,977, do not qualify for such positions;

- has its
license  transferred,  either  directly  or by virtue of a change in  control,  without
the               prior consent of Anatel;

- does not start
to provide cable services within the time limit specified by Law No. 8,977; or

- suspends its
activities for more than 30 consecutive days without justification,  unless previously
              authorized by Anatel.

In September  1996,
 the Ministry of  Communications  issued  Ordinance No. 1,086.  This  ordinance
established  Cable Television Rule No. 13/96.  Cable Television Rule No. 13/96
 subsequently was amended by, and republished as,  Ordinance No. 256.  Ordinance No. 256
imposes  restrictions on the number of areas that can be served  by a single  cable
 television  system  operator,  including  its  affiliates.  According  to Ordinance No.
256, a single cable system  operator,  including its  affiliates,  may only hold licenses
with respect to (i) a maximum  of seven  areas with a  population  of 700,000  and above
and (ii) a maximum of 12 areas with a population of 300,000 or more and less than
700,000.  The  restrictions  only apply to areas in which the cable system operator,
 including its affiliates,  faces no competition from other  pay-television services,
 excluding  services that utilize  satellites to transmit  their signal.  Ordinance No.
256 grants Anatel  full  discretion  to alter or  eliminate  these  ownership
 restrictions.  The term  affiliate  is defined by Federal  Decree No. 2,206 as any
legal entity that,  directly or  indirectly,  holds at least 20% of the voting  capital
of another legal  entity,  or any of two legal  entities with common  ownership of at
least 20% of their respective voting capital.

Rule No. 13/96 grants
a one-year  period from the date a DISTV  authorization  is converted  into a cable
 television  license for any cable system operator to comply with such  restrictions,
 and a six-month period to make the basic  channels for use free of charge,  and channels
 devoted to occasional or permanent services to the public.  We believe that we are in
compliance with the terms of the ordinance.

Cable-Related Services

General

Prior to the enactment
of Amendment No. 8 in 1995, Article 21 of the Federal Constitution  required the
Brazilian government to operate directly, or through concession,  permissions or
authorizations  granted to companies  whose shares were  controlled by the Brazilian
 government,  all  telephone,  telegraph,  data transmission or other public
 telecommunications  services.  This  constitutional  requirement was the basis for the
establishment of the state-owned telephone monopoly,  Telebrás,  which held controlling
interests in 27  regional  telephone  operating  companies.  With the  adoption of
 Amendment  No.  8/95,  Article 21 was modified to permit the  Brazilian  government  to
operate  telecommunications  services  either  directly or though  authorizations,
 concessions  or  permissions  granted to private  entities.  Since the enactment of
Amendment No. 8, the government has implemented  structural  reform in the
 telecommunications  sector.  The main  purpose of this reform was the transfer of the
control and  operation  of the services  from the state to private companies.

On July 16, 1997,
Congress approved Law No. 9,472, known as the General  Telecommunications Law, or LGT,
 which  provided  the  legislative  framework  and is the basis for  telecommunications
 regulation  in Brazil.  The LGT governs the  regulation  of all  telecommunications
 services,  with the exception of radio and television broadcasting services.

The  adoption  of the
LGT,  as well as the  privatization  of fixed  line  telephone  and  cellular services,
 has led to sweeping  changes in the operating,  regulatory and  competitive
 environments  of the Brazilian  telecommunications  sector.  The  changes  include:  (i)
 the  establishment  of  an  independent regulator,   ANATEL,   and  the  development
 and   implementation  of  comprehensive   regulation  for  the telecommunications
 sector;  (ii) the break up of the previously  existing  state-owned  telephone monopoly;
and (iii) the introduction of prevalent competition in the rendering of all
telecommunications services.

As part of the
 restructuring and  privatization of the state-owned  telecommunications  companies, the
Brazilian  government  approved Decree No. 2,534, of April 2, 1998,  which  established
the General Plan of  Concessions,  also  known  as  Plano  Geral  de  Outorgas,  or PGO.
 Amongst  others,  the  PGO  imposed limitations on competition in the rendering of
fixed-line telephone services.

For privatization
 purposes, the PGO divided Brazil into 4 geographic regions, each of which has at least 2
 operators,  one  holding  a  concession,  the  privatized  state-owned  company  and the
 other  an authorization.  As a result thereof, 4 licenses were granted to what are
called the mirror companies.

Deregulation of the
Telecommunications sector in 2002

The  deregulation  of
the  telecommunications  sector  set  forth in PGO and  regulated  by  Anatel Resolution
 No. 283,  dated  November 29,  2001,  overturned  the  restriction  which  limited the
number of fixed-telephone  operators allowed to operate in the concession areas.  Such
Resolution  encouraged  greater competitiveness  in the  telecommunications  sector.  As
a  result  of  such  deregulation,  the  fixed-line telephone operators,  after
satisfying certain  requirements,  can obtain new licenses and own capital stock of
companies  authorized  by Anatel to offer other  telecommunications  services,  such as
cable  television services.

In  connection  with
the  cable  television  services,  although  the PGO  permits  the  fixed-line telephone
 operators  to  provide  other  telecommunications  services,  they are still  subject
 to certain limitations.   The  concession  agreement  among  União  Federal  and  the
 fixed-line  telephone  operators prohibits such operators from providing cable
 television  services or owning  interests in cable television operators in the same
Commuted  Fixed-Line  Telephone Services  concession areas. The exception to this rule is
that they may provide  such cable  television  services  and the like in such areas when
there is a clear of lack of  interest  of other  private  companies  in the  bidding
 announcement  for the cable  television services operation in that area.

High-Speed Cable Data
Services

Law No. 8,977,  Decree
No. 2,206 and Anatel  Resolution  190,  issued in November  1999,  authorize cable
television operators such as Net Serviços to:

- furnish video and
audio signals on their cable networks; and

- utilize their
networks to provide  value-added  services,  including  high-speed access to Internet
              service  providers  that  enable  the  transmission  of  meteorological,
 banking,  financial,               cultural, prices and other data.

Under this grant,
 cable  television  operators are not allowed to act as their own ISPs,  but must grant
other ISPs equal  access to the cable  network.  In  addition,  cable  television
 providers  can only provide Internet services to existing cable television subscribers.

Multimedia
Communications Service

Anatel issued the
Multimedia  Communications  Service,  or SCM,  Regulation,  Resolution No. 272 of August
9, 2001,  which  permits  the  offering of capacity  for  transmission,  emission  and
 reception  of multimedia  information in the format of audio signals,  video, data,
voice and other sounds,  images, texts and other information of any nature, to
subscribers within the same area of service, using any means.

The SCM is a fixed
telecommunication  service rendered for the collective interest on a domestic or
international basis,  excluding fixed telephone,  Mass Electronic  Communication Services
(cable television, MMDS and DTH),  and  Broadcast  Service.  According to  Resolution
 No. 272, SCM  providers  can offer their services to any  residential  subscriber.
 Therefore,  cable  television  operators  could request an Anatel authorization  to
 offer  SCM and then  offer  high  speed  cable  data  service,  not  only to their
 cable television  subscribers,  but to any  user  of this  service  located  in the
 licensed  area  of the  cable television operator.

SUMMARY ORGANIZATIONAL
CHART       (ownership figures represent total economic interests (not voting power)
as of March 31, 2004)



Corporate Structure

We are the largest
 pay-television  operator in Brazil.  As such,  we conduct our cable  television and
related  activities  through a group of 29 operating  companies that we have acquired and
developed over the past decade.  In addition,  we are  controlled by Globopar and the
Marinho family and, as such, are part of Organizações  Globo, the largest media group in
Brazil.  Globopars  ownership  interest in us is subject to a shareholders  agreement
with several other shareholders who, with Globopar,  collectively own 98.2% of our
 common  shares.  The  chart  on  the  preceding  page  illustrates  our  corporate
 structure  and  our relationship with Globopar and our other shareholders.

We were  incorporated
in 1994 as a sociedade  anonima,  or  corporation,  under Law 6,404/76 of the Federative
 Republic  of  Brazil  and  began  our  current  operations  in  1998  when we  acquired
 certain pay-television  assets from Globopar.  We are entered in the  commercial
 register of São Paulo under number 35.300.177.240.  Our  registered  office is  located
 at Rua Verbo  Divino,  1356,  São  Paulo-SP-04719-002, Brazil, telephone +55 11
5186-2606.

Globopar

Globopar is a
Brazilian  holding  company with  interests in cable and  satellite  television,  pay
television programming, magazine publishing, printing and the Internet.

Our controlling
 shareholders are Distel, which was previously named Globo Cabo Holding,  S.A., and Roma
 Participações  Ltda.,  or Romapar.  As of March 31, 2004,  Distel owned 32.1% of our
common shares and 3.7% of our preferred  shares,  representing  15.3% of our total
capital  stock,  and Romapar owned 36.2% of our common shares and 20.9% of our  preferred
 shares  representing  27.2% of our total  capital.  Distel is 100% owned by Globopar,
 and Romapar is 100.0% owned by Globopar.  Globopar  also  directly owns 7.2% of our
preferred  shares  representing  4.3% of our total  capital.  Globopar  is  controlled
 by the family of Mr. Roberto Irineu  Marinho,  the Chairman of our board of directors.
 The Marinho family,  thereby,  indirectly controls 68.4% of the voting power of Net Serviços.

Ownership of Net Serviços

As of March 31, 2004
our shareholders were:

- RBS,  a media
 concern  operating  in  southern  Brazil,  and its  affiliates,  Zero  Hora  Editora
              Jornalistica  S.A., or Zero Hora, and RBS Interativa S.A., or RBS
Interativa.  Zero Hora owned               0.3% of our preferred shares,  RBS Interativa
owned less than 0.1% of our preferred shares and               RBS  directly  owned 6.8%
of our  common  shares and 1.6% of our  preferred  shares,  together
              representing ownership of 3.9% of our total capital stock.

- Bradesplan,  a
wholly owned  subsidiary of Bradespar,  an investment  vehicle under common  control
              with Banco Bradesco S.A.  Bradesplan  owned 15.8% of our common shares,
 representing  6.4% of               our total capital stock.

- BNDESPar,  a
wholly owned subsidiary of Banco Nacional de  Desenvolvimento  Econômico e Social,  or
              BNDES.  BNDESPar  owned  7.3%  of  our  common  shares  and  31.2%  of our
 preferred  shares,               representing 21.4% of our total capital stock.

- Globopar,
 which holds shares  directly and indirectly  through Distel and Romapar,  owned 68.4% of
              our common shares and 31.8% of our preferred shares,  representing  46.8%
of our total capital               stock.

- The public,
which owned less than 2.0% of our common shares and 35.0% of our preferred shares,
representing 21.5% of our total capital stock.

Through  its
 ownership  of a  majority  of our  common  shares,  the  only  class of  shares  with
significant  voting rights,  Globopar,  through Distel and Romapar,  is able to control
votes at meetings of our  shareholders,  except to the extent  otherwise  provided under
our  shareholders  agreement,  which is described    under    Item    7.    Major
   Shareholders    and    Related    Party     TransactionsMajor ShareholdersShareholders Agreement.

Our Subsidiaries

We  are a  holding
 company  with  equity  interests  in  numerous  companies  that  provide  cable
television,  Internet and corporate data  transmission  services.  Most of our
 subsidiaries  were formed to hold cable operating  licenses issued by various Brazilian
 municipalities.  In aggregate,  our subsidiaries hold 46 licenses,  consisting  of 43
licenses for the  provision of cable  services and 3 licenses for MMDS. We manage the
affairs of these  subsidiaries on a day-to-day basis and generally  operate as one entity
from a strategic, financial and operational perspective.

Set forth in the table
 below is a list of our direct and  indirect  operating  subsidiaries  as of March 31,
2004:

|Name of Subsidiary                                      | Direct Interest | Total Interest
|------------------------------------------------------- | --------------- | --------------
|                                                        |                 |               
|                                                        | %              
|Multicanal Telecomunicações S.A                         | 86.00           | 100.00        
|Net Belo Horizonte Ltda(1)                              | 100.00          | 100.00        
|CMA Participações S.A                                   | 50.67           | 97.26         
|Net Brasília Ltda.(1)                                   | 100.00          | 100.00        
|Net Rio S.A                                             | 100.00          | 100.00        
|Net Recife Ltda.(1)                                     | 100.00          | 100.00        
|Net São Paulo Ltda                                      | 97.87           | 100.00        
|Net Campinas Ltda.(1)                                   | 100.00          | 100.00        
|Net Indaiatuba Ltda.(1)                                 | 100.00          | 100.00        
|Net São Carlos S.A.(1)                                  | 100.00          | 100.00        
|Net Franca Ltda.(1)                                     | 100.00          | 100.00        
|Net Sul Comunicações Ltda.(1)                           | 100.00          | 100.00        
|Vicom Ltda(1)                                           | 100.00          | 100.00        
|TV Cabo e Comunicações Jundiaí S.A                      | 50.00           | 50.00         
|Net Brasil S.A                                          | 40.00           | 40.00         
|Horizonte Sul Comunicações Ltda.(2)                     | -               | 100.00        
|DR  Empresa de Distribuições e Recepção de TV Ltda.(2) | -               | 100.00        
|Net Paraná Comunicações Ltda.(2)                        | -               | 100.00        
|Net Joinville Ltda.(2)                                  | -               | 100.00        
|Net Florianópolis Ltda.(2)                              | -               | 100.00        
|Net Curitiba Ltda.(2)                                   | -               | 100.00        
|Net Maringá Ltda.(2)                                    | -               | 100.00        
|Americapar Participações Ltda.(2)                       | -               | 100.00        
|Net Arapongas Ltda.(2)                                  | -               | 100.00        
|TV Cabo Criciúma Ltda.(2)                               | -               | 60.00         
|Net São José do Rio Preto Ltda.(3)                      | -               | 100.00        
|Net Piracicaba Ltda.(3)                                 | -               | 100.00        
|Net Ribeirão Preto S.A.(3)                              | -               | 100.00        
|Net Baurú Ltda.(3)                                      | -               | 100.00        
|Net Goiânia Ltda.(3)                                    | -               | 100.00        
|Net Anápolis Ltda.(3)                                   | -               | 100.00        
|Net Campo Grande Ltda.(3)                               | -               | 100.00        
|Net Sorocaba Ltda.(3)                                   | -               | 100.00        
|Reyc Comércio e Participações Ltda.(3)                  | 0.50            | 100.00        

---

|(1) | Distel
Holding S.A. holds one share.
|--- | ------------------------------------

|(2) | Held
through Net Sul Comunicações Ltda.
|--- | ---------------------------------------

|(3) | Held
through Multicanal Telecomunicações S.A.
|--- | ---------------------------------------------



ITEM 5.
      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following
 discussion and analysis of our financial  condition and results of operations should be
read in conjunction  with our consolidated  financial  statements  included  elsewhere in
this Form 20-F. This  discussion and analysis  contains  forward-looking  statements
 that involve risks and  uncertainties. Our actual results may differ  materially from
those  anticipated in these  forward-looking  statements as a result of  certain  factors
 that  include,  but are not  limited  to,  those set forth  under  Item 3. Key
InformationRisk Factors and elsewhere in this Form 20-F.

Overview

We are the largest
 operator of  pay-television  in Brazil,  based upon number of  subscribers  and homes
passed. Our network currently  operates in major cities located  throughout Brazil,
 including five of Brazils largest cities.  We substantially  completed the build-out of
our network in 1998.  Currently,  our principal business is providing  pay-television
 services,  including cable television under the NET brand name,  pay-per-view
 programs and broadband  Internet  service under the Vírtua  brand name. We also offer
corporate data  transmission  services  through our subsidiary,  Vicom. On November 4,
2003, we entered into an agreement  with Comsat  International  for the sale of Vicom.
 Negotiations  regarding  the sale of Vicom are still taking place.  See Item 4.
 Information on the Company Business Overview.

Since  2001,  our
 financial  condition  and  results of  operations  have been  significantly  and
adversely  affected by foreign and Brazilian  economic  factors and the  depreciation  of
the Brazilian real against the U.S.  dollar.  Because all of our revenue is denominated
in reais,  the depreciation in 2001 and 2002  resulted in a lower amount of funds in
dollar terms being  available to us to support our  significant dollar-denominated debt
service.

We initially
 responded to these developments  through a  recapitalization,  completed in the third
quarter of 2002, in which our major  shareholders  converted certain debt obligations and
subscribed for new equity shares in an aggregate amount of approximately  R$1.2 billion
 (US$387.4  million,  using an exchange rate of R$3.0979 = US$1.00,  the exchange rate as
of the date of the closing of the public  distribution  of shares).  The
 recapitalization  included  a  Brazilian  offering  of common  and  preferred  shares
 and an international   placement  of  preferred  shares.   We  issued  an  aggregate  of
 707,182,199   common  and 1,040,584,048  preferred  shares,  at a price of R$0.70 per
share, in connection with the  recapitalization, hence  increasing  our equity and
 reducing  our debt.  See Item 7. Major  Shareholders  and Related  Party TransactionsRelated
 Party  TransactionsFinancing  Arrangements  with  Affiliates for a discussion of the
recapitalization.

However,  as a result
of the continuing  depreciation  of the real against the U.S. dollar and high real
interest  rates in the second half of 2002, we determined  that despite the
 recapitalization  we would be unable to meet our interest and  scheduled  principal
 payments in the near and medium term. As a result, we ceased to pay interest or schedule
 principal on our financial  debt in December  2002, and in early 2003 commenced
 negotiations  with various of our lenders and debt holders with regard to a
restructuring  of our debt  facilities and  instruments.  The goals of these
 negotiations,  which are still taking place,  are to strengthen  our  capital  structure
 in  order  to  reduce  our  refinance  risk and to allow us to grow our operations.  We
are seeking,  among  others  things,  to reduce our near term  debt-service  obligations
 to levels that can be serviced with operating cash flows,  limit the impact of future
 exchange rate volatility by reducing the amount of our  dollar-denominated  debt, amend
certain  financial and other covenants in our debt facilities and  instruments  and
establish a fully-funded  business plan for the medium term. See Item 4. Information on
the CompanyRecent Developments.

We have taken a number
of additional steps in response to the adverse economic  developments  noted above.  In
order to reduce the impact of exchange  rate  variations  on  programming  fees,  during
2003, we entered into negotiations with our programmers,  through Net Brasil, to amend
our programming  agreements to provide  that we are charged for  programming  in reais
 instead of in U.S  dollars,  thereby  reducing  the impact of exchange rate
 fluctuations  on our  programming  costs.  We have already  entered into definitive
agreements with programmers  representing  approximately 67% of our total programming
costs, and as of March 31, 2004,  programmers  representing  approximately 95% of our
programming  costs, were accepting payment as if the  programming  costs  were
 contractually  fixed in reais  instead of in U.S  dollars.  This has had a positive
 impact on our financial  performance  for 2003 and for the first quarter of 2004. We
cannot assure you that  agreements  will be reached with each of our programmers so that
we are charged for programming in reais instead of in U.S dollars.

In 2003,  we reduced
 our capital  expenditures  compared to 2002  levels,  due to a more  targeted investment
 strategy.  Going forward,  we expect to slightly  increase our level of capital
 expenditures in 2004 and 2005 above the level that was  committed in 2003 by  targeting
 our  investments  toward areas that will support our growth.

During  2002,  due to
 weakness  in our  business  and  liquidity  position,  we deferred to 2003 a significant
 amount of payments  due to equipment  suppliers  and to 2004 and 2005 a  significant
 amount of payments due to  programmers.  We paid all  deferred  fees to equipment
 suppliers  during 2003.  We started paying  deferred  programming  fees to  programmers
in January 2004. We plan to pay off the remainder of the deferred programming fees by the
end of 2005.

Our  consolidated
 financial  statements  included  elsewhere in this Form 20-F have been  prepared under
the assumption that we will continue as a going  concern.  However,  continuing
 adverse  conditions in the general  economic  environment and the effect of those
conditions on our business have had a negative impact on our cash flows and  results
 from  operations  and  therefore  on our  ability  to make  scheduled principal  and
 interest  payments  on our  debt.  Due to the fact  that we have not  made any  interest
 or principal  payments on our  outstanding  indebtedness  since prior to December 2002
and that there can be no assurance that the results of the current  negotiations  with
our various lenders and debt holders regarding the restructuring of such  indebtedness
will be successful,  there is substantial doubt about our ability to continue  as a going
 concern.  Our ability to continue as a going  concern  is  dependent  upon,  among
other things, the satisfactory  conclusion of our debt restructuring and our ability to
generate  sufficient cash from  operations  and financing  arrangements  to meet our
 obligations.  If the going  concern basis was not appropriate  for our  consolidated
 financial  statements,  then  significant  adjustments  might be necessary in the
carrying  value of assets and  liabilities,  the  revenues and expenses  reported,  and
the balance sheet classifications used.

For a discussion of
these and other steps we have taken to address our financial  condition as well as
details of our outstanding debt, see Liquidity and Capital Resources.

Critical Accounting
Policies

The Securities and
Exchange  Commission,  or SEC,  considers an accounting policy to be critical if it is
important to the companys  financial  condition and results and if it requires
 significant  judgment and  estimates  on the part of  management  in its  application.
 The  development  and  selection  of these critical  accouting  policies have been
 determined  and reviewed by our  management.  We have the following accounting  policies
 that are most  critical  to us.  For a summary  of all of our  significant  accounting
policies,  including  the critical  accounting  policies  discussed  below,  see note 3
to the  accompanying consolidated financial statements.

Contingent liabilities

The  accrual  for a
 contingency  involves  considerable  judgment  on the part of  management.  As
prescribed  by SFAS No.  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.

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 accrue reserves for legal
 proceedings  that our  subsidiaries  and 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  and  external  legal  advisors. Reserve  balances  are
 adjusted  to  account  for  changes  in  circumstances  in  ongoing  issues  and the
establishment  of  additional  reserves for  emerging  issues.  While we believe  that
the current  level of reserves is adequate, changes in the future could impact these
determinations.

Impairment of Goodwill

Effective  January 1,
2002,  we adopted SFAS No. 142,  Goodwill and Other  Intangible  Assets. In accordance
with SFAS No. 142, on January 1, 2002 we ceased to amortize  goodwill  arising from
 acquisitions completed  prior  to  July 1,  2001.  In lieu  of  amortization,  we are
 required  to  perform  an  annual impairment review of our goodwill from 2002.

In determining
 impairments,  management must make significant judgments and estimates to calculate the
fair value of an  investment.  Fair value is the amount at which the asset  could be
bought or sold in a current  transaction  between willing  parties and may be estimated
using a number of techniques,  including quoted market prices or valuations by third
parties,  comparison to market multiples,  comparison of similar recent sales
 transactions  and  discounted  cash flows.  Discounted  cash flow is  calculated by
estimating future cash flow streams,  applying  appropriate discount rates to determine
the present values of cash flow streams,  and then assigning  probabilities to the
various cash flow scenarios.  The fair value of the asset could be different using
different estimates and assumptions in these valuation techniques.

During 2002, we
completed the required tests for goodwill and indefinite lived  intangible  assets. We
 established  four reporting  units for the purposes of this  evaluation.  These tests
 indicated that an impairment  loss must be  recognized  at the  goodwill  from both the
Net Sul and  Vicom  acquisitions.  The evaluation  process  was  validated  and  the
 assumptions  and  procedures  in the  model  were  considered acceptable and properly
constructed by our external consultants.

Our annual impairment
analysis,  which was performed during the fourth quarter 2003, did not result in an
impairment charge for 2003.

Depreciation and
Impairment of property and equipment

At December 31, 2003,
 the carrying  value of our property and  equipment  and other cable  related long-term
 assets,  net totaled $374.7 million,  which represents  46.7% of our total assets.  This
carrying value includes costs  capitalized  for labor and overhead  incurred in
connection  with the  installation of cable  systems and is stated at cost.  The
 application  of our property and equipment  accounting  policies incorporates
 estimates,  assumptions  and judgments by  management  relative to the  capitalized
 costs and useful lives.  We depreciate our cable assets using the  straight-line  method
over an eight-year  estimated remaining  economic useful life of the assets,  resulting
in an 8.3% depreciation  rate. In 2002, we changed the  estimated  useful  lives of our
cable plant to reflect our  evaluation  of the  positive  impact of new services that
could be provided through our cable network, in conjunction with industry practice.

Changes in
circumstances such as technological  advances,  changes to our business model or changes
in our capital and investment  strategy can result in the actual useful lives  differing
from our estimates, leading  management to revise useful lives that can be shortened for
certain asset  categories  and extended for others  depending on  technological
 decisions made by us. Set top boxes are an example of an asset item subject to
 significant  technological  changes.  On the other hand, new set top boxes  associated
 with new equipment  allowing  signal  compression  may allow us to provide  new value
added  services  and extend the remaining  useful lives of our fiber optic assets.  In
those cases where we determined  that the useful life of property  and  equipment  should
be  reviewed,  we would  depreciate  the net book value over its revised remaining
 useful lives thereby  increasing  or  decreasing  depreciation  expenses.  The carrying
 value of fixed  assets is reviewed  if facts and  circumstances  suggest  that they may
be  impaired.  If this review indicates  that the carrying value of the fixed assets will
not be recovered  from  undiscounted  cash flows generated  from such assets,  an
impairment  loss would be recognized for the amount that the carrying value exceeds its
fair value.  We believe that no impairment  of fixed assets  existed as of December 31,
2003 and 2002.

Following the upgrades
made to the cable plant in connection with building a two-way  communication so as to
allow the  introduction of our broadband  Internet  service,  we performed a study of the
estimated useful lives of specified items of our cable  transmission  network.  Our
 management,  based on an external independent-study,  decided to revise the estimated
economic useful lives of specified asset categories,  as of January 1, 2002.
 Accordingly,  the  depreciation  rate of the net book value of the following  items has
been revised as follows:

|              |               | Revised 2002 useful
|------------- | ------------- | -------------------
|Description   | Prior to 2002 | life               
|              |               |                    
|              |               |                    
|Cable network | 5 - 8         | 12 -15             
|Optic fiber   | 10            | 15                 
|Decoders      | 8             | 10                 
|Cable modem   | 8             | 10                 

Deferred Sign-on and
Hook up FeeRevenue and Related Direct Selling Expenses

The portion of sign-on
and hook-up  revenue and the related  direct  selling  expenses are deferred and
amortized over ten years,  which  represents the estimated  average period that
subscribers are expected to remain connected to the system.

Income Taxes

Income  taxes  are
 provided  using the  liability  method  prescribed  by FASB  Statement  No.109, Accounting
for Income Taxes.  Under the liability method,  deferred income taxes reflect the tax
effect of net operating loss and investment  carryforwards  and the net tax effects of
temporary  differences  between the  carrying  amount of assets  and  liabilities  for
 financial  statement  and income  tax  purposes,  as determined  under  enacted  tax
laws and  rates.  The  financial  effect of  changes in tax laws or rates is accounted
for in the period of enactment.

Recent Accounting
Pronouncements

In January  2003,  the
FASB issued  Interpretation  No. 46  Consolidation  of  Variable  Interests Entities,  or
FIN 46. The  objective  of FIN 46, as  revised  in  December  2003,  is to improve
 financial reporting  by  companies  involved  with  variable  interest  entities.  A
 variable  interest  entity  is a corporation,  partnership,  trust, or any other legal
 structure used for business  purposes that either (a) does  not have  equity  investors
 with  voting  rights  or (b) has  equity  investors  that do not  provide sufficient
financial resources for the entity to support its activities.

FIN 46  requires a
variable  interest  entity to be  consolidated  by a company if that  company is subject
to a majority of the risk of loss from the  variable  interest  entitys  activities  or
entitled to receive a  majority  of the  entitys  residual  returns or both.  FIN 46
also  requires  disclosures  about variable  interest  entities  that  the  company  is
not  required  to  consolidate,  but in  which it has a significant  variable interest.
 The consolidation  requirements of FIN 46 apply in the first fiscal year or interim
period ending after March 15, 2004.  Certain of the disclosure  requirements  apply in
all financial statements  issued after January 31, 2003,  regardless of when the variable
interest entity was established. As of  December  31,  2003,  we do not  expect  the
 adoption  of FIN 46 to have a  material  impact  on our consolidated financial
statements.

Sources of Revenues

When our cable
 television  systems  began  operations,  the revenues from sign-on and hook-up fees
represented  the most  significant  portion of our net  revenues,  as we were  growing
 rapidly from a small existing  subscriber  base.  As  our  subscriber  base  has  grown
 in  relative  terms,  aggregate  monthly subscription  fee revenues have increased
 significantly,  while sign-on and hook-up  revenues have declined significantly.  The
 combination  of these two trends has changed  our mix of  revenues,  such that  monthly
subscription  fee  revenues  have  become the  dominant  portion,  and  sign-on  and
 hook-up  fee  revenues constitute a relatively minor percentage, of our net revenues.

- Subscription
fees. We charge  subscribers to our cable television  services a monthly fee for cable
              programming  services.  Subscription  fees are  recorded in the month the
service is provided.               They  are  also  denominated  in  reais  and  adjusted
 for  inflation  on  an  annual  basis.               Substantially  all of our revenues
come from these monthly  subscription  fees. As of December               31,  2003,
 47.0% of our  subscribers  were  enrolled in the  Advanced  package,  which is the
              costliest of our available programming packages.

- Sign-on and
hook-up fees. We also charge  subscribers a fee for the  installation  of the equipment
              and the connections  necessary to receive our cable  television  service.
 Sign-on and hook-up               fees billed to new  subscribers  are  deferred to the
extent that they exceed  related  direct               selling  costs.  The deferred fees
are amortized to revenue over ten years,  which  represents               the  estimated
 average  period that we expect  subscribers  to remain  connected to our cable
              network.

- Pay-per-view
 fees.  In addition  to  subscription  fees for our  programming  packages,  we charge
              separate fees for specific pay-per-view  programs,  such as sporting
events,  musical concerts               by national and international artists and movies.

- Internet
access charges.  We charge  subscribers to our Vírtua broadband Internet service a
monthly               fee.  As of December 2003, we had over 91,400 Vírtua subscribers.

- Telecommunication
 service fees. Vicom charges corporate  customers a fee for the provision of data
              transmission  services via satellite,  dedicated  leased lines and virtual
 private  networks.               These  revenues  also  consist  of  fees  from
 telecommunication  engineering  services,  the               provision of technical
 assistance and corporate  network  consulting  services,  and revenues
              from the sale of satellite data communication systems.

During  the  second
 half of  2004,  we plan to  begin  to  offer  digital  cable  services  to our
subscribers  in Rio de Janeiro  and São  Paulo.  Digital  cable will  provide
 subscribers  with  additional programming  options and services,  such as near
 video-on-demand.  We do not expect material  revenues from digital cable services during
2004 and 2005.

Operating expenses

Our most significant
operating expenses are:

- Programming
 purchase costs.  Programming  purchase costs consist of (a)  programming  fees paid by
              our operating  subsidiaries  through Net Brasil, which is owned 40% by us
and indirectly owned               60% by Globopar,  to Brazilian and international
 programmers,  including  Globosat,  which is               wholly owned by Globopar,
 and (b) additional  service fees paid to Net Brasil.  Historically,               these
costs have varied with our total  number of  subscribers  and the number of  subscribers
              for our various  programming  packages.  On June 27, 2004,  we entered into
an amended and restated  programming               agreement with Net Brasil whereby Net Brasils role in
acquiring  programming  for us has been               altered.  The amended and restated
 agreement  modifies the way we obtain our programming and the               fees we pay
to Net Brasil to obtain  such  programming.  See Item 7. Major  Shareholders  and
              Related   Party   TransactionsRelated   Party    TransactionsMaterial
   Transactions   with               AffiliatesNet  Brasil Programming  Agreement. The
programming fees we must pay are generally               highest with  respect to our
Advanced  programming  package.  The amounts  charged to us under               our
programming  agreements have historically  been denominated in U.S. dollars.  Such
amounts               are  then  converted  to reais  as of the  date of  invoice.
 During  2003,  we  entered  into               negotiations with our programmers,
 through Net Brasil, to amend our programming agreements to               provide  that
we are charged  for  programming  in reais  instead of in U.S  dollars,  thereby
              reducing the impact of exchange  rate  fluctuations  on our  programming
 costs.  Negotiations               with some of our  programmers  are still taking
place. We have already entered into definitive               agreements with programmers
 representing  approximately 67% of our total  programming  costs,               and as
of March  31,  2004,  programmers  representing  approximately  95% of our  programming
              costs, were accepting payment as if the programming  costs were
 contractually  fixed in reais               instead of in U.S dollars.  This has had a
positive  impact on our financial  performance  for               2003 and for the first
quarter of 2004. We cannot assure you that  agreements  will be reached
              with each of our  programmers  so that we are charged for  programming  in
reais instead of in               U.S  dollars.  See Item 4.  Information  on the
 CompanyPay-TelevisionProgramming  Sources              for a discussion of our
programming arrangements.

- Infrastructure
  costs.   Infrastructure   costs   include   expenses  for  utility  pole  rentals,
              electricity,  maintenance  and other costs that increase as a function of
the  development  of               our network.  Infrastructure  costs also include
 costs in our customer  service,  management,               billing and information
systems.

- Depreciation
 of cable  network.  Due to the  investments  we have made in our cable and  broadband
              networks,  and the increased  size of our network  resulting  from the Net
Sul  acquisition in               September 2000, we face significant  annual
 depreciation  costs.  Depreciation costs relating               to our network were
US$59.8  million and US$37.3 million in 2002 and 2003,  respectively.  Our
              depreciation  costs are  affected  by  changes  in the  realU.S.  dollar
 exchange  rate.  We               maintain  all  accounting  records in our  functional
 currency-reais,  and we  translate  the               amounts to U.S.  dollars for
 reporting  purposes.  An increase in the foreign  exchange  rate               (i.e., a
depreciation  of the real) will result in lower  depreciation  amounts when expressed
              in U.S. dollars.  See Depreciation and Amortization.



Depreciation and
Amortization

We depreciate  our
cable network and fiber optic cable assets using the straight line method,  over the
estimated  economic  useful life of the assets.  In 1998 and 1999, we used an estimated
 economic useful life of 5 years  for  both our  cable  network  and  fiber  optic
 cable,  which  resulted  in a 20%  annual depreciation  rate in  respect of such
 assets.  In 2000 and 2001,  we used an  estimated  useful  life of 8 years for our cable
network and 10 years for our fiber optic cable,  resulting in annual  depreciation rates
of 12.5% and 10%,  respectively.  Since  January 1, 2002, in view of  technological
 advances that permit us to provide a greater  range of  value-added  services  through
 our  network,  as well as  improved  network maintenance  techniques,  we have used an
 estimated  useful life from 12 to 15 years for our cable  network and 15 years for our
fiber optic cable,  resulting in annual  depreciation rates from 8.3% to 6.7% and 6.7%,
respectively.

We performed  studies
of the  estimated  useful lives of our cable network and fiber optic cable in light of
recent technological  developments.  See Critical  Accounting  PoliciesDepreciation
 of property and equipment.

State Value-added Tax

Law No. 8,977,  the
main Brazilian  statute  governing the provision of cable services,  classified cable
television  subscription services as  telecommunications  services and thus made them
subject to the value-added,  or ICMS, tax levied by the various  Brazilian  states.  The
ICMS is a tax typically imposed at a rate of 25% on the  operators  telecommunications
 revenues.  In 1995,  most of the  states  in which our cable  systems  are  located  set
the  bases  and  rates  of the  ICMS tax  applicable  to cable  television operations  at
a rate  calculated as a 25% tax to be paid on 20% of the  aggregate of  subscription
 revenue and sign-on and hook-up fees.  These ICMS bases and rates generally remained in
effect until October 1999.

In October 1999, the
National Tax Policy Council  issued  Agreement No. 57/59,  to which all of the states in
which our cable  subsidiaries  operate,  except Rio Grande do Sul,  have  adhered.
 Agreement  No. 57/59  authorized  a  reduction  in the  basis of the ICMS  tax as
 applied  to  providers  of  subscription television  services.  Based on Agreement No.
57/59,  the rate of the ICMS tax on sales and services for the year ended  December 31,
2000 was 7.5%,  and is 10% from January 1, 2001 onward.  The State of Rio Grande do Sul
is applying the ICMS tax to us at a rate of 12%, the  legality of which we are
 contesting.  Pending the outcome of this legal  dispute,  we have fully accrued and paid
into escrow amounts at the rates of 7.5% for 2000 and 10% for 2001,  2002 and 2003.  We
 include  the ICMS tax in the  subscription  fees  payable by our subscribers, including
the 12% rate for subscribers in Rio Grande do Sul.

Income Taxes

Income taxes have been
provided for in accordance with the liability method.  Valuation  allowances are
 established to reduce deferred tax assets while we and our  subsidiaries  are
 accumulating  losses and realization is not yet assured.

Results of Operations

Functional and
reporting currencies

While we maintain our
financial  records in reais, our reporting  currency is the U.S.  dollar.  We adopted
 the real as our  functional  currency  in 1998.  Changes in the value of the real
 against the U.S. dollar have had and will  continue to have material  effects on our
results of  operations  and the value of our assets  and  liabilities  denominated  in
reais.  We discuss  these  effects in detail in  Effects  of Inflation  and  Exchange
 Rate  Fluctuations  later in this Item 5.  Operating  and  Financial  Review and
Prospects.

EBITDA

We  present  adjusted
 EBITDA in this Form 20-F  because  it is used in the  financial  maintenance covenants
 under some of our debt  facilities  and  instruments.  See Debt  Financing for a
discussion of the financial covenants related to our debt facilities and instruments.

We  calculate
 adjusted  EBITDA in the  manner  defined  in our debt  agreements.  Adjusted  EBITDA
represents  the sum of: (a) net loss;  (b) financial  expense,  net; (c) income tax
benefit  (expense);  (d) depreciation and  amortization;  (e)  non-recurring  severance
 charges;  (f) loss on translation,  net; (g) monetary indexation expense,  net; (h) gain
(loss) on exchange rate, net; (i) other non-operating  expenses, net; (j) minority
 interest;  and (k) equity loss of investees  (i.e.,  companies in which we have between
a 20% and 50% equity  interest).  Adjusted  EBITDA  should not be  considered  in
isolation or as a substitute for net income or loss,  as an indicator of operating
 performance  or as an  alternative  to cash flow as a measure of liquidity.  Adjusted
 EBITDA does not represent  funds  available for dividends,  reinvestment or other
 discretionary  uses.  Because  adjusted  EBITDA is not  determined  in  accordance  with
 U.S.  GAAP, adjusted  EBITDA as calculated and reported by other  companies may not be
comparable to adjusted  EBITDA as calculated and reported by us.

The following  table
 reconciles  adjusted EBITDA to our net income (loss) for the past five fiscal years:

|Net Serviços de Comunicação S.A. 
Reconciliation of Adjusted EBITDAFor the Year Ended December 31,
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|                                                                                                  
|                                                                                                  
|                                                                                                  
|Adjusted EBITDA                                                                                   
|Financial expense, net                                                                            
|Income tax benefit (expense)                                                                      
|Depreciation and amortization                                                                     
|Non-recurring severance charges                                                                   
|Loss on translation, net                                                                          
|Monetary indexation expense, net                                                                  
|Gain (loss) on exchange rate, net                                                                 
|Other non-operating expenses, net                                                                 
|Minority interest                                                                                 
|Equity loss of investees                                                                          
|Net loss                                                                                          



Year Ended December
31, 2003 Compared to Year Ended December 31, 2002

Exchange rate
variations  historically  have affected and will continue to have multiple effects on our
results of  operations.  Our  statements of  operations  expressed in local  currency are
 translated to U.S.  dollars at the average  exchange rate for the period.  The current
period dollars in the statements of operations  will be increased at the same rate as the
real  appreciated in relation to the U.S.  dollar over the period in question.

Subscription revenues

Subscription  revenues
consist of monthly  subscription  fees paid by  pay-television  subscribers. These
 revenues  increased by 3.4% to US$448.3  million in 2003 from US$433.5  million in 2002.
The increase was  principally due to the increase in monthly  subscription  fees that
took place during 2003. The average revenue per subscriber in U.S. dollars increased by
6.1% in 2003 compared to 2002.

Sign-on and hook-up
fee revenues

Sign-on and hook-up
fee revenues  decreased by 4.8% to US$8.8 million  in 2003 from  US$9.3 million in 2002.
 This  decrease was  primarily  due to the higher sales of the loyalty  plan, a program
 whereby we waive the hook-up fee for pay-television  and broadband Internet service
 subscribers who commit to at least a 12-month subscription.

In  accordance  with
U.S.  GAAP,  we defer and  amortize  over a period of 10 years that portion of sign-on
and hook-up fee revenues  that exceeds  related  direct  selling  expenses.  This
 deferral  reduces reported  revenues  as  compared  with cash flow  generated  by
 operations.  On the  other  hand,  reported revenues in subsequent periods are increased
by the amortization of deferred sign-on and hook-up fees.

Telecommunication
service revenue

Telecommunication
 service revenue  consists of revenue  representing  monthly fees we receive from
corporate  customers  for data  transmission  services we offer  through  Vicom.
 Telecommunication  service revenue  increased  by 4.1% to US$19.1  million in 2003 from
 US$18.3  million in 2002 due  primarily to the completion of the Federal governments
 engineering project  implementation,  the update of the workstations of one of our
 major  customers,  the  higher  number  of  operating  stations  and the  increase  in
repair services.  We began  offering  telecommunication  services to corporate  customers
 in the third  quarter of 2000, following our acquisition of Vicom in July 2000.

Other services

Other services
revenues consist of revenues from  pay-per-view,  monthly  subscription fees paid by
subscribers to our broadband Internet service,  Vírtua, sales of our programming guide,
 programming package upgrades,  technical support services and
 disconnection/reconnection  services. Revenue from other services increased to US$27.2
 million in 2003 from US$26.9  million in 2002.  This  increase  was  primarily  due to
higher revenues from our pay-per-view and broadband Internet services.

A substantial part of
our pay-per-view  revenues each year are derived from our transmission of the state and
national soccer  championships.  As the dates of these championships change from year to
year, our pay-per-view  revenues tend to be seasonal,  with a disproportionate
 percentage recorded during the periods in which these events take place.

We introduced a new
strategy for broadband Internet service during 2003,  increasing our investment in this
segment.  As a result,  broadband  Internet  service  revenues  rose to US$17.9  million
in 2003, an increase of 35% above 2002  revenues of US$13.2  million.  This increase was
primarily due to an increase in our Vírtua  subscriber  base.  Gross sales in broadband
 Internet  increased  181%,  when  comparing 2003 to 2002, principally due to added
promotions.  See Item 4.  Information on the CompanyOur Services.

Taxes and other
deductions from revenues

Taxes and other
deductions from revenues consist of:

- the ICMS tax,
which is levied at rate of 10% on subscription  revenues and sign-on and hook-up fees
              in each state in which we operate (other than Rio Grande do Sul, where the
rate is 12%);

- the ISS, a
municipal  tax on services  that is levied at a maximum rate of 5% (some  municipalities
              have lower rates) on certain services such as maintenance and other
technical activities;

- a  federal
 tax  related  to the PIS that is  levied at a rate of 0.65% on  revenues  derived  from
              pay-television,  telecommunication  and broadband  services and at a rate
of 1.65% on revenues               derived from all other services;

- the COFINS,  a
federal social security tax that is levied at a rate of 3% on revenues  derived from
              pay-television,  telecommunication  and  broadband  services and at a rate
of 7.6% on revenues               derived from all other services; and

- the Fundo de
 Universalização  dos  Serviços  de  Telecomunicações,  or Fust,  and the Fundo para o
              Desenvolvimento  Tecnológico  das  Telecomunicações,  or Funttel,  which
are computed based on               gross service  revenues,  excluding  canceled  sales
and other taxes over this same base,  and               which are levied at the rates of
1.0% and 0.5%, respectively.

Taxes and other
 deductions from revenues are directly linked to our volume of subscription  sales. In
2003,  services  and other taxes  totaled  US$93.8  million,  an  increase  of 11.0%
 compared to US$84.5 million in 2002.  This  increase was primarily due to an increase in
taxes  resulting  from higher  revenues and to the  collection  of Fundo  Estadual  de
Combate à Pobreza in Rio de Janeiro,  a Rio de Janeiro  State social tax, the objective
of which is to reduce poverty.  This tax began being imposed in January 2003.

Programming and other
direct operating costs

Programming and other
direct  operating costs consist  principally of programming fees paid through Net Brasil
to Brazilian and  international  programmers,  including  Globosat,  customer  service
 expenses, network  maintenance  expenses,  pole rental charges payable to utility
 companies,  and payroll and related charges.  Our  programming  costs  are  affected  by
the  number of  subscribers,  programming  upgrades  by existing  subscribers,  the
addition of more  channels to our line-up and the  exchange  rate of the real to the U.S.
dollar.

In 2003,  programming
 expenses totaled  US$135.6,  a decrease of 6.2% compared to US$144.5 million recorded in
2002.  This  decrease was primarily due to the success of the  negotiations  of our
 programming costs with our programmers.  See Overview  above. As a percentage of net
operating  revenues,  programming and other direct operating costs decreased to 55.1% in
2003 compared to 58.3% in 2002.

Other  direct
 operating  costs  decreased by 0.8% to US$90.1  million in 2003  compared to US$91.0
million  in 2002.  Savings  regarding  negotiations  of our  program  guide and Monet
 magazine  costs  were partially offset by other direct operating costs such as pole
rental and network maintenance expenses.

Selling, general and
administrative expenses

Selling,  general and
 administrative  expenses  decreased by 12.2% to US$80.2 million in 2003 from US$91.3
 million in 2002.  The decrease was primarily due to our provision for  contingencies  in
the amount of  US$18.9  million  in  2002.  As  a  percentage  of  net  operating
  revenues,   selling,   general  and administrative expenses decreased from 22.6% in
2002 to 19.6% in 2003.

Depreciation and
amortization

During 2003,
 depreciation and amortization  expenses totaled US$66.2 million,  a decrease of 15.9%
compared to the US$78.7  million  recorded in 2002.  This  decrease was  primarily
 attributable  to certain pre-maturity items, totaling US$6.0 million, which were 100%
amortized during 2003.

Monetary indexation
expense, net; Gain (loss) on exchange rate, net

Monetary  indexation
 expense,  net, consists of monetary  correction  charges on  real-denominated debt,
 which  represented  approximately  36.7% and 32.1% of our total debt in 2003 and 2002,
 respectively. As described  below under  Liquidity and Capital  ResourcesDebt
 Financing,  our  real-denominated  debt includes  convertible  debentures,  of which
the principal  amounts are adjusted  periodically  based on the IGP-M  inflation  index,
 a Brazilian  inflation  index  calculated on a monthly basis by reference to price
increases in a variety of goods and services nationwide.

Gain  (loss) on
 exchange  rate,  net,  consists  of  foreign  exchange  gains  and  losses on U.S.
dollar-denominated  debt, which represented  approximately  63.3% and 67.9% of our total
debt in 2003 and in 2002,  respectively.  We record foreign  exchange losses or gains on
our U.S.  dollar-denominated  debt as a function of the U.S. dollars appreciation or
depreciation in relation to the real.

Our combined monetary
indexation expense,  net, and gain (loss) on exchange rate, net, was positive US$36.5
 million in 2003, an  improvement  from negative  US$160.0 million  in 2002.  This
 improvement  was mainly due to the fact that the real  appreciated  by 18.2% against the
dollar in 2003 while it  depreciated by 52.3% in 2002.  In addition,  annual  inflation
as measured by the IGP-M was  approximately  8.7% in 2003 compared to approximately 25.3%
in 2002.

Financial expenses

Financial  expenses
consist  principally of interest payable on our outstanding debt;  amortization of
financial  charges  associated with the issuance of debt instruments;  the Contribuição
 Provisória sobre Movimentações  Financeiras,  or CPMF, a federal tax on financial
 transactions  levied at a rate of 0.38% on withdrawals  from  checking  accounts;  and
PIS  and  COFINS,  taxes  on  financial  revenues  derived  from short-term  investments.
 Financial  expenses  decreased  by31.8% to US$119.3  million in 2003 from US$174.8
million  in  2002.  This  decrease  was  primarily  due  to  the  recording  of an  IOF
 (tax  on  financial transactions) tax provision on transactions with related  companies,
 in the amount of  US$34.7 million,  to provide for potential tax liabilities in 2002.

Financial income

Financial income
consists of gains from hedge positions and interest on short-term investments,  as well
as moneys  collected in the form of penalty and interest  payments from late  subscribers  payments
of their  monthly  subscription  fees.  Financial  income  decreased  to US$10.5  million
in 2003 from  US$20.2 million in 2002,  even though we experienced  greater  financial
 gains from our  short-term  investments in 2003.  The positive  results of our hedge
 positions in 2002 as compared to 2003,  when we did not engage in hedging transactions,
led to this overall decrease in financial income for 2003.

Equity in results of
investees

Equity in results of
investees  reflects our share of gains and losses of  subsidiaries in which we do not
hold a majority  stake.  Equity in results of investees  was a loss of US$580,000 in 2003
compared to a loss of US$1.2  million in 2002.  This result was  principally
 attributable  to lower losses  incurred by our subsidiary Net Brasil during 2003.

Income tax expense

In 2003,  we recorded
 income tax  expenses of US$5.1  million  compared to income tax  expenses of US$4.4
million in 2002.

Cumulative effect of
accounting change

In January 2002, we
adopted SFAS,  No. 142, which requires  companies to stop  amortizing  goodwill and
certain  intangible  assets with an  indefinite  useful  life.  Instead,  SFAS,  No. 142
 requires  that goodwill be reviewed for impairment upon adoption of SFAS, No. 142 and
annually thereafter.

Upon  adoption of
SFAS,  No. 142, we recorded a non-cash  charge of US$367.7  million to reduce the
carrying  value of goodwill.  This charge is reflected as a cumulative  effect of
 accounting  change in our accompanying  consolidated  statement of operations.  In
calculating the impairment  charge,  the fair value of the impaired  reporting units was
estimated using the discounted  cash flow  methodology.  The impairment is associated
with the decline in our stock price since the 2000 acquisitions of Net Sul and Vicom.

In 2003, we did not
record charges to reduce the carrying value of goodwill.

Year Ended December 31, 2002
Compared to Year Ended December 31, 2001

Subscription revenues

Subscription  revenues consist
of monthly  subscription fees paid by pay-television  subscribers.  These revenues
decreased by 15.4% to US$433.5  million in 2002 from US$512.3  million in 2001. The
decrease was  principally  due to the  depreciation of the real. Subscription  revenues
 remained fairly stable in local currency.  Average revenue per subscriber in U.S.
dollars decreased by 11.5% in 2002  compared to 2001,  despite  increases in monthly
 subscription  fees in reais that took effect in June and  September  2002.  Our churn in
2002 was 18.1%  compared to 22.8% in 2001. The decrease in churn was primarily due to the
 implementation  of a more selective screening process when determining  whether to
accept new subscribers,  the use of retention  islands,  a program that utilizes skilled
customer service  representatives to target subscribers that could potentially
 disconnect due to  dissatisfaction,  and our heightened focus on customer satisfaction,
such as the outsourcing of our customer service centers.

Sign-on and hook-up fee revenues

Sign-on and hook-up fee
revenues  decreased by 54.6% to  US$9.3 million  in 2002 from  US$20.5 million  in 2001.
This decrease was  primarily due to the  depreciation  of the real against the U.S.
 dollar and a decrease in the number of subscriber  installations during 2002.

In  accordance  with U.S.
 GAAP,  we defer and  amortize  over a period of 10 years that  portion of sign-on  and
 hook-up fee revenues that exceeds related direct selling  expenses.  This deferral
reduces  reported  revenues as compared with cash flow generated by operations.  On the
other hand,  reported  revenues in subsequent  periods are increased by the amortization
of deferred sign-on and hook-up fees.

Telecommunication service
revenue

Telecommunication  service
revenue consists of revenue  representing monthly fees we receive from corporate
customers for data transmission  services we offer through Vicom.  Telecommunication
 service  revenue  decreased by 24.1% to US$18.3 million in 2002 from US$24.1  million in
2001 due primarily to the renewal of contracts with corporate  customers for amounts less
than what these customers were  previously  paying and the effect of the  depreciation
 of the real  against  the  dollar.  We began  offering  telecommunication services to
corporate customers in the third quarter of 2000, following our acquisition of Vicom in
July 2000.

Other services

Other  services  revenues
 consist of  revenues  from  pay-per-view,  monthly  subscription  fees paid by
 subscribers  to our broadband  Internet service,  Vírtua,  sales of our programming
 guide,  programming  package upgrades,  technical support services and
disconnection/reconnection  services.  Revenue from other services  decreased to US$26.9
 million in 2002 from US$31.0 million in 2001. The decrease was primarily due to the
 depreciation of the real against the U.S.  dollar.  This decrease offset the positive
effects of the increase in the number of broadband  Internet  service  subscribers  and
the  improvement in our  subscriber  base mix, which had a positive impact on broadband
 revenues.  Our Vírtua  subscriber  active base grew by 4.4% to 55,700 at December 31,
2002 from 53,300 at December 31, 2001.

A substantial part of our
pay-per-view revenues each year are derived from our transmission of the state and
national soccer championships, which usually begin in March and August, respectively.

Therefore,  our  pay-per-view
 revenues  tend to be seasonal,  with a  disproportionate  percentage recorded in the
first and third quarters of each year.

Taxes and other deductions from
revenues

Taxes and other deductions from
revenues consist of:

- the ICMS tax, which is
levied at rate of 10% on subscription  revenues and sign-on and hook-up fees
              in each state in which we operate (other than Rio Grande do Sul, where the
rate is 12%);

- the ISS, a municipal
 tax on services  that is levied at a maximum rate of 5% (some  municipalities
              have lower rates) on certain services such as maintenance and other
technical activities;

- a  federal  tax
 related  to the PIS that is  levied at a rate of 0.65% on  revenues  derived  from
              pay-television,  telecommunication  and broadband  services and at a rate
of 1.65% on revenues               derived from all other services;

- the COFINS,  a federal
social security tax that is levied at a rate of 3% on revenues  derived from
              pay-television,  telecommunication  and  broadband  services and at a rate
of 7.6% on revenues               derived from all other services; and

- the Fundo de
 Universalização  dos  Serviços  de  Telecomunicações,  or Fust,  and the Fundo para o
              Desenvolvimento  Tecnológico  das  Telecomunicações,  or Funttel,  which
are computed based on               gross service  revenues,  excluding  canceled  sales
and other taxes over this same base,  and               which are levied at the rates of
1.0% and 0.5%, respectively.

Taxes and other  deductions
from revenues are directly linked to our volume of subscription  sales. These expenses
 decreased by 10.8% to US$84.5  million in 2002 from US$94.7  million in 2001, as a
result of the  depreciation  of  the  real.  This  decrease  offset  the  increases  in
 customer  disconnections  and cancellations  and the impact of the increase in the ICMS
tax rate on our Vírtua  operations in the State of São Paulo.

Programming and other direct
operating costs

Programming and other direct
 operating costs consist  principally of programming fees paid through Net Brasil to
Brazilian and  international  programmers,  including  Globosat,  customer  service
 expenses, network  maintenance  expenses,  pole rental charges payable to utility
 companies,  and payroll and related charges.  Although  programming  and other direct
 operating  expenses in local currency were higher in 2002 when compared to 2001, in U.S.
 dollars,  these costs  decreased by 10.9% to  US$235.5 million  in 2002 from US$264.3
 million  in  2001  due to the  real  depreciation.  As a  percentage  of net  operating
 revenues, programming and other direct operating costs increased to 58.3% in 2002
compared to 53.6% in 2001.

Our programming costs decreased
by 5.5% to US$144.5 million in 2002 from US$152.9 million in 2001.  This decrease was a
result of the higher exchange rate in 2002.  Our programming costs are affected by the
number of subscribers, programming upgrades by existing subscribers, the addition of more
channels to our line-up and the exchange rate of the real to the U.S. dollar.

Other direct  operating  costs
 decreased by 18.3% to US$91.0  million in 2002 compared to US$111.4 million in 2001.
 Increases  in other  direct  operating  costs such as pole rental and network
 maintenance expenses were offset by the depreciation of the real against the U.S. dollar.

Selling, general and
administrative expenses

Selling,  general and
 administrative  expenses  decreased by 29.0% to US$91.3 million in 2002 from US$106.1
 million  in  2001.  The  decrease  was  primarily  attributable  to the  reduction  in
 marketing, personnel  and  office  expenses  to better  align our  costs  structure  to
our  liquidity  position.  As a percentage of net operating revenues,  selling,  general
and administrative  expenses remained fairly stable at 22.6%.

Depreciation and amortization

Depreciation and amortization
 expenses  decreased by 65.2% to  US$78.7 million in 2002 compared to US$226.1 million
 in 2001.  This  decrease  was caused by the higher  exchange  rate and the revision of
the estimated useful lives of some of our main assets, such as our network and decoders.

Monetary indexation expense,
net; Gain (loss) on exchange rate, net

Monetary  indexation  expense,
 net, consists of monetary  correction  charges on  real-denominated debt,  which
 represented   approximately  32.1%  and  49.4%  of  our  total  debt  in  2002  and  in
 2001, respectively.   As  described   below  under   Liquidity  and  Capital
  ResourcesDebt   Financing,  our real-denominated  debt  includes  convertible
 debentures,  of which  the  principal  amounts  are  adjusted periodically  based on the
IGP-M inflation index, a Brazilian  inflation index calculated on a monthly basis by
reference to price increases in a variety of goods and services nationwide.

Gain  (loss) on  exchange
 rate,  net,  consists  of  foreign  exchange  gains  and  losses on U.S.
dollar-denominated  debt, which represented  approximately  67.9% and 50.6% of our total
debt in 2002 and in 2001,  respectively.  We record foreign  exchange losses or gains on
our U.S.  dollar-denominated  debt as a function of the U.S. dollars appreciation or
depreciation in relation to the real.

Our  combined  monetary
 indexation  expense,  net,  and gain (loss) on  exchange  rate,  net,  was US$160.0 million
 in 2002, a 27.8% increase from US$125.2  million in 2001. This increased  combined
expense and loss was mainly  due to the fact that the  reals  depreciation  against  the
 dollar was  significantly higher in 2002 than in 2001.  Annual  inflation  as  measured
by the IGP-M was  approximately  25.3% in 2002 compared to  approximately  10.8% in 2001,
 and the real lost 52.3% of its value against the U.S.  dollar in 2002, compared to 18.7%
in 2001.

Financial expenses

Financial expenses consist
principally of interest payable on our outstanding debt; amortization of financial
charges associated with the issuance of debt instruments; the Contribuição Provisória
sobre Movimentações Financeiras, or CPMF, a federal tax on financial transactions levied
at a rate of 0.38% on withdrawals from checking accounts; and PIS and COFINS, taxes on
financial revenues derived from short-term investments.  Financial expenses increased by
33.1% to US$174.8 million in 2002 from US$131.3 million in 2001. This increase was
primarily due to the recording of an IOF (tax on financial transactions) tax provision on
transactions with related companies, in the amount of US$34.7 million, to provide for
potential tax liabilities.  This was necessary given certain recent adverse decisions in
the Tribunal Regional de Justiça (Regional Court) and the restatement of advances for
future capitalization, or AFACs, made to us by some of our major shareholders prior to
the recapitalization.

Financial income

Financial  income consists of
gains on hedge positions and interest on short-term  investments,  as well as  penalty
 and  interest  from  late  subscribers  payments  of  their  monthly  subscription
 fees. Financial  income  increased  to US$20.2  million in 2002 from  US$17.1  million
in 2001.  The  increase was primarily due to gains from hedge positions.

Equity in results of investees

Equity in results of investees
 reflects our share of gains and losses of  subsidiaries in which we do not hold a
 majority  stake.  Equity  in  results  of  investees  was a loss of  US$1.2  million  in
2002 compared  to a loss of  US$36,000  in 2001.  This  result  was  principally
 attributable  to higher  losses incurred by our subsidiary Net Brasil during 2002.

Income tax expense

In 2002,  we recorded  income
tax  expenses of US$4.4  million  compared to income tax  expenses of US$1.4 million in
2001.

Cumulative effect of accounting
change

In January 2002, we adopted
SFAS,  No. 142, which requires  companies to stop  amortizing  goodwill and certain
 intangible  assets with an  indefinite  useful  life.  Instead,  SFAS,  No. 142
 requires  that goodwill be reviewed for impairment upon adoption of SFAS, No. 142 and
annually thereafter.

Upon  adoption of SFAS,  No.
142, we recorded a non-cash  charge of US$367.7  million to reduce the carrying  value of
goodwill.  This charge is reflected as a cumulative  effect of  accounting  change in our
accompanying  consolidated  statement of operations.  In calculating the impairment
 charge,  the fair value of the impaired  reporting units was estimated using the
discounted  cash flow  methodology.  The impairment is associated with the decline in our
stock price since the 2000 acquisitions of Net Sul and Vicom.

Liquidity and Capital Resources

We  broadly  define  liquidity
 as our  ability to  generate  sufficient  cash flow from  operating activities to meet
our obligations and commitments.  In addition,  liquidity  includes the ability to obtain
appropriate  debt and equity  financing and to convert into cash those assets that are no
longer required to meet our strategic and financial  objectives.  Accordingly,  liquidity
cannot be considered  separately from capital  resources  that consist of current or
 potentially  available  future funds for use in meeting debt service requirements and
long-range business objectives.

Cash Flows

We had cash and cash
equivalents of US$68.8 million as of December 31, 2003, an increase of 336.8% from
US$15.8 million as of December 31, 2002.  As of March 31, 2004, we had cash and cash
equivalents of US$87.5 million.

Cash flows from operating
activities.  Net cash from operating activities was US$63.6 million in 2003, compared to
US$107.7 million in 2002.  Although there was an increase related to higher average
revenue per subscriber in U.S. dollars due to the increase in monthly fees charged to
subscribers and a reduction in programming expenses, overall decrease in our cash flow
from operating activities was due to the payment in 2003 of US$13.0 million of fees to
equipment suppliers that had been deferred from 2002 and of US$35.8 million in
programming expenses (as compared to US$20.0 in programming expenses in 2002).

Net cash from operating
 activities was US$107.7  million in 2002,  compared to US$33.3  million in 2001.
 Although there was a decrease  related to lower average  revenue per  subscriber in U.S.
 dollars due to the  depreciation  of the real  against the  dollar,  a reduction  in the
number of our  subscribers  and increased  programming  expenses,  the overall increase
in our cash flows from operating  activities in 2002 as compared to 2001 was due
primarily to the  capitalization  of US$50.6 million in programming  expenses as part of
our 2002  recapitalization  and the  deferral of US$19.8  million in  programming  fees
from 2002 to later years.

Cash flows from  investing
 activities.  We used US$19.4  million of cash in  investing  activities during 2003, a
decrease of 27.1% when  compared to US$26.7  million  cash used in  investing  activities
 in 2002.  This  decrease was due primarily to our  reduction in capital  expenditures
 by targeting our capital expenditures in geographic areas and on services where we can
achieve higher returns on our investments.

We used  US$26.7  million of
cash in  investing  activities  during  2002, a decrease of 79.3% when compared to
US$129.0  million cash used in investing  activities in 2001.  The decrease was due
primarily to our  significant  reduction in capital  expenditures,  our selective
 investments in  installations  and our deferral  from 2002 to 2003 of US$12.4  million
of payments to equipment  suppliers,  based on  negotiations with a  number  of our
 major  suppliers.  This  deferral  increased  our  cash  disbursements  for  capital
expenditures in 2003.

Cash  flows  from  financing
 activities.  We had no cash flow from  financing  activities  in 2003 compared  to an
outflow of US$70.5  million in 2002.  We do not expect to have any cash flow from
 financing activities until we have concluded our proposed debt restructuring plan.

We had a cash  outflow of
US$70.5  million from  financing  activities  in 2002  compared to a cash inflow of
US$46.5  million in 2001.  Our  principal  sources of  financing  during 2002 were (1)
proceeds of US$92.0  million in connection  with our  recapitalization  and (2) proceeds
from capital  advances from our shareholders.  In 2002, we  refinanced or repaid
 US$444.4  million in aggregate  principal  amount of debt. This consisted of (1) the
payment by our subsidiary,  Jonquil  Ventures Ltd., of US$52.0  million  aggregate
principal  amount at maturity of  zero-coupon  guaranteed  notes on July 15, 2002, (2)
the payment of US$7.7 million  related to the October 30, 2002 exercise of put options by
holders of our floating rate notes,  (3) the payment of US$25.6 million  aggregate
 principal  amount on our BNDES loan facility,  (4) the payment of US$33.2  million
 aggregate  principal  amount on the sale of subscriber  receivables to Cable S.A., (5)
the repayment of US$35.3  million of scheduled  payments  under our IFC  facilities and
(6) the payment of trade financing and short-term loans in the amount of US$290.6 million.

Liquidity requirements and
sources

We need significant cash to
make principal and interest payments on our debt, conduct our ongoing operations and fund
capital expenditures.  We have historically funded these liquidity requirements through
operating cash flows, borrowings under credit facilities, the proceeds of debt and equity
financings, and capital advances and loans from our shareholders.  After taking into
consideration the range of projections of cash flows from operations, anticipated capital
expenditures and debt principal and interest repayment requirements, unless we are able
successfully to restructure our debt or obtain financing from third parties, we will not
have adequate financial resources to meet our anticipated cash requirements for the
second half of 2004 and future periods.

The amount of our anticipated
 operating cash flows in 2004 could be adversely affected by a number of factors,  many
of which are not within our control.  Weakness of the Brazilian  economy could result in
a decline in the number of our  subscribers,  which would  lower  subscription  and
sign-on and hook-up  fees. Depreciation  of the real against the U.S.  dollar would
decrease our revenue per subscriber in U.S.  dollar terms, unless we were able to
implement  corresponding  increases in subscription fees in reais, which we do not
believe is likely.  Depreciation  of the real against the dollar would also  increase the
amount of cash that we have to use to cover  our  dollar-denominated  or  dollar-indexed
 expenses,  including  some of our programming expenses and most of our equipment
expenses.

Principal and interest payments
on our debt represent  significant  liquidity  requirements for us. The aggregate unpaid
 principal  balance of our debt totaled  approximately  US$349.9 million as of December
31, 2003,  US$221.7 million of which was denominated in U.S. dollars,  and approximately
 US349.4 million as of March 31, 2004,  US$206.6  million of which was  denominated in
U.S.  dollars.  In addition,  our accrued but unpaid  interest  totaled  US$85.5  million
 and US$92.7  million as of December  31, 2003 and March 31, 2004,  respectively,  and
other  fees and  penalties  totaled  US$22.1  million  and  US$34.7  million as of
December  31, 2003 and March 31, 2004,  respectively.  Average  interest  rates on our
debt during 2003 were approximately  26.3% in respect of our Brazilian  currency  debt,
and  approximately  7.8% in respect of our U.S.  dollar-denominated  debt.  As of
 December  31,  2003,  all  of our  indebtedness  was  classified  as current.  See Debt
Financing for details of our debt.

We have a significant  working
capital  deficit,  primarily as a result of the unpaid  principal of our debt, interest
and financial charges.  At March 31, 2004, our current  liabilities  exceeded our current
assets by $469.0  million.  If we and our  various  lenders  and debt  holders  are
 unable to  successfully negotiate,  among other things,  a reduction in our  near-term
 debt service  obligations,  we would have to consider pursuing alternative restructuring
options, which could include a sale or liquidation of assets.

We have not made scheduled
principal or interest payments on any of our debt since prior to December 2002.  Our
non-payment of these scheduled principal and interest payments constitutes an event of
default under these debt facilities and instruments, which permits, subject to applicable
procedural requirements, our various lenders and debt holders to accelerate all amounts
due under their respective debt facilities and instruments.  In December 2002, Unibanco
filed a collection suit against us in the Central Court of São Paulo to recover
approximately R$72.2 million (US$25.0 million) relating to amounts outstanding on a loan
made to us.  Although this action has been suspended, we cannot assure you that such
action will not be reinstituted or that our other lenders or debt holders will not seek
to accelerate amounts outstanding under any of our debt facilities or instruments or seek
to exercise legal remedies to enforce their rights thereunder or in accordance with
Brazilian law.  Any such action would have a material adverse effect on our business and
on the value of our preferred shares and ADSs.  See Item 4.  Information on the CompanyLegal
Proceedings.

In early 2003, we and various
of our lenders and debt holders commenced negotiations with regard to a restructuring of
our debt facilities and instruments.  These negotiations are still taking place.  The
goals of these negotiations are to, among other things, reduce our near-term debt service
obligations to levels that can be serviced with operating cash flows, limit the impact of
future exchange rate volatility by reducing the amount of our dollar-denominated debt,
amend certain financial and other covenants in our debt facilities and instruments, and
establish a fully-funded business plan for the medium term.  As further described in Item
4. Information on the Company Recent Developments, on June 24 and June 25, 2004 we
entered into commitment letters with creditors holding in the aggregate approximately 70%
principal amount of our outstanding debt.  The commitment letters outline the terms upon
which we would exchange the indebtedness of Net Serviços and its subsidiaries held by
such creditors for a combination of Net Serviços new senior secured debt, new
subordinated convertible debt, and/or new equity (or, in certain circumstances, cash).
 If the restructuring were to be consummated in accordance with the terms set forth in
the commitment letters with the participation of 100% of our creditors, and the
transactions contemplated in the agreement between Globpar and Teléfonos de México, S.A.
de C.V., or Telmex (as further described in Item 4. Information on the Company Recent
Developments), were likewise consummated, we expect that we would issue 1,825,021,996
new equity shares, and reduce the aggregate amount of our financial debt from
approximately R$1,395 million (US$442.9 million) as of June 30, 2004 to approximately
R$730.0 million (US$231.7 million) (using an exchange rate of R$3.1500 = US$1.00), all of
which debt would be secured and would have tems set forth in the commitment letters.  The
consummation of the transactions contemplated by the commitment letters are subject to a
number of significant conditions that are beyond our control, including creditors holding
no less than 95% of our outstanding debt agreeing to participate in the restructuring.
 Any debt for equity exchange would significantly dilute holders of our common and
preferred shares and ADSs.

We can give no assurance that
the  restructuring  will be consummated or that our outstanding  debt will be
renegotiated  in full or in part. If the  restructuring  is not concluded in a
satisfactory  manner, we will not be able to pay the  unpaid  amounts  that have come due
on our debt  since  December  2002 or to meet our ongoing  principal and interest
 payment  obligations  without further  financing by third parties. This would  result in
a  liquidity  crisis for us,  would have a material  adverse  impact on our  financial
condition,  and  could  result  in our  inability  to  operate  as a going  concern.  If
we are  unable to continue as a going  concern,  we may be forced to pursue a sale or
 liquidation  of assets to satisfy our creditors. This would materially adversely affect
holders of our preferred shares and ADSs.

We have engaged The Blackstone
 Group, an investment  bank, to assist us with the  restructuring of our debt facilities
and instruments.  The  implementation  of the debt  restructuring is subject to a number
of uncertainties and factors,  many of which are not within our control,  such as the
state of Brazilian and international capital markets and our ability to reach agreements
with our lenders and debt holders.

Our ability to raise
 short-term or long-term debt financing or equity financing in the future will depend on
a number of factors outside of our control,  including  conditions in Brazil and in
 international financial  markets and our ability to reach agreement with our various
 lenders and debt holders.  We cannot assure you that we will be able to raise debt
 financing  in  appropriate  amounts or at all.  During  2002, Standard & Poors  lowered
 our  foreign  and local  currency  corporate  credit and senior  unsecured  debt ratings
 and placed us on credit  watch with  negative  implications.  Our rating was lowered (i)
to B+ from BB-, on February  8, 2002,  (ii) to CCC+ from B+, on June 28, 2002 and (iii)
to D from CCC+,  on December 3, 2002.  Currently our rating is D.

These  announcements (and
related  announcements)  could adversely affect our ability to access the capital markets
and raise debt financing on acceptable terms and to restructure our debt.

If we are unable to restructure
our debt, we would have to reduce further the level of our planned capital expenditures,
undertake additional cost-cutting initiatives and seek to sell assets and/or seek to
raise additional equity capital, in the attempt to meet our debt service and other
liquidity requirements. Under such circumstances, we cannot assure you that these
alternatives would be available or would provide us with the funds necessary to meet our
liquidity requirements.

The following table sets out
our major contractual obligations as of December 31, 2003:

|Payments due by period         
|-------------------------------
|                               
|                               
|Debt                           
|Lease of Utility Poles(1)      
|Contax Customer Service Centers
|Lease of Office Space          
|Total                          

(1)   In addition to the above
amounts, we are contractually obligated to make lease payments under our utility pole
lease arrangements from the        time the lease expires until our equipment is removed
from such poles.

Capital Expenditures

Our capital expenditures,
identified by major category, are as follows:

- subscriber
installation, including purchases of set top boxes;

- cable  network
 construction  and  rebuilding,   which  primarily  includes  construction  costs
 related  to  installing  cable  system                   infrastructure in multiple
dwelling units, or MDUs,  rebuilding  portions of our network and, to a very limited
extent, the growth                   or build-out of our cable network;

- broadband  network
 construction  and  rebuilding,  which primarily  includes  construction  costs related
to cable modem  installation,                   installing  broadband  infrastructure  in
MDUs,  rebuilding  portions  of our  network  to permit  two-way  communication  and the
                  build-out of our broadband network, including our data center; and

- upgrading existing
systems,  the purpose of which is principally to improve technical quality,  improve
further management  controls and                   support subscriber growth.

We have historically made
significant capital  expenditures  relating to the codification of our network,
 principally to reduce piracy. This process is now substantially  complete.  Therefore,
 we have not made substantial  capital  expenditures for codification since 2001, and we
do not expect to make capital expenditures for this purpose in 2004 and beyond.

We reduced our level of capital
expenditures in 2003, as we were able to better target our investments on a selective
basis.  In 2003, we made total capital expenditures of US$22.8 million, a decrease of
40.0% from US$38.0 million in 2002.  In 2003, the breakdown of capital expenditures by
major category was as follows: subscriber installation (51%), upgrading existing systems
(37%) and cable network construction and rebuilding (3%).

We  significantly  reduced our
level of capital  expenditures in 2002 in response to adverse  developments in our
business and operating results.  In 2002,  we made total  capital  expenditures  of
US$38.0  million,  a decrease  of 71.2% from  US$132.2  million in 2001.  In 2002,  the
breakdown of capital  expenditures by major category was as follows:  subscriber
 installation (23%), cable network construction and rebuilding (7%) and upgrading
existing systems (22%).

We expect to make total annual
capital expenditures of approximately US$40 million in each of 2004 and 2005.   We will
continue to pursue a selective capital spending plan for 2004 and 2005 in an effort to
foster our objective of achieving higher returns on our investments.  Pursuant to this
plan, we will target our capital spending on selected portions of our existing network,
principally in wealthy, urban areas.  In these areas, we will make capital expenditures
principally to upgrade the technical quality and capacity of our existing systems,
upgrade headends and specifically targeted nodes to permit transmission of digital cable
and, in some cases, rebuild portions of our network.  Upgrading our cable systems will
enable us to offer a variety of advanced products and services in the near future,
including digital cable, which we plan to introduce in the second half of 2004,
additional channels, expanded pay-per-view options, near video-on-demand and interactive
services.  We will also make capital expenditures for subscriber installation.  We do not
plan on making substantial capital expenditures for codification of our network and will
significantly reduce expenditures related to both cable network and broadband network
construction and rebuilding.

Related Party Transactions

Historically,  we have obtained
all of our programming from our affiliate Net Brasil,  which is indirectly owned 60% by
Globopar and 40% by us. Net Brasil acts as our  intermediary  in purchasing  programming
 from both  Brazilian and  international  sources.  Net Brasil also provides this service
for other  pay-television  companies,  including  principally Sky Brasil, a Brazilian DBS
provider in which Globopar owns a significant interest,  along with cable television
providers that operate outside of our licensed  territories.  Much of the programming we
purchase through Net Brasil  is  produced  by our  affiliate  Globosat,  which is  wholly
 owned by  Globopar.  Globosat  is a  producer  of  mostly  Portuguese-language
programming,  such as SportTV,  GNT,  Globo News,  Shoptime,  Multishow, Telecine, USA, Futura and
Canal Brasil.  Globosat also purchases  programming  from third parties.  Our  contract
 with Net Brasil  also grants us the right to use the NET brand name.  Our  programming
 arrangements  with Net Brasil are also subject to provisions of our shareholders agreement
relating to affiliate transactions.

On June 27, 2004, we entered
into an amended and restated programming agreement with Net Brasil whereby Net Brasils role in acquiring
programming for us has been altered.  Under the amended and restated agreement,
instead of R$0.51 per subscriber per month, we will now pay Net Brasil a fixed amount
equal to R$100,000 (US$34,600) per month, adjusted by IPC, the Consumer Price Index, plus
an additional monthly fee of R$24,000 (US$8,300) in 2004, R$16,000 (US$5,500) in 2005,
R$3,000 (US$1,040) in 2006 and R$1,500 (US$520) in 2007.

We have agreed to
transfer our 40% interest in Net Brasil (which is in a loss position with certain
contingent liabilities) to Globopar in the near future for a nominal amount.

Pursuant to our programming
agreement, we paid Net Brasil US$152.9 million, US$131.0 and US$135.1 in 2001, 2002 and
2003, respectively.  Included in these amounts was a broker commission paid to Net Brasil
in the amount of US$1.6 million, US$1.9 million and US$2.3 million in 2001, 2002 and
2003, respectively, corresponding to the payment of R$0.51 per subscriber per month.

For  a  more  detailed
  description   of  our   programming   arrangements   with  Net  Brasil,   see  Item
 4.   Information  on  the CompanyPay-TelevisionProgramming  Sources,  Item 7. Major
 Shareholders  and  Related  Party  TransactionsRelated  Party  TransactionsMaterial
Transactions with AffiliatesNet Brasil Programming Agreement. and note 8 to our
consolidated financial statements.

Debt Financing

The aggregate unpaid principal
 balance of our debt totaled  approximately  US$349.9 million  as of December 31, 2003
and  approximately US$349.4  million as of March 31, 2004. In addition,  our accrued but
unpaid  interest  totaled  US$85.5  million and US$92.7 million as of December 31, 2003
and March 31, 2004,  respectively,  and other fees and penalties  totaled  US$22.1
 million and US$34.7 million as of December 31, 2003 and March 31, 2004,  respectively.
 We have not made  scheduled  principal or interest  payments on any of our debt since
prior to December  2002.  Such non-payment  constitutes  an event of  default  under  our
debt  facilities  and  instruments,  which  permits,  subject  to  applicable  procedural
requirements,  our various  lenders and debt holders to accelerate all amounts due under
their  respective  debt  facilities and  instruments.  As a result, at December 31, 2003
all of our indebtedness was classified as current.

We and our consolidated
subsidiaries had the following debt outstanding as of December 31, 2003.

|U.S. dollar denominated debt:  | (in thousands)
|------------------------------ | --------------
|Senior guaranteed notes        | US$           
|Floating rate notes            |               
|Trade Financing and bank loans |               
|IFC facility                   |               
|                               |               
|                               |               
|Real denominated debt (1):     |               
|Non-convertible debentures     |               
|Convertible debentures         |               
|Working capital and bank loans |               
|                               |               
|                               |               
|                               |               
|Short Term Debt                |               
|Long-term debt                 | US$           

The various base rates used to
determine the interest rate of our debt at December 31, 2003 were as follows:

|LIBOR | 1.48% 
|----- | ------
|CDI   | 23.21%
|IGPM  | 8.71% 

(1)   Calculated using the
December 31, 2003 exchange rate of R$2.8892 = US$1.00.

Senior guaranteed notes

In June 1996, our predecessor
issued US$185 million principal amount of 12.625% senior guaranteed notes due June 18,
2004, or the senior guaranteed notes.  At maturity, holders that then held senior
guaranteed notes were entitled to also receive a premium payment equal to 5% of the
principal amount of their senior guaranteed notes being redeemed.  The senior guaranteed
notes are unconditionally guaranteed on a joint and several basis by a number of our
subsidiaries.  We did not make the scheduled repayment of principal or the premium
payment of 5% due on June 18, 2004.

Each  noteholder  was  entitled
to require us to redeem  senior  guaranteed  notes held at a redemption  price of 101% of
the  principal amount on June 18, 2001. On March 20, 2001, we announced a waiver
 solicitation  to the holders of the senior  guaranteed  notes,  offering a waiver
payment of US$7 per  US$1,000 of  principal  amount held to each holder that would  agree
not to exercise  its  redemption  right on June 18,  2001. Holders of senior  guaranteed
 notes  representing  the principal  amount of US$71.9 million  accepted the waiver
payment,  thereby agreeing to hold their senior  guaranteed  notes until maturity.
 Holders  representing  the principal amount of US$25.8 million did not accept the offer
of a waiver payment,  but nonetheless did not exercise their redemption  right.  Senior
 guaranteed  notes  representing the principal amount of US$87.3 million were redeemed on
June 18, 2001.  Accordingly, senior guaranteed notes in the principal amount of US$97.7
million are currently outstanding.

The indenture  relating to the
senior  guaranteed  notes contains  covenants  which restrict our ability and our
subsidiary  guarantorsability to incur additional  indebtedness  (prohibiting us from
incurring debt if our consolidated  indebtedness to consolidated operating cash flow
ratio for the latest fiscal quarter  exceeds 6.00 to 1.0), pay dividends,  create
 certain  liens,  consummate  certain asset sales,  and materially alter the
 organizational  and legal structure of our business.  We would be required to make an
offer to purchase the outstanding senior guaranteed notes in the event of a change in
control or, in certain circumstances, with the net cash proceeds of certain asset sales.

In addition to not making the
scheduled repayment of principal or making the premium payment of 5% on the principal
amount of senior guaranteed notes on June 18, 2004, we did not make the scheduled
interest payments of US$8.9 million due December 18, 2002, US$8.9 million due June 18,
2003, or US$8.9 million due December 18, 2003.

Floating rate notes

In connection  with the
September  2000  acquisition of Net Sul, we guaranteed all  obligations  associated  with
Net Suls October 1997 issuance of US$80 million  principal  amount of floating  rate
notes due October 2005.  The notes consist of US$48 million of Series A floating rate
notes,  US$11 million of Series B floating  rate notes and US$21  million of Series C
floating  rate notes.  The notes bear interest at LIBOR plus a spread that varies with
our total  consolidated  debt to  consolidated  operating  cash flow ratio.  The spread
on the Series A floating  rate notes ranges from 3.125% to 4% and on the Series B and C
floating  rate notes  ranges from 2.5% to 3.375%.  During 2003,  the interest  rate on
the Series A,  Series B and Series C floating  rate notes was LIBOR plus  3.625%,  LIBOR
plus 3.00% and LIBOR plus  3.00%,  respectively.  Interest  is payable quarterly in
arrears.

The notes are guaranteed by us
and a substantial number of our subsidiaries.  On August 30, 2002, the deadline for the
exercise of put options on the Series B and Series C floating rate notes,  holders
exercised their put option in the amount of US$7.7 million, representing 24% of the total
amount that was entitled to be put.  Notes having an aggregate principal amount of US$48
million were subject to redemption at the option of the holders in October 2003.  To
facilitate our debt restructuring, we have entered into a series of letter agreements for
the benefit of those holders of our floating rate notes that did not elect to require us
to redeem their Series A floating rate notes in October 2003.  In the most recent of
those letter agreements, we have agreed to extend the date for mandatory redemption of
those holders Series A floating rate notes to July 30, 2004.  The final maturity date
for notes not so redeemed is October 2005.

The indenture  relating to the
floating rate notes requires us to observe a number of restrictive  covenants,  including
 limitations on restricted  payments,  dividends  and liens;  restrictions  on  transfers
of existing  businesses;  limitations  on  transactions  with  affiliates; prohibitions
on a change of control; asset dispositions; and limitations on guarantees by restricted
subsidiaries.

In addition,  we are required
to observe financial  covenants  requiring us to maintain at all times certain specified
financial ratios, including  consolidated  indebtedness  to consolidated  operating cash
flow for the prior two  semi-annual  periods of 5.00 to 1.0 in 2003 and 2004,
respectively;  and adjusted EBITDA to  consolidated  net interest  expense for the prior
two  semi-annual  periods of 2.00 to 1.0 in 2003 and 2004, respectively.

We also did not make the
scheduled interest payments of US$932,000 due January 31,  2003,  US$951,000 due April
30, 2003, US$932,000 due July 31, 2003, US$932,000 due October 31, 2003, US$932,000 due
January 31, 2004, or US$932,000 due April 30, 2004.

Trade Financing and U.S.
dollar-denominated bank loans

A number of our subsidiaries
 have entered into U.S.  dollar-denominated  trade financing loans and U.S.
 dollar-denominated  bank loans with Brazilian  financial  institutions.  As of December
31, 2003, we had US$40.0 million  principal  amount  outstanding  under these loans.
 Trade financing loans are short-term  loans  guaranteed by us or our wholly owned
 subsidiary  Multicanal  Telecomunicações  S.A., or a combination of the two.  The
nominal  interest  rate of our trade  financing  loans  ranged from LIBOR plus 0.125% to
5.0% per annum at  December  31,  2003.  Our U.S. dollar-denominated bank loans bear
interest at floating rates based on LIBOR.

IFC facility

As of December 31, 2003, we had
total borrowings of US$11.7 million outstanding under the IFC facility.  The IFC facility
consisted of an A loan facility and a B loan facility.  On October 11, 2002, we paid off
the B loan facility.  The remaining IFC facility consists of only the A loan facility.
 Each A loan bears interest at a variable interest rate equal to 3.0% per annum over the
six-month U.S. dollar LIBOR.  The loans were due in semi-annual installments of US$2.9
million in April and October of 2003 and in April 2004, with final installment and
maturity in October 2004.

Prior to May 3, 2004,  loans
under the IFC  facility  were  guaranteed  by  Globopar  and members of the  Roberto
 Marinho  family,  the principal  stockholder of Globopar.  As security for its
 guarantee,  Globopar had pledged 51% of its interest in the voting stock of its
subsidiary Distel to the IFC. In connection with this guarantee,  we pledged to Globopar
shares of our subsidiary  Multicanal  Telecomunicações  S.A., based on the amount of
 borrowings  outstanding  at any time under this  facility and the size of  Multicanal
 Telecomunicações  S.A.s  subscriber  base. At December 31, 2003, we had pledged to
Globopar a total of 6,806,344,107 shares of Multicanal  Telecomunicações S.A.,
 representing 4.8% of Multicanal Telecomunicações S.A.s total outstanding shares.

As of May 3, 2004,  Globopar,
 as  guarantor  under the IFC  facility,  has paid all  amounts  owed by us to the IFC
and is  currently a creditor of us by virtue of subrogation to the IFC, thereby
 releasing us from all obligations to the IFC.  Accordingly,  the pledge by us of shares
of  Multicanal  Telecomunicações  S.A. to Globopar,  and by Globopar of shares of Distel
to the IFC, were  released in  connection  with  Globopars assumption of the IFC
facility.

We are still required to comply
with the original terms of the IFC facility. The IFC facility
contains covenants which restrict our ability to, among other things, incur additional
indebtedness; pay dividends; create certain liens; sell, pledge, transfer, lease or
otherwise dispose of the shares in any subsidiaries; prepay or repurchase long-term debt;
and undertake any merger, consolidation or reorganization.

The  financial  covenants  in
the IFC  facility  require us to maintain  at all times  certain  specified  financial
 ratios,  including consolidated  indebtedness  to consolidated  operating cash flow, or
adjusted  EBITDA for the prior two  semi-annual  periods of 5.00 to 1.0 in 2003 and 2004,
 respectively;  and adjusted EBITDA to consolidated net interest expense for the prior
two semi-annual periods of 2.00 to 1.0 in 2003 and 2004, respectively.

We did not make the scheduled
 interest  payments of US$280,000 due April 15,  2003,  US$256,000 due October 15, 2003,
or US$248,000 due April 15, 2004. We also did not make the scheduled  principal  payment
of US$2.9  million due April 15, 2003,  US$2.9  million due October 15, 2003, or US$2.9
million due April 15, 2004.

Non-convertible debentures

In February 2001, we issued
 real-denominated  debentures in an aggregate principal amount of R$200 million.  The
debentures  originally bore interest at CDI plus 0.75% per annum.  As a result of
 negotiations  in April 2001 to eliminate our floating  asset  pledge,  which  previously
applied to these debentures, we now pay interest at CDI plus 1.05% per annum.  These
debentures were scheduled to mature on December 3, 2003.

The indenture  governing the
 debentures  contains a financial  covenant  requiring us to maintain a  consolidated
 net debt to adjusted annualized EBITDA ratio that does not exceed 6.00 to 1.0 for any
two consecutive quarters.

We did not make the scheduled
interest payments of US$5.6 million due December 1, 2002, US$9.0 million due June 2,
2003, or US$9.5 million due December 1, 2003. We also did not make the scheduled
repayment of principal in the amount of US$67.5 million due December 3, 2003.

Convertible debentures

In December  1999, we issued
3,500  real-denominated  convertible  debentures in an aggregate  principal  amount of
R$350  million.  The convertible  debentures bear interest,  payable  annually,  at 12%
over the IGP-M rate and mature on December 1, 2006. The IGP-M rate is a Brazilian
inflation index  calculated on a monthly basis by reference to price increases in a
variety of goods and services  nationwide.  Each debenture has a face value of
 R$100,000,  adjusted by the IGP-M rate,  and is  convertible  into 8,208 of our
preferred  shares  through  November 30, 2004.  After November  30,  2004,  the
 conversion  ratio will  decrease to 5,745 for the period from  December 1, 2004 to
November 30, 2005 and to 3,283 for the period from  December 1, 2005 until  maturity.  We
are  required to amortize  those  debentures  not  converted  in  accordance  with the
 following schedule:  30% at December 1, 2004; 30% at December 1, 2005; and 40% at
December 1, 2006.

In April 2001, we paid each
holder of the  convertible  debentures  R$1,200 per debenture,  as a result of
negotiations to eliminate our floating asset pledge that previously had applied to these
debentures.

If we increase our capital or
issue shares to our shareholders, the principal amount of the debentures may be converted
into preferred shares at the same price of the issuance during the subscription period
for such new shares, the period of the preemptive rights or during the public offering,
and we would be required to pay in cash the applicable interest within 30 days after the
conversion.  As of December 31, 2003, 92% of the debentures had been converted into
preferred shares, with the result that R$43.2 million (US$14.9 million) principal amount
of debentures was outstanding at that date.

The indenture  governing the
convertible  debentures  contains a financial  covenant requiring us to maintain a
consolidated net debt to adjusted EBITDA ratio, each quarter, that does not exceed 6.00
to 1.0.

We did not make the scheduled
interest payments of US$1.6 million due December 1, 2002 or US$2.2 million due December
1, 2003.

Working capital and bank loans

Working capital and bank loans
consist of R$132.3 million  (US$45.8 million) principal amount of real-denominated
 short-term loans with Brazilian financial institutions, as of December 31, 2003.  These
loans bear interest at floating interest rates based on the CDI.

In December  2002,  Unibanco,
 filed a  collection  suit  against us with the Central  Civil Court of São Paulo with
 respect to amounts outstanding  under a loan  facility we entered into with  Unibanco on
August 26,  2002.  The amount  sought  under this claim  totals  approximately R$72.2
million (US$25.0  million).  Unibanco is party to the commitment  letter,  and thus has
agreed to suspend its collection suit against us. See Item 4.  Information on the CompanyLegal
Proceedings.

Off-balance sheet arrangements

We did not engage in any
off-balance sheet arrangements in 2003.

Brazilian Economic Environment

General

The Brazilian economy
historically has been subject to periodic and occasionally significant intervention by
the Brazilian government.  The government has often changed monetary, credit, tariff,
exchange rate and other policies, with the goal of influencing the economy.  The
governments actions to control inflation and effect other policies have involved wage
and price controls, as well as other interventionist measures, such as freezing bank
accounts and imposing capital controls.  Although the stated intention of the present
government is to gradually reduce governmental intervention in the economy, it remains
possible that government economic policies could adversely affect our business and
financial condition, as could the governments response to certain political or social
developments.

Historically, inflation,
government actions taken to combat inflation, and public speculation about possible
future government actions, have also contributed significantly to economic uncertainty in
Brazil and heightened volatility in the Brazilian securities markets.  Beginning in
December 1993, the government launched an economic stabilization plan, known as the Real
Plan, which was intended to reduce inflation by reducing certain public expenditures,
collecting liabilities owed to the government, increasing tax revenues, continuing a
privatization program and introducing a new currency, the real, into circulation in June
1994.  The Real Plan followed a series of economic adjustment programs, which were
largely unsuccessful.  In October 1994, Fernando Henrique Cardoso, the former Minister of
Finance and the principal architect of the Real Plan, was elected as president of Brazil.
 Mr. Cardoso served as president of Brazil from January 1995 through December 2002, and
he continued to follow the policies implemented by the Real Plan.  Following the
implementation of the Real Plan, inflation dropped significantly from previous levels
(which at times had exceeded 40% per month) to monthly rates of lower than 1%.  In
addition, the government demonstrated a commitment to instituting conservative fiscal
policy.  Early in 2000, Congress passed the Fiscal Responsibility Law, which limits
public payroll expenditures.  The Brazilian growth rate reached 4.2% in 2000.  A somewhat
lower growth rate occurred for 2001, as a result of the Brazilian electricity shortage
and the energy consumption limitations the government had imposed.

Emerging  markets  volatility
 and the 2002  elections in Brazil,  caused  considerable  outflows of funds and declines
in the amount of foreign  investments in Brazil.  These factors adversely  affected the
Brazilian markets and caused the real to depreciate to R$3.9552 to US$1.00 in October
2002, its lowest value against the U.S. dollar historically.

Since taking  office in January
 2003,  President  Luis Inacio Lula da Silva has  continued to follow the  policies
 implemented  by Mr. Cardoso,  causing a reduction in volatility and an improvement  in
market  conditions.  Also, the real was quoted at R$2.8892 to US$1.00 on December 31,
2003, an appreciation of 18.2% compared to R$3.5333 to US$1.00 on December 31, 2002.

As a result,  the inflation
 rate as measured by IGP-M,  declined from 25.3% in 2002 to 8.7% in 2003.  Interest rates
as measured by the CDI declined from 24.8% in 2002 to 23.2% in 2003.

Although President Luis Inacio
Lula da Silva has generally continued to follow the policies implemented by Mr. Cardoso,
there can be no assurance that the government will not change its economic stabilization
policies in the future, and continued economic stability remains subject to a variety of
domestic and external pressures.

Effects of Inflation and
Exchange Rate Fluctuations

Until July 1994, Brazil had for
many years experienced high and generally unpredictable rates of inflation, as well as a
steady depreciation of its currency relative to the U.S. dollar.  The following table
sets forth Brazilian inflation as measured by the IGP-M and the depreciation of the real
against the U.S. dollar for the periods shown:

|                                     | Year Ended December 31,
|------------------------------------ | -----------------------
|                                     |                        
|                                     | 1999                   
|                                     |                        
|Inflation (IGP-M Index)              | 20.0%                  
|Currency (depreciation) appreciation | (48.0)%                

As a result of the Real Plan,
the rate of inflation and the rate of depreciation  has been reduced  considerably  since
July 1, 1994. In the first nine months of 2002, due to market instability  driven by
international  factors,  the real experienced a depreciation of 67.9%.  However, in the
last quarter of 2002,  the  Brazilian  currency  partially  recovered  and ended the year
with a  depreciation  of 52.3%.  In 2003,  the real appreciated 18.2%.  Inflation and
exchange rate variations have had, and may continue to have,  substantial  effects on our
financial  condition and results of operations.

Despite the principles adopted
for translating our real-denominated financial statements into U.S. dollars, significant
distortions to our reported results for the affected periods may remain, as a result of
the inability of accounting conventions to fully reflect actual economic conditions
during the relevant fiscal periods.  While our financial records have been maintained in
reais, our reporting currency for all periods is the U.S. dollar.  Our functional
currency prior to 1998 was required to be the U.S. dollar under SFAS No. 52, Foreign
Currency Translation,but in 1998 we changed our functional currency to the real.

We made this change because,
 in accordance with the SFAS No. 52, a company operating in an environment that is not
highly  inflationary is not obligated to use the U.S.  dollar as its  functional
 currency.  The Brazilian  economy  ceased to be considered  highly  inflationary  as of
January 1, 1998.  Therefore,  under SFAS No. 52, we  determined  our  functional  currencytypically
 the currency in which a company  generates and expends cash, based upon factors
including cash flow indicators,  sales prices indicators,  expense indicators,  financing
indicators and management focusto  be the  real.  Because  of the  differences  between
 the  evolution  of the rates of  inflation  in Brazil  and  changes  in the rates of
depreciation,  as well as the  effects of the change of our  functional  currency,
 amounts  presented  in U.S.  dollars may show  distortions  when compared on a
period-to-period  basis.  Since we adopted the real as our functional  currency in 1998,
the depreciation of the real against the U.S. dollar has had the following effects on our
results of operations:

- The translation effects
of our U.S. dollar transactions,  primarily  represented by loans, are recorded as gain
(loss) on exchange rate,                   net, in our statement of  operations.  We did
not record  translation  effects for periods during which we measured our results of
                  operations using the U.S. dollar as our functional currency.

- Our non-monetary
assets, consisting primarily of property and equipment, goodwill on the acquisition of
consolidated subsidiaries and certain other long-term assets, are no longer translated
upon acquisition using historical U.S. dollar rates and fixed in U.S. dollars.
 Therefore, any depreciation of the real against the U.S. dollar is reflected directly in
stockholders equity, including through the decrease in real-denominated book value of
property, plant and equipment when translated into U.S. dollars.  These currency
translation effects are beyond our managements control.

For further information on the
presentation of our financial  information,  see note 2 to our consolidated  financial
statements for the year ended December 31, 2003.

Inflation and exchange rate
variations historically have affected and will continue to have multiple effects on our
results of operations.  Our statements of operations expressed in local currency are
translated to U.S. dollars at the average exchange rate for the period.  The current
period dollars in the statements of operations will be reduced at the same rate as the
real lost value in relation to the U.S. dollar over the period in question.  However, a
portion of our operating expenses (e.g., maintenance, selling, general and administrative
expenses) is in reais and tends to increase with Brazilian inflation.  As expressed in
U.S. dollars, these increases are typically offset at least in part by the effect of
depreciation of the real against the U.S. dollar.  If expenses in reais increase more
quickly than the rate of depreciation, our operating expenses as expressed in U.S.
dollars increase.  Conversely, if the rate of depreciation increases more quickly, our
operating expenses as expressed in U.S. dollars decrease.  Additionally, a substantial
portion of our indebtedness, capital expenditures and operating costs, including network
equipment costs and, to a lesser degree, programming costs, is denominated in or indexed
to U.S. dollars.  Any depreciation of the real against the U.S. dollar, if such
depreciation were in excess of inflation, would result in a relative increase in the
expenses related to such indebtedness and capital expenditures and in such operating
expenses as compared to revenues, which are generated in reais.  In such a situation, if
we were not able to increase our prices to match the rate of inflation, our ability to
meet our debt service obligations and operating costs might be impaired.  Historically,
we have been able to adjust prices to counteract the effects of inflation, although there
can be no assurance that we would be able to do so in the future.

Another significant effect of
inflation and exchange rate variations concerns our monetary assets and liabilities
denominated in reais.  The value of such assets and liabilities as expressed in U.S.
dollars declines when the real devalues against the U.S. dollar, and increases when the
real appreciates against the U.S. dollar.  Many financial instruments denominated in
reais are indexed according to a contractual index.  In periods of depreciation of the
real we report:

- translation  losses  on
 real-denominated  monetary  assets,  which  are  generally  offset,  at least in  part,
 by the  aforementioned                   contractual indexation of real-denominated
financial instruments; and

- translation gains on
real-denominated monetary liabilities which are generally offset, at least in part, by
contractual indexation of real-denominated financial instruments.  Through December 31,
1997, while the U.S. dollar was our functional currency, we recorded these net
translation gains and losses in our statement of operations under Gain (loss) on
translation, net.  As from January 1, 1998, our functional currency has been the real,
so we have recorded these translation gains and losses directly in the cumulative
translation adjustments component of stockholders equity, such that these gains and
losses no longer offset the contractual indexation expenses and income which are reported
in the statement of operations under Financial expenses and Financial income.  Interest
on indexed financial instruments is included in our statement of operations under Financial
income and Financial expenses.

In addition, certain financial
instruments denominated in reais are not indexed to a contractual index, but their
interest rates include the expectation of future inflation.  The interest on these
financial instruments is also included in our statement of operations under Financial
income and Financial expenses, and, up to December 31, 1997, were also generally
compensated, at least in part, by the translation gain or loss on these monetary
liabilities or assets, which was recorded in our statement of operations under Gain
(loss) on translation, net.  As from January 1, 1998, these translation gains and losses
are reported in the cumulative translation adjustments component of stockholders
equity. In 1999, we reported exchange losses of US$70.7 million and translation
adjustment losses of US$48.4 million, resulting from the significant depreciation of the
real that occurred on January 15, 1999 and continued throughout 1999.  In 2000, we
reported exchange losses of US$27.6 million and translation adjustment losses of US$45.1
million, resulting from the 9.3% depreciation of the real against the U.S. dollar that
occurred during 2000.  In 2001, we reported exchange losses of US$85.5 million and
translation adjustment losses of US$125.1 million, resulting from the 18.7% depreciation
of the real against the U.S. dollar that occurred during 2001.  In 2002, we reported
exchange losses of US$134.0 million and translation adjustment profit of US$17.1 million,
resulting from the 52.3% depreciation of the real against the U.S. dollar that occurred
during 2002. In 2003, we reported exchange gains of US$40.0 million and translation
adjustment profit of US$1.6 million, resulting from the 18.2% appreciation of the real
against the U.S. dollar that occurred during 2003.

ITEM 6.           DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

We are managed by our Conselho
de Administração,  or board of directors,  and our Diretoria,  or executive officers.  In
accordance with our by-laws,  the directors are elected at a general  meeting of
 shareholders  to serve one-year  terms.  The existing tenure of the directors will end
upon the election of the new members at our annual shareholders meeting to be held by
April 2005.

Our by-laws provide for a
minimum of two and a maximum of four executive officers appointed by our board of
directors for renewable two-year terms.  Our executive officers are responsible for all
matters concerning our day-to-day management and operations.  Our executive officers must
be residents of Brazil and may or may not be shareholders of Net Serviços.  In addition,
we currently employ four senior managers that make significant contributions to our
business.

Directors

Each of the shareholders party
to our shareholders agreement has the right, subject to certain conditions, to appoint
at least one member to our board of directors.  Our by-laws provide that the board of
directors shall be composed of no fewer than nine and no more than twelve members.
According to our by-laws and Brazilian corporate law, each member of our board of
directors must be a Net Serviços shareholder.

Net Serviços directors are:

|Name                          | Position                     | Position Held Since | Current Term Expires
|----------------------------- | ---------------------------- | ------------------- | --------------------
|                              |                              |                     |                     
|                             
|Roberto Irineu Marinho        | Chairman, Board of Directors | February 22, 2000   | April 30, 2005      
|Nelson Pacheco Sirotsky       | Director                     | September 18, 2000  | April 30, 2005      
|Stefan Alexander              | Director                     | September 18, 2000  | April 30, 2005      
|Rômulo de Mello Dias          | Director                     | April 30, 2002      | April 30, 2005      
|Ronnie Vaz Moreira            | Director                     | April 30, 2002      | April 30, 2005      
|Guilherme Perboyre Cavalcanti | Director                     | April 19, 2004      | April 30, 2005      
|Juarez de Queiroz Campos Jr   | Director                     | April 19, 2004      | April 30, 2005      
|Rossana Fontenele Berto       | Director                     | April 30, 2003      | April 30, 2005      
|Edgard Lobão dos Santos       | Director                     | April 19, 2004      | April 30, 2005      

Our board of directors
 generally holds meetings every month or as called by any director.  Its
 responsibilities  include,  among other things, the establishment of the policy and
general strategy of the business and the appointment and supervision of our executive
officers.

Biographies of Our Board of
Directors

Roberto  Irineu  Marinho  has
been a member of our board of  directors  since  February  2000 and has served as
Chairman of the board of directors  since that time. He is also the Chairman of  Organizações
 Globo, a conglomerate  of companies in the Brazilian  media and  entertainment
industries,  and has been Chairman of Organizações  Globo since August 2003,  prior to
which time he was  Co-Chairman.  Mr. Marinho began his career at the newspaper O Globo,
 where he served in a variety of assignments  culminating in his  appointment as the
 newspapers  director.  In 1978, Mr. Marinho was appointed  Executive  Vice  President
of Globo TV Network and in 1990 he became  Executive Vice  President of  Organizações
 Globo.  Mr. Marinho has received  recognition and awards from numerous Brazilian
business and civic organizations and public  institutions.  Mr. Marinho is also a board
member of Editora Globo.

Nelson Pacheco Sirotsky has
been a member of our board of directors since September 2000.  He holds a degree in
Public Administration from the Universidade Federal do Rio Grande do Sul and a graduate
degree from the University of Southern California.  Mr. Sirotsky began his career at Rádio
Gaúcha, in 1972, where he was director before becoming Regional Director of Grupo RBS.
 In 1981, he became Vice President of Grupo RBS.  He was Executive President of RBS and a
member of Grupo RBS administration since 1992.  Currently, he is a member of the Conselho
da Associação Brasileira de Jornalismo, of the Associação Brasileira de Rádio e Televisão
and of the Associação dos Dirigentes de Vendas do Brasil.  He is also a member of the
Instituto Europeu de Administração de Empresas.

Stefan Alexander has been a
member of our board of directors since September 2000.  Currently, he is the Executive
Director of Corporate Finance at Globopar.  Previously, he was the Director of Financial
Planning and Investor Relations at Globopar.  Prior to joining Globopar, he was the
Director of Corporate Finance in Brazil at Bank of America/Nations Bank where he oversaw
several major transactions, including the advising and financing of the acquisition of
Companhia Vale do Rio Doce by Companhia Siderúrgica Nacional.  He had also worked in the
Capital Markets Department at Banco BBA Creditanstalt S.A.  Mr. Alexander holds a Masters
degree in Economics from the Pontifícia Universidade Católica do Rio de Janeiro.

Rômulo de Mello Dias has been a
member of our board of directors  since April 30, 2002. He has been the Officer for New
 Businesses  for Bradespar  since 2000,  where he is  responsible  for the analysis and
 negotiation  of new business in Brazil and Latin  America.  Prior to joining Bradespar,
 he was a partner at the Private Equity Fund of Albion in association with Alliance
 Capital,  from 1999 to 2000. Mr. Dias also served as an officer at Citibank from 1995 to
1999,  where he was initially  responsible  for the Corporate  Finance Area and,
 subsequently,  for the Private Equity Area. He was previously a member of the board of
directors of several companies,  including Escelsa,  Enersul,  Americel,  Telet and Iven.
He is currently a member of the board of directors of the following  companies:  CVRD,
 Valepar,  Valepontocom,  Latinexus  and Estrutura  Net. He also serves on the  corporate
 governance  committee  of the São  Paulo  American  Chamber  of  Commerce.  Mr.  Dias
 holds a degree  in  Economics  from Universidade Federal Fluminense, and an MBA degree
from Ibmec.  Mr. Dias attended the PDG EXEC  Executive Management Development Program  SDE.

Ronnie Vaz Moreira has been a
member of our board of directors since April 30, 2002.  He became the Chief Executive
Officer of Globopar in March 2002.  He is also responsible for the corporate finance area
of the Globo Organizations.  Previously, Mr. Moreira was the Executive Director of
Deutsche Bank, the Chief Financial Officer of Petrobrás and the Director of ABN Bank.
 Mr. Vaz Moreira holds a degree in Economics from Universidade Federal do Rio de Janeiro
and a graduate degree in International Business Administration from the American Graduate
School of International Management.

Guilherme  Perboyre  Cavalcanti
 has been a member of our board of directors  since April 19, 2004.  Mr.  Cavalcanti  is
the Director of Planning at Globo  Organizations,  having served as such since September
2003,  prior to which time he served as Treasurer of Globopar  beginning in February
2002.  Previously,  he held numerous  positions within the Globo  Organizations,
 including Director of Strategic and Financial Planning at Net  Serviços,  Planning
 Manager and  Controller  of Press Media and Radio  Stations and Investor  Relations  at
Globopar.  Prior to joining  Globo Organizations,  he worked at Banco Pactual and Banco
Primus.  Mr.  Cavalcanti holds a Masters degree in Economics from the Pontificia
 Universidade Católica do Rio de Janeiro.

Juarez de  Queiroz  Campos  Júnior
 has been a member of our board of  directors  since  April 19,  2004.  In  February
 2001 he has was appointed to the  position of Chief  Executive  Officer of  Globo.com,
 and in July 2003 of Globo  Filmes.  Previously,  Mr.  Queiroz was  Telemars Marketing & Corporate
 Vice  President  and the  Marketing  Officer of Souza Cruz S.A. Mr. Juarez  Queiroz has
an  undergraduate  degree in Law from PUC-RJ and a degree in Business Administration from
EAESP-FGV.

Rossana Fontenele Berto has
been a member of our board of directors since April 30, 2003.  Ms. Berto has been
Director of Strategic Planning and Business Development for Organizações Globo since
2002.  Prior to that, Ms. Berto was the General Director of Sky Brasil from 1999 to
February 2002, General Director of Net Rio from 1998 to 1999 and Controller of Multicanal
from 1993 to 1998.  She is also a board member of Sky Brasil. Ms. Berto holds a B.A.
degree from Universidade do Estado do Rio de Janeiro and an MBA degree from COPPEAD/UFRJ
(Rio de Janeiro, Brazil).

Edgard Lobão dos Santos has
been a member of our board of directors since April 19, 2004.  He has worked at BNDES
since 1976.  Mr. Santos has an Engineering undergraduate degree from Universidade Federal
Fluminense.  He also holds a Masters degree in Industrial Engineering, with a
specialization in Finance.

Audit Committee

We are not currently  required
to, and  currently do not,  maintain a permanent  audit  committee.  However,  the board
of directors has agreed to create such a permanent  audit  committee.  Until this
 process is  finalized,  our entire board of directors is acting in the capacity of the
audit committee.  See also Item 16A.  Audit Committee Financial Expert.

In addition, upon the request
of shareholders who, in the aggregate, hold 10 percent of our common shares or five
percent of our preferred shares, we would be required to install a Conselho Fiscal, or
fiscal board.  Under Brazilian corporate law, a Conselho Fiscal performs similar
functions to that of an audit committee.  If we were required to create a Conselho
Fiscal, the Conselho Fiscal would consist of five members and an equal number of
alternates elected by shareholders at a general shareholders meeting.

Executive Officers and Senior
Managers

|Name                        | Position                           | Position Held Since | Current Term Expires
|--------------------------- | ---------------------------------- | ------------------- | --------------------
|                            |                                    |                     |                     
|Francisco Tosta Valim Filho | Chief Executive Officer            | February 2003       | April 30, 2005      
|Leonardo P. Gomes Pereira   | Chief Financial Officer            | April 2000          | April 30, 2005      
|José Antônio Guaraldi Félix | Chief Operating Officer            | May 2003            | April 30, 2005      
|André Müller Borges         | Chief Legal Counsel                | January 2002        | N/A                 
|José Paulo Freitas          | Organizational Development Officer | July 2003           | N/A                 
|Ciro Kawamura               | Marketing Officer                  | May 2003            | N/A                 
|Fernando Mousinho           | Institutional Relations Officer    | November 2000       | N/A                 

Francisco  Tosta Valim Filho
became Chief  Executive  Officer of Net Serviços in February 2003.  Before joining Net
Serviços,  Mr. Valim was the  Financial  and  Administrative  Superintendent  of Telemar
for three years.  Prior to that,  he served as the Vice  President  and as Chief
Financial  Officer of RBS. Mr.  Valim also served as Executive  Director of Net Sul. He
has a degree in Business  Administration  from  Universidade Federal  do Rio  Grande do
Sul  (UFRGS)  and a  post-graduate  degree in  Finance  from  Fundação  Getúlio  Vargas
 (FGV-SP)  and in  Strategic  and Organizational  Planning from UFRGS. He also holds an
MBA in Finance and  Administration of Multinational  Companies from the University of
Southern California.

Leonardo P. Gomes Pereira has
been our Chief Financial Officer since April 2000.  Previously, he was the Director of
Planning and Investor Relations at Globopar for four years.  Mr. Pereira worked at
Citibank from 1982 to 1995, holding various positions in the corporate banking and
corporate finance areas in several countries, including Brazil, Thailand, Venezuela and
the United States.  Mr. Pereira received a BSC in Engineering from the Federal University
of Rio de Janeiro and a BSC in Economics from Candido Mendes University in Rio de
Janeiro.  He sits on the corporate governance committee of São Paulo American Chamber of
Commerce. Mr. Pereira also received an MBA from Warwick University in the U.K., with
post-graduate work at Wharton Business School at the University of Pennsylvania.

José Antônio Guaraldi Félix has
been our Chief Operating Officer since May 2003.  Previously, he was a regional officer
at Net Serviços for two years. Prior to that he was an officer of Net Sul, where he was
responsible for implementing 16 operations in Southern Brazil.  Mr. Félix worked at RBS
from 1980 to 1990, holding various positions in the operational area.  Mr. Felix has a
degree in Telecommunication Engineering from Pontifícia Universidade Católica do Rio
Grande do Sul.

André  Müller  Borges has been
our Chief  Legal  Counsel  since  January  2002.  Mr.  Borges  joined  Organizações
 Globo in 1999 as the Distribution  and  Telecommunications  Officer,  in which  position
he served  until  2001,  when he joined Net  Serviços  as a  Corporate  Officer,
responsible  for its legal,  corporate and  regulatory  obligations.  Previously,  he was
a law partner at the law firm Tosini,  Freire,  Teixeira e Silva Advogados.  Mr. Borges
holds a degree in Law from Pontifícia Universidade Católica of São Paulo.

José Paulo Freitas has been our
 Organizational  Development  Officer since July 2003. He is responsible  for Human
 Resources,  Quality and Change  Managing.  He joined Net Serviços as the Regional
 Officer for the São Paulo region in September 2000.  Previously,  he worked at Vanity
Fair as the Chief  Operating  Officer for the Brazilian  branch from 1999 to 2000 where
he was responsible for the Structuring, Sourcing and Operations Division ( Customer Service,
Planning,  Purchasing,  Engineering,  Quality,  Distribution Center and Human Resources..
 Before this, he held several positions at Grupo Algar,  culminating  in his serving as
Chief  Executive  Officer.  Currently,  Mr.  Freitas  serves as Chairman of the
 Employers Syndicate.  He holds an  administration  degree from Fundação  Getúlio Vargas
FGV/SP,  São Paulo and a degree in Economics from  Universidade de São Paulo.

Ciro  Kawamura has been our
 Marketing  Officer  since May 2003.  Previously,  he was the  Marketing  Vice-President
 of Global  Village Telecom LTDA., a wireless  telecommunications  company,  where he
supervised  public relations and marketing.  Prior to that, Mr. Kawamura worked as the
Marketing Officer of Unibanco,  and he held several  strategic  positions at Telet S.A. ,
a wireless operator in the state of Rio Grande do Sul. Mr. Kawamura has a degree in
Production Engineering from the Polytechnic School of the Universidade de São Paulo.

Fernando Mousinho has been our
Institutional Relations Officer since November 2000.  He is our liaison with various
agencies, including Anatel and ABTA.  Previously, until its acquisition, Mr. Mousinho was
Chief Executive Officer of Vicom from 1998 until 2000, before which he was the Marketing
Officer at IBM Brazil.  After the acquisition of Vicom by Net Serviços, Mr. Mousinho
became Net Serviços Corporate Clients Officer.  He also holds positions in Brazilian
associations such as the Vice Presidency of Telecomp, and the Vice Presidency of ABTA.
 He is also a member of the board of directors of Telebrasil, and he sits on the
telecommunications committee of São Paulo American Chamber of Commerce. Mr. Mousinho
holds an undergraduate degree in Civil Engineering from Polytechnic School de Pernambuco
and an MBA from Fundação Getúlio Vargas, Rio de Janeiro.

Indemnification

We do not currently have any
contracts or arrangements with the directors,  executive  officers or senior managers of
Net Serviços which provide for the insurance or  indemnification  by us or our
subsidiaries  against any liabilities  incurred by the directors,  executive officers or
senior managers of Net Serviços in their official capacity as such.

Compensation of Directors,
Officers and Senior Managers

For the year ended December 31,
2003, the aggregate compensation paid and benefits in kind granted by us to all of our
directors, executive officers and senior managers, for services in all capacities, was
approximately US$5.3 million.

Employees

All of our  employees  are
located in Brazil.  As of December  31, 2003,  we had 3,100  employees.  At December 31,
2003,  approximately 44.6% of our  employees  were working in  installation,  repair and
network  maintenance,  and 55.4% were working in  administrative  functions.  We believe
that our  relations  with our employees and the labor union  Sindicato  Nacional dos
 Trabalhadores  em Empresas  Prestadoras  de Serviços e Operadoras de Sistemas de Televisão
por Assinatura, a Cabo e MMDS are generally good.

Share Ownership

No  director,  executive
 officer or senior  manager of Net  Serviços  is the record  owner of more than 1% of our
 shares.  For certain information on the beneficial  ownership of our shares,  including
shares held by affiliates of our directors,  see Item 7. Major  Shareholders and Related
Party Transactions.

Long-Term Incentive Plans

We currently  have three
 long-term  incentive  plans:  Plano de  Participação  no  Resultado, or PPR, an annual
bonus program for all employees, and two retention plans for a selected number of our
executive officers, senior managers and managers.

PPR  establishes  financial and
 operational  goals  relating to cash  generation,  adjusted  EBITDA,  capital
 expenditures,  number of installations  and  disconnections  and level of customer
 satisfaction.  Depending on the level at which each goal is met,  employees may receive
a maximum annual bonus payment of the equivalent of two months salary.  For 2003, we
made a total of  approximately  R$10.5 million (US$3.6  million) in payments to our
employees pursuant to the PPR.

In 2003, we developed a
complementary  profit sharing plan, a retention plan, for a selected  number of our
executive  officers,  senior managers and managers.  The aim of this plan is to retain
senior  management  through at least 2006.  The amount  payable under the plan is
deferred annually,  with payment due at the beginning of 2007 if we generate cash flow
before financing of at least R$500 million  (US$173.1  million) in the aggregate from
2004 through and including 2006, in addition to the cash flow before  financing
 projected in the business plan approved by the board of directors in March 2003.  If
such cash flow before financing is not generated, no payments under the profit sharing
plan will be made.

In 2002, we developed a
retention plan for a selected number of our executive officers, senior managers, managers
and employees involved in the current debt restructuring process to ensure the successful
completion of our debt restructuring.  The goal of this plan is to retain key executives
and managers during the debt restructuring in order to guarantee our ability to continue
as a going concern.  In December 2002, pursuant to this plan, we granted stock options
corresponding to approximately 3 million shares.  These options may only be exercised,
and payments will only be made pursuant to this plan, if our debt restructuring is
successfully completed.

ITEM 7.           MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

We have two classes of capital
 stock  authorized  and  outstanding:  common shares and  preferred  shares.  Our common
shares have full voting  rights.  Our  preferred  shares have voting  rights in only
limited  circumstances.  As of March 31, 2004,  none of our  outstanding  common shares
and  approximately  6% of our  outstanding  preferred  shares,  including in the form of
ADSs,  were held in the United States.  On March 31, 2004, there were approximately
10,000 record holders of preferred shares, including in the form of ADSs, in the United
States.

The following table sets forth,
as of March 31, 2004, information regarding the beneficial ownership of common shares and
preferred shares by each person known by us to own beneficially more than 5% of any class
of our voting securities.  None of our major shareholders identified in the table has
special voting rights.

|                                           | Common Shares | Preferred Shares                | Total Equity
|------------------------------------------ | ------------- | ------------------------------- | ------------
|                                           |               |                                 |             
|Name                                       | Number        | Percentage of Total Outstanding | Number      
|                                           |               |                                 |             
|Roma Participações Ltda.(1)                | 300,134,962   | 36.2%                           | 251,159,262 
|Distel Holding S.A.(1)                     | 266,311,303   | 32.1%                           | 44,639,075  
|Globo Comunicações e Participações S.A.(1) | 0             | 0.0%                            | 86,416,681  
|Bradesplan Participações S.A.(2)           | 130,511,010   | 15.8%                           | 0           
|BNDES Participações S.A                    | 60,138,289    | 7.3%                            | 374,430,004 
|RBS Participações S.A.(3)                  | 56,523,792    | 6.8%                            | 23,344,612  

---

(1)    Distel Holding S.A. and
Roma Participações Ltda. are controlled by Globopar, which is controlled by the Marinho
Family.


(2)    Bradesplan Participações
S.A. is a wholly owned subsidiary of Bradespar Participações S.A., an investment vehicle
under common control with        Banco Bradesco S.A., the largest private Brazilian
retail bank.


(3)    Includes 3,548,152 of
our preferred shares owned by Zero Hora Editora Jornalistica S.A. and 117,300 of our
preferred shares owned by RBS        Interativa, affiliates of RBS Participações S.A.


As a result of our 2002
recapitalization, there occurred significant changes in the percentage ownership in Net
Serviços held by many of our major shareholders.  The following table sets forth, as of
March 31, 2004, 2003 and 2002 information regarding the beneficial ownership of common
shares and preferred shares by each person known by us to own beneficially more than 5%
of any class of our voting securities.

|                                       | Total Equity | Total Equity | Total Equity
|-------------------------------------- | ------------ | ------------ | ------------
|                                       |              |              |             
|Name                                   | Percentage   | Percentage   | Percentage  
|                                       |              |              |             
|                                       | 2004         | 2003         | 2002        
|                                       |              |              |             
|Roma Participações Ltda                | 27.2%(1)     | 27.2%(1)     | 30.0%(1)    
|Distel Holding S.A                     | 15.3%(2)     | 14.7%(2)     | 5.5%(2)     
|Globo Comunicações e Participações S.A | 4.3%(3)      | 4.1%(3)      | 0.7%(3)     
|Bradesplan Participações S.A           | 6.4%(4)      | 6.4%(4)      | 6.0%(4)     
|BNDES Participações S.A                | 21.4%(5)     | 22.1%(5)     | 7.9%(5)     
|RBS Participações S.A                  | 3.9%(6)      | 5.6%(6)      | 12.2%(6)    

(1)    Represented 36.2% of our
common shares and 20.9% of our preferred shares, 36.2% of our common shares and 20.9% of
our preferred shares and        46.3% of our common shares and 17.5% of our preferred
shares at March 31, 2004, 2003 and 2002, respectively.

(2)         Represented 32.1%
of our common shares and 3.7% of our preferred shares, 31.0% of our common shares and
3.4% of our preferred shares and 10.4% of our common shares and 1.8% of our preferred
shares at March 31, 2004, 2003 and 2002, respectively.

(3)    Represented 0.0% of
our common shares and 7.2% of our preferred shares, 0.0% of our common shares and 6.9% of
our preferred shares and 0.0%        of our common shares and 1.1% of our preferred
shares at March 31, 2004, 2003 and 2002, respectively.

(4)    Represented 15.8% of
our common shares and 0.0% of our preferred shares, 15.8% of our common shares and 0.0%
of our preferred shares and        14.0% of our common shares and 0.0% of our preferred
shares at March 31, 2004, 2003 and 2002, respectively.

(5)    Represented 7.3% of
our common shares and 31.2% of our preferred shares, 8.4% of our common shares and 31.5%
of our preferred shares and        8.0% of our common shares and 7.9% of our preferred
shares at March 31, 2004, 2003 and 2002, respectively.

(6)         Represented 6.8%
of our common shares and 1.9% of our preferred shares, 6.8% of our common shares and 4.7%
of our preferred shares and 9.2% of our common shares and 14.5% of our preferred shares
at March 31, 2004, 2003 and 2002, respectively.

In addition to the above table,
in 2002, Microsoft B.V. beneficially owned 8.7% of our common shares and 6.6% of our
preferred shares.

Shareholders Agreement

In July 2002, we entered into a
new shareholders agreement with Romapar, Globopar,  Bradesplan,  BNDESPar, Microsoft
B.V., RBS and Zero Hora,  with  respect to their  ownership of our common  shares and, in
the case of  BNDESPar,  RBS and  Microsoft  B.V.,  also with respect to their ownership
of our preferred shares.  The shareholders agreement establishes, among other things,
the following:

Right of first refusal.  The
 shareholders  agreement  establishes  specific rules for the transfer of shares by the
shareholders  that are  parties to the  shareholders  agreement.  In the event that one
of the  shareholders  intends to  transfer  its shares that are subject to the
shareholders  agreement,  such shareholder is required to notify the other shareholders,
 that are parties to the shareholders agreement, in order to enable them to exercise
their right of first refusal.  Each such  shareholder,  however,  will be subject to the
specific rules  described in the shareholders agreement concerning the possibility of
making a public offering of our shares that are subject to the shareholders agreement.

Prior  Meetings.  The
 shareholders  agreement  provides  that a prior  meeting of the  shareholders  must be
held  before all  general meetings of shareholders  and meetings of the board of
directors at which a relevant matter or matters (as defined in the  shareholders  agreement)
are to be considered.  The prior meetings will establish the position that will be
adopted by the shareholders  that are party to the  shareholdersagreement at the general
 meeting or board  meeting.  Relevant  matters  submitted at prior  meetings  must be
approved by the  favorable  vote of a majority  of the common  shares  subject to the
 shareholders  agreement  and must  include the  favorable  vote of  Bradesplan  or
 BNDESPar.  The shareholders  are then required to vote or instruct their  respective
 directors to vote, as the case may be, in accordance  with the outcome of the vote at
the prior meeting.

Tag-along rights.  Under the
shareholders agreement, in the event of the sale of control of us, either by a single
transaction or by way of successive transactions, directly or indirectly, by any
shareholder party to the shareholders agreement, the purchaser must agree to undertake a
public offering to purchase the common and preferred shares of the remaining shareholders
within a period of no more than 90 days for 100% of the amount paid per voting share of
our controlling block.

In the event that one of the
shareholders  party to the  shareholders  agreement  individually  owns more than 50% of
the common shares subject to the shareholders  agreement,  an eventual sale of such
common shares by such shareholder will entitle the remaining  shareholders  party to the
shareholders agreement to tag-along rights.

Drag-along  rights.  The
shareholders  agreement  provides that in the event of a sale of control by Globopar,
 Globopar may compel the other shareholders  which are parties to the shareholders  agreement
to sell their shares to the purchaser on the same terms that the purchaser has offered to
Globopar,  subject to specific rules  applicable to BNDESPar,  as described in the
 shareholders  agreement.  Globopar shall also comply with the right of first refusal
when  transferring the shares  representing our control by offering the shares to the
remaining  shareholders  party to the shareholders agreement.

Furthermore,  in the event that
the ratio between our  consolidated net debt and adjusted EBITDA exceeds 6.00 to 1.0 for
two consecutive quarters,  the  parties to the  shareholders  agreement  shall have the
right to seek a purchaser  for their  shares and for the shares held by the other
shareholders that are parties to the shareholders agreement.

Continuation  of major
 shareholder  status.  Each  shareholder  that is party to the  shareholders  agreement
 will be  required  to maintain ownership of at least 6% of our voting capital.

Appointment of directors.  The
 shareholders  agreement  provides all of our major  shareholders with the right to
appoint at least one member to our board of directors.

Term.  The shareholders agreement
has a term of ten years.

We anticipate that any debt
restructuring, including a conversion of debt to equity, would require significant
revisions to our shareholdersagreement.  In addition, we understand that the agreement
between Globopar and Telmex that was announced on June 27, 2004 provides for the
amendment or replacement of our existing shareholders agreement as a condition precedent
to the transactions contemplated thereby.  See Item 4. Information on the Company Recent
Developments.

Put/Call Options Among
Shareholders

On December  22,  1999,  Distel
and  BNDESPar  entered  into an  Contrato  de Opção de Compra e de Opção de Venda de Ações,
 under which BNDESPar  granted  Distel an option to purchase all of our common and
 preferred  shares held by BNDESPar  prior to our 2002  recapitalization,  and Distel
 granted to  BNDESPar  an option to sell all our  common and  preferred  shares  held by
 BNDESPar  prior to our 2002  recapitalization.  The exercise  price of the  options is
R$1.16  accrued  with TJLP plus 7% per year pro rata  tempore,  until the full  exercise
 of the  options and the payment of the exercise  price.  These options were
exercised in February 2004.

Related Party Transactions

We have engaged in a variety of
related party transactions, including the transactions described below.  We cannot state
with any certainty the extent to which such transactions are comparable to those which
might have been obtained from a non-affiliated third party.  We intend to enter into any
future material related party transactions on terms that are fair and reasonable to us.

Material Transactions with
Affiliates

Net Brasil Programming
Agreement

Historically, we have
obtained all of our programming from our affiliate Net Brasil, which is indirectly owned
60% by Globopar and 40% by us.  Net Brasil acts as our intermediary in purchasing
programming from both Brazilian and international sources.  Net Brasil also provides this
service for other pay-television companies, including principally Sky Brasil, a Brazilian
DBS provider in which Globopar owns a significant interest, along with cable television
providers that operate outside of our licensed territories.  Much of the programming we
purchase through Net Brasil is produced by our affiliate Globosat, which is wholly owned
by Globopar.  Globosat is a producer of mostly Portuguese-language programming, such as
SportTV, GNT, Globo News, Shoptime, Multishow, Telecine, USA, Futura and Canal Brasil.
 Globosat also purchases programming from third parties.  Our contract with Net Brasil
also grants us the right to use the NET brand name.

Up until June 27,
2004, we had been obtaining our programming pursuant to a programming agreement with Net
Brasil under which Net Brasil obtained on our behalf the rights to all programming that
our pay-television operators provided to subscribers.  Typically, Net Brasil would
negotiate programming contracts with content providers on behalf of us, Sky Brasil, and
certain other pay-television providers, and we and Sky Brasil would be consulted with
regard to those negotiations.  At the conclusion of the negotiations, we would have the
option, independent of any decision of Sky Brasil and Net Brasil, to accept or reject
programming from that source.  We believe that by aggregating subscribers across several
different pay-television platforms, Net Brasil is able to create a better negotiating
position than we could on our own and to obtain for us better terms and prices for our
programming content.

Pursuant to this
arrangement, we paid to Net Brasil an amount comprised of two parts: the reimbursement of
programming costs  equal to the amount that programmers charge Net Brasil for programming
provided to us; and a monthly variable fee to cover Net Brasils overhead equal to R$0.51
per subscriber per month.

On June 27, 2004, we
entered into an amended and restated programming agreement with Net Brasil whereby Net
Brasils role in acquiring programming for us has been altered as described below.  Under
the amended and restated agreement, Net Brasil will retain its role with regard to
obtaining all other programming, in particular content or channels produced in Brazil, while we
will directly obtain, for our own account and benefit, all new international content from
sources outside of Brazil, which corresponds to approximately one third of our line-up.
  Due to the above reduction in scope of the services provided by Net Brasil, the
compensation paid by us to Net Brasil will be reduced considerably.  Pursuant to this new
programming agreement, instead of R$0.51 per subscriber per month, we will now pay Net
Brasil a fixed amount equal to R$100,000 (US$34,600) per month, adjusted by IPC, the
Consumer Price Index, plus an additional monthly fee of R$24,000 (US$8,300) in 2004,
R$16,000 (US$5,500) in 2005, R$3,000 (US$1,040) in 2006 and R$1,500 (US$520) in 2007.

We have agreed to
transfer our 40% interest in Net Brasil (which is in a loss position with certain
contingent liabilities) to Globopar in the near future for a nominal amount.

Our arrangements with
Net Brasil and the shareholders agreement specify, among other things, that (i) in its
dealings with us, Net Brasil is not intended to operate at a profit; and (ii) new
programming contracts and renewals or amendments to existing programming contracts,
pursuant to which we will be receiving programming, must be approved by our board of
directors, including the affirmative vote of a director appointed by either BNDESPar or
Bradespar.

Pursuant to our
programming agreement, we paid Net Brasil US$152.9 million, US$131.0 and US$135.1 in
2001, 2002 and 2003, respectively.  Included in these amounts was a broker commission
paid to Net Brasil in the amount of US$1.6 million, US$1.9 million and US$2.3 million in
2001, 2002 and 2003, respectively, corresponding to the payment of R$0.51 per subscriber
per month.

We also believe that,
commensurate with our growth, Net Brasil has been able to negotiate better contract terms
on our behalf and has passed those savings on to us.

Our liabilities to Net
Brasil are considered normal trading transactions and are classified as accounts payable
to programmers under current liabilities.

Programming Guide

Our program guide is produced
by Editora Globo S.A., a publishing  company  affiliated  with Globopar.  In 2001,  2002
and 2003, we paid Editora Globo S.A. US$7.7 million, US$6.5 million and US$5.1 million,
respectively, for the publication of our program guide.

Financing Arrangements with
Affiliates

Protocol of Recapitalization

During the third quarter of
2002, our major shareholders  completed our  recapitalization  in the amount of
approximately  R$1.2 billion (US$387.4 million).  The recapitalization  included a
Brazilian offering of common and preferred shares and an international  placement of
preferred shares.  We issued an aggregate of 707,182,199  common shares and 1,040,584,048
 preferred shares, at a price of R$0.70 per share,  hence increasing our equity and
 reducing our debt.  For  purposes of this  summary of the  recapitalization,  the
 translation  from reais to U.S.  dollars has been translated  at the  exchange  rate on
August  12,  2002,  the date of the  closing  of the  public  distribution  of shares in
 connection  with the recapitalization, of R$3.0979 = US$1.00.

The  recapitalization  was
implemented  pursuant to an agreement called the Protocol of  Recapitalization  of Globo
Cabo S.A., which was signed on April 10,  2002,  and  subsequently  amended on April 30,
2002 and June 14,  2002,  among Net  Serviços  and  Globopar,  Romapar,  Distel,
Bradesplan, Bradespar, RBS and BNDES.  Our affiliate Net Brasil signed the Protocol of
Recapitalization as an intervening consenting party.

The recapitalization involved
the following steps:

- BNDESPar  delivered
 1,000  of our  convertible  debentures  due  2006  held by it,  which  represented  a
 total  principal  amount  of                   approximately  R$139.6 million (US$45.1
million),  as consideration for subscribing  preferred shares at the public offering
price                   for a share.

- Globopar  delivered 553
of our convertible  debentures due 2006 held by it, which  represented a total principal
amount of approximately                   R$78.8 million (US$25.4 million), as
consideration for subscribing preferred shares at the public offering price for a share.

- Bradespar,
through a subsidiary, delivered 130 of our convertible debentures due 2006 held by it,
which represented a total principal amount of approximately R$18.3 million (US$5.9
million), as consideration for subscribing preferred shares at the public offering price
for a share.

- Globopar and its
affiliates converted an advance for future  capitalization,  or AFAC, advanced in the
first half of 2001, and valued at                   R$393.2  million  (US$126.9
 million),  into  shares at the  public  offering  price for a share.  This did not
result in new cash                   proceeds to Net Serviços since the funds represented
by the AFACs were previously advanced by Distel and Globopar.

- Bradesplan converted
its loans to us, valued at R$79.5 million (US$25.7 million), into shares at the public
offering price for a share.  This did not result in new cash proceeds for Net Serviços.

- RBS converted its loans
to us, valued at R$18.5 million  (US$6.0  million),  into shares at the public  offering
price for a share,  and                   also converted loans to us by RBS Interativa,
 an affiliate of RBS, valued at R$16.5 million (US$5.5 million),  into shares at the
                  public offering price for a share.  This did not result in new cash
proceeds for Net Serviços.

- BNDESPar  and RBS and
their  affiliates  purchased  for cash  shares at the  public  offering  price for a
share for a total of  R$174.7                   million (US$56.4 million).

- Globopar and its
affiliates  converted all of the deferred  programming fees owed to it by Net Serviços
 (approximately  R$155.2 million                   (US$50.1  million),  into  shares at
the  public  offering  price for a share.  This did not result in new cash  proceeds  for
Net                   Serviços.

- RBS satisfied R$2.2
million (US$0.7  million) of its total  commitment by converting all of the deferred
 programming  fees and services                   rendered fees owed to it by Net Serviços
 into shares at the public  offering  price for a share.  This did not result in new cash
                  proceeds to Net Serviços.

- In connection  with the
Brazilian  offering,  other holders of our  convertible  debentures due 2006 had the
right to deliver or convert                   their  convertible  debentures  as
 consideration  for  subscribing  preferred  shares at the public  offering  price for a
share.                   Holders  delivered 431 of such  convertible  debentures,
 representing a total principal  amount of  approximately  R$60.8 million
                  (US$19.6  million) and converted  522 such  convertible  debentures,
 representing  a total  principal  amount of R$68.3  million                   (US$22.0
million).

- The public purchased
for cash shares at the public offering price for a share for a total of R$17.6 million
(US$5.7 million).

Guarantees and pledges

Several of our loan agreements
 involve  guarantees and pledges between us and our shareholders,  or among our
 shareholders.  See Item 5. Operating and Financial Review and  ProspectsLiquidity  and
Capital  ResourcesDebt  Financing,  IFC facility and Trade Financing and U.S.
dollar denominated bank loans.

Guarantees and pledges by our
shareholders to support our or our subsidiaries obligations:

Prior to May 3, 2004, loans
under the IFC facility were guaranteed by Globopar and members of the Roberto Marinho
family, the principal stockholder of Globopar.  As security for its guarantee, Globopar
pledged 51% of its interest in the voting stock of its subsidiary Distel to the IFC.  As
of May 3, 2004, Globopar, as guarantor under the IFC facility, has paid all amounts owed
by us to the IFC and is currently a creditor of us by virtue of subrogation to the IFC,
thereby releasing us from all obligations to the IFC.  In addition, the pledge by
Globopar of shares of Distel to the IFC were released in connection with Globopars
assumption of the IFC facility.  See Item 5.  Operating and Financial Review and
ProspectsLiquidity and Capital ResourcesIFC facility for details on the IFC facility.

A number of our subsidiaries
 have entered into U.S.  dollar-denominated  trade financing loans with Brazilian
 financial  institutions. As of December 31, 2003, we had US$40.0 million principal
amount outstanding under these loans.

We have not paid any fees to
Globopar or its affiliates in connection with these guarantees and pledges.

Guarantees and pledges by us or
our subsidiaries to support our shareholders obligations:

In connection with Globopars
guarantee under the IFC facility, we had pledged to Globopar shares of our subsidiary
Multicanal Telecomunicações S.A., based on the amount of borrowings outstanding at any
time under this facility and the size of Multicanal Telecomunicações subscriber base. At
December 31, 2003, we had pledged to Globopar a total of 6,806,344,107 shares of
Multicanal Telecomunicações S.A., representing 4.8% of Multicanal Telecomunicações S.A.s
total outstanding shares.  As of May 3, 2004, Globopar, as guarantor under the IFC
facility, has paid all amounts owed by us to the IFC and is currently a creditor of us by
virtue of subrogation to the IFC, thereby releasing us from all obligations to the IFC.
 Accordingly, the pledge by us of shares of Multicanal Telecomunicações S.A. to Globopar
were released in connection with Globopars assumption of the IFC facility.  See Item 5.
 Operating and Financial Review and ProspectsLiquidity and Capital ResourcesIFC facility for
details on the IFC facility.

Other Financing Arrangements

We enter into various
 financial  transactions with entities  affiliated with Banco Bradesco S.A., an affiliate
of Bradesplan,  relating to property  insurance,  employee health insurance and
collection fees. We paid approximately  US$7.1 million,  US$4.5 million and US$5.0
million in connection with these financial transactions in 2001, 2002 and 2003,
respectively.

ITEM 8.           FINANCIAL
INFORMATION

Our audited  consolidated
 financial  statements as of December 31,  2003 and 2002 and for the years ended  December 31,
 2003, 2002 and 2001 are included  elsewhere  in this Form 20-F.  There have been a
number of  significant  changes with  respect to our  financial  position  since December 31,
2003, the date of the most recent financial statements included in this Form 20-F, as
follows:

- We have not made any
payment of principal and interest on our debt since December 31, 2003.

- We are pursuing a
debt-restructuring plan with respect to our debt facilities and instruments.

- Our working  capital
deficit has continued to be significant,  primarily as a result of the unpaid  principal
of our debt,  interest and                   financial charges.

- We recorded a net loss
of  approximately  US$15.0  million for the  three-month  period ended March 31, 2004.
 We may continue to record                   net losses in the future.

See Item 5. Operating and
Financial  Review and  ProspectsLiquidity  and Capital  ResourcesLiquidity
 requirements and sources for a discussion of these and other changes to our financial
position.

See Item 4. Information on the
CompanyLegal Proceedings for a discussion of our legal proceedings.

See Item 10. Additional
InformationDividend Policy for a discussion of our policy on dividend distributions.

ITEM 9.           THE OFFER AND
LISTING

General

The principal  non-United
 States market for our preferred  shares is the Bovespa.  Our preferred shares are traded
on the Bovespa under the symbol PLIM4.

In June 2002, we complied with
the requirements of Corporate  Governance Level 2 of the Bovespa.  The Corporate
 Governance Level 2 is a listing  segment  created for the trading of shares  issued by
companies  that  voluntarily  undertake to comply with certain  corporate  governance
practices  and  disclosure  requirements  that are in addition to those  imposed by the
 Brazilian  legislation.  The  inclusion of a company in the Corporate Governance Level 2
signifies the companys  compliance with a series of corporate rules, known as good
practices of corporate  governance, which are more rigid than those  required by the
Brazilian  legislation.  These rules increase the rights of the  shareholders  as well as
improving the quality of information we provide to the market.

Our  predecessor  company,
 Multicanal,  conducted an offering of ADSs in October 1996.  Each ADS represents ten
preferred  shares.  The ADSs trade in the United States on the Nasdaq  National  Market
under the symbol NETC and are evidenced by ADRs.  The ADSs are  outstanding  under an
amended and restated  deposit  agreement  dated as of December 17, 2001 among us,
 JPMorgan Chase Bank as depositary,  and the owners and holders from time to time of the
ADSs. On December 17, 2001,  JPMorgan  Chase Bank  succeeded  The Bank of New York as
 depositary  for the ADSs. An ADR may represent any number of ADSs.  Only persons in
whose names ADSs are  registered on the books of the  depositary  are treated as owners
of ADSs under the deposit agreement.

The table below sets forth, for
each period indicated, the high and low closing prices in reais for the preferred shares
on the Bovespa and the high and low closing prices of the ADSs in U.S. dollars as
reported by the Nasdaq National Market.

|                            | São Paulo Stock Exchange(1) R$ per preferred share | Nasdaq US$ per ADS
|--------------------------- | -------------------------------------------------- | ------------------
|                            |                                                    |                   
|                            | High                                               | Low               
|                            |                                                    |                   
|Year                       
|                           
|                           
|1999                        | 35.50                                              | 1.91              
|2000                        | 44.30                                              | 15.60             
|2001                        | 24.40                                              | 5.60              
|2002                        | 8.50                                               | 0.19              
|2003                        | 1.27                                               | 0.25              
|                           
|Quarter                    
|1Q/02                       | 8.50                                               | 4.90              
|2Q/02                       | 5.50                                               | 1.65              
|3Q/02                       | 1.87                                               | 0.23              
|4Q/02                       | 0.45                                               | 0.19              
|                           
|1Q/03                       | 0.53                                               | 0.25              
|2Q/03                       | 0.43                                               | 0.27              
|3Q/03                       | 0.74                                               | 0.28              
|4Q/03                       | 1.27                                               | 0.58              
|                           
|1Q/04                       | 1.10                                               | 0.56              
|                           
|Month                      
|December 2003               | 1.12                                               | 0.73              
|January 2004                | 1.10                                               | 0.65              
|February 2004               | 0.75                                               | 0.56              
|March 2004                  | 1.01                                               | 0.63              
|April 2004                  | 0.91                                               | 0.68              
|May 2004                    | 0.85                                               | 0.68              
|June 2004 (through June 25) | 0.90                                               | 0.60              

---

(1)      Reais per share
reflected nominal price at trade date.


Trading Markets

Nasdaq National Market

The primary market for our
preferred shares held in the form of ADSs is the Nasdaq National  Market.  On March 31,
2004, there were 1,960,273 ADSs  outstanding,  representing  4.7% of the total amount of
preferred shares held by public  shareholders  (which are all preferred shares not owned
by the shareholders  listed in Item 7. Major Shareholders and Related Party  TransactionsMajor
 Shareholders.)  The average daily trading volume of the ADSs on the Nasdaq National
Market during 2003 was approximately US$320,700, or 145,000 ADSs.

Brazilian Stock Exchanges

In 2000, the Brazilian stock
exchanges were reorganized  through the execution of a memorandum of understanding.
 Pursuant to the memorandum,  all securities are now traded only on the Bovespa,  with
the exception of  electronically  traded public debt  securities and  privatization
 auctions,  which are traded on the Rio de Janeiro Stock  Exchange.  In 2002,  the
Bovespa  accounted for 100% of the trading value of equity securities on all Brazilian
 stock  exchanges.  The Bovespa is a non-profit  entity owned by its member  brokerage
 firms.  Trading on the Bovespa is limited to member  brokerage  firms and a limited
 number of authorized non-members.

Trading.  The Bovespa has two
daily open outcry trading sessions:  from 11:00 a.m. to 1:30 p.m. and from 2:30 p.m. to
5:45 p.m., Brazil local time, except during daylight savings time in the United States,
when the sessions are from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 4:45 p.m.,
Brazil local time.

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 on the Bovespa and on the  National Electronic
Trading System.  This system is a computerized system which links electronically with the
seven smaller regional exchanges.

The Bovespa  also
permits  trading  from 6:45 p.m. to 7:30 p.m. on an online  system  connected  to
 traditional  and internet brokers called the After Market.  Trading on the After
Market is subject to regulatory  limits on price  volatility and on the volume of shares
 transacted  through  internet  brokers.  There are no  specialists  or officially
 recognized  market makers on the Bovespa. Trading in securities  listed on the Brazilian
 stock  exchanges may be effected off the exchanges in certain  circumstances,  although
such trading is very limited.

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

Settlement of
transactions  is 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 a clearinghouse,  or Câmara  Brasileira de Liquidação e Custódia S.A.,
which maintains  accounts for member  brokerage firms. The seller is ordinarily  required
to deliver the shares to the exchanges on the second business day following the trade
date.

Market Size.  As of
December 31, 2003,  the aggregate  market  capitalization  of the 369 companies  listed
on the Bovespa was equivalent to  approximately  US$234.2  billion.  Although any of the
 outstanding  shares of a listed company may trade on a Brazilian stock  exchange,  in
most cases fewer 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.  As of December 31, 2003, we
accounted for approximately 0.27% of the market capitalization of all listed companies on
the Bovespa.

Although at December
31, 2003 the  Brazilian  equity  market was Latin  Americas  largest in terms of market
 capitalization, expressed in U.S.  dollars,  it is relatively  small and illiquid
 compared to major world markets.  In 2003, the average daily trading value was
approximately US$220.1 million on the Bovespa.

Index.  We  have  been
 included  in  the  Bovespa  index,  or the  Ibovespa,  since  May  2000.  The  Ibovespa
 is  the  most representative  indicator of the  performance  of the prices of the
 Brazilian  stock market since it clearly shows the behavior of the principal  shares
traded on the São Paulo Stock  Exchange.  In August 2000,  the Bovespa  announced that
the Ibovespa for the last four months of 2000 would contain 7.8% of our preferred
 shares,  an increase from 4.6%. As a result,  our preferred shares became the third
highest  weighted  stock in the index.  On December 31, 2003,  our weighting in the index
was 2.01%  compared to our weighting of 0.42% on December 31, 2002.  Our  securities
 also trade on several  additional  markets,  including  SOMA,  a Brazilian  electronic
 trading market,  where our convertible  debentures  began trading in January 2000; the
Chicago,  Pacific and American option  exchanges,  where options on ADSs began trading in
February 2000;  and Latibex,  the market for Latin  American  companies on the Madrid
Stock  Exchange, where our shares began trading in July of 2000.

Tax Matters.  Trading
on Brazilian  stock  exchanges  by a holder not deemed to be domiciled in Brazil for
 Brazilian  tax and regulatory  purposes,  or 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.  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.  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 Item 10.  Additional  InformationTaxationMaterial  Brazilian
 Taxation ConsiderationsTaxation  of Gains for a  description  of certain tax  benefits
 extended to  non-Brazilian  holders who qualify  under Resolution No. 2,689.

Level 2 of Bovespa

On December 11, 2000,
the Bovespa  launched three new listing  segments  designed for the trading of shares
issued by publicly held companies:  the Special Corporate  Governance Level 1, the
Special  Corporate  Governance Level 2 and the Novo Mercado of Bovespa. These new listing
 segments  were  designed  for the trading of shares  issued by  companies  that
 voluntarily  undertake  to abide by corporate governance practices and disclosure
requirements in addition to those already required under Brazilian corporate law.

The inclusion of a
company in any of the new segments  implies the adherence to a series of corporate
 rules,  known generally as good  corporate  governance  practices.  These  rules are
 designed  to  increase  shareholders  rights and  enhance the quality of information
provided by Brazilian corporations.

Our shares have been
listed in Bovespas  Special  Corporate  Governance  Level 2 since June 2002. The
principal  practices of Corporate  Governance  Level 2 of Bovespa require that we adopt
the following  provisions as part of our corporate  structure.  We have adopted each of
these provisions.

Preferred  Shares with
Voting  Rights.  We are obligated to establish  voting  rights on our preferred  shares
with respect to the following:

- our transformation,
consolidation, merger or spin-off;

- valuation of assets used
in increases in our capital;

- approval of certain
specified agreements between us and our controlling shareholder or its affiliates;

- choice of company skilled
in determining our economic value intended for the public offering of our shares; and

- change or repeal of
provisions of our by-laws that alter or modify any Bovespa requirements.

Tag-Along  Rights.
 Upon the  acquisition of a controlling  interest in us, the purchaser must offer
 tag-along  rights to our remaining  shareholders  in an amount  equivalent  to 100% of
the price paid for each share in the  controlling  stake,  in the case of holders  of
common  shares,  and at least 70% of the price  paid for each  share in the  controlling
 stake,  in the case of holders of preferred  shares.  Our by-laws  require the purchaser
to offer 100% of the price paid for each share in the  controlling  stake to our holders
of both common and preferred shares.

Establishment  of a
single one year mandate for the entire  board of  directors.  Our board of directors
 shall be composed of no fewer than nine and no more than twelve members  elected at a
general  meeting of shareholders to serve for a unified term of office of one year, with
the option for reelection.

Free float.  It is
required  that at all times at least 25% of our total  capital  stock is held by persons
or entities  other than those party to our shareholders  agreement.  As of March 31,
2004, we were not in compliance with this requirement.  However,  we received a waiver
from Bovespa and must comply with the requirement by September 2004 or request for an
extension of the waiver.

Public offers of
shares through  mechanisms  intending to favor capital  dispersion and broader retail
access.  In any and all public distributions of stock, we shall exert our best efforts
towards shareholding  dispersion,  adopting special procedures to ensure (i)  access  to
 all  interested  investors,  or  (ii)  allocation  of at  least  10% of  the  total
 distribution  to  individuals  or non-institutional investors.

Improvement in the
quarterly  information  reports.  In addition to the  information  to be included in
quarterly  information statements as required by law, we will be obliged to:

- present a consolidated
balance sheet, a consolidated statement of results, and a consolidated  performance
report, whenever we               are required to submit consolidated statements at
year-end;

- disclose any direct or
indirect ownership interest exceeding 5% of our voting capital;

- inform, on a consolidated
basis, the quantity and  characteristics of the companys  securities directly or
indirectly held by               our controlling shareholders, senior managers and audit
committee members;

- report on the purchases
and sales of securities  held by the persons  referred to in the third bullet point
above,  within the               immediately preceding twelve months;

- include, in explanatory
notes, our cash flow statement; and

- disclose the quantity of
outstanding shares and the percentage expressed in relation to the total amount of shares
issued.

In every  quarter,
 the  quarterly  information  statement  must be  presented  no later than  fifteen days
after the deadline prescribed by law for presentation  thereof. The quarterly
 information  statement must also enclose a special revision report,  issued by an
independent auditor duly registered with the Comissão de Valores Mobiliários  (Brazilian
Securities and Exchange Commission),  or the CVM, in accordance with CVM regulations.

Trading of securities
and derivatives by senior managers,  controlling  shareholders and audit committee
 members.  Our senior managers,  controlling  shareholders  and the audit  committee
 members  will be  obligated  to report to  Bovespa  the  volume and the characteristics
 of our  securities  directly  or  indirectly  held by them,  including  the  respective
 derivatives.  Any  trades  in securities  and  derivatives  by such  persons  shall be
reported  in detail to Bovespa,  within ten days as of the end of the month in which such
trades occur.

Self-regulatory
procedures.  We have a self-regulatory body that adopts internal policies comprising the
following actions:

- from one month  before
 the end of the  financial  year until the  publication  of the notice to  shareholders
 regarding  the               availability of our financial  statements,  the senior
 managers,  the controlling  shareholders  and the audit committee               members
shall abstain from trading in our securities and respective derivatives;

- during the period ranging
between the decision  regarding any capital increase,  distribution of dividends,
 bonuses in stocks               and respective  derivatives,  or splitting of shares
until  publication of the respective  notices,  our senior managers,
              controlling  shareholders  and audit  committee  members  shall  abstain
from trading in our  securities  and  respective               derivatives;

- the senior managers, the
controlling  shareholders and the audit committee members shall periodically advise us
and Bovespa of               their  plans to trade in our  securities  and  respective
 derivatives,  including  subsequent  changes  therein  and any               departure
from such plans.

Shareholder
 agreement,  stock option program and contracts  with the same economic  group.  Upon
signing a new  shareholdersagreement, we must forward it and notify Bovespa within five
days of the respective filing and/or annotation in our files.

A copy of all  option
 plans for our  employees  or  administrators  shall  also be  delivered  to  Bovespa
 and  disseminated accordingly.

In addition,  we shall
forward to Bovespa and make public  disclosure of any and all contracts entered into
between us and our controlled and  associated  companies,  senior  managers and the
 controlling  shareholder,  whenever a single  contract or a series of related  contracts
 reaches an amount equal to or greater than R$200,000,  within any one-year period, or
reaches an amount equal to or higher than 1% of our net worth.

Resolution of
corporate  conflicts  through  arbitration.  We, our  controlling  shareholders,  senior
 managers and the audit committee  members  shall  undertake  to refer to  arbitration
 any and all  disputes or  controversies  arising out of the new listing segment rules or
any other corporate matters.

Regulation of
Brazilian Securities Markets

The  Brazilian
 securities  markets are  principally  governed by Law No.  6,385,  of December 7, 1976
and Law No.  6,404,  of December 15, 1976, which together as amended and  supplemented
 compose the Brazilian  corporate law, and by regulations  issued by the Brazilian
 securities  commission,  which has regulatory  authority  over the stock  exchanges and
securities  markets  generally,  the National  Monetary Council and the Central Bank,
which has licensing  authority over brokerage firms and regulates  foreign  investment
and foreign  exchange  transactions.  These laws and  regulations,  among others,
 provide for  disclosure  requirements  applicable to issuers of traded  securities,
 protection of minority  shareholders and,  effective on March 5, 2002,  criminal
 penalties for insider trading and market  manipulation.  They also provide for
 licensing and  oversight of brokerage  firms and  governance of the Brazilian stock
exchanges.

Under the Brazilian
 corporate law, a company is either companhia aberta, or public,  such as we are, or
companhia fechada, or closely  held.  All public  companies,  including  us, are
 registered  with the  Brazilian  securities  commission  and are subject to reporting
 requirements.  A  company  registered  with the  Brazilian  securities  commission  may
have its  securities  traded  on the Brazilian stock exchanges or in the Brazilian
 over-the-counter  market.  Our preferred shares are listed and traded on the Bovespa and
may be traded privately subject to some limitations.

To be listed on a
Brazilian stock exchange,  a company must apply for registration  with the Brazilian
 securities  commission and the stock exchange where the head office of the company is
located.

We have the  option to
ask that  trading  in our  securities  on the  Bovespa  be  suspended  in  anticipation
 of a  material announcement.  Trading may also be suspended at the  discretion of the
Bovespa or the  Brazilian  securities  commission  based upon or due to, among other
reasons,  a belief that a company has provided  inadequate  information  regarding a
material event or has provided inadequate responses to the inquiries by the Brazilian
securities commission or the Bovespa.

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

Trading on the Bovespa
by  non-residents  of Brazil is subject to  limitations  under  Brazilian  foreign
 investment  and tax legislation.  The Brazilian  custodian for the preferred  shares
 underlying  the ADSs must, 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  ADSs for
 preferred shares,  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  abroad upon the  disposition  of the
 preferred  shares,  or distributions relating to the preferred shares, unless the holder
obtains a new registration.

Trading in Brazilian
 securities  markets is not as highly  regulated  or  supervised  as it is in the United
 States and some other markets.  Brazilian law prohibits  market  manipulation  and
insider  trading,  and it requires a companys  insiders,  including directors,  officers
and major shareholders,  as defined under Brazilian law, to disclose all their
transactions in its securities.  It also  prohibits  a company  from  trading in its own
 shares,  subject to very  limited  exceptions.  The  enforcement  of these  legal
provisions, and the supervision of trading markets, are not as well developed as they are
in the United States.

ITEM 10.
     ADDITIONAL INFORMATION

Memorandum and
Articles of Association

Organization, Register
and Entry Number

We are a publicly
 held  corporation  registered  with the CVM and  organized  under the laws of the
 Federative  Republic  of Brazil. We are registered in the Brazilian  commercial
 registry under the entry number  35.300.177.240  and in the Taxpayers  General Registry
of the Ministry of Finance under registration number 00.108.786/0001-65.

Our constituent
document is our Estatuto Social, which we refer to in this Form 20-F as our by-laws.

Object and Purpose

Our corporate object
and purpose,  described in article three of our by-laws,  are those of a holding
 company.  Our operating subsidiaries  shall  have as their  corporate  purpose  the
 distribution  of our  pay-television  and other  value-added  services  to subscribers
such as telecom services,  services of signal distribution  through local network and the
production of local channels.  We provide our operating  subsidiaries with
 administrative,  financial and consulting  support. We may, without  restriction,
 acquire or hold quotas or shares in other  companies  which carry on  activities
 similar to ours and to our  subsidiaries,  as well as activities related to trade
commerce and representation.

Voting Rights Relating
to Our Common and Preferred Shares

Each common share
entitles the holder to one vote at the general  shareholders  meetings;  each preferred
 share entitles the holder to one vote at the general  shareholders  meetings
 exclusively  on the following  corporate  resolutions  in  accordance  with Bovespas
Corporate Governance Listing Rules for Level 2:

- our transformation,
consolidation, merger or spin-off;

- valuation of assets used
in increases in our capital;

- approval of certain
specified agreements between us and our controlling shareholder or its affiliates;

- choice of a company
skilled in the determination our economic value intended for the public offering of our
shares; and

- change or repeal of
provisions of our by-laws that alter or modify any Bovespa requirements.

According to the
Brazilian  corporate  law, the  resolutions  of a general  shareholders  meeting shall
be passed by a simple majority of votes,  abstentions  not being taken into  account.
 Nevertheless,  according to Brazilian  corporate  law, the approval of shareholders
representing at least one-half plus one of our existing voting shares shall be necessary
for a resolution which:

- creates preferred shares
or increases an existing class without maintaining its ratio to the other types and
classes;

- alters a preference, a
privilege or a condition of redemption or amortization conferred upon one or more classes
of preferred                 shares, or creates a new, more favored, class;

- reduces the compulsory
dividend;

- merges the corporation
with another corporation or consolidates it;

- participates in a group
of corporations;

- changes the corporate
purpose;

- terminates a state of
liquidation of the corporation;

- creates founders shares;

- divides the corporation;
or

- dissolves the corporation.

Furthermore,
 according to our by-laws,  the choice of a company skilled in the  determination  of a
companys  economic value intended  for the public  offering of its shares must be
adopted by an absolute  majority of shares  having the right to vote,  without regard to
share class, disregarding abstentions.

According to Brazilian
 corporate  law, a  shareholder  without a right to vote may attend a general  meeting
and take part in the discussion of matters submitted for consideration.  Generally,
 apart from the exceptions  provided by law, a general meeting shall be opened on first
call with the presence of  shareholders  representing  at least  one-quarter  of the
voting  capital;  on the second call, it shall be opened with any number.

Each ADS represents
ten preferred  shares.  Since voting rights are  restricted on our preferred  shares,
 the holders of ADSs are only entitled to vote at our shareholders meetings on the
corporate resolutions mentioned above.

Conversion Rights

Under Brazilian
 corporate law, the conversion of a class of shares into another class of shares must be
expressly  authorized in the by-laws of the company.  Our by-laws do not contain any
provisions  regarding the conversion of shares,  and therefore  unless a shareholders  meeting
 expressly  approves the amendment of the by-laws,  our common shares cannot be converted
into preferred  shares and our preferred shares cannot be converted into common shares.

Preemptive Rights

Under  Brazilian
 corporate law, upon the issuance of new common or preferred  shares or securities
 convertible  into shares, all  shareholders  shall have the right to subscribe
 proportionately  for the same class of shares they own. If the issuance of shares causes
 alterations in the existing  proportion of common to preferred  shares,  our
 shareholders  have the right to subscribe for the same class of shares already  owned.
 This right may be extended to another class of shares if the former is  insufficient  to
assure a shareholder  the same  proportion  in the stock  capital  as such  shareholder
 had  before the  capital  increase.  In the case of the issuance of shares of a
different  class from those existing before the new issuance,  each  shareholder has the
right to subscribe for each class of share created by the increase in the  proportion  to
the number of shares  already  owned.  These  preemptive  rights are freely
 transferable.  A minimum period of 30 days following the publication of notice of the
capital  increase must be allowed for the exercise  of the  preemptive  rights.  Our
by-laws  authorize  us to issue  shares (or  securities  convertible  into  shares)
 without preemptive  rights, as long as the placement of the shares is made through sales
on a stock exchange,  by public  subscription or by an exchange of shares in a public
tender offer.

In the event of a
capital increase by means of the issuance of new shares,  holders of ADSs or preferred
shares would,  except as described above,  have preemptive  rights to subscribe for new
shares.  However,  holders may not be able to exercise the preemptive rights relating to
the preferred  shares  underlying  their ADSs unless a registration  statement under the
Securities Act is effective with respect to those rights or an exemption from the
registration requirements of the Securities Act is available.

In  addition,   our
 shareholders   agreement   establishes  certain  rules  regarding  preemptive  rights
 among  our  major shareholders.  See Item 7.  Major Shareholders and Related Party
TransactionsMajor ShareholdersShareholders Agreement.

Liquidation Rights

The common shares and
preferred shares have pro rata rights to share in our assets upon  liquidation.  However,
 the preferred shares have priority in the refund of capital in the case of liquidation.

Redemption Provisions

Our by-laws do not set
forth any redemption  provision;  however, at any time our shareholders may decide,
acting at a general shareholders meeting, to effect a redemption of our outstanding
shares.

Rights of Withdrawal

Brazilian  corporate
law provides  that,  under  limited  circumstances,  a  shareholder  has the right to
withdraw his or her equity  interest from the company and to receive  payment for the
portion of  shareholders  equity  attributable  to his or her equity interest.  This
right of withdrawal may be exercised by our dissenting  shareholders  in the event that
at least half of all holders of voting shares outstanding authorize us:

- to create new preferred
shares or increase the amount of preferred  shares already  existing without  maintaining
its ratio to               the other types and classes, unless otherwise provided in the
by-laws;

- to reduce the mandatory
distribution of dividends;

- to change our corporate
purpose;

- to merge with  another
 company or to  consolidate  with  another  company  subject to the  conditions  set
forth in Brazilian               corporate law;

- to transfer all of our
shares to another  company in order to make us a wholly owned  subsidiary of such
company,  known as an               incorporação de ações;

- to participate in a
centralized group of companies as defined under Brazilian  corporate law and subject to
the conditions set               forth therein;

- to alter a preference,
 privilege or condition of redemption or  amortization  conferred upon one or more
classes of preferred               shares, or creating a new, more favored, class; or

- to spin-off with another
company.

The right of
 withdrawal  lapses 30 days after  publication  of the minutes of the  shareholders  meeting
 that  approved the corporate  actions  described  above.  We would be entitled to
reconsider  any action giving rise to withdrawal  rights within ten days following  the
 expiration  of such rights if the  withdrawal  of shares of  dissenting  shareholders
 would  jeopardize  our financial stability.  With respect to the first and seventh
 bullet  points  above,  only  shareholders  affected by such actions  shall have the
right to withdraw from the  corporation.  In addition,  shareholders  may only  exercise
the rights of  withdrawal  with respect to the fourth and seventh  bullet points above if
such shares are not part of the Ibovespa,  or any other stock  exchange  index,  and if
less than 50% of the shares issued by the company are outstanding.  Our preferred shares
are included in the Ibovespa.

This right of
 withdrawal  may also be  exercised  in the event  that the entity  resulting  from a
merger,  consolidation  or spin-off of a listed company fails to become a listed company
within 120 days of the  shareholders  meeting at which such decision was made.

Changes in Rights of
Shareholders

Under Brazilian
 corporate law, the rights of our  shareholders may only be changed by a shareholder
 resolution  amending our by-laws.  Resolutions to amend the by-laws  require the
approval of an absolute  majority of votes cast at a shareholders  meeting.  A quorum of
not less than  two-thirds  of the share capital  entitled to vote must be present.  If
the quorum  requirement  is not met at the initial  meeting,  then such matters may be
approved at a later date at a second call of such meeting by the majority of any number
of holders of voting shares present at the subsequent meeting.

Shareholders Meetings

Shareholders  meetings
are generally  held at our principal  office.  Shareholders  meetings are called by
 publication of a notice  in  the  Diário  Oficial,  the  Brazilian  official  gazette,
 and in the  Brazilian  newspaper  Valor  Econômico.  Our  annual shareholders  meeting
 must be held during the first four months after the closing of the fiscal year and must
be convened on not less than fifteen days notice from the first publication.  At the
annual  shareholders  meeting,  the annual accounts,  including a report on our
 activities  during the  previous  year and our  financial  statements,  are  presented
 to the  shareholders  for  examination, discussion  and approval.  Extraordinary
 meetings may also be called upon the request of the board of directors,  the audit
 committee if installed,  shareholders  holding at least 5% of our share capital if
directors  fail to call a meeting  within 8 days after receipt of a request,  or any
 shareholder  whenever the board of  directors  delays more than 60 days in calling a
meeting that is required by Brazilian law or our by-laws.

To  attend a
 shareholders  meeting  in person or by  proxy,  shareholders  must  provide  proof of
 identity  upon  request. Shareholders  may be represented by written proxies  appointed
less than one year before the meeting.  The  shareholder  representative must be a
shareholder,  a lawyer or a financial  institution.  Each shareholders meeting is
directed by a board composed of a chairman and a secretary appointed by the shareholders
present.

In addition,  pursuant
to our  shareholders  agreement,  our major  shareholders are required to vote uniformly
 according to decisions  reached  in  prior  meetings  held  by  them.  See  Item  7.
 Major  Shareholders  and  Related  Party   TransactionsMajor ShareholdersShareholders Agreement.

Transfer of Shares;
Limitations on Shareholdings

There are no legal
 restrictions  on the  transferability  of our common  shares,  except as  described  in
the  shareholdersagreement.  However,  the CVM has issued rules  providing  that
 whenever a  controlling  shareholder  makes a purchase of any class of shares (or
 securities  convertible  into shares)  that results in an increase (or a potential
 increase) by at least 5% of a companys share capital,  the controlling  shareholder
 must  immediately  provide notice of this purchase to the CVM, the stock exchange and
the over-the-counter market in which the companys securities trade.

Current CVM
 regulations  require that the  controlling  shareholder  must effect a public offer
whenever it purchases  shares representing  more than 1/3 of the total capital stock of a
company,  if such  acquisition of shares was not already effected through a public offer.

Under the  Brazilian
 telecommunications  regulatory  framework,  only  private  legal  entities
 headquartered  in Brazil and controlled as to 51% of their  voting-capital by
Brazilian-born  citizens or persons who have held Brazilian  citizenship for more than
ten years, are eligible to receive a license from Anatel to operate cable television
 systems in Brazil.  Therefore,  it is not legally possible for a non-resident or foreign
shareholder to acquire control of Net Serviços.

Change of Control
Provisions

According to the
Corporate  Governance  Listing Rules for Level 2, in the event of  acquisition  of a
controlling  interest in us, the purchaser shall offer tag-along rights to all of our
remaining  shareholders in an amount  equivalent to 100% of the price paid for each share
of the  controlling  stake,  in the case of holders of common shares,  and at least 70%
of the price paid for each share of the  controlling  stake,  in the case of holders of
preferred  shares.  Our by-laws require the purchaser to offer 100% of the price paid for
each share in the controlling stake to our holders of common and preferred shares.

The CVM also requires
that whenever a publicly held company experiences a change of control,  the new
controlling  shareholder immediately  must  disclose the  transaction  to the CVM, the
stock  exchange and the  over-the-counter  market in which the  companys securities
trade.

Changes in Capital

Our corporate  capital
 amounts to  R$2,748,650,800  and consists of  828,371,343  common shares and
 1,198,784,187  preferred shares.  There are 1,700,000  preferred  shares that correspond
to a capital amount of R$12.9 million,  which have not been paid in. We intend to reduce
our  corporate  capital by canceling  these shares.  Pursuant to our by-laws,  the board
of directors may increase our corporate  capital up to a maximum amount of
 R$5,000,000,000.00.  This capital  increase may be effected  without amending our
by-laws or obtaining prior shareholder  approval,  and without maintaining the existing
proportion among the classes of shares,  subject to the applicable limitations under
Brazilian law.

Changes to Brazilian
Corporate Law and Rules enacted by CVM

On October 31, 2001,
Law No. 10,303 was passed,  amending the Brazilian  corporate law. In addition,
 throughout 2001 and 2002 CVM enacted new rules that affect Brazilian companies.  As a
result, companies are now required to adhere to the following:

- Disputes among
 shareholders  will be subject to  arbitration if so provided in the by-laws of a company
(our by-laws  provide               that disputes arising or related to (i) our by-laws,
 (ii) rules enacted by CVM,  Bovespa,  the Brazilian Central Bank or               the
Nacional  Monetary Council,  (iii) rules applicable to the Brazilian capital markets or
(iv) the Brazilian  corporate               law shall be subject to  arbitration  which
shall occur in  accordance  with the Market  Arbitration  Chamber  Created by
              Bovespa);

- A tender offer at a
purchase price equal to the fair value for all  outstanding  shares will be required upon
a delisting or a               substantial reduction in liquidity of our shares as a
result of purchases by the controlling  shareholders.  If less than               5% of
all shares issued by us are  outstanding  after the expiration of the offering,  the
 shareholders  may decide at a               general meeting to redeem these shares for
the offering price;

- Non-controlling
 shareholders which represent at least 15% of our voting shares will have the right to
elect one member of the               board of  directors  by  separate  vote,  but only
 until the  annual  general  meeting  to  approve  our 2004  financial
              statements.  This  director  shall be chosen  from a list,  containing
 three  candidates,  prepared  by the  controlling               shareholders.  With
respect to the 2006 annual  general  meeting,  such director shall be elected as set
forth in Law No.               10,303, regardless of the directors mandated term;

- Non-voting,
 non-controlling  shareholders  representing  at least 10% of the total capital stock
will have the right to elect               one member of the board of directors by
separate vote;

- Any sale of control will
require the purchaser to offer to purchase the minority  shareholders  common shares.
 The purchaser               must offer to purchase the common shares for a price equal
to at least 80% (our by-laws  require 100% for both common and               preferred
shares) of the price per share paid to the controlling shareholder;

- Shareholders  will be
entitled  to effect a spin-off  only if it entails a change in the  corporate  purpose,
 a reduction  in               mandatory dividends or the participation in a centralized
group of companies;

- Our controlling
 shareholders,  the shareholders that elect members to our board of directors and audit
committee, the members               of our board of directors and audit  committee  and
our  executive  officers will be required to disclose any purchase or               sale
of our shares to the CVM and the Bovespa;

- The chairman of any
shareholders  meeting,  or board of directors or executive  officers meeting will be
entitled to enforce               the voting provisions of any shareholders agreement
which has been duly filed with Net Serviços; and

- The first and second
calls for shareholders meetings will have to be made fifteen and eight days,
 respectively,  before such               meeting,  except that the Brazilian securities
 commission can also require the first call 30 days before a shareholders              meeting.

Material Contracts

Shareholders Agreement

Our major
 shareholders  are party to a shareholders  agreement with respect to their  ownership
of our shares.  See Item 7. Major  Shareholders  and Related Party  TransactionsMajor
 Shareholders  Shareholders  Agreement for  additional  details about the shareholders agreement.

Net Brasil Programming
Agreement

Historically,  we have
 purchased  all of our  programming  from our  affiliate  Net  Brasil,  which  is  owned
 40% by us and indirectly  owned 60% by Globopar.  On June 27, 2004, we entered into
an amended and restated programming  agreement with Net Brasil whereby Net Brasils role  in  acquiring
 programming  for us has  been  altered.  See  Item  4.  Information  on the  CompanyPay-TelevisionProgramming
Sources  and Item 7. Major  Shareholders  and  Related  Party  TransactionsRelated
 Party  TransactionsMaterial  Transactions  with AffiliatesNet Brasil Programming
Agreement for additional details about the programming agreement with Net Brasil.

Exchange Controls

There are two
principal foreign exchange markets in Brazil:

- the commercial rate
exchange market; and

- the floating rate
exchange market.

Most trade and
 financial  foreign  exchange  transactions  are carried out on the  commercial  rate
 exchange  market.  These transactions  include the purchase or sale of preferred  shares
or the payment of dividends or interest  with respect to the  preferred shares.  Foreign
 currencies may only be purchased  through a Brazilian bank  authorized to operate in
these markets.  In both markets, rates are freely negotiated but may be strongly
 influenced by Central Bank  intervention.  Since February 1, 1995, the floating market
rate has been the same as the  commercial  market  rate.  There is no  guarantee  that
the rates  will  continue  to be the same in the future.  In 1999, the Central Bank
unified the  operational  limits  applicable to both markets.  However,  despite the
 convergence in pricing and liquidity of both markets, each market continues to be
subject to different regulations.

From its  introduction
 on July 1, 1994  through  March 1995,  the real  appreciated  against the U.S.  dollar.
 In 1995,  the Central Bank announced that it would  intervene in the market and buy or
sell U.S.  dollars,  establishing a band in which the exchange rate between the real and
the U.S.  dollar could  fluctuate.  This policy  resulted in a gradual  depreciation  of
the real relative to the U.S.  dollar.  On January 13,  1999,  the band was set at
between  R$1.20 and R$1.32 per  US$1.00.  Two days later,  on January 15, 1999,  due to
market  pressures,  the Central Bank  abolished the band system and allowed the real/U.S.
 dollar  exchange rate to float freely.  As a result,  the exchange  rate dropped to
R$2.1647 per US$1.00 on March 3, 1999.  The exchange  rate  improved over the rest of
1999,  and closed that year at R$1.789 per  US$1.00.  During  2000,  the exchange  rate
 remained  fairly  stable.  Since then,  the exchange rate has  fluctuated  considerably.
 From January 1, 2001 through  December 31, 2001, the real  depreciated  by
 approximately 18.7%.  From January 1, 2002 through  December 31, 2002, the real
 depreciated  by  approximately  52.3%.  From January 1, 2003 through December 31, 2003,
the real  appreciated by approximately  18.2%,  and at March 31, 2004, the commercial
 selling rate was R$2.9086 per US$1.00.  At June 25, 2004, the commercial  selling rate
was R$3.1096 per US$1.00.  The Central Bank has only  intervened  occasionally to control
unstable movements in the foreign exchange rate.

At the  present  time,
 it is not yet  possible  to predict if the  exchange  market  will be  volatile  as a
result of market instability  or other  factors and  therefore  whether the Central Bank
will  continue to let the real float freely or if the real will remain at its  present
 level.  Accordingly,  it is not  possible to predict  what  impact the  Brazilian
 governments  exchange  rate policies may have on us.  The Brazilian government could
impose a band system in the future or the real could devalue substantially.

Dividend Policy

General

Due to our history of
operating  losses,  we have never paid cash dividends on our preferred  shares or our
common shares.  We are a holding  company and our  ability to obtain  funds for the
payment of cash  dividends  depends  entirely on our ability to obtain funds from our
subsidiaries and investees.  In addition, several of our debt agreements limit our
ability to pay dividends.

Our by-laws,  in
accordance with Brazilian  corporate law,  require that, for any year in which we have adjusted
net profits(as defined in Brazilian  corporate law), we will,  subject to certain
 exceptions,  be required to pay a yearly minimum dividend equal to not less than 25% of
adjusted  net  profits,  referred to as the  mandatory  distribution.  We have never
 reported  adjusted  net profits and consequently have never paid the mandatory
 distribution.  We do not anticipate  reporting adjusted net profits in the near term.
 We intend to retain any profits in excess of any  mandatory  distribution  in a
 supplementary  reserve for use in the operation and expansion of our business,  and
therefore we do not  anticipate  paying any dividends in excess of any mandatory
 distribution  for the foreseeable future.

To the extent that we
declare and pay dividends on the preferred  shares,  holders of ADSs on the applicable
 record date will be entitled to any dividend  declared as of such record date in respect
of the preferred  shares  underlying  the ADSs,  subject to the terms of the amended and
restated  deposit  agreement.  We would pay any cash dividend in reais, so that the
exchange rate in effect at the time of payment would determine the dollar value of the
dividend  received by the depositary,  and hence the amount in dollars paid by the
depositary to ADS holders upon the depositarys conversion of the dividend amounts into
U.S. dollars.

Dividends on Our
Common Shares and Our Preferred Shares

In  accordance  with
 Brazilian  corporate  law,  our common and  preferred  shares each carry the right to
receive  mandatory dividends.  The preferred  shares,  however,  carry the right to
receive  dividends in cash, per each preferred  share, of at least 10% more than the
dividend,  which is available to be distributed on each common share.  In addition,  each
preferred share has priority in the  reimbursement  of capital in the event of
liquidation,  without a premium.  The owner of common or preferred shares on the date of
payment of a dividend, as identified in our shareholder register, is entitled to receive
the dividend.

Amounts Available for
Distribution

At each annual general
 shareholders  meeting,  the  shareholders are required to determine how net profits for
the preceding fiscal year are to be  allocated.  The board of directors is then  required
to approve the decision of the  shareholders.  For purposes of  Brazilian  corporate
 law, net profits are defined as net income after  payment of income taxes and social
 contribution  taxes for such fiscal year,  net of any  accumulated  losses from prior
fiscal years and any amounts  allocated to  employees  and  managements participation
 in our profits.  In  accordance  with  Brazilian  corporate  law and our  by-laws,  the
amounts  available  for dividend distribution are the amounts equal to our net profits
less any amounts allocated from such net profits to:

- the legal reserve;

- a contingency reserve for
anticipated losses; and

- an unrealized revenue
reserve.

We are  required  to
 maintain a legal  reserve,  to which we must  allocate  5% of net profits for each
fiscal year until the amount for such reserve equals 20% of our paid-in  capital.
 However,  we are not required to make any allocations to our legal reserve in respect of
any fiscal year in which the legal reserve,  when added to our other  established
 capital  reserves,  exceeds 30% of our capital.  Net losses,  if any, may be charged
 against the legal  reserve.  At December 31, 2003,  the balance of our legal reserve was
R$0, which was equal to 0% of our paid-in capital at December 31, 2003.

Brazilian  corporate
 law also  provides  for two  additional,  discretionary  allocations  of net profits
that are subject to approval by the  shareholders at the annual meeting.  First, a
percentage of net profits may be allocated to a contingency  reserve for anticipated
 losses that are deemed  probable in future years.  Any amount so allocated in a prior
year must be either  reversed in the fiscal year in which the loss was  anticipated  if
such loss does not in fact occur,  or written off in the event that the  anticipated loss
occurs.  Second, if the amount of unrealized revenue exceeds the sum of:

- the legal reserve;

- retained earnings; and

- the contingency reserve
for anticipated losses,

such excess may be
allocated to an unrealized  revenue reserve.  Under Brazilian  corporate law,  unrealized
 revenue is defined as the sum of:

- price-level restatement
of balance sheet accounts;

- the share of equity
earnings of affiliated companies; and

- profits from installment
sales to be received after the end of the next succeeding fiscal year.

With  respect to
 unrealized  revenue  reserve,  effective as of March 5, 2002,  the amount of the
 mandatory  dividend  which exceeds the amount of the  realized net profits of a fiscal
year may be allocated in an  unrealized  revenue  reserve.  For purposes of Brazilian
corporate law, realized revenues shall be considered the amount which exceeds the sum of:

- the net positive result
of equity adjustments; and

- profits or revenues from
operations with financial results after the end of the next succeeding fiscal year.

Under  Brazilian
 corporate  law, the by-laws of any company may authorize the creation of a
 discretionary  reserve.  By-laws which  authorize the allocation of a percentage of a
companys net income to the  discretionary  reserve must also indicate the purpose of the
reserve, criteria for allocation and maximum amount of the reserve.

At December 31, 2003,
we had no investment reserve.

The amounts  available
for  distribution  may be further  increased by a reversion of the contingency  reserve
for anticipated losses  constituted in prior years but not realized,  or further
 increased or reduced as a result of allocations of revenue to or from the  unrealized
 reserve.  The amounts  available for  distribution  are  determined on the basis of
financial  statements  prepared in accordance with Brazilian corporate law.

Mandatory Distribution

Brazilian  corporate
law generally  requires that the by-laws of each Brazilian company specify for each
fiscal year a minimum percentage of net income  available for distribution by the company
in the form of dividends to  shareholders.  Under our by-laws,  the mandatory
 distribution  has been fixed as an amount  equal to not less than 25% of net  income,
 to the extent  that such  amounts are available for distribution.

The mandatory
 distribution is based on a percentage of adjusted net income,  not lower than 25%,
rather than a fixed monetary amount per share.  Brazilian  corporate law,  however,
 permits  publicly held companies,  such as ourselves,  to suspend the mandatory
distribution of dividends if the board of directors and the audit committee report to the
 shareholders  meeting that the distribution would be  inadvisable  in view of the
 companys  financial  condition.  If the board of directors and audit  committee so
report,  the board of directors must file a justification  for such suspension with the
CVM within five days of the shareholders  meeting.  Profits not  distributed  by virtue
of this  suspension  shall be  attributed to a special  reserve and, if not absorbed by
subsequent  losses, shall be paid as dividends as soon as the financial condition of the
company permits such payments.

Payment of Dividends

We are  required by
Brazilian  corporate  law and by our by-laws to hold an annual  shareholders  meeting by
the fourth month after the end of each fiscal year at which,  among other things,  the
 shareholders  must decide whether or not an annual dividend will be paid.  The  payment
of annual  dividends  is based on the  financial  statements  for the  relevant  fiscal
 year.  Under  Brazilian corporate  law,  dividends  are  generally  required to be paid
within 60 days  following  the date the dividend is declared,  unless a shareholders  resolution
 sets forth another date of payment,  which in either case, must occur prior to the end
of the fiscal year in which the dividend is declared.  A  shareholder  has a three-year
 period from the dividend  payment date to claim unpaid  dividends in respect of their
shares.

Our by-laws  permit
us,  upon the  approval  of our board of  directors,  to pay interim  dividends  out of
 pre-existing  and accumulated profits for the preceding fiscal year or semester.

In general,
 shareholders  who are not residents of Brazil must register their Brazilian  investments
with the Central Bank in order to be allowed to receive  dividends,  sales  proceeds or
other  amounts  with  respect to their  foreign  investments  outside of Brazil.  The
preferred  shares  underlying the ADSs are held by Morgan Guaranty Trust Company of New
York, also known as the custodian, as  agent  for  the  depositary  and  is the
 registered  owner  on the  records  of the  registrar  for  our  shares.  The
 depositary electronically  registers the preferred  shares  underlying the ADS with the
Central Bank and,  therefore,  is able to have  dividends, sales proceeds or other
amounts with respect to those shares eligible to be remitted outside Brazil.

Payments of cash
 dividends and  distributions,  if any, will be made in Brazilian  currency to the
custodian on behalf of the depositary,  which  will then  convert  such  proceeds  into
U.S.  dollars  and will cause such U.S.  dollars  to be  delivered  to the depositary for
 distribution to holders of ADSs.  Under current  Brazilian law,  dividends paid to
 shareholders  who are not Brazilian residents,  including holders of ADSs, will not be
subject to Brazilian  withholding income tax, except for dividends declared based on
profits generated prior to December 31, 1995.

Our  preferred  shares
are not  entitled  to receive a fixed or minimum  dividend  and,  therefore,  they are
not  entitled to acquire voting rights, as determined by Brazilian corporate law.

Due to the operating
 losses we have recorded  since our  formation,  as well as to the  limitations  on
dividends  imposed by certain of our debt agreements, we have never paid cash dividends
on our preferred or common shares.

Record of Dividend
Payments and Interest Attributed to Shareholders Equity

Law No. 9,249,  dated
December 26, 1995, as amended,  provides for the  distribution of interest  attributed to
 shareholdersequity to  shareholders  as an alternative  form of payment to
 shareholders.  Such interest is limited to the daily pro rata variation of the TJLP, a
long-term  interest rate that includes an inflation  factor that is reset  quarterly.  We
may treat these  payments as a deductible expense for corporate income tax and social
contribution purposes, but the deduction cannot exceed the greater of:

- 50% of net income
 (before  taking such  distribution  and any  deductions  for income  taxes into
 account) for the period in               respect of which the payment is made; or

- 50% of retained earnings.

Dividend
 distributions  are generally not deductible by us under  Brazilian law.  However,  a
Brazilian  company may elect to treat dividend  distributions as Interest  Distributions,  in
which case such  distributions  will be deductible,  subject to certain limitations.  Any
 payment  of  interest  on  shareholders  equity to  holders of ADSs or  preferred
 shares,  whether or not they are Brazilian  residents,  is subject to Brazilian
 withholding  income tax at the rate of 15% or 25% if the beneficiary is a resident in a
tax haven.  We have not made any such payments to date.

Taxation

Material Brazilian
Taxation Considerations

The following
discussion  summarizes the material Brazilian tax consequences of the acquisition,
 ownership and disposition of ADSs or preferred  shares by a holder that is not domiciled
in Brazil for purposes of Brazilian  taxation,  or a non-Brazilian  Holder. The
 discussion  is based upon  Brazilian  law as currently  in effect;  any change in such
law may change the  consequences  described below.  This  discussion  does  not
 specifically  address  all  of the  Brazilian  tax  considerations  applicable  to any
 particular non-Brazilian  Holder,  and  each  non-Brazilian  Holder  should  consult
 his or her own tax  adviser  concerning  the  Brazilian  tax consequences of an
investment in ADSs or preferred shares.

There is no income tax
treaty between Brazil and the United States.

Taxation of Dividends.
 In general,  dividends paid by Net Serviços to  non-Brazilian  Holders or the Depositary
in respect of the  preferred  shares  underlying  the ADSs out of profits  generated on
or after  January 1, 1996 will not be subject to  withholding income tax in Brazil.
 However,  dividends  paid from  profits  generated  on or before  December  31, 1995 may
be subject to Brazilian withholding tax at varying rates.

Taxation of Gains.
 Brazilian law distinguishes  between,  on the one hand, direct foreign  investments in
Brazilian companies and, on the other hand, foreign  investments in securities issued by
Brazilian  companies through the Brazilian capital markets.  Under Resolution No. 2,689,
which became effective on March 31, 2000,  superseding  previous regulations known as
Annex IV, foreign investors may invest  directly in the  Brazilian  financial  and
capital  markets,  as long as they meet  certain  requirements.  See  Exchange Controls above.

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

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

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

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

Any gains  realized by
a  non-Brazilian  resident upon the  redemption  of preferred  shares will be treated as
gains from the disposition of such preferred shares to a Brazilian  resident  occurring
off of a stock exchange and will accordingly be subject to tax at a rate of 20%, except
for gains realized by a non-Brazilian  resident  located in a jurisdiction  which does
not impose income taxes or which has an income tax rate lower than 20%, in which case
such gain will be subject to tax at a rate of 25%.

Gain is measured  by
the  difference  between  the amount in  Brazilian  currency  realized  on the sale or
 exchange  and the acquisition  cost of the shares sold,  measured in Brazilian  currency
 without any correction for inflation;  the acquisition  cost of shares  registered  as
an  investment  with the  Brazilian  Central  Bank is  calculated  on the basis of the
foreign  currency  amount registered with the Brazilian Central Bank.

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

Any exercise of
preemptive  rights relating to our preferred shares or ADSs will not be subject to
Brazilian  taxation.  Gains on the sale or  assignment  of  preemptive  rights  relating
to our  preferred  shares will be treated  differently  for  Brazilian tax purposes
 depending  on (i) whether the sale or  assignment  is made by the  Depositary  or by the
 shareholder,  and (ii)  whether the transaction  takes place on a Brazilian  stock
 exchange.  Gains on sales or assignments  made by the  Depositary on a Brazilian  stock
exchange are not taxed in Brazil, but gains on other sales or assignments may be subject
to tax at rates up to 20%.

Interest on Capital
 Distributions.  Dividend  distributions  are generally not  deductible  by Net Serviços
 under  Brazilian law. However,  Brazilian  corporations may make payments to
shareholders  characterized as interest on capital,  or interest on capital distributions
 as an alternative  form of making  dividend  distributions  , in which case such a
 distribution  will be deductible for Brazilian  corporate income tax purposes,  subject
to certain  limitations.  Net Serviços  charter does not presently  contemplate the
payment of interest on capital  distributions to shareholders.  If Net Serviços were to
make such an interest on capital  distribution, non-Brazilian  holders  would  incur a
15%  withholding  income tax with  respect to such a  distribution.  Such  withholding
 would be increased to a rate of 25% for any  non-Brazilian  holders that are residents
of a tax-haven  jurisdiction  (i.e.,  jurisdictions  that either have no income tax or in
which the income tax rate is less than 20%).

Other Brazilian Taxes.
 There are no Brazilian  inheritance,  gift or succession  taxes applicable to the
ownership,  transfer or disposition of ADSs or preferred  shares by a  non-Brazilian
 holder except that certain  Brazilian  states may impose such taxes in the case of
 recipients of gifts or  inheritances  who are  domiciliaries  or residents of such
states.  There are no Brazilian  stamp, issue,  registration,  or similar taxes or duties
payable by holders of ADSs or preferred shares.  However,  non-Brazilian holders will be
subjected to the CPMF upon the  withdrawal  of funds from any Brazilian  account in
connection  with the payment of dividends by Net Serviços or the  remittance  from
 Brazil of the  proceeds of the sale of  preferred  shares or of the sale of ADSs in
certain  private transactions with Brazilian residents.  The CPMF is currently imposed at
a rate of 0.38%.

Taxation  of  Foreign
 Exchange   Transactions.   The  conversion  by  a  non-Brazilian  holder  of  Brazilian
 currency  into non-Brazilian  currency is subject to a tax on exchange  transactions
known as IOF/Câmbio.  The rate of this tax is currently zero, but the rate may be
increased by the Minister of Finance to as high as 25%.

Taxation on Bonds and
Securities  Transactions.  IOF/Títulos may be imposed upon the  acquisition,  sale or
other  disposition of preferred shares,  even if such  transactions are performed on the
Brazilian stock exchange.  The rate of this tax is currently zero but may be increased at
the discretion of executive branch.

Documents on Display

Statements  contained
 in this Form 20-F as to the  contents  of any  contract  or other  document  filed as an
exhibit to the registration  statement  summarize their material terms,  but are not
necessarily  complete.  We are also subject to the  informational reporting  requirements
of the Exchange Act, which requires that we file periodic  reports and other  information
 with the Commission. As a foreign  private  issuer,  we file annual reports on Form 20-F
as opposed to Form 10-K. We do not file  quarterly  reports on Form 10-Q but file reports
in relation to material events on Form 6-K.

Our reports and other
 information  filed by us with the  Commission  may be inspected  and copied by the
public at the public reference  facilities  maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024,  Washington,  D.C. 20549 and are also available
for  inspection and copying at the regional  office of the Commission  located at
 Northwestern  Atrium Center,  500 West Madison  Street,  Suite 1400,  Chicago,  Illinois
60661.  Copies of these  materials are also available from the Public  Reference Section
of the Commission at 450 Fifth Street,  N.W.,  Washington,  D.C. 20549 at set rates.  In
addition,  the Commission  maintains a website www.sec.gov where those documents
electronically filed with the Commission may be found.

We furnish  JPMorgan
 Chase Bank, as the depositary of ADSs,  annual reports in English,  which include a
review of operations and annual audited  consolidated  financial  statements prepared
under Brazilian GAAP. We also furnish the depositary six-month reports in English which
include audited semi-annual  consolidated  financial  information prepared under
Brazilian GAAP. Upon our request, the depositary  will promptly mail such reports to all
record holders of ADSs. We also furnish to the depositary,  in English,  all notices of
 shareholders  meetings and other  reports and  communications  that are made  generally
 available to our  shareholders.  Upon our request,  the depositary will make such
notices,  reports and  communications  available to holders of ADSs and will mail to all
record holders of ADSs a notice  containing a summary of the information  contained in
any notice of a shareholders  meeting it receives.  As a foreign  private  issuer,  we
are exempt  from the rules under the  Exchange  Act  prescribing  the  furnishing  and
content of proxy statements.  As a foreign  private  issuer,  we are also exempt from the
rules under the Exchange Act  relating to  short-swing  profit disclosure and liability.

ITEM 11.
     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

We are exposed to
various  market risks,  primarily  related to foreign  exchange  rates.  Market risk is
the  potential  loss arising from adverse changes in the market rates and prices, such as
foreign currency exchange rates and interest rates.

Foreign Exchange Risk

Our foreign currency
exposure gives rise to market risks associated with exchange rate movements against the
U.S. dollar.

A substantial  portion
of our indebtedness  and operating  costs,  including,  to a lesser degree,  our
programming  costs, is denominated in U.S.  dollars.  Substantially  all of our revenues
are denominated in Brazilian  reais.  As a result,  we are exposed to currency  exchange
 risks,  which may adversely  affect our business,  financial  conditions and results of
operations,  as well as our ability to meet our debt service obligations.

The table  below
 provides  information  about our debt  obligation  in U.S.  dollars.  The table
 summarizes  information  on instruments and transactions that are sensitive to foreign
currency exchange rates.

|                                    | As of December 31, 2003(Expected Maturity Date)
|----------------------------------- | -----------------------------------------------
|                                    |                                                
|                                    | (in millions)                                  
|                                    |                                                
|                                    | 2003                                           
|                                    |                                                
|Debt denominated in U.S. dollars    | 221.7                                          
|Debt denominated in Reais           | 128.3                                          
|Total short-term and long-term debt | 349.9                                          

Interest Rate Risk

We have  mitigated
 our exposure to interest  rate  volatility  through the issuance of  indebtedness  that
has fixed rates of interest.  We also attempt to reduce  interest  rate risk by employing
 established  policies and  procedures to manage our exposure to interest rate
 fluctuations.  Nevertheless,  we continue to remain exposed to interest rate  volatility
with respect to any future debt issuances.

The percentages and
amounts of our debt subject to fixed and floating interest rates as of December 31, 2003
were as follows:

|                               | Percentage of total debt | Amount in US$ millions
|------------------------------ | ------------------------ | ----------------------
|                               |                          |                       
|Floating rate debt:           
|Denominated in U.S. dollars    | 35%                      | US$ 124.0             
|Denominated in Brazilian reais | 37%                      | 128.3                 
|                              
|Fixed rate debt:              
|Denominated in U.S. dollars    | 28%                      | 97.7                  
|Total                          | 100%                     | US$ 349.9             

Our  floating
 interest  rate  exposure  is  primarily  subject  to the  variations  of:  (i) LIBOR as
it  relates to the U.S. dollar-denominated  floating rate notes and our IFC facility;
 and (ii) the IGP-M a monthly  inflation  index  published by the Getúlio Vargas
 Foundation as it relates on the majority of the  outstanding  debentures  issued in
Brazil.  On December 31, 2003, the TJLP was fixed at 11.5% per year.  In 2003, the
accumulated IGP-M was 8.7%.

ITEM 12.
     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.



Part II

ITEM 13.
     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

We have not made
scheduled  principal or interest  payments on any of our debt since prior to December
 2002. Our  non-payment of these scheduled principal and interest payments  constitutes
an event of default under these debt facilities and instruments,  which permits,  subject
to applicable  procedural  requirements,  our various  lenders and debt holders to
 accelerate  all amounts due under their  respective debt  facilities and  instruments.
 In December 2002,  Unibanco filed a collection suit against us in the civil court of São
Paulo to  recover  approximately  R$72.2  million  (US$20.4  million)  relating  to
 amounts  outstanding  on a loan made to us. Although this action has been  suspended,
 we cannot assure you that such action will not be  reinstituted or that our other
lenders or debt holders will not seek to  accelerate  amounts  outstanding  under any of
our debt  facilities or  instruments  or seek to exercise legal  remedies  to  enforce
 their  rights  thereunder  or in  accordance  with  Brazilian  law.  See  Item  4.
 Information  on  the CompanyLegal Proceedings and Item 5.  Operating and Financial
Review and ProspectsLiquidity and Capital Resources.

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

Not applicable.

ITEM 15.      CONTROLS
AND PROCEDURES

Our management,
 including our Chief Executive  Officer and our Chief Financial  Officer,  has evaluated
the  effectiveness of our disclosure  controls and  procedures (as defined in Rule
13a-15(e) or 15d-15(e)  under the Exchange Act) and has concluded that our disclosure
 controls and  procedures  are effective as of the end of the period  covered by this
annual report and that there have been no changes in our internal  controls over
financial  reporting (as defined in Rule 13a-15(f) or 15d-15(f)  under the Exchange Act)
that occurred  during the period  covered by this annual  report that have  materially
 affected,  or are  reasonably  likely to  materially affect, our internal control over
financial reporting.

ITEM 16
      [RESERVED]

ITEM 16A.      Audit
Committee Financial Expert

We are not  currently
 required  to, and  currently  do not,  maintain a  permanent  audit  committee.
 However,  the board of directors has agreed to create such a permanent  audit
 committee.  Until this process is  finalized,  our entire board of directors is acting
in the capacity of the audit committee.

Once the audit
 committee is established, it will have at least one member that will
qualify as the audit  committee  financial  expert, as defined in
Item 16A of Form 20-F under the Exchange Act.

ITEM 16B.    Code of
Ethics

We  presently  have a
code of ethics that applies to all of our  employees.  We do not  currently  have a code
of ethics which applies  specifically  to our principal  executive  officer,  principal
 financial  officer,  and principal  accounting  officer and/or controller,  or persons
 performing  similar  functions.  However,  we are in the process of compiling  such a
code of ethics that will comply with the  requirements  of both U.S. and  Brazilian  law.
We plan to implement  this code of ethics in the current  fiscal year. Once implemented,
the code of ethics will appear on our website at www.ir.netservicos.com.br.

ITEM 16C.    Principal
Accountant Fees and Services

Ernst & Young
 Auditores  Independentes  S.S.  acted as our  independent  auditor for the years 2003
and 2002. The chart below sets forth the fees for services  performed by Ernst & Young
Auditores  Independentes S.S. for those years (including related expenses) and breaks
down the amounts by category of service in U.S. dollars in historical amounts:

|                   | Total Fees    
|------------------ | --------------
|                   |               
|                   | (in thousands)
|                   |               
|                   | 2003          
|                   |               
|Audit-Fees         | 504.3         
|Audit-Related Fees | 281.8         
|Tax Fees           | 7.6           
|All Other Fees     | -             
|Total              | 793.7         

Audit Fees

Audit fees in the
above table are in the aggregate  fees billed by Ernst & Young  Auditores  Independentes
 S.S. in connection with the audit of our annual financial statements and review of our
quarterly financial information.

Audit-Related Fees

Audit-related  fees in
the above table are in the  aggregate  fees billed by Ernst & Young  Auditores
 Independentes  S.S. for providing  assistance  to  management  in  documenting  internal
 controls  policies and  procedures  over  financial  reporting.  This assistance was
part of a management led project and was specifically approved by our board of directors.

Tax Fees

Tax  fees in the
 above  table  are in the  aggregate  fees  billed  by Ernst & Young  Auditores
 Independentes  S.S.  for tax compliance.

All Other Fees

We did not incur any
other fees.

Pre-Approval Policies
and Procedures

Our board of directors
has established  pre-approval policies and procedures for the engagement of its independent
 auditors for audit and non-audit services.

The board of directors
reviews the scope of the services to be provided,  before their  commencement,  in order
to ensure that there are no independence issues and the services are not prohibited
services as defined by the Sarbanes-Oxley Act of 2002.



Part III

ITEM 17.
     FINANCIAL STATEMENTS

See Item 18.
 Financial Statements.

ITEM 18.
     FINANCIAL STATEMENTS

The  following
 financial  statements  are filed as part of this  Form  20-F,  together  with the
 report  of the  Independent Registered Public Accounting Firm.

|Net Serviços de Comunicação S.A. Consolidated Financial Statements                         | Page
|------------------------------------------------------------------------------------------ | ----
|                                                                                          
|Report of Independent Registered Public Accounting Firm                                    | F-1 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                               | F-2 
|Consolidated Statements of Operations for the Years Ended December 2003, 2002 and 2001     | F-4 
|Consolidated Statements of Changes in Capital Deficiency (Stockholders Equity) and       
|Comprehensive loss for the Years Ended December 31, 2003, 2002 and 2001                    | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001 | F-6 
|Notes to Consolidated Financial Statements                                                 | F-7 

ITEM 19.      EXHIBITS

|Exhibit  Number | Description
|--------------- | -----------

|1.1 | By-laws
of Net Serviços de  Comunicação  S.A.,  as amended on October 30, 2002,  together with an
                    English-language   translation  thereof   (incorporated  by
 reference  to  Exhibit  1.1  of  the                     Registrants  annual  report on
Form 20-F (No.  0-28860)  for the Fiscal Year ended  December 31,
                    2002, filed with the U.S. Securities and Exchange Commission).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.1 | Indenture,
 dated as of June 18,  1996,  among  Multicanal  Participações  S.A.  (predecessor  in
                    interest to Net Serviços de  Comunicaçâo  S.A.),  as Issuer,  the
Guarantors  named  therein,  as                     Guarantors,  and The Chase  Manhattan
 Bank N.A.,  as Trustee,  with  respect to Net  Serviços de                     Comunicação
 S.A.s issuance of its US$185 million Senior Guaranteed Notes due 2004 (incorporated
                    by reference to Exhibit 2.1 of the Registrants  annual report on
Form 20-F (No. 0-28860) for the                     fiscal year ended December 31, 2001,
filed with the U.S. Securities and Exchange Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Indenture,
 dated as of October  31,  1997,  among Net Sul TV a Cabo e  Participações  Ltda.,  as
                    Issuer,  the Guarantors  named therein,  as Guarantors,  The Chase
 Manhattan  Bank, New York, as                     Trustee,  The Chase Manhattan Bank,
New York, as Registrar and Paying Agent,  The Chase Manhattan                     Bank,
London Branch, as Transfer Agent,  Calculation Agent and Paying Agent, Chase Manhattan
Bank                     Luxembourg,  S.A., as Paying Agent, and Chase Trust Bank, as
Principal Paying Agent (incorporated                     by reference to Exhibit 2.2 of
the Registrants  annual report on Form 20-F (No. 0-28860) for the
                    Fiscal Year ended December 31, 2002, filed with the U.S. Securities
and Exchange Commission).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 | First
 Supplemental  Indenture,  dated as of December 18,  1998,  to the  Indenture,  dated as
of                     October  31,  1997,  among  Net Sul  Comunicações  S.A.  (formerly
 known  as Net Sul TV a Cabo e                     Participações  Ltda.),  as Issuer,
 the  Guarantors  named  therein,  as Guarantors and The Chase
                    Manhattan Bank, as Trustee  (incorporated by reference to Exhibit 2.3
of the Registrants  annual                     report on Form 20-F (No.  0-28860) for
the Fiscal Year ended  December  31, 2002,  filed with the                     U.S.
Securities and Exchange Commission).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.4 | Second
 Supplemental  Indenture,  dated as of August  30,  2000,  to the  Indenture,  dated as
of                     October 31, 1997, as amended and restated on December 18, 1998,
among Net Sul  Comunicações  S.A.                     (formerly  known as Net Sul TV a
Cabo e Participações  Ltda.),  as Issuer,  the Guarantors  named
                    therein,  as Guarantors and The Chase  Manhattan Bank, as Trustee
 (incorporated  by reference to                     Exhibit 2.4 of the  Registrants
 annual  report on Form 20-F (No.  0-28860)  for the Fiscal Year
                    ended December 31, 2002, filed with the U.S. Securities and Exchange
Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.5 | Third
 Supplemental,  dated as of October 31,  2000,  to the  Indenture,  dated as of October
31,                     1997,  as amended and  restated on December  18, 1998 and further
 supplemented  as of August 30,                     2000,  among  Net Sul  Comunicações
 S.A.  (formerly  known as Net Sul TV a Cabo e  Participações                     Ltda.),
 as Issuer the Guarantors  named therein,  as Guarantors and The Chase Manhattan Bank, as
                    Trustee  (incorporated by reference to Exhibit 2.5 of the Registrants
annual report on Form 20-F                     (No.  0-28860) for the Fiscal Year ended
 December 31, 2002,  filed with the U.S.  Securities and                     Exchange
Commission).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.6 | Fourth
 Supplemental,  dated as of October 31, 2000,  to the  Indenture,  dated as of October
31,                     1997,  as amended and  restated on December  18, 1998 and further
 supplemented  as of August 30,                     2000 and October 31, 2000 among Net
Sul Comunicações S.A.  (formerly known as Net Sul TV a Cabo e
                    Participações  Ltda.),  as Issuer,  the  Guarantors  named  therein,
 as Guarantors and The Chase                     Manhattan Bank, as Trustee
 (incorporated by reference to Exhibit 2.6 of the Registrants  annual
                    report on Form 20-F (No.  0-28860) for the Fiscal Year ended
 December  31, 2002,  filed with the                     U.S. Securities and Exchange
Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.7 | Letter
 Agreement,  dated as of August 28, 2003, among Net Sul Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.8 | Letter
Agreement,  dated as of January 13, 2004, among Net Sul Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.9 | Letter
 Agreement,  dated as of April 13, 2004, among Net Sul  Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.10 | Form
of Commitment Letter among Net Serviços de Comunicação S.A. and its creditor.
|---- | ----------------------------------------------------------------------------------

|4.1 | Shareholders   Agreement,
  dated  as  of  July  11,  2002,  among  Distel  Holding  S.A.,  Roma
                    Participações  Ltda.,  Bradesplan  Participações S.A., BNDES Participações
S.A.,  Microsoft B.V.,                     RBS Participações  S.A., Zero Hora Editora
 Jornalistica S.A., and,  furthermore,  as Intervening                     Parties,  Net
Serviços de Comunicação S.A.s,  Globo Comunicações e Participações S.A., Bradespar
                    S.A.  and  Microsoft   Corporation,   together  with  an
 English-language   translation  thereof                     (incorporated  by reference
to Exhibit 4.1 of the  Registrants  annual  report on Form 20-F (No.
                    0-28860)  for the Fiscal  Year ended  December  31,  2002,  filed
 with the U.S.  Securities  and                     Exchange Commission).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | Programming
Agreement (Contrato de Comissão),  dated as of June 27, 2004, between Net Brasil S.A.
                    and Net Serviços de Comunicaçâo S.A.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 | Protocol
 of  Recapitalization  of Globo  Cabo S.A.,  dated as of April 10,  2002,  among  Distel
                    Holding S.A.,  Globo  Comunicações e Participações  S.A., Roma
 Participações  Ltda.,  Globo Cabo                     S.A., Bradesplan  Participações
S.A., Bradespar S.A., RBS Participações S.A., BNDES Participações
                    S.A., and, as intervening  consenting party, Net Brasil S.A.,
 together with an  English-language                     translation  thereof
 (incorporated by reference to Exhibit 4.6 of the Registrants annual report
                    on Form 20-F (No.  0-28860)  for the fiscal year ended  December  31,
 2001,  filed with the U.S.                     Securities and Exchange Commission).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 | First
 Amendment to the Protocol of  Recapitalization  of Globo Cabo S.A.,  dated as of April
30,                     2002,  among Distel Holding S.A.,  Globo  Comunicações e Participações
 S.A., Roma  Participações                     Ltda., Globo Cabo S.A.,  Bradesplan
 Participações S.A.,  Bradespar S.A., RBS Participações S.A.,                     BNDES
 Participações  S.A., and, as intervening  consenting party, Net Brasil S.A., together
with                     an  English-language  translation  thereof  (incorporated  by
 reference  to  Exhibit  4.7 of the                     Registrants  annual  report on
Form 20-F (No.  0-28860)  for the fiscal year ended  December 31,
                    2001, filed with the U.S. Securities and Exchange Commission).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 | Second
 Amendment  to the  Protocol  of  Recapitalization  of Net  Serviços de  Comunicaçâo
 S.A.                     (formerly  Globo  Cabo  S.A.),  dated as of June 14,  2002,
 among  Distel  Holding  S.A.,  Globo                     Comunicações e Participações
 S.A., Roma  Participações  Ltda., Net Serviços de Comunicaçâo S.A.,
                    Bradesplan  Participações S.A., Bradespar S.A., RBS Participações
S.A., BNDES Participações S.A.,                     and,  as  intervening  consenting
 party,  Net Brasil  S.A.,  together  with an  English-language
                    translation  thereof  (incorporated by reference to Exhibit 4.8 of
the Registrants annual report                     on Form 20-F (No.  0-28860)  for the
fiscal year ended  December  31,  2001,  filed with the U.S.
                    Securities and Exchange Commission).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8.1 | List
of Net Serviços de Comunicação S.A.s Subsidiaries.
|--- | --------------------------------------------------------

|12.1 | Certification
 of  Francisco  Tosta  Valim  Filho,  Chief  Executive  Officer of Net  Serviços de
                    Comunicação S.A., pursuant to 15 U.S.C.  Section 78(m), as adopted
pursuant to Section 302 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 | Certification
of Leonardo  Porciúncula Gomes Pereira,  Chief Financial Officer of Net Serviços de
                    Comunicação S.A., pursuant to 15 U.S.C.  Section 78(m), as adopted
pursuant to Section 302 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.1 | Certification
 of  Francisco  Tosta  Valim  Filho,  Chief  Executive  Officer of Net  Serviços de
                    Comunicação S.A.,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to Section 906 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 | Certification
of Leonardo  Porciúncula Gomes Pereira,  Chief Financial Officer of Net Serviços de
                    Comunicação S.A.,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to Section 906 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We hereby agree to
furnish to the Securities  and Exchange  Commission  copies of any of our other long term
debt  instruments and agreements as the Commission requests.



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.

| | NET SERVIÇOS DE COMUNICAÇÃO S.A.        
| | ----------------------------------------
|
|
| | /s/ Francisco Tosta Valim Filho         
| |                                         
| | Name: Francisco Tosta Valim Filho       
| | Title: Chief Executive Officer          
|
|
| | /s/ Leonardo Porciúncula Gomes Pereira  
| |                                         
| | Name: Leonardo Porciúncula Gomes Pereira
| | Title: Chief Financial Officer          

Date:   June 30, 2004





NET SERVIÇOS DE COMUNICAÇÃO
S.A.

[Financial to be
attached.]



NET SERVIÇOS DE COMUNIÇÃO
S.A.

CONSOLIDATED FINANCIAL
STATEMENTSYears
ended December 31, 2003, 2002 and 2001

Contents

|Report of Independent Auditors                                                                                                                             | F-1
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ---
|                                                                                                                                                          
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                                                                               | F-2
|Consolidated Statements
 of Operations for the Years ended December 2003, 2002 and 2001                                                                    | F-4
|Consolidated Statements of Changes in Capital Deficiency (Stockholders Equity) and Comprehensive Loss for the Years ended December 31, 2003, 2002 and 2001 | F-5
|Consolidated Statements of Cash Flows
for the Years ended December 31, 2003, 2002 and 2001                                                                 | F-6
|Notes to Consolidated Financial Statements                                                                                                                 | F-7



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
and Stockholders ofNet Serviços de Comunicação S.A.

We have audited the
 accompanying  consolidated  balance sheets of Net Serviços de Comunicação S.A. and
subsidiaries as of December 31, 2003 and 2002, and the related consolidated  statements
of operations,  changes in capital deficiency  (stockholders equity), and cash flows for
each of the three years in the period ended  December 31, 2003.  These  financial
 statements are the  responsibility  of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.

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

In our opinion,  the
financial  statements  referred to above present fairly,  in all material  respects,  the
 consolidated  financial position of Net Serviços de Comunicação  S.A. and  subsidiaries
 at December 31, 2003 and 2002, and the  consolidated  results of their operations  and
their cash flows for each of the three years in the period ended  December 31, 2003 in
conformity  with U.S.  generally accepted accounting principles.

The  accompanying
 financial  statements  have been prepared  assuming that Net Serviços de  Comunicação
 S.A. will continue as a going concern.  As more fully described in Note 1, the Company
has incurred recurring  operating losses and has a working capital deficiency. In
addition,  the Company has not complied with certain  covenants of debt agreements.
 These conditions raise  substantial doubt about the Companys ability to continue as a
going concern.  Managements  plans in regard to these matters are also described in Note
1. The financial  statements do not include any adjustments to reflect the possible
future effects on the  recoverability  and  classification of assets or the amounts and
classification of liabilities that may result from the outcome of this uncertainty.

As discussed  in Notes
3 and 6 to the  accompanying  consolidated  financial  statements,  the Company  adopted
 Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets
effective January 1, 2002.

ERNST & YOUNG                                                     Auditores
Independentes S.S.                                                             2SP015199/O-6

Pedro L. Siqueira Farah                                                                Partner

São Paulo, BrazilFebruary
20, 2004



NET SERVIÇOS DE COMUNIÇÃO
S.A.

CONSOLIDATED BALANCE
SHEETS
                                                                                                            December
31, 2003 and 2002
                                                                                     (Expressed
in thousands of United States dollars, except share amounts)

|                                                                                                                          |     | 2003    |  | **** | 2002   
|------------------------------------------------------------------------------------------------------------------------- | --- | ------- |  | ---- | -------
|                                                                                                                          |     |         | 
|Assets                                                                                                                    |     | ****    |  |      |        
|Current assets                                                                                                            |     | ****    |  |      |        
|Cash and cash equivalents                                                                                                 | US$ | 68,811  |  | US$  | 15,755 
|Trade accounts receivable, net of allowance for
        doubtful accounts of $ 14,951 in 2003 and
        $11,916 in 2002 |     | 36,054  |  | **** | 29,612 
|Recoverable income taxes                                                                                                  |     | 5,134   |  | **** | 2,389  
|Prepaid expenses and other assets                                                                                         |     | 3,491   |  | **** | 4,794  
|                                                                                                                          |     |         | 
|Total current assets                                                                                                      | US$ | 113,490 |  | US$  | 52,550 
|****                                                                                                                      |     |         |  | **** |        
|Property and equipment, net                                                                                               |     | 374,724 |  | **** | 349,914
|Investments and advances to equity investees                                                                              |     | 2,403   |  | **** | 857    
|Goodwill on acquisition of consolidated subsidiaries, net                                                                 |     | 268,639 |  | **** | 221,687
|Judicial deposits                                                                                                         |     | 23,751  |  | **** | 14,470 
|Deferred and recoverable income taxes                                                                                     |     | 10,882  |  | **** | 3,437  
|Other non-current assets                                                                                                  |     | 7,802   |  | **** | 1,552  
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     | ****    |  | **** |        
|****                                                                                                                      |     |         | 
|Total assets                                                                                                              | US$ | 801,691 |  | US$  | 644,467
|                                                                                                                          |     |         | 



|                                                                                                                                                 |      | 2003        | **** | **** | 2002       
|------------------------------------------------------------------------------------------------------------------------------------------------ | ---- | ----------- | ---- | ---- | -----------
|                                                                                                                                                 |      |             |     
|Liabilities and capital deficiency (stockholders' equity)                                                                                        |      | ****        |      | **** |            
|Current liabilities                                                                                                                              |      | ****        |      | **** |            
|Trade accounts payable                                                                                                                           | US$  | 20,478      |      | US$  | 25,785     
|Accounts payable to programmers, principally withrelated parties                                                                                 | **** | 56,075      |      |      | 51,060     
|Income taxes payable                                                                                                                             |      | 2,918       |      |      | 201        
|Sales taxes                                                                                                                                      |      | 12,116      |      |      | 13,586     
|Payroll and related charges                                                                                                                      |      | 9,884       |      |      | 5,680      
|Debt                                                                                                                                             |      | 349,932     |      |      | 323,748    
|Deferred revenue                                                                                                                                 |      | 16,713      |      |      | 14,846     
|Interest and other financial charges payable                                                                                                     |      | 107,583     |      |      | 39,765     
|Accrued expenses and other liabilities                                                                                                           |      | 6,523       |      |      | 3,283      
|                                                                                                                                                 |      |             |     
|Total current liabilities                                                                                                                        | US$  | 582,222     |      | US$  | 477,954    
|Non-current liabilities                                                                                                                          |      | ****        |      | **** |            
|Accounts payable to programmers, including $ 12,851with related parties                                                                          |      | 16,051      |      |      | -          
|Due to related companies                                                                                                                         |      | 2,063       |      | **** | 2,111      
|Deferred sign-on, hook-up fee and programming benefit                                                                                            |      | 23,899      |      |      | 19,980     
|Reserve for contingencies                                                                                                                        |      | 175,883     |      |      | 100,729    
|Accrued expenses and other liabilities                                                                                                           |      | 4,464       |      |      | 7,443      
|                                                                                                                                                 |      |             |     
|Total non-current liabilities                                                                                                                    | US$  | 222,360     |      | US$  | 130,263    
|                                                                                                                                                 |      |             |     
|Total liabilities                                                                                                                                | US$  | 804,582     |      | US$  | 608,217    
|                                                                                                                                                 |      |             |     
|Commitments and contingencies                                                                                                                    |      | ****        |      | **** |            
|                                                                                                                                                 |      | ****        |      | **** |            
|Capital deficiency (stockholders' equity)Preferred stock, no par value, shares authorized,issued and outstanding (2003 and 2002 - 1,198,784,187) | **** | 1,493,279   |      | **** | 1,493,279  
|Common stock, no par value, shares issued and
        outstanding (2003 and 2002 - 828,371,343)                                                  | **** | 811,737     |      | **** | 811,737    
|Additional paid-in capital                                                                                                                       |      | 15,027      |      | **** | 10,357     
|Accumulated deficit                                                                                                                              |      | (2,092,032) |      | **** | (2,046,629)
|Accumulated other comprehensive loss, net                                                                                                        |      | (230,902)   |      | **** | (232,494)  
|                                                                                                                                                 |      |             |     
|Total capital deficiency (stockholders' equity)                                                                                                  | US$  | (2,891)     |      | US$  | 36,250     
|                                                                                                                                                 |      |             |     
|Total liabilities and capital deficiency (stockholders' equity)                                                                                  | US$  | 801,691     |      | US$  | 644,467    
|                                                                                                                                                 |      |             |     

See notes to consolidated financial statements.

Net Serviços de Comunicação
S.A.

CONSOLIDATED STATEMENTS
OF OPERATIONS
(Expressed
in thousands of United States dollars, except per share and share amounts)

|                                                                                                                                               | Years Ended December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------
|                                                                                                                                               |                         
|                                                                                                                                               | ****                    
|Revenue                                                                                                                                        |                         
|Subscriptions                                                                                                                                  | US$                     
|Telecommunication services                                                                                                                     | ****                    
|Pay-per-view                                                                                                                                   | ****                    
|Sign-on and hook-up fees                                                                                                                       | ****                    
|Other services                                                                                                                                 | ****                    
|                                                                                                                                               |                         
|Total revenue                                                                                                                                  | ****                    
|Taxes and other deductions from revenues                                                                                                       | ****                    
|                                                                                                                                               |                         
|Net operating revenue                                                                                                                          | ****                    
|Programming and other operating costs of which 
        US$135,647 relates to programming (US$144,542
        in 2002 and US$ 152,941 in 2001) | ****                    
|Selling, general and administrative expenses                                                                                                   | ****                    
|Depreciation and amortization                                                                                                                  | ****                    
|Impairment of goodwill                                                                                                                         | ****                    
|Other                                                                                                                                          | ****                    
|                                                                                                                                               |                         
|Total operating costs and expenses                                                                                                             | ****                    
|                                                                                                                                               |                         
|Operating income (loss)                                                                                                                        | ****                    
|                                                                                                                                               |                         
|Other income (expenses)                                                                                                                        | ****                    
|Monetary indexation, net                                                                                                                       | ****                    
|Gain (loss) on exchange rate, net                                                                                                              | ****                    
|Interest expense                                                                                                                               | ****                    
|Financial expense, net                                                                                                                         | ****                    
|Interest income                                                                                                                                | ****                    
|Other                                                                                                                                          | ****                    
|                                                                                                                                               |                         
|Total other expenses, net                                                                                                                      | ****                    
|                                                                                                                                               |                         
|Loss before equity in results of investees                                                                                                     | ****                    
|Equity in losses of investees                                                                                                                  | ****                    
|                                                                                                                                               |                         
|Loss before income taxes and cumulative
        effect of accounting change                                                                    |                         
|Income tax expense                                                                                                                             | ****                    
|                                                                                                                                               |                         
|Loss before cumulative effect of accounting
        change                                                                                     |                         
|Cumulative effect of accounting change                                                                                                         |                         
|                                                                                                                                               |                         
|Net loss                                                                                                                                       | US$                     
|                                                                                                                                               |                         
|Basic and diluted loss per share before
        cumulative effect of accounting change                                                         | US$                     
|                                                                                                                                               |                         
|Cumulative effect of accounting change                                                                                                         | US$                     
|                                                                                                                                               |                         
|Net loss per share, basic and diluted                                                                                                          | US$                     
|                                                                                                                                               |                         
|Weighted average number of common
        and preferred shares outstanding                                                                     | ****                    
|                                                                                                                                               |                         

See notes to
consolidated financial statements.



CONSOLIDATED STATEMENTS
OF CHANGES IN CAPITAL DEFICIENCY (STOCKHOLDERS EQUITY) AND COMPREHENSIVE LOSS
                                                                                                   Years
Ended December 31, 2003, 2002 and 2001
                                                                                      (Expressed
in thousands of United States dollars, except share amounts)

|                                                                   |                         |             |               |           |                            |         |               
|------------------------------------------------------------------ | ----------------------- | ----------- | ------------- | --------- | -------------------------- | ------- | --------------
|****                                                               | Number of shares issued | ****        | Capital stock | ****      | Additional paid-in capital | ****    | Unpaid capital
|                                                                   |                         |             |               |           |                            |         |               
|****                                                               | Common                  | Preferred   |               | Preferred |                            | Common  |               
|                                                                   |                        
|Balance at December 31, 2000                                       | 157,953,841             | 121,189,144 | US$           | 1,259,943 | US$                        | 652,455 | US$           
|                                                                   |                         |             |               |           |                            |         |               
|Deferred stock compensation                                        | -                       | -           |               | -         |                            | -       |               
|Conversation of debentures                                         | 1,982,301               | -           |               | 12,565    |                            | -       |               
|Change in cumulative translation adjustment for the year           | -                       | -           |               | -         |                            | -       |               
|Net loss for the year                                              | -                       | -           |               | -         |                            | -       |               
|                                                                   |                        
|Balance at December 31, 2001                                       | 159,936,142             | 121,189,144 | ****          | 1,272,508 | ****                       | 652,455 | ****          
|                                                                   |                         |             |               |           |                            |         |               
|Amortization of compensation cost of employees stock purchase plan | -                       | -           |               | -         |                            | -       |               
|August 9, 2002 activities                                          |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               
|Capitalization of advances made for future capital                 | 23,645,241              | 352,012,573 |               | 5,524     |                            | 82,235  |               
|Conversation of debentures, net of issuance costs                  | 293,004,176             | -           |               | 67,297    |                            | -       |               
|Capital contribution, net of issuance costs                        | 198,909,005             | 75,893,597  |               | 43,452    |                            | 14,244  |               
|Capitalization of programming credits due to shareholders          | -                       | 3,193,830   |               | -         |                            | 746     |               
|                                                                   |                        
|                                                                   | 515,558,422             | 431,100,000 |               | 116,273   |                            | 97,225  |               
|August 19,2002 activities                                          |                         |             |               |           |                            |         |               
|Capitalization of advances made for future capital                 | 37,811,449              | 276,082,012 |               | 8,499     |                            | 62,057  |               
|Conversation of debentures, net of issuance costs                  | 229,591,244             | -           |               | 51,607    |                            | -       |               
|Capitalization of programming credits due to shareholders          | 221,691,214             | -           |               | 49,832    |                            | -       |               
|                                                                   |                        
|                                                                   | 489,093,907             | 276,082,012 |               | 109,938   |                            | 62,057  |               
|September 25, 2002 activities                                      |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               
|Capitalization of advances made for future capital                 | 35,872,799              | -           |               | 6,740     |                            | -       |               
|Capital contribution, net of issuance costs                        | 22,917                  | 187         |               | 3         |                            | -       |               
|                                                                   |                        
|                                                                   | 35,895,716              | 187         |               | 6,743     |                            | -       |               
|                                                                   |                         |             |               |           |                            |         |               
|Treasury stock repurchase                                          | (1,700,000)             | -           |               | (12,183)  |                            | -       |               
|Change in cumulative translation adjustment for the year           | -                       | -           |               | -         |                            | -       |               
|Net loss for the year                                              | -                       | -           |               | -         |                            | -       |               
|                                                                   |                        
|Balance at December 31, 2002                                       | 1,198,784,187           | 828,371,343 | US$           | 1,493,279 | US$                        | 811,737 | US$           
|                                                                   |                         |             |               |           |                            |         |               
|Tax benefit of transactions with stockholders                      | -                       | -           |               | -         |                            |         |               
|Change in cumulative translation adjustment for the year           | -                       | -           |               | -         |                            |         |               
|Net loss for the year                                              | -                       | -           |               | -         |                            |         |               
|                                                                   |                        
|Balance at December 31, 2003                                       | 1,198,784,187           | 828,371,343 | US$           | 1,493,279 | US$                        | 811,737 | US$           
|                                                                   |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               
|Net loss for the year                                              |                         |             |               |           |                            |         |               
|Cumulative translation adjustments                                 |                         |             |               |           |                            |         |               
|****                                                               |                         |             |               |           |                            |         |               
|Total comprehensive loss                                           |                         |             |               |           |                            |         |               
|                                                                   |                         |             |               |           |                            |         |               

See notes to
consolidated financial statements.



NET SERVIÇOS DE COMUNICAÇÃO
S.A.

CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Expressed in thousands of
United States dollars)

|                                                               | Years Ended December 31,
|-------------------------------------------------------------- | ------------------------
|                                                               |                         
|                                                               | 2003                    
|                                                               |                         
|Operating activities                                          
|Net loss for the year                                          | US$  (45,403)           
|Adjustments to reconcile net loss                             
|to net cash provided by operating activities:                 
|Deferred sign-on and hook-up fee revenues                      | 1,187                   
|Amortization of deferred sign-on and hook-up fee revenues      | (4,444)                 
|Equity in losses of investees                                  | 580                     
|Non-cash compensation expense                                  | 228                     
|Exchange losses, monetary indexation and interest expense, net | 58,149                  
|Depreciation and amortization                                  | 66,183                  
|Impairment of goodwill                                         | -                       
|Deferred income taxes                                          | (7,665)                 
|Tax benefit of transaction with stockholders                   | 4,670                   
|Cumulative effect of accounting change                         | -                       
|Result on write off and disposal of assets, net                | 1,776                   
|Amortization of stock purchase plan compensation cost          | -                       
|Contingencies additions                                        | 26,303                  
|(Increase) decrease in operating assets                       
|Trade accounts receivable                                      | 151                     
|Income taxes recoverable                                       | (1,028)                 
|Prepaid expenses and other assets                              | (13,953)                
|Increase (decrease) in operating liabilities                  
|Accounts payable to suppliers and programmers                  | (8,889)                 
|Income taxes payable                                           | 2,523                   
|Payroll and related charges                                    | 2,546                   
|Sales taxes, accrued expenses and other liabilities            | (7,456)                 
|Reserve for contingencies                                      | (11,828)                
|                                                               |                         
|Net cash provided by operating activities                      | 63,630                  
|                                                               |                         
|Investing activities                                          
|Acquisition of investments                                    
|and advances to related companies, net of repayments           | (1,180)                 
|Acquisition of property and equipment                          | (22,827)                
|Proceeds from sale of equipment                                | 4,567                   
|                                                               |                         
|Net cash used in investing activities                          | (19,440)                
|                                                               |                         
|Financing activities                                          
|Short-term debt                                               
|Issuances                                                      | 37                      
|Repayments                                                     | (86)                    
|Long-term debt                                                
|Issuances                                                      | -                       
|Repayments                                                     | -                       
|Related party loans                                           
|Issuances                                                      | 16                      
|Repayments                                                     | (6)                     
|Capital contributions in cash                                  | -                       
|                                                               |                         
|Net cash (used) provided by financing activities               | (39)                    
|                                                               |                         
|Effect of exchange rate changes on cash and cash equivalents   | 8,905                   
|                                                               |                         
|Net increase (decrease) in cash and cash equivalents           | 53,056                  
|Cash and cash equivalents at beginning of the year             | 15,755                  
|                                                               |                         
|Cash and cash equivalents at end of the year                   | US$  68,811             
|                                                               |                         
|Supplemental disclosure of cash flow information              
|Cash paid for income taxes                                     | US$  510                
|Cash paid for interest                                         | US$  -                  

See notes to
consolidated financial statements.



NET SERVIÇOS DE COMUNICAÇÃO
S.A.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
                                                                                                   Years
ended December 31, 2003, 2002 and 2001
                                                                                                (Expressed
in thousands of United States dollars)

1.     Business
Overview and Financial Condition

Net Serviços de
Comunicação S.A. and its subsidiaries  referred to as Net Serviços or the Company is
a publicly held corporation  organized under the laws of Brazil. The Company controls a
group of cable  subscription  television          companies.  The Company is the leading
cable television  Multiple System Operator (MSO) in Brazil. Net Serviços shares are
traded at the São Paulo and Madrid Stock Exchanges,  and Net Serviços American
 Depositary Share receipts or          ADS  are traded on the NASDAQ National Market.

Pursuant to a
 shareholders  agreement of July 11, 2002, the Company is controlled,  jointly with
BNDESPAR,  Bradesplan,  RBS, Roma  Participações  Ltda.  (Romapar) and Distel Holding
S.A.  Romapar and Distel are controlled by Globo          Comunicações e Participações
S.A. (Globopar), an investment company part of the largest media and entertainment group
in Brazil. The following table sets forth the interest in the Companys common voting
capital in 2003 and 2002:

|Distel Holding S.A.           | 31.0%
|----------------------------- | -----
|Roma Participações Ltda.      | 36.2%
|Bradesplan Participações S.A. | 15.8%
|BNDES Participações S.A.      | 8.4% 
|RBS Participações S.A.        | 6.8% 
|Public                        | 1.8% 

The Company and its
subsidiaries  provide cable  television,  high-speed  Internet access and data
transmission  services through several cable networks located in the countrys  largest
cities.  The Company holds 46 licenses to operate          pay-television  systems in 44
cities.  Since February 1997, the licenses are issued on a  non-exclusive  basis by
Anatel,  the national  communication  agency for a term of 15 years,  automatically
 renewable,  subject to fulfillment of          technical and financial requirements,
compliance with applicable laws and regulations and payment of a fee.

The Company holds the
following direct and indirect subsidiaries in percentage of participation - % at December
31:

|                                                            | 2003   | 2002    
|----------------------------------------------------------- | ------ | --------
|                                                            |       
|                                                            | Direct | Indirect
|                                                            |       
|Consolidated entities                                      
|Multicanal Telecomunicações S.A.                            | 86.00  | 14.00   
|Net Belo Horizonte Ltda.                                    | 100.00 | -       
|TV Vídeo Cabo de Belo Horizonte S.A.                        | 100.00 | -       
|CMA Participações S.A.                                      | 50.60  | 46.60   
|Dabny, LLC                                                  | 99.99  | 0.01    
|Jonquil Ventures Ltd.                                       | 100.00 | -       
|Net Brasília Ltda.                                          | 100.00 | -       
|Net Rio S.A.                                                | 100.00 | -       
|Net Recife S.A.                                             | 100.00 | -       
|Net São Paulo Ltda.                                         | 97.78  | 2.22    
|Cabodinâmica TV Cabo São Paulo S.A.                         | 63.00  | 37.00   
|Net Campinas Ltda.                                          | 100.00 | -       
|Net Indaiatuba Ltda.                                        | 100.00 | -       
|Net São Carlos S.A.                                         | 100.00 | -       
|Net Franca Ltda.                                            | 100.00 | -       
|Jaguari Telecomunicações S.A.                               | 99.94  | 0.06    
|Vicom Ltda.                                                 | 100.00 | -       
|Net Sul Comunicações Ltda.                                  | 100.00 | -       
|Net São José do Rio Preto Ltda.                             | -      | 100.00  
|Net Piracicaba Ltda.                                        | -      | 100.00  
|Net Ribeirão Preto S.A.                                     | -      | 100.00  
|Net Bauru Ltda.                                             | -      | 100.00  
|Net Goiânia S.A.                                            | -      | 100.00  
|Net Anápolis Ltda.                                          | -      | 100.00  
|Net Campo Grande Ltda.                                      | -      | 100.00  
|Net Sorocaba Ltda.                                          | -      | 100.00  
|Reyc Comércio e Participações Ltda.                         | 0.50   | 99.50   
|Horizonte Sul Comunicações Ltda.                            | -      | 100.00  
|DR  Empresa de Distribuição e Recepção da TV Ltda.         | -      | 100.00  
|Net Paraná Comunicações Ltda.                               | -      | 100.00  
|Net Joinville Ltda.                                         | -      | 100.00  
|Televisão a Cabo de Novo Hamburgo Ltda. (*)                 | -      | -       
|Uruguaiana  Empresa de TV a Cabo Ltda. (*)                 | -      | -       
|Televisão a Cabo Vindima Ltda.                              | -      | 100.00  
|Net Florianópolis S.A.                                      | -      | 100.00  
|Net Curitiba Ltda.                                          | -      | 100.00  
|Net Maringá Ltda.                                           | -      | 100.00  
|Americapar Participações Ltda. (*)                          | -      | -       
|Net Arapongas Ltda.                                         | -      | 100.00  
|TV Cabo Criciúma Ltda.                                      | -      | 60.00   
|TV Cabo de Chapecó Ltda.                                    | -      | 100.00  
|Net Londrina Ltda.                                          | -      | 100.00  
|Net Sul Provedor de Acesso Ltda. (*)                        | -      | -       
|Cable S.A.                                                  | 44.25  | 55.75   
|Equity investees                                           
|TV Cabo e Comunicações de Jundiaí S.A. (Jointly controlled) | 50.00  | -       
|Net Brasil S.A.                                             | 40.00  | -       

Net Brasil S.A. is a
programming and support services broker for the NET and SKY systems, indirectly
controlled by Globo Comunicações e Participações S.A.

As part of its ongoing
corporate restructuring plan, certain dormant companies identified with (*) in the table
above were merged and the Company acquired the minority interest in Net Anápolis Ltda.

The Company and its
subsidiaries have made significant  investments in the acquisition,  construction and
expansion of cable networks. The main construction phase of the cable networks was
completed in 1998. These investments and the          Companys operating losses and
working capital deficits have been funded by the Companys stockholders and by loans.

On December 2, 2002,
due to deteriorated  economic  conditions in Brazil,  the Company announced its decision
to review its cash flow and commenced  negotiations with various lenders and debt holders
with regard to a restructuring of          its debt facilities and instruments.

As a result of the
non-payment of scheduled  principal or interest payments on Companys debt since December
2, 2002, and as a result of not maintaining  specified financial ratios nor meeting
specified financial tests required under          its debt facilities and instruments,
 at December 31, 2003 and 2002, all of Companys indebtedness,  except leasing, had been
classified as current. As of December 31, 2003 and 2002, scheduled principal payments
on debt totaled US$          349.9 million and US$ 323.7 million, respectively.

Due to the failure to
settle certain  obligations,  which could have their payment flows impacted by the
completion of the ongoing debt restructuring  process,  and the disputes  regarding the
compliance with restrictive  contractual          covenants, the Company is subject to
the possibility of a collection suit from creditors, either independently or jointly.

At December 31, 2003,
 overdue credits  corresponding  to 8.8% of total debt have been called by the bank and
are subject to additional  court  proceedings.  Based on the existing  facts,  Management
does not believe that these court          proceedings will affect the Companys
operating performance, or its ability to continue the negotiations with other creditors.

The Company
 understands  that achieving  balance  between its cash  generation and its debt
obligation is essential.  Thus,  negotiations  with its financial  creditors  should be
completed so as to reach a balanced  working capital          structure  that may provide
a lower  dependence on  third-party  short-term  capital and a minimum  refinancing  risk
in the medium term,  which will make the Company less  vulnerable to the Brazilian  real
/ US dollar  exchange rate          volatility.  This will be possible by tailoring a
repayment stream that is consistent with the Companys  business plan in the medium term.
 Specific costs related to the current debt  restructuring of approximately  US$5,600,
 were          recorded as deferred financing costs at December 31, 2003. Upon the
successful completion of the current debt restructuring negotiations, such deferred costs
will be amortized concurrent with such restructured debt.

During the week of
March 17, 2003, the Company submitted a initial proposal to its creditors,  along with
the revised long term business plan. During 2003, the business plan was assessed and
approved by the creditors.  As a result of          negotiations, the economic basis of
the debt reestructuring was discussed among the company, its creditors and stockholders.
Management expects to formalize the basis of the renegotiation plan during the first-half
of 2004.

Due to the operating
improvements and measures for reducing costs, as negotiation with the content providers
detaching the programming costs from U.S. dollars, most of operating subsidiaries are
generating operating profits.

The  strengthening  of
the Brazilian  Real exchange rate had a positive  effect on the Companys  financial
 position and results of operations  due to its high level of foreign  currency
 denominated  debt.  The exchange rate of the          Brazilian  Real (R$) to the U.S.
 dollar was R$ 2.8892:  US$1.00 at December  31, 2003,  R$ 3.5333:  US$1.00 at December
31, 2002 and R$ 2.3204:  US$1.00 at December  31,  2001.  At February 20, 2004 the
exchange  rate was R$ 2.9878:          US$1.00.

The accompanying
consolidated financial statements do not reflect any adjustments that might be required
upon the resolution of the uncertainties discussed above.

2.     Basis of
Presentation

The consolidated
 financial  statements of Net Serviços,  have been prepared in accordance with accounting
 principles  generally  accepted in the United States of America (US GAAP), using the
U.S. dollar as reporting  currency.  The          accounting  principles  adopted under
US GAAP differ in certain  respects from those required under Brazilian GAAP, used to
prepare the statutory  financial  statements as filed with the Comissão de Valores
 Mobiliários  (Brazilian          Securities Commission or CVM).

The accounts of the
Company and its subsidiaries and equity investees are maintained in Brazilian reais,
which have been translated into U.S. dollars in accordance with Statement of Financial
 Accounting  Standards SFAS 52 Foreign          Currency  Translation using the real
as functional currency as from January 1, 1998 when management concluded that Brazilian
economy was no longer  highly-inflationary.  Under the translation criteria adopted as
from January 1, 1998          assets and liabilities are translated from reais to U.S.
 dollars using the official  exchange rates reported by the Brazilian  Central Bank at
the balance sheet date (December 31, 2003  US$ 1.00: R$ 2.8892;  December 31, 2002  US$
         1.00: R$ 3.5333) and revenues,  expenses,  gains and losses were translated
 using the average  exchange rates for the period.  The translation  gain or loss is
included in the Cumulative  Translation  Adjustments  (CTA) component of
         stockholders equity, and in the statement of comprehensive loss for the period
in accordance with the criteria established in SFAS 130 Reporting Comprehensive Income.

Certain prior year
amounts have been reclassified to conform to the current years presentation.

3.     Significant
Accounting Policies

a)       Basis of
consolidation

The  consolidated
 financial  statements  include the accounts of Net Serviços and those of wholly owned
 subsidiaries  as listed in Note 1. All  significant  intercompany  accounts and
 transactions  have been eliminated in                   consolidation. The Companys 40
and 50 percent-owned investees, Net Brasil S.A. and TV Cabo e Comunicações de Jundiaí S.A.
respectively, are accounted for by the equity method.

b)       Use of
estimates

The preparation of
financial  statements in conformity with accounting  principles  generally accepted in
the United States of America requires management to make estimates and assumptions that
affect the reported amounts of                   assets and  liabilities and disclosure
of contingent  assets and liabilities at the date the financial  statements and the
reported  amounts of revenues and expenses during the reporting  period.  Actual results
could differ                   from estimates.

c)       Revenue
recognition

Revenue includes fees
from subscription  service,  connection fees,  pay-per-view and revenues from providing
high-speed data services.  Revenue is recorded in the month the services are provided.
 The portion of sign-on and                   hook-up  revenue and the related  direct
 selling  expenses are deferred and  amortized  over ten years,  which  represents  the
 estimated  average  period that  subscribers  are expected to remain  connected to the
system.                   Telecommunication  revenue  comprises  revenues from the use of
Vicom networks for data  interchange and is also recorded in the month services are
provided.  Sales taxes and other  deductions  included in gross revenues are
                  recorded as deductions from revenues.

d)       Advertising
and marketing expenses

Advertising  and
marketing  costs are expensed as incurred and amounted to US$ 16,917,  US$ 12,160 and US$
17,688 for the years ended December 31, 2003, 2002 and 2001,  respectively,  which are
reflected in the  consolidated                   statement of operations under Selling,
general and administrative expenses.

e)       Cash and cash
equivalents

The Company considers
all highly liquid investments with a maturity of three months or less, at the time of
purchase, to be cash equivalents.

f)       Investments

Investments in which
the Company has ownership interests of 50% or less are accounted for by the equity
method.  Investments acquired from the Companys controlling stockholders are recorded at
the controlling  stockholders                  carryover book basis. The Company makes
advances to equity investees under  stockholders  agreements whereby the Company is
committed to finance its share of the development of the investees  operations.
 Periodically these                   advances are capitalized. Allowances are made
against these advances when necessary to provide for the Companys share of the losses of
such investees that exceed paid in capital.

g)       Property and
equipment

Property and equipment
are stated at cost, less accumulated  depreciation.  Cable plant includes amounts
capitalized for direct labor,  overhead and financial expenses attributed to the
construction of the network during the                   prematurity  phase.  Cable plant
costs also include hook-up costs and installations at subscribers  residences  including
those of providing  high-speed data services.  Materials to be used for the construction
of the cable                   plant are recorded under property and equipment.  Expenses
for repairs and maintenance of networks,  not considered to extend the useful life of the
underlying  asset,  are charged to operations as incurred.  Depreciation of
                  property and equipment is computed using the straight-line  method,
over estimated economic useful lives as follows:  Cable network  12 to 15 years;
 Decoders and Cable modem  10 years; Optic fiber  15 years;  Buildings -
                  25 years; Leasehold improvements, Installations, Fixtures and fittings
and Other equipment - 5 to 10 years; Vehicles and Data processing equipment - 5 years.

The carrying value of
fixed assets is reviewed if facts and  circumstances  suggest that they may be impaired.
 If this review  indicates  that the carrying  value of the fixed assets will not be
recovered from  undiscounted                   future cash flows  generated  from such
assets,  an impairment  loss would be recognized  for the amount that the carrying  value
exceeds its fair value.  Management  believes that no impairment of fixed assets existed
as of                   December 31, 2003 and 2002.

Following the upgrades
made to the cable plant in connection  with building a two-way  communication  to allow
 introduction  of its broadband  internet  services,  the Company and its  subsidiaries
 performed a study of the                   estimated useful lives of specified items of
its cable network.  Company  management,  based on an external  independent-study,
 decided to revise the estimated  economic useful lives of specified asset  categories,
 as from                   January 1, 2002. Accordingly the depreciation rate of the net
book value of the following item have been revised:

|Description   | Prior to 2002 | Revised 2002
               useful life
|------------- | ------------- | ---------------------------------------
|             
|Cable Network | 5-8           | 12-15                                  
|Optic fiber   | 10            | 15                                     
|Decoders      | 8             | 10                                     
|Cable MODEM   | 8             | 10                                     

The impact of this
change in the estimated useful life was a decrease in depreciation charges resulting in a
reduction of Companys 2003 net loss of US$ 7,597.

h)
               Goodwill

In January 2002, the
Company adopted FASB Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (FAS 142), which required that goodwill no longer be amortized.

SFAS No. 142 requires
that goodwill be tested annually for impairment using a two-step  process.  The first
step is to identify a potential  impairment and, in transition,  the impairment must be
measured as of the beginning                   of the fiscal year of adoption using the
fair market value of the business unit with which the goodwill is associated,  rather
than the undiscounted cash flows on an enterprise-wide  basis approach permitted under
previously                   existing accounting standards.

The Company completed
the initial  impairment review for the reporting units,  determined in accordance with
its  organizational  structure on a geographic basis and segregating its corporate data
transmission  business into                   one separate reporting unit. The fair value
of the reporting units was estimated using the discounted cash flow methodology,  based
on the Companys business plans and validated by external  specialists.  The Company
decided                   to perform its impairment test annually at December 31. As a
result of the annual impairment test there were no impairment charge in 2003.

i)       Income taxes

Income taxes are
provided using the liability method prescribed by FASB Statement  No.109,  Accounting
for Income Taxes.  Under the liability  method,  deferred income taxes reflect the tax
effect of net operating loss and                   investment  carryforwards  and the net
tax effects of temporary  differences  between the carrying amount of assets and
liabilities for financial  statement and income tax purposes,  as determined  under
enacted tax laws and                   rates. The financial effect of changes in tax laws
or rates is accounted for in the period of enactment.

j)
               Derivative contracts

To help mitigate the
Companys overall foreign currency risk, the Company primarily uses foreign exchange
 contracts.  The contracts are recorded at current market value in the balance sheet with
any gains or losses recorded                   through financial expense or income.

k)       Per share
calculations

Preferred stock
 participates  with a 10% premium over common stock in the  distribution of earnings and
preferred stock is considered to be a common stock  equivalent in sharing losses.  Per
share  calculations  reflect the                   weighted average number of shares
outstanding during the year,  retroactive  effect being given for all periods presented
for share conversions,  splits and reverse splits.  Employee options to purchase shares
of the Company                   equal to approximately 3 million shares in 2003 were
excluded from the calculation of diluted loss per share, since they would be
anti-dilutive.

l)       Comprehensive
loss

Comprehensive  loss is
recorded in accordance  with SFAS 130  (Reporting  Comprehensive  Income) and presented
in the statement of changes in capital  deficiency  (stockholders  equity).  In our
case,  comprehensive  loss                   comprises the translation adjustments
included in the CTA component of capital deficiency (stockholders equity).

m)
               Accounting for stock-based compensation

The Company has
elected to follow  Accounting  Principles Board Opinion No.25  Accounting for Stock
Issued to Employees (APB No. 25) and FASB  Interpretation  No. 44 Accounting for
Certain  Transactions  Involving Stock                   Compensation  (FIN No. 44) in
accounting for its employee stock options plans.  Under APB No. 25, when the exercise
price of the Company stock options is less than the market price of the underlying
shares on the date of                   grant, compensation is recognized.

The Company adopted
the disclosure  provisions of Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based  Compensation  transition and disclosure  (SFAS No. 148), which
amended certain provision                   of Statement of Accounting  Standards No.
123,  Accounting for Stock-Based  Compensation  (SFAS No. 123) to provide
 alternative methods of transition for an entity that voluntarily changes to the fair
value based method                   of accounting for stock-based employee compensation,
effective as of the beginning of 2003. The Company continues to apply the provisions of
APB 25, in accounting for stock-based compensation.

Pro forma  information
 regarding the Companys net loss and net loss per share is required by SFAS No. 123 and
has been  determined as if the Company had accounted for its employee  stock options
under the fair value method                   prescribed by SFAS No. 123. Considering the
amounts involved, the application of SFAS No. 123 would not result in a material effect
on the Companys net loss and net loss per share.

n)  Recent accounting
pronouncements

In January 2003, the
FASB issued  Interpretation  No. 46  Consolidation  of Variable  Interests  Entities  (FIN
46). The objective of FIN 46, as revised in December  2003, is to improve  financial
 reporting by companies                   involved with variable interest entities.  A
variable interest entity is a corporation,  partnership,  trust, or any other legal
structure used for business purposes that either (a) does not have equity investors with
voting                   rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.

FIN 46 requires a
variable  interest  entity to be consolidated by a company if that company is subject to
a majority of the risk of loss from the variable  interest  entitys  activities or
entitled to receive a majority of                   the entitys  residual  returns or
both.  FIN 46 also  requires  disclosures  about  variable  interest  entities that the
company is not required to  consolidate,  but in which it has a significant  variable
 interest.  The                   consolidation  requirements of FIN 46 apply in the
first fiscal year or interim period ending after March 15, 2004.  Certain of the
disclosure  requirements  apply in all financial  statements  issued after January 31,
2003,                   regardless of when the variable interest entity was established.
As of December 31, 2003, the Company does not expect the adoption of FIN 46 to have a
material impact on its consolidated financial statements.

4.     Cash and Cash
Equivalents

|                                    | 2003        | 2002       
|----------------------------------- | ----------- | -----------
|                                    |            
|Cash                                | US$  4,541  | US$  7,186 
|Brazilian Interbank Deposit  CDI | 16,436      | 8,521      
|Financial Investments Funds         | 44,243      | 47         
|Others                              | 3,591       | 1          
|                                    |            
|                                    | US$  68,811 | US$  15,755
|                                    |            

The funds are invested
in  securities  denominated  in Brazilian  reais (R$) and,  accordingly,  the Company is
exposed to the risk of  devaluation  of the  Brazilian  real against the U.S.  dollar,
 as well as the credit risk on the          underlying securities.

5.     Recoverable
Income Tax

|                         | 2003       | 2002      
|------------------------ | ---------- | ----------
|                         |           
|Withholding income taxes | US$  7,658 | US$  5,372
|Current portion          | (5,134)    | (2,389)   
|                         |           
|Non-current portion      | US$  2,524 | US$  2,983
|                         |           

Recoverable  income
tax represents  income tax withheld upon redemption of certain  investments and is
available to be utilized  against other similar income taxes payable.  The Company and
its operating  subsidiaries are using these          credits mainly to offset its
liability for income tax withheld from employees.

6.     Goodwill on
Acquisition of Consolidated Subsidiaries, Net

In January 2002, the
Company adopted SFAS 142, which requires  companies to discontinue  amortizing  goodwill
and certain  intangible  assets with an indefinite  useful life.  Instead,  SFAS 142
requires that goodwill be reviewed for          impairment upon adoption of FAS 142
(January 1, 2002) and annually thereafter.

Upon adoption of FAS
142, the Company recorded a non-cash charge of US$ 367,733 to reduce the carrying value
of Goodwill.  Such charge is non operational in nature and is reflected as a cumulative
 effect of accounting  change in the          accompanying consolidated statement of
operations. In calculating the impairment charge, the fair value of the impaired
reporting units was estimated using the discounted cash flow methodology.

On December 31, 2002,
the date on which the Company decided to perform its annual  impairment  test, the
Company,  based on fair value analysis of its four reporting units,  recorded an
additional  non-cash charge of US$ 2,773 on the          carrying value of Goodwill
associated with Vicom, which is recorded as a component of operating income in the
accompanying consolidated statement of operations.

On December 31, 2003,
the date on which the Company performed its annual impairment test, the Company concluded
that no impairment was required.

The Company recorded
 amortization expense of US$ 63,726 for the year ended December 31, 2001. As of January
1, 2002, in connection with the adoption of SFAS No. 142, the Company no longer amortizes
goodwill.  Applying the effects of          adoption of SFAS    No. 142 to the year ended
December 31, 2001 would have resulted in the following pro-forma net loss for the year
ended December 31, 2001:

|                                               | 2001           
|---------------------------------------------- | ---------------
|                                               |                
|Net loss as reported on historical basis       | US$   (349,473)
|Exclude amortization of goodwill               | 63,726         
|                                               |                
|Pro forma net loss                             | US$   (285,747)
|                                               |                
|Pro forma net loss per share basic and diluted | US$   (1.02)   

Because goodwill is
nondeductible  for tax purposes,  there is no income tax impact.  The impairment charge
was treated as a permanent  difference in the computation of the deferred taxes, same
treatment  previously given to goodwill          amortization.

A summary of changes
in the Companys goodwill during the years ended December 31, 2003 and 2002 and total
assets at December 31, 2003 and 2002 by reporting units is as follows:

|                           | January 1,
2003 | Addition | Gain on
translation | December 31, 2003
|-------------------------- | --------------- | -------- | ------------------- | -----------------
|                           |                 |          |                     |                  
|Region I                  
|Net Campinas Ltda.         | US$  38,136     | US$  -   | US$  8,501          | US$  46,637      
|Net São Paulo Ltda.        | 17,925          | -        | 3,996               | 21,921           
|Net São Carlos S.A.        | 3,975           | -        | 886                 | 4,861            
|Net Piracicaba Ltda.       | 2,929           | -        | 653                 | 3,582            
|Net Franca Ltda.           | 544             | -        | 121                 | 665              
|Net Indaiatuba Ltda.       | 90              | -        | 20                  | 110              
|Others                     | 12,246          | -        | 56                  | 12,302           
|                          
|Region II                 
|Net Belo Horizonte Ltda.   | 8,714           | -        | 1,943               | 10,657           
|Net Rio S.A.               | 8,442           | -        | 1,881               | 10,323           
|Net Brasília Ltda.         | 4,016           | -        | 896                 | 4,912            
|Net Recife S.A.            | 937             | -        | 209                 | 1,146            
|Net Anápolis Ltda.         | -               | 210      | (4)                 | 206              
|Others                     | 1,075           | -        | 240                 | 1,315            
|                          
|Region III                
|Net Sul Comunicações Ltda. | 113,483         | -        | 25,299              | 138,782          
|                          
|Region IV                 
|Vicom Ltda.                | 9,175           | -        | 2,045               | 11,220           
|                           |                 |          |                     |                  
|TOTAL                      | US$  221,687    | US$  210 | US$  46,742         | US$  268,639     
|                           |                 |          |                     |                  

|                           | January 1, 2002 | Cumulative
                                                 Effect of
                                                 accounting
change | Loss on
translation | 4th Quarter
impairment | December 31, 2002
|-------------------------- | --------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ---------------------- | -----------------
|                           |                 |                                                                                                                                          |                     |                        |                  
|Region I                   |                 |                                                                                                                                          |                     |                        |                  
|Net Campinas Ltda.         | US$  58,070     | US$  -                                                                                                                                   | US$  (19,934)       | US$  -                 | US$  38,136      
|Net São Paulo Ltda.        | 27,294          | -                                                                                                                                        | (9,369)             | -                      | 17,925           
|Net São Carlos S.A.        | 6,052           | -                                                                                                                                        | (2,077)             | -                      | 3,975            
|Net Piracicaba Ltda.       | 4,460           | -                                                                                                                                        | (1,531)             | -                      | 2,929            
|Net Franca Ltda.           | 828             | -                                                                                                                                        | (284)               | -                      | 544              
|Net Indaiatuba Ltda.       | 136             | -                                                                                                                                        | (46)                | -                      | 90               
|Others                     | 12,424          | -                                                                                                                                        | (178)               | -                      | 12,246           
|                          
|Region II                 
|Net Belo Horizonte Ltda.   | 13,269          | -                                                                                                                                        | (4,555)             | -                      | 8,714            
|Net Rio S.A.               | 12,854          | -                                                                                                                                        | (4,412)             | -                      | 8,442            
|Net Brasília Ltda.         | 6,116           | -                                                                                                                                        | (2,100)             | -                      | 4,016            
|Net Recife S.A.            | 1,426           | -                                                                                                                                        | (489)               | -                      | 937              
|Others                     | 1,637           | -                                                                                                                                        | (562)               | -                      | 1,075            
|                          
|Region III                
|Net Sul Comunicações Ltda. | 529,801         | (357,000)                                                                                                                                | (59,318)            | -                      | 113,483          
|                          
|Region IV                 
|Vicom Ltda.                | 28,926          | (10,733)                                                                                                                                 | (6,245)             | (2,773)                | 9,175            
|                           |                 |                                                                                                                                          |                     |                        |                  
|TOTAL                      | US$  703,293    | US$  (367,733)                                                                                                                           | US$  (111,100)      | US$  (2,773)           | US$  221,687     
|                           |                 |                                                                                                                                          |                     |                        |                  

The translation
results were included in the Cumulative Translation Adjustment (CTA) component of capital
deficiency, and in the statement of comprehensive loss for the year.

7.     Property and
Equipment, Net

At December 31,
property and equipment consisted of:

|                                     | 2003           | 2002                    
|------------------------------------ | -------------- | ------------------------
|                                     |               
|                                     | Cost           | Accumulated depreciation
|                                     |               
|Cable network                        | US$  811,900   | US$  (522,705)          
|Data processing equipment            | 82,389         | (52,397)                
|Buildings and improvements           | 10,270         | (6,848)                 
|Fixtures, fittings and installations | 10,186         | (5,693)                 
|Vehicles                             | 2,264          | (1,883)                 
|Other                                | 65,552         | (53,349)                
|                                     |               
|                                     | 982,561        | (642,875)               
|Cable construction materials         | 33,973         | -                       
|Land                                 | 1,065          | -                       
|                                     |               
|Total property and equipment, net    | US$  1,017,599 | US$  (642,875)          
|                                     |               

Total accumulated
fixed costs and financial expense capitalized in the cable network during the prematurity
phase, net of amortization, amount to US$ 6,040 at December 31, 2003 (US$ 6,296 at
December 31, 2002).

8.     Related Party
Transactions

The amounts due to and
due from related companies as of December 31, 2003 and 2002 are as follows:

|                                   | 2003               | 2002                  
|---------------------------------- | ------------------ | ----------------------
|                                   |                    |                       
|                                   | Currentliabilities | Non-currentliabilities
|                                   |                    |                       
|Associated Companies:             
|Distel Holding S.A.                | US$  -             | US$  875              
|RBS Administração e Cobrança Ltda. | -                  | 385                   
|Net Brasil S.A.                    | -                  | 803                   
|Others                             | -                  | -                     
|                                   |                    |                       
|                                   | US$  -             | US$  2,063            
|                                   |                    |                       

The Company engages in
financial and commercial  transactions with its subsidiaries and investees,  with its
stockholders and with companies related to its stockholders.  The Company obtains
programming from Net Brasil S.A., which in          turn acquires such  programming  from
Globosat  Comunicações  S.A., a company related to Globo Group and from  non-related
 parties  pursuant to a distribution  agreement.  Globosat  produces most of the
Portuguese  language  content          distributed by the Company,  such as SportTV, GNT
channel,  Globo News, Shoptime,  Multishow,  Futura and Canal Brasil.  Globosat also
acquires programming from third parties. As part of the programming agreement with Net
Brasil, the          Company has exclusivity rights in the distribution of Globosat
programming to its franchising areas, with the exception of Net Sat Serviços Ltda (Sky),
the Globo Group arm that distributes video content through its DBS systems.

The amounts paid to
Net Brasil related to broker  commission  during the years ended December 31, 2003, 2002
and 2001 were US$ 2,289,  US$ 1,904 and US$ 1,616,  respectively.  The amounts paid to
Globosat for  programming  during the          years ended December 31, 2003, 2002 and
2001 were US$ 24,370, US$ 19,648 and US$ 11,507, respectively.

The Companys  program
guide is produced by Editora Globo S.A., a publishing  company related to Globo Group.
 The amounts paid to Editora Globo S.A.  during the years ended December 31, 2003, 2002
and 2001 were US$ 5,115,  US$ 6,510          and US$ 7,661, respectively.

The Company  enters
into various  financial  transactions  with entities  affiliated to Banco  Bradesco,  a
related party to Bradesplan  Participações  S.A. The aggregated  amounts paid to entities
 related to Bradesplan for property          insurance, employee health insurance and
collection fees during the years ended December 31, 2003, 2002 and 2001 were US$ 5,039,
US$ 4,498 and US$ 7,091, respectively.

The amounts due to
programmers are comprised as follows:

|                                           | 2003        | 2002       
|------------------------------------------ | ----------- | -----------
|                                           |             |            
|                                           | Current     | Non-current
|                                           |            
|Related companies:                         |             |            
|Net Brasil S.A.                            | US$  47,715 | US$  9,147 
|Globosat Programadora Ltda.                | 3,389       | 2,268      
|TV Globo Ltda.                             | 626         | 626        
|USA Programadora Ltda.                     | 377         | 377        
|Canal Brazil S.A.                          | 273         | 273        
|Canal Rural Produções Ltda.                | 110         | 110        
|RBS Empresa de TVA Ltda.                   | 49          | 50         
|                                           |             |            
|                                           | 52,539      | 12,851     
|                                           |             |            
|                                          
|Third parties:                            
|Fox Latin America Channels do Brasil Ltda. | 2,346       | 2,346      
|MTV Networks Latin America                 | 666         | 330        
|Columbia Tristar Films of Brazil, Inc.     | 350         | 350        
|Playboy TV Latin America, LLC              | 174         | 174        
|Other                                      | -           | -          
|                                           |             |            
|                                           | 3,536       | 3,200      
|                                           |             |            
|                                           | US$  56,075 | US$  16,051
|                                           |             |            

During 2003, the
Company renegotiated the terms of a portion of its programming agreements.  According to
the new terms of the executed programming agreements,  certain programming costs became
re-denominated into Brazilian reais. In          addition,  the Company was granted a
reduction of the  outstanding  programming  liabilities of  approximately  US$ 2,769,
 which have been  reclassified as deferred  programming  benefits to be amortized as a
reduction of the future          programming costs, over the new term of the agreements,
ranging from 36 to 48 months, and/or to reduce marketing costs, depending on certain
specific events.

As part of the
 renegotiation  of the  programming  costs,  it is agreed that the unpaid amounts related
to the year ended December 31, 2002 will be paid,  within 18 to 24 monthly  installments,
 as from January 2004. The non-current          portion of accounts payable to
programmers matures in 2005. These future payments are adjusted based on the IGPM
domestic inflation index and guaranteed by promissory notes.

The ongoing
negotiations with programmers involving overdue amounts denominated in U.S. dollars of
US$ 33,798 classified as current are expected to be concluded during 2004.

9.     Debt

At December 31, debt
consisted of:

|                                                                                                                                         | 2003         | 2002        
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------
|                                                                                                                                         |             
|U.S. dollar denominated debt:                                                                                                           
|(i) Multicanal Senior Guaranteed Notes                                                                                                   | US$  97,692  | US$  97,692 
|(ii) Net Sul Floating Rate Notes                                                                                                         | 72,300       | 72,300      
|(iii) Trade Financing Loans                                                                                                              | 17,910       | 20,612      
|(iv) Working Capital Loans                                                                                                               | 22,067       | 17,030      
|(v) Facilities from the International Finance Corporation - IFC                                                                          | 11,681       | 11,681      
|                                                                                                                                         |             
|                                                                                                                                         | 221,650      | 219,315     
|Brazilian R$ denominated debt:                                                                                                          
|(vi) Non-Convertible debentures                                                                                                          | 67,541       | 55,229      
|(viii)Working Capital Loans                                                                                                              | 45,409       | 30,056      
|(vii) Convertible Debentures with interest due annually at an annual interest rate of 12% over the indexation at the IGPM domestic index | 14,939       | 11,444      
|Other                                                                                                                                    | 393          | 7,704       
|                                                                                                                                         |             
|                                                                                                                                         | 128,282      | 104,433     
|                                                                                                                                         |             
|Short-term debt                                                                                                                          | US$  349,932 | US$  323,748
|                                                                                                                                         |             

The various base rates
used to determine the interest rate of the Companys debt at December 31, follows:

|      | 2003   | 2002  
|----- | ------ | ------
|      |       
|LIBOR | 1.48%  | 1.44% 
|TJLP  | 11.50% | 10%   
|CDI   | 23.21% | 24.83%
|IGPM  | 8.71%  | 25.30%

(i)      Multicanal
Senior Guaranteed Notes

On June 18, 1996, Net
Serviços de Comunicação  S.A.  issued US$ 185,000 of 12.625% Senior  Guaranteed  Notes
(the Notes) due June 18, 2004 with interest on the Notes payable  semiannually on June
18 and December 18 of each                   year commencing December 18, 1996.

The Senior Guaranteed
Notes are senior unsecured obligations of Net Serviços and have priority equal to all
existing and future senior unsecured indebtedness.  The Senior Guaranteed Notes are
unconditionally  guaranteed,  on                   a joint and several basis, by each of
the Companys  subsidiaries,  except for Net Anápolis Ltda., Net Rio S.A., Net Brasília
Ltda. and Net Recife S.A. and others  subsidiaries  acquired after its issue.
 Additionally,  each                   guarantee is a senior unsecured obligation of the
subsidiary guarantors and has liquidation priority equal to all existing and future
senior unsecured indebtedness of the subsidiary guarantors.

The amount payable at
the final maturity on June 18, 2004, includes a premium equal to 5% of the principal
amount, which is accrued as interest expense by the Company.

The Company did not
fulfill the interest payment of US$ 28,898 (US$ 8,927 in 2002) due since December 18,
2002.

According to the terms
of the Senior Notes,  payments of the Notes are not subject to  withholding  taxes
 imposed by Brazilian tax  authorities  provided  that the Notes are not redeemed  prior
to June 18, 2004.  Due to the                   ongoing debt restructuring process, there
will be no payments of Senior Notes before June 18, 2004 and accordingly the withholding
tax contingency is not probable.

(ii)     Net Sul
Floating Rate Notes

On October 28, 1997,
Net Sul  Comunicações  Ltda.  issued US$ 80,000 in Floating Rate Notes,  the US$ 48,000
Series A Floating Rate Notes due 2005 (the Series A Notes),  the US$ 11,000 Series B
Floating Rate Notes due 2005                   (the Series B Notes) and the US$ 21,000
Series C Floating Rate Notes due 2005 (the Series C Notes),  together the Floating
Rate Notes.  Interest on the Floating Rate Notes is payable in arrears on January 31,
April 30,                   July 31 and  October 31 in each year from  January 31,  1998.
 Floating  Rate Notes  Series A bear  interest of LIBOR plus 3.625% and Series B and C,
LIBOR plus 3.00%.  The  Floating  Rate Notes are  jointly,  severally  and
                  unconditionally guaranteed by each Net Sul subsidiary.

Due to acquisition of
Net Sul Comunicações  Ltda., the Company  guaranteed and renegotiated  certain
 conditions of the Floating Rate Notes,  including the first redemption  option due on
October 28, 2000. The new redemption                   options are US$32,000 due in
October 2002 and US$ 48,000 due in October 2003 with a final due date in October 2005.

On August 30, 2002,
 the deadline for the exercise of the  redemption  options on the US$ 32 million  Notes,
 holders of Notes in the amount of US$ 7.7 million,  representing  24% of the total,
 notified the Company of their                   option to redeem.

During August 2003,
 the deadline for the original  exercise of the  redemption  option of the US$ 48 million
 Notes,  holders of Notes in the amount of US$ 2.0 million  notified the Company of their
intend to exercise their                   option to redeem. The Company did not make
payment as required.

On August 28, 2003,
the Company extended the redemption option exercise period of the US$ 48 million Notes to
January 30, 2004.  The Company did not make payment as required.

The Company did not
fulfill the interest payment of US$ 4,917, due since January 31, 2003.

(iii)    Trade
Financing Loans

Trade financing loans
are short-term loans with local banks,  guaranteed by the Company or its wholly-owned
 subsidiary  Multicanal  Telecomunicações  S.A. or a combination thereof.  Average
nominal interest rates were LIBOR                   plus 0.125% per annum at December 31,
2003 (7.90% at December 31, 2002). As described in Note 1, since the announcement of the
Companys debt discussions with creditors no payments of principal and interest have been
made.

(iv)     Working
Capital Loans

The working capital
loans obtained at local banks bear interest of CDI plus 3.10% per annum.  These loans
became overdue in December 2002, and include  interest and other  penalties  accrued
 according to the agreements.  As                   described in Note 1, since the
announcement of the Companys debt discussions with creditors no payments of principal
and interest have been made.

(v)International
Finance Corporation (IFC)

Under the IFC
Facility,  IFC provides  loans to Distel  Holding S.A. for the purpose of financing
 Distel  Holdings  subsidiaries  and related  parties  involved in pay  television
 operations  throughout  Brazil and in the                   construction of their
 subscription  television  systems (the Project).  Notwithstanding  the assignments of
the loan,  Distel Holding S.A.  remains jointly and severally liable with the Assignees
for all amounts borrowed by                   them.  All borrowings under the IFC
Facility are guaranteed by Globopar and members of Roberto Marinho Family. The IFC may
enforce all obligations directly against the relevant Assignee, as well as against Distel
Holding.

The IFC Facility bears
 interest at a variable  interest rate equal from 2.75% to 3% per annum over the
six-month  U.S.  dollar LIBOR.  Under the IFC Facility,  the loans are to be repaid in
twelve  semi-annual  installments                   beginning on April 15, 1999 and
ending on October 15, 2004 and contain a variety of covenants.

The Company did not
fulfill the interest payment of US$ 733, due since April 15, 2003.

(vi)
    Non-Convertible Debentures due December 3, 2003

On February 7, 2001,
the Company issued Brazilian R$ denominated  debentures in an aggregate principal amount
of R$ 200,000 (equivalent to US$ 98,039 on issuance date) 20,000  non-convertible
 nominative  debentures,  with a                   face value of R$ 10 each  (equivalent
to US$ 4.90 on issuance date).  Due to the Companys debt maturities  acceleration,  the
deferred costs of the issuance and distribution of the debentures were fully expensed on
December                   31, 2002.

The Company did not
fulfill the interest payment due since December 1, 2002 of US$ 26,195 (US$5,238 in 2002).

(vii) Convertible
Debentures due December 1, 2006

From November 1999
through  January 2000,  the Company  issued 3,500 Real  denominated  convertible
 debentures,  each of which with a face value of R$ 100 thousand  (equivalent  to US$
51.74 on that date),  in an aggregate                   principle amount of R$ 350,000
thousand (equivalent to US$ 181,090 on issuance date), convertible into preferred shares
maturing in December 2006.

The Company did not
fulfill the interest payment due since December 1, 2002 of   US$ 3,859 (US$ 1,289 in
2002).

Other Debt Related
Matters

In 2003 and 2002, the
amount recorded in the statement of operations as financial  expense relates  primarily
to the fees,  charges and other costs incurred as a result of the debt default
 situations  discussed above and the reserve          for financial  operations  tax
(IOF) under  Intercompany  transactions,  as more fully  described in Note 12. In 2001,
 the amounts  relate  primarily to the  amortization  of financial  charges  associated
 with the issuance of debt          instruments,  the Contribuição  Provisória sobre
Movimentação  Financeira (CPMF), a federal tax on financial transactions levied at a rate
of 0.38% on withdrawals from checking accounts; and PIS and COFINS taxes on financial
revenues          derived from short-term investments.

Monetary variation,
 net consists of monetary correction charges on real-denominated  debt, which principal
amounts are adjusted periodically based on the IGPM inflation index, and the Companys
debt from BNDES, the interest rates on          which are adjusted periodically based on
TJLP interest rate.

Gain (loss) on
exchange rate, net consists of foreign exchange gain and losses on U.S.
dollar-denominated debt, as a function of the U.S. dollars appreciation or devaluation
in relation to the real.

10.      Stockholders
Equity

Capital stock can be
increased up to the limit of R$ 5,000,000.

Preferred  stock is
non-voting  and  participates  with a 10% premium over common stock in the  distribution
 of earnings;  however,  it is entitled to right of first refusal on liquidation in the
event of dissolution of the Company.          Stockholders  are entitled by Brazilian law
to a minimum  dividend,  payable in Brazilian  reais,  equivalent to 25% of local
 currency net income  calculated in accordance  with Brazilian  Corporation  Law. At
December 31, 2003, the          Companys local currency financial statements presented
an accumulated deficit of US$ 92,893 (December 31, 2002US$ 318,508).

Relationships among
controlling  shareholders of Net Serviços are defined in the shareholders agreement
entered on July 11, 2002. As per the agreement,  any shareholder that desires to transfer
part or the whole amount of its common          shares, and in the case of BNDESPAR,
Microsoft and RBS also their preferred shares to a third party, shall notify, in writing,
all other parties in the shareholders agreement,  allowing the right of first refusal.
The agreement also          provides for shares  issuances at the Board of Directors
 discretion,  approved by the simple majority of the board members that attend to the
meeting and shall include the favorable vote of the board member indicated by BRADESPAR
or          BNDESPAR:  (i) Company capital stock increase,  by the issuance of new common
shares for private or public placement;  (ii) issuance of any convertible or exchangeable
 securities into common shares;  (iii) amendment in the terms and          conditions, or
termination,  of the operators concession contracts. As defined in the shareholders agreement,
the Companys Board of Directors shall be comprised by a minimum of 9 (nine) and a
maximum of 12 (twelve) regular members,          and the same number of alternate
members, all shareholders of Net Serviços and indicated by the Qualified Investors,
 being certain that each Qualified Investor shall have the right to indicate,
 individually,  at least one member of          the Company Board of Directors.

Dividends are payable
in Brazilian reais and may be remitted to stockholders  abroad provided that the foreign
 stockholders  capital is registered as foreign capital with the Brazilian Central Bank.
No withholding tax is payable on          dividends paid out of profits earned from
January 1, 1996.

During 2002, the Board
of Directors approved an aggregated increase in the Companys capital stock of R$ 1.2
billion (US$ 392,236) by issuing for public subscription  707,182,199 common shares and
1,040,548,045  preferred shares, all          nominative, no-par value, at the price of
R$ 0.70 each.

As a result of certain
ownership  reorganization at its controlling  shareholder level, on August 31, 2001, the
Extraordinary  Stockholders meeting approved the down-stream merger of Globotel Participações
S.A.. With this merger, Net          Serviços  succeeded the merged Company in the right
of amortizing for Brazilian local statutory and tax purposes a premium of US$ 156,515
 generated at the acquisition of its ownership in Net Serviços and certain of its
subsidiaries.          The amortization of this premium for local statutory purposes will
result in a future tax benefit for Net Serviços and its subsidiaries over an estimated
period of up to six years.

In  accordance  with
 Brazilian  Corporate  Law,  the Company will issue  shares (pro rata both common and
 preferred)  up to the amount of the tax  benefits  realized by the  Company.  At the
time of the issuance of the shares,  the          non-controlling  shareholders  will be
given the right to  purchase  their pro rata share of this  capital  stock  increase  in
order to prevent  dilution.  In case they do not accept  the  offer,  shares  will be
issued  only to the          contributing shareholder.  The additional capital paid is
transferred to capital upon the issuance of the shares.

During 2003, a benefit
of US$ 4,670 was generated,  represented by cash savings due to non payment of current
income tax obligations by certain operating  subsidiaries.  The actual issuance of shares
is subject to ratification by the          stockholders.

In 2003, as approved
by the Companys Board of Directors,  a group of the Companys top executives  directly
involved with the debt renegotiation  process was granted  stock-options  corresponding
to approximately 3 million shares in          December 2003. The exercise price of the
 stock-option is the same price that will be agreed with creditors in connection with the
potential  conversion of debt into equity.  The exercise period is two years as from the
date that the          Company obtained a signed agreement with the creditors in
connection with the debt restructuring process.

11.      Income Tax

The statutory rates
applicable in each period were as follows (in percentages):

|                             | 2003 | 2002 | 2001
|---------------------------- | ---- | ---- | ----
|                             |     
|Federal income tax           | 25%  | 25%  | 25% 
|Social contribution          | 9%   | 9%   | 8%  
|                             |     
|Composite federal income tax | 34%  | 34%  | 33% 
|                             |     

The reconciliation of
the tax benefit determined using the statutory tax rate to the Companys per tax loss to
the tax expense follows:

|                                                        | Years ended December 31,
|------------------------------------------------------- | ------------------------
|                                                        |                         
|                                                        | 2003                    
|                                                        |                         
|Loss before cumulative effect accounting change,       
|income tax, equity in results of investees and minority
|interests in losses of consolidated subsidiaries        | US$  (39,734)           
|Statutory composite tax rates                           | 34.00%                  
|                                                        |                         
|Tax benefit at statutory rates                          | US$  13,509             
|Adjustments to derive effective rate:                  
|Principles differences from BRGAAP to USGAAP           
|Income and social tax on permanent differences USGAAP   | 11,835                  
|Income and social tax on permanent differences BRGAAP   | 35,287                  
|Non deductible goodwill amortization and impairment     | -                       
|Other                                                   | (14,128)                
|Increases in valuation allowance                        | (51,592)                
|                                                        |                         
|Income tax expenses                                     | US$  (5,089)            
|                                                        |                         
|Current income tax                                      | (12,754)                
|Deferred income tax                                     | 7,665                   
|                                                        |                         
|Income tax expenses, net                                | US$  (5,089)            
|                                                        |                         

The net deferred tax
asset is comprised as follows:

|                                                       | 2003         | 2002        
|------------------------------------------------------ | ------------ | ------------
|                                                       |              |             
|Deferred tax assets:                                  
|Tax loss carryforwards                                 | US$  300,295 | US$  222,284
|Deferred hook-up revenue
charges and financial leasing | 7,632        | 6,538       
|Accrued expenses - not currently deductible            | 20,247       | 22,982      
|Change in functional currency                          | 8,726        | 284         
|                                                       |              |             
|                                                       | 336,900      | 252,088     
|                                                       |              |             
|Deferred tax liabilities:                             
|Property and equipment                                 | (5,812)      | (5,043)     
|                                                       |              |             
|                                                       | (5,812)      | (5,043)     
|                                                       |              |             
|Net deferred tax assets                                | 331,088      | 247,045     
|Valuation allowance                                    | (322,730)    | (246,591)   
|                                                       |              |             
|Net deferred tax asset-non current                     | US$  8,358   | US$  454    
|                                                       |              |             

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, 2003
and 2002, the Company and its subsidiaries had tax loss  carryforwards of US$ 887,593 and
US$ 676,799,  respectively.  The valuation  allowance related to the tax loss
 carryforwards and temporary          differences was reassessed in the case of those
operating subsidiaries which are reporting taxable income.

12.      Commitments
and Contingencies

a)
               Commitments

Future minimum rental
payments required under non-cancelable operating leases are not significant.

Rental expenses for
the years ended December 31, 2003, 2002 and 2001 were US$2,290, US$ 17,761 and US$
19,638, respectively.

The Company has
entered into success fees agreements due in connection with the successful completion of
the debt restructuring plan. Management estimate that such success fees are not expected
to exceed US$ 8.7 million.

b)       Contingencies

Taxes and
contributions,  determined and withheld by the Company and its subsidiaries,  as well as
their tax, and corporate records and tax returns,  are subject to examination by tax
authorities during different  expiration                   periods, pursuant to
applicable legislation.

The Company and its
subsidiaries are party to certain legal proceedings involving tax, labor, civil and other
claims, arising in the ordinary course of business.

At December 31, the
reserves for contingent liabilities are summarized below:

|                     | 2003        | 2002       
|-------------------- | ----------- | -----------
|Tax related matters  | US$ 160,073 | US$ 88,106 
|Labor related claims | 10,116      | 6,958      
|Civil related claims | 5,694       | 5,665      
|Total                | US$ 175,883 | US$ 100,729

In connection with
certain proceedings,  the Company was required to place deposits with the related
judicial court. These judicial deposits will only be released upon a favorable final
court decision.  The aggregated amount                   of deposits made related thereto
is US$ 23,751 (US$ 30,426 in 2002), which is available to offset payments required under
ultimate unfavorable court decisions.

While it is impossible
to determine with certainty the ultimate  outcome of these matters,  management has
established  reserves when it can reasonably  estimate  probable losses based on its
analysis of the pending disputes                   and on the opinion of its legal
counsel.

Following is a
description of the Companys major tax related matters:

The subsidiary
Cabodinamica TV Cabo São Paulo is defending itself from two federal tax assessment
related to the deductibility of expenses in 2003. The Company has established a reserve
of US$ 2,646 as of December 31, 2003.

The Company and its
subsidiaries have centralized cash management and cash transfers made under a current
intercompany account.  Based on the opinion of its external legal counsel,  management
understands that such transfers                   are not subject to Financial Operations
Tax (IOF) charges.  However, in view of certain recent adverse court decisions in respect
to this matter,  management has established a reserve of US$ 58,548 (US$ 34,738  2002).
It is                   the understanding of management and its external legal counsel
that interest accrued under the current intercompany accounts is not subject to
withholding tax and no accruals are established in respect to this matter.

The Company and its
subsidiaries have questioned,  in court, the incidence of PIS and COFINS (social fund
 contributions)  on their revenues.  At December 31, 2003, the amount of US$ 55,381 (US$
36,247 in 2002) was currently                   recorded under reserve for tax
contingencies.  Since July 1999, the subsidiaries have been paying such  contributions.
 The judicial deposits made in connection with this litigation in the amount of US$
21,056 (US$ 15,956 in                   2002) will be relinquished upon an official
judicial ruling and used to offset the amounts due related to this dispute.  Accordingly
the deposits were applied to reduce the liabilities in the financial statements.

The subsidiary Net Rio
S.A.  received a tax assessment  notice from the State Tax Authority in the amount of
approximately  US$ 21,459 (US$ 17,547 in 2002) relating to ICMS tax. The assessment is
based on the Tax Authorities                   understanding  that as a result of
delaying  the payment of the ICMS tax during the period from  September  2001 to October
 2002,  the Company lost its rate  reduction  benefit.  Management,  supported by the
opinion of its                   external legal counsel,  has presented its defense
against the assessment.  Management  understands that the company has meritorious and
substantial defense arguments and considering the risks involved  established a reserve
                  in the amount of US$ 6,302 (US$ 4,693 in 2002) for potential losses
related to this assessment.

The Company is
defending a federal tax assessment  notice in the amount of US$ 7,268 (US$ 6,170 in 2002)
due to a difference in  classification  between the Company and the Tax Authorities of
analogical  decoders for use in                   pay-TV systems under the Common
Mercosur Names. Management has established a reserve of US$ 3,146 for losses related to
this matter.

The  subsidiaries  Net
Campinas Ltda. and Net São José do Rio Preto Ltda. have received  assessment  notices
from the State Tax  Authorities,  suspending the previously  approved  benefit of payment
of their ICMS tax debt in                   installments. Management is defending the
assessment and has recorded a reserve in the amount of US$ 3,604 (US$ 2,805 in 2002) for
losses related to this matter.

All states in which
Net Serviços  subsidiaries  operate,  except for the State of Rio Grande do Sul,  adhered
to the provisions in the ICMS Agreement  57/99,  which authorized a reduction in the ICMS
tax rate on subscription                   television  services as compared to the ICMS
tax rate on other  telecommunication  services of 25%. The current ICMS tax rate under
this Agreement is 10%. The State of Rio Grande do Sul is taxing such services at the rate
of                   12%. The Company is judicially  challenging the rate of 12% and is
making judicial  deposits of the amounts in excess of the rates in effect under the ICMS
Agreement  57/99.  At December 31, 2003,  court deposits  related to
                  this dispute amounts to US$ 8,659 (US$ 6,219 in 2002).

The subsidiary Net São
Paulo Ltda. is defending itself at the  administrative  level,  from two Federal Tax
Authorities  assessment  notices,  in the amount of US$ 5,061 (US$ 2,269 in 2002),
 related to the  deductibility of                   certain expenses in the fiscal years
from 1995 to 1997. Management has established full reserves for these assessments.

The subsidiary Net Rio
S.A. is challenging  in court the collection of ICMS in the period from December 1996 to
September 1999 and offered as a guarantee its cable network.  Management has  established
 reserve in the amount                   of US$ 4,070        (US$ 2,258 in 2002)  to
cover potential losses arising from this dispute.

Certain  operating
 subsidiaries are challenging in court the taxation of their broadband  Internet access
services,  claiming that this activity  integrates the subscriptions TV services as
regulated by Anatel and therefore                   should be subject to the same ICMS
tax rate reduction benefits. The Company has been depositing in court the tax amounts due
and made reserves in the amount of US$ 2,780 (US$ 1,280 in 2002).

In 1999, the Company
has requested  injunctions  aiming the  non-collection of Withholding Tax over hedge
gains in the amount of US$ 5,864 (US$ 4,796 in 2002). All injunctions have so far been
accepted in court,  authorizing                   the non-collection of said tax. The
Company does not make reserves for this purpose in view that, in case of an unfavorable
decision, the withheld amount will be accounted for as tax credit.

The Companys
 operating  subsidiaries  are challenging in court the collection,  by  municipalities
 of various  locations in which it operates,  of taxes for the use of land on which poles
are placed for sustaining  signal                   transmission cables. Management
believes that the collection of such taxes presents various constitutional and legal
irregularities and is not recording reserves related to these taxes.

The subsidiary Net Brasília
Ltda. is defending itself from a state tax assessment  notice related to divergences in
the ICMS basis in 1996 and 1997.  Management has established a reserve of  approximately
 US$ 2,600 (US$ 593                   in 2002).

The subsidiary DR
Empresa de Distribuição e Recepção de TV Ltda. is defending itself from a federal tax
notice related to divergences in the  classification in the table of excise tax incidence
applied on imported  products.                   Management has established a reserve of
US$ 1,857.

Labor proceedings
arise primarily from employees of subcontractors, in conjunction with the high turnover
in the industry. Management has established the reserves for probable losses arising from
these proceedings.

Civil  proceedings
 arise in the normal course of business  corresponding  mainly to  indemnifications  for
moral and material  damages sought by  subscribers,  as well as public  lawsuits  related
to the revision of certain                   provisions of the cable subscription
agreement and subscription price realignment. Management has established the reserves
deemed appropriated to cover probable losses on civil proceedings.

13.      Financial
Instruments

a)
               Concentration of risk

Financial  instruments
that potentially subject the Company to concentration of risk consist principally of cash
and cash equivalents,  accounts  receivable,  debt and payables to programmers.  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 due to large number of
subscribers                   comprising the customer base.

At December 31, 2003
the U.S. dollar exposure was comprised as follows:

|                                | 2003        | 2002       
|------------------------------- | ----------- | -----------
|Debt                            | US$ 221,650 | US$ 219,315
|Accounts payable to programmers | 33,798      | 36,996     
|                                | US$ 255,448 | US$ 256,311

b)                Fair
value

The following methods
and assumptions were used in estimating the fair value disclosures for financial
instruments:

(i)      Cash and cash
equivalents, accounts receivable and accounts payable

Due to the short-term
nature of these accounts, the carrying amounts reported in the balance sheet approximate
the fair values.

(ii)     Debt

At December 31, 2003
and 2002, the carrying value of debt was comprised as follows:

|Description                        |     | Carrying Value 2003 |     | Carrying Value 2002
|---------------------------------- | --- | ------------------- | --- | -------------------
|Multicanal Senior Guaranteed Notes | US$ | 97,692              | US$ | 97,692             
|Net Sul Floating Rate Notes        |     | 72,300              |     | 72,300             
|Trade Financing Loans              |     | 17,910              |     | 20,612             
|IFC Credit Facility                |     | 11,681              |     | 11,681             
|Non-Convertible Debentures         |     | 67,541              |     | 55,229             
|Convertible Debentures             |     | 14,939              |     | 11,444             
|Working Capital Loans              |     | 67,476              |     | 47,086             
|Other                              |     | 393                 |     | 7,704              
|Total                              | US$ | 349,932             | US$ | 323,748            

As previously  noted,
the Company is in default of certain loan and related covenant  agreements.  The Company
is in current  discussions with their creditors to renegotiate  certain  repayment terms
and conditions.                            Concurrent with such discussions, the Company
continues to reorganize their operations in an attempt to enhance their cash flow and
profitability.

Based on the terms of
the ongoing  negotiations  with  creditors,  management  estimates  that the fair value
of the financial  instruments  approximate  their book value.  Under the terms being
 discussed  with its                            creditors, the Company understands that
accounts payable related to default penalties may result in a concession depending on the
outcome of the ongoing negotiations.

(iii)
        Derivatives

In order to help
manage the risk of the effects of major devaluation of the Brazilian real against the
U.S. dollar, the Company entered into short-term forward interest and foreign exchange
swaps contracts.  At December                        31, 2003 and 2002 there were no
outstanding contracts.

14.      Non-cash
Transactions

The following non-cash
transactions occurred in 2002 as part of the recapitalization of the Company:

- Programming  credits  amounting to R$ 155,184  thousand  (equivalent to
US$ 49,832 at the exchange rate in force at the date of the issuance of shares) held by
companies  related to  Organizações  Globo and R$ 2,236 thousand
                  (equivalent to US$ 746 at the exchange rate in force at the date of the
issuance of shares) held by companies related to Grupo RBS were capitalized.
- Capital advances in the amount of R$ 383,191 thousand  (equivalent to US$
123,470 at the exchange rate in force at the date of the issuance of shares) made by
companies related to Organizações  Globo, and capital advances of                   R$
18,491 thousand (equivalent to US$ 6,171 at the exchange rate in force at the date of the
issuance of shares) made by entities related to RBS Administração e Cobrança Ltda. were
capitalized.
- Convertible debentures in the amount of R$ 365,817 thousand (equivalent
to US$120,057 at the exchange rate in force at the date of the issuance of shares) were
converted into equity.

15.      Guarantor
Subsidiaries - Consolidating Statements

The following
condensed consolidating  information,  prepared in accordance with USGAAP, is presented
in connection with the guarantee of the US$ 97,692 12.625% Notes due 2004, which are
senior unsecured obligations of Net Serviços            de Comunicação S.A., ranking
pari-passu in right of payment with all its existing and future senior unsecured
indebtedness,  and are unconditionally  guaranteed,  on a joint and several basis, by
each of Net Serviços de Comunicação            S.A.s  consolidated  subsidiaries,
 except for Net Anápolis Ltda., Net Rio S.A., Net Brasília Ltda., Net Recife S.A.,
 Cabodinâmica TV Cabo São Paulo S.A. (Net São Paulo),  Net Campinas Ltda., Net Indaiatuba
 Ltda., Net São Carlos            S.A., Net Franca Ltda., Jaguari  Telecomunicações
 Ltda., Vicom Ltda. and Net Sul Comunicações Ltda. and its subsidiaries and the guarantee
of the US$ 80,000 LIBOR plus 3.00% to 3.625% Floating Rate Notes equal to three-month
LIBOR            as quoted on display page 3750 of the Dow Jones Markets Service,  plus
the Applicable Margin due 2005, which are direct,  unconditional,  unsecured and
 uncoordinated  obligations of Net Serviços de Comunicação S.A. and are jointly
           and severally guaranteed by Net Sul subsidiary Guarantors.

The condensed
consolidated balance sheet at December 31, 2003 and 2002 and the condensed consolidated
 statements of operations and cash flows for each of the three years in the period ended
December 31, 2003, are presented for (i)            Net Serviços de Comunicação S.A. (Net
Serviços parent company), (ii) subsidiaries which are guarantors of the Multicanal Senior
Guaranteed Notes, all wholly-owned  (wholly-owned  subsidiaries combined), (iii)
subsidiaries which are            guarantors of the Floating Rate Notes (Net Sul
Guarantors),  (iv) subsidiaries that are not guarantors (Net Sul non-guarantors and
non-guarantor  subsidiary) and (v) elimination  entries  (eliminations),  for purpose of
showing the            impact of the non-guarantor  subsidiaries in the consolidated
 financial statements.  Investments in subsidiaries and in equity investees are presented
on the equity method of accounting in the condensed consolidated balance sheets
           and statements of operations.

Net Serviços de
Comunicação S.A. holds a direct 86% interest in Multicanal  Telecomunicações S.A. and an
indirect 14% interest through CMA-Participações S.A. Accordingly,  for purposes of the
aforementioned consolidated statements,            Multicanal Telecomunicações S.A. and
its wholly-owned subsidiaries have been considered as included in the column Wholly-owned
subsidiaries (combined).



NET SERVIÇOS DE COMUNICAÇÃO
S.A.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
                                                                                                (Expressed
in thousands of United States dollars)
                                                                               Condensed
consolidating statements at December 31, 2003 and for the year then ended

|                                                      | Net Serviços (parent company) | Wholly-owned subsidiaries (combined) | Net Sul non guarantors | Net Sul guarantors | Non-guarantor subsidiary | Eliminations | Net Serviços (consolidated)
|----------------------------------------------------- | ----------------------------- | ------------------------------------ | ---------------------- | ------------------ | ------------------------ | ------------ | ---------------------------
|Balance Sheet                                         |                               |                                      |                        |                    |                          |              |                            
|Current assets                                        |                               |                                      |                        |                    |                          |              |                            
|Cash and cash equivalents                             | US$                           | 30                                   | US$                    | 22,453             | US$                      | 258          | US$                        
|Accounts receivable, net                              |                               | -                                    |                        | 20,623             |                          | 1,075        |                            
|Other current assets                                  |                               | 12,279                               |                        | 1,819              |                          | 975          |                            
|                                                      | US$                           | 12,309                               | US$                    | 44,895             | US$                      | 2,308        | US$                        
|Property and equipment, net                           |                               | 31,834                               |                        | 153,887            |                          | 38,837       |                            
|Investments and advances to investees                 |                               | 2,403                                |                        | -                  |                          | -            |                            
|Investments and advances to consolidated subsidiaries |                               | 216,768                              |                        | 23,205             |                          | -            |                            
|Goodwill, net (consolidated subsidiaries)             |                               | 248,961                              |                        | 19,678             |                          | -            |                            
|Other assets                                          |                               | 19,482                               |                        | 5,029              |                          | 4,562        |                            
|Total assets                                          | US$                           | 531,757                              | US$                    | 246,694            | US$                      | 45,707       | US$                        
|Current liabilities                                   |                               |                                      |                        |                    |                          |              |                            
|Accounts payable to suppliers and programmers         | US$                           | 13,206                               | US$                    | 13,009             | US$                      | 19,672       | US$                        
|Short-term debt                                       |                               | 283,702                              |                        | 25,254             |                          | 74,496       |                            
|Due to related companies                              |                               | 7,289                                |                        | 143,349            |                          | -            |                            
|Other current liabilities                             |                               | 132,938                              |                        | 2,563              |                          | 4,155        |                            
|                                                      | US$                           | 437,135                              | US$                    | 184,175            | US$                      | 98,323       | US$                        
|Non-current liabilities                               |                               |                                      |                        |                    |                          |              |                            
|Accounts payable to programmers                       | US$                           | -                                    | US$                    | 8,176              | US$                      | 2,736        | US$                        
|Due to related companies                              |                               | 2,063                                |                        | 235,100            |                          | 30,713       |                            
|Deferred sign-on, hookup fee and                      |                               | -                                    |                        | -                  |                          | -            |                            
|Programming benefit                                   |                               | 2,334                                |                        | 11,364             |                          | 2,489        |                            
|Other payables and accruals                           |                               | 93,116                               |                        | 31,637             |                          | 5,338        |                            
|                                                      | US$                           | 534,648                              | US$                    | 470,452            | US$                      | 139,599      | US$                        
|                                                      |                               |                                      |                        |                    |                          |              |                            
|                                                      |                               |                                      |                        |                    |                          |              |                            
|Minority interestes in consolidated subsidiaries      |                               | -                                    |                        | -                  |                          | 136          |                            
|Stockholders' equity (deficit)                        |                               |                                      |                        |                    |                          |              |                            
|Capital                                               | US$                           | 2,320,043                            | US$                    | 514,691            | US$                      | 32,343       | US$                        
|Accumulated deficit                                   |                               | (2,092,032)                          |                        | (1,151,473)        |                          | (156,871)    |                            
|Cumulative translation adjustments                    |                               | (230,902)                            |                        | 413,024            |                          | 30,500       |                            
|                                                      | US$                           | (2,891)                              | US$                    | (223,758)          | US$                      | (94,028)     | US$                        
|                                                      | US$                           | 531,757                              | US$                    | 246,694            | US$                      | 45,707       | US$                        



|                                               | Net Serviços (parent company) | Wholly-owned subsidiaries (combined) | Net Sul non guarantors | Net Sul guarantors | Non-guarantor subsidiary | Eliminations | Net Serviços (consolidated)
|---------------------------------------------- | ----------------------------- | ------------------------------------ | ---------------------- | ------------------ | ------------------------ | ------------ | ---------------------------
|Statement of operations                        |                               |                                      |                        |                    |                          |              |                            
|Net revenue                                    | US$                           | -                                    | US$                    | 192,879            | US$                      | 41,314       | US$                        
|Direct operating expenses                      |                               | (2,305)                              |                        | (103,886)          |                          | (22,724)     |                            
|Selling, general and administrative expenses   |                               | (21,590)                             |                        | (24,830)           |                          | (6,964)      |                            
|Depreciation and amortization                  |                               | (9,206)                              |                        | (20,514)           |                          | (6,837)      |                            
|Other, net                                     |                               | 845                                  |                        | (425)              |                          | 3,923        |                            
|Exchange gains (losses), net                   |                               | 21,614                               |                        | 680                |                          | 15,556       |                            
|Financial expense                              |                               | (76,859)                             |                        | (13,309)           |                          | (6,232)      |                            
|Financial income                               |                               | 1,860                                |                        | 1,824              |                          | 138          |                            
|Equity in results of consolidated subsidiaries |                               | 46,356                               |                        | (32,811)           |                          | 3,762        |                            
|Investees                                      |                               | (580)                                |                        | -                  |                          | -            |                            
|Other, net                                     |                               | (843)                                |                        | (2,216)            |                          | 690          |                            
|Income tax                                     |                               | (4,695)                              |                        | 1,259              |                          | (1,128)      |                            
|Minority interest in results of                |                               |                                      |                        |                    |                          |              |                            
|consolidated subsidiaries                      |                               | -                                    |                        | -                  |                          | -            |                            
|Loss for the period                            | US$                           | (45,403)                             | US$                    | (1,349)            | US$                      | 21,498       | US$                        
|Statement of Cash Flows                        |                               |                                      |                        |                    |                          |              |                            
|Net cash provided by operating activities      | US$                           | (552,485)                            | US$                    | (42,191)           | US$                      | 36,746       | US$                        
|Cash used in investing activities              |                               |                                      |                        |                    |                          |              |                            
|Acquisition of property and equipment          |                               | (9,867)                              |                        | 9,125              |                          | (3,129)      |                            
|Acquisition of investments and advances        |                               | 417,342                              |                        | 186,407            |                          | -            |                            
|Net cash acquired from acquisition Unicabo     |                               | -                                    |                        | -                  |                          | -            |                            
|Proceeds from sale of equipment                |                               | 1,019                                |                        | (15,693)           |                          | 2,477        |                            
|Net cash provided by financing activities      |                               | -                                    |                        | -                  |                          | -            |                            
|Change in overdraft facilities , net           |                               |                                      |                        |                    |                          |              |                            
|. Short-term debt                              |                               |                                      |                        |                    |                          |              |                            
|.. Issuances                                   |                               | 37                                   |                        | -                  |                          | -            |                            
|.. Repayments                                  |                               | (86)                                 |                        | -                  |                          | -            |                            
|. Long-term debt                               |                               |                                      |                        |                    |                          |              |                            
|.. Issuances                                   |                               | -                                    |                        | -                  |                          | -            |                            
|.. Repayments                                  |                               | -                                    |                        | -                  |                          | -            |                            
|. Related party loans                          |                               |                                      |                        |                    |                          |              |                            
|.. Issuances                                   |                               | 80,198                               |                        | 509,027            |                          | 80,028       |                            
|.. Repayments                                  |                               | (23,114)                             |                        | (493,346)          |                          | (131,729)    |                            
|Effect of exchange rate changes                |                               |                                      |                        |                    |                          |              |                            
|on cash and cash equivalents                   |                               | 86,725                               |                        | (138,871)          |                          | 15,739       |                            
|Cash and cash equivalents -                    |                               |                                      |                        |                    |                          |              |                            
|beginning of period                            |                               | 260                                  |                        | 7,995              |                          | 126          |                            
|Cash and cash equivalents - end of period      | US$                           | 29                                   | US$                    | 22,453             | US$                      | 258          | US$                        



NET SERVIÇOS DE COMUNICAÇÃO
S.A.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
                                                                                                (Expressed
in thousands of United States dollars)
                                                                               Condensed
consolidating statements at December 31, 2002 and for the year then ended

|                                                      | Net Serviços (parent company) | Wholly-owned subsidiaries (combined) | Net Sul non guarantors | Net Sul guarantors | Non-guarantor subsidiary | Eliminations | Net Serviços (consolidated)
|----------------------------------------------------- | ----------------------------- | ------------------------------------ | ---------------------- | ------------------ | ------------------------ | ------------ | ---------------------------
|Balance Sheet                                         |                               |                                      |                        |                    |                          |              |                            
|Current assets                                        |                               |                                      |                        |                    |                          |              |                            
|Cash and cash equivalents                             | US$                           | 260                                  | US$                    | 7,995              | US$                      | 126          | US$                        
|Accounts receivable, net                              |                               | -                                    |                        | 17,959             |                          | 952          |                            
|Other current assets                                  |                               | 2,055                                |                        | 1,418              |                          | 359          |                            
|                                                      | US$                           | 2,315                                | US$                    | 27,372             | US$                      | 1,437        | US$                        
|Property and equipment, net                           |                               | 29,606                               |                        | 158,187            |                          | 35,967       |                            
|Investments and advances to investees                 |                               | 857                                  |                        | -                  |                          | -            |                            
|Investments and advances to consolidated subsidiaries |                               | 72,493                               |                        | 277,725            |                          | (25,579)     |                            
|Goodwill, net (consolidated subsidiaries)             |                               | 205,007                              |                        | 16,680             |                          | -            |                            
|Other assets                                          |                               | 60,066                               |                        | 1,168              |                          | 3,693        |                            
|Total assets                                          | US$                           | 370,343                              | US$                    | 481,132            | US$                      | 15,518       | US$                        
|Current liabilities                                   |                               |                                      |                        |                    |                          |              |                            
|Accounts payable to suppliers and programmers         | US$                           | -                                    | US$                    | 44,853             | US$                      | 6,441        | US$                        
|Short-term debt                                       |                               | 216,521                              |                        | 23,630             |                          | 72,136       |                            
|Due to related companies                              |                               | 48,117                               |                        | 15,824             |                          | -            |                            
|Current portion of long-term debt                     |                               | -                                    |                        | -                  |                          | -            |                            
|Other current liabilities                             |                               | 41,056                               |                        | 19,351             |                          | 1,890        |                            
|                                                      | US$                           | 305,694                              | US$                    | 103,658            | US$                      | 80,467       | US$                        
|Non-current liabilities                               |                               |                                      |                        |                    |                          |              |                            
|Long-term debt                                        |                               | -                                    |                        | -                  |                          | -            |                            
|Due to related companies                              |                               | 2,111                                |                        | 370,034            |                          | (22,723)     |                            
|Deferred sign-on and hookup fee revenue               |                               | -                                    |                        | 10,682             |                          | 24           |                            
|Other payables and accruals                           |                               | 26,288                               |                        | 45,529             |                          | 12,862       |                            
|                                                      | US$                           | 334,093                              | US$                    | 529,903            | US$                      | 70,630       | US$                        
|                                                      |                               |                                      |                        |                    |                          |              |                            
|Minority interestes in consolidated subsidiaries      |                               | -                                    |                        | -                  |                          | 119          |                            
|Stockholders' equity (deficit)                        |                               |                                      |                        |                    |                          |              |                            
|Capital                                               | US$                           | 2,315,373                            | US$                    | 338,935            | US$                      | 67,337       | US$                        
|Accumulated deficit                                   |                               | (2,046,629)                          |                        | (737,908)          |                          | (136,890)    |                            
|Cumulative translation adjustments                    |                               | (232,494)                            |                        | 350,202            |                          | 14,322       |                            
|                                                      | US$                           | 36,250                               | US$                    | (48,771)           | US$                      | (55,231)     | US$                        
|                                                      | US$                           | 370,343                              | US$                    | 481,132            | US$                      | 15,518       | US$                        



|                                               | Guarantors                   
|---------------------------------------------- | -----------------------------
|                                               | Net Serviços (parent company)
|Statement of operations                        |                              
|Net revenue                                    | US$                          
|Direct operating expenses                      |                              
|Selling, general and administrative expenses   |                              
|Depreciation and amortization                  |                              
|Cumulative effect of accounting change         |                              
|Other, net                                     |                              
|Pre-acquisition income                         |                              
|Exchange gains (losses), net                   |                              
|Financial expense                              |                              
|Financial income                               |                              
|Equity in results of consolidated subsidiaries |                              
|Investees                                      |                              
|Other, net                                     |                              
|Income tax                                     |                              
|Minority interest in results of                |                              
|consolidated subsidiaries                      |                              
|Loss for the period                            | US$                          
|Statement of Cash Flows                        |                              
|Net cash provided by operating activities      | US$                          
|Cash used in investing activities              |                              
|Acquisition of property and equipment          |                              
|Acquisition of investments and advances        |                              
|Net cash acquired from acquisition Unicabo     |                              
|Proceeds from sale of equipment                |                              
|Net cash provided by financing activities      |                              
|Change in overdraft facilities , net           |                              
|. Short-term debt                              |                              
|Issuances                                      |                              
|Repayments                                     |                              
|Long-term debt                                 |                              
|Issuances                                      |                              
|Repayments                                     |                              
|Related party loans                            |                              
|Issuances                                      |                              
|Repayments                                     |                              
|Capital contribution                           |                              
|Spin off                                       |                              
|Effect of exchange rate changes                |                              
|on cash and cash equivalents                   |                              
|Cash and cash equivalents -                    |                              
|beginning of period                            |                              
|Cash and cash equivalents - end of period      | US$                          



NET
SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
                                                                                                (Expressed
in thousands of United States dollars)
                                                                               Condensed
consolidating statements at December 31, 2001 and for the year then ended

|                                               | Guarantors                   
|---------------------------------------------- | -----------------------------
|                                               | Net Serviços
(parent company)
|Statement of operations                        |                              
|Net revenue                                    | US$                          
|Direct operating expenses                      |                              
|Selling, general and administrative expenses   |                              
|Depreciation and amortization                  |                              
|Other, net                                     |                              
|Exchange gains (losses), net                   |                              
|Financial expense                              |                              
|Financial income                               |                              
|Equity in results of consolidated subsidiaries |                              
|Investees                                      |                              
|Other, net                                     |                              
|Income tax                                     |                              
|Minority interest in results of                |                              
|consolidated subsidiaries                      |                              
|                                               |                              
|Loss for the period                            | US$                          
|                                               |                              
|Statement of Cash Flows                        |                              
|Net cash provided by operating activities      | US$                          
|Cash used in investing activities              |                              
|Acquisition of property and equipment          |                              
|Acquisition of investments and advances        |                              
|Net cash acquired from acquisition Unicabo     |                              
|Proceeds from sale of equipment                |                              
|Net cash provided by financing activities      |                              
|Change in overdraft facilities , net           |                              
|. Short-term debt                              |                              
|.. Issuances                                   |                              
|.. Repayments                                  |                              
|. Long-term debt                               |                              
|.. Issuances                                   |                              
|.. Repayments                                  |                              
|. Related party loans                          |                              
|.. Issuances                                   |                              
|.. Repayments                                  |                              
|. Capital contribution                         |                              
|. Spin off                                     |                              
|Effect of exchange rate changes                |                              
|on cash and cash equivalents                   |                              
|Cash and cash equivalents -                    |                              
|beginning of period                            |                              
|Cash and cash equivalents - end of period      | US$                          



NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Years
ended December 31, 2003, 2002 and 2001
(Expressed
in thousands of United States dollars)

16.      Supplementary
Information

|                                         |                                | 2002                 | Year ended December 31, 2003  
|---------------------------------------- | ------------------------------ | -------------------- | ------------------------------
|                                         |                                |                      |                               
|Descriptions                             | Balance at 
beginning 
of year | Charges 
to 
expense | Effect of 
currency 
variation
|                                         |                                |                      |                               
|Allowance for doubtful accounts          | US$                            | (11,916)             | US$                           
|Income tax valuation allowance           | US$                            | (246,591)            | US$                           
|Provision for losses in equity investees |                                |                      |                               
|Net Brasil S.A.                          | US$                            | (1,230)              | US$                           

|                                         |     | 2001      | Year ended December 31, 2002
|---------------------------------------- | --- | --------- | ----------------------------
|Allowance for doubtful accounts          | US$ | (10,011)  | US$                         
|Income tax valuation allowance           | US$ | (286,627) | US$                         
|Provision for losses in equity investees |     |           |                             
|Net Brasil S.A.                          | US$ | (44)      | US$                         



|                                         |          | 2000      | Year ended December 31, 2001
|---------------------------------------- | -------- | --------- | ----------------------------
|                                         |          |           |                             
|Allowance for doubtful accounts          | US$      | (9,935)   | US$                         
|Amortization of goodwill:                |          |           |                             
|CMA  Participações S.A.                 | US$      | (19,031)  | US$                         
|Multicanal BH                            |          | (20,632)  |                             
|Net Rio S.A.                             |          | (19,363)  |                             
|Net São Paulo                            | (26,024) |           | (5,687)                     
|Net Brasília S.A.                        |          | (6,743)   |                             
|Net Recife S.A.                          |          | (314)     |                             
|Net Campinas S.A.                        |          | (8,998)   |                             
|Net Franca S.A.                          |          | (123)     |                             
|Net Indaiatuba S.A.                      |          | (21)      |                             
|Net São Carlos S.A.                      |          | (941)     |                             
|Vicom Ltda.                              |          | (1,382)   |                             
|Net Sul Comunicações Ltda.               |          | (16,607)  |                             
|GMMD-S Comunicações Ltda.                |          | (1)       |                             
|Consolidated subsidiaries of             |          |           |                             
|Multicanal Cabo                          |          | (7,484)   |                             
|                                         | US$      | (127,664) | US$                         
|Income tax valuation allowance           | US$      | (233,779) | US$                         
|Provision for losses in equity investees |          |           |                             
|Net Brasil S.A.                          | US$      | (148)     | US$                         

17. Subsequent event  Commitment
Letter For Debt Restructuring Plan - (Unaudited)

On June 27, 2004,  Net
Serviços de  Comunicação  S.A.  issued a relevant  notice  stating that the Company and
its financial  creditors representing  approximately  70% of the  Companys  principal
 amount of  outstanding  debt have entered into  commitment  letters that outline the
terms and conditions  upon which the Company would  exchange the Company and its
 subsidiaries  indebtedness  held by such creditors for a combination of the Companys
new senior secured debt, new  subordinated  convertible  debt and/or new equity,
 provided that the Company  may in certain  circumstances  substitute  cash for all or a
portion of the equity and new  subordinated  convertible debt otherwise issuable to those
creditors.

Currently,  the
Company  expects that each  creditor  will be given the option  either (i) to convert 60%
of their debt into new senior secured debt and 40% into equity or (ii) to convert  100%
of their debt into equity.  In  addition,  because  certain  creditors of the Companys
 reais-denominated  debt are subject to legal  restrictions  that prevent them from
holding  equity  securities,  the Company intends  to offer  them the  option  of
 converting  60% of their  debt  into new  senior  secured  debt and 40% into new
 subordinated convertible debt.

Additionally,  the
Company expects to issue up to 1,825,021,996 new equity shares in connection with the
debt  restructuring  plan. The precise  number of shares is subject to a number of
 circumstances,  such as: the  prevailing  interest  rates  through the date of the
restructuring,  the exchange  rate on the date of the  restructuring,  the extent to
which the debts  creditors  elect the 100% equity option, and the extent to which
holders of the Companys  reais-denominated debt elect to receive subordinated
 convertible debt rather than equity.

The obligations of the
creditors  party to the commitment  letters to effect the  restructuring  are subject to
a number of significant conditions, such as:

- Creditors
holding no less than 95% of the Companys outstanding debt must agree to participate in
the restructuring;

- There must not
have occurred any material adverse change relating to the Company or to Brazil;

- The creditors
must have satisfied  themselves with certain remaining due diligence items relating to
the Company,  including          with respect to the tax effects of the restructuring and
the terms of the Companys programming contracts;

- The Company
must have obtained all governmental and third party consents necessary to consummate the
restructuring; and

- The Company
must negotiate and execute definitive  documents  reflecting the terms of the commitment
letters and the substance          and form of these documents must be acceptable to the
creditors.

The commitment letters
expire on September 30, 2004,  although such date will be automatically  extended to
November 30, 2004, unless a majority of the creditors  party to the commitment  letters
 elects to veto such  extension.  Management  does not expect that the debt restructuring
 will be completed by either of these dates,  but expects,  by this time to have entered
into definitive  agreements that supersede  the  commitment  letters.  If the  Company
 has not  entered  into  definitive  agreements  prior to the  date on which  the
commitment letters would otherwise terminate, the Company would seek to extend the
effectiveness of the commitment letters.

Until the time that
the debt  restructuring  plan is signed,  the Company will continue to accrue interest
and other financial charges, on its consolidated financial statements, based on the
existing debt instruments terms.

18.  Subsequent event  Globo
 Comunicações e Participações  S.A.  agreement to sell an interest in Net Serviços de
Comunicação S.A. to Teléfonos de México S.A. - (Unaudited)

On June 27, 2004, Net
Serviços de Comunicação  S.A.  issued another  relevant notice stating that its
 controlling  shareholder,  Globo Comunicações e Participações S.A.  (Globopar),  has
entered into an agreement to sell an interest in the Company to Teléfonos de Mexico S.A.
 (Telmex).  Under the terms of this agreement,  Globopar would subscribe for all the
voting shares,  in connection with the debts restructuring  plan, at a price of R$0.35
per share and Telemex will grant a standby  underwriting  guarantee for  subscription  at
the minimum issue price of R$0.35 per share for all the  non-voting  shares to be issued.
 The closing of this  transaction is subject to a number of  conditions  precedent,
 including  the  approval of the  National  Telecommunications  Agency  (Anatel),  the
closing of the Companys debt restructuring plan, and the negotiation with other parties
to the Companys existing  shareholders  agreement to either modify or establish a new
agreements.

Alternatively,
 Globopar has a put option to sell to Telmex for an  approximately  US$130 million at any
time after October 31, 2004, a combination of voting and non-voting  shares of the
Company  currently held by Globopar,  equivalent to approximately  34% of the total
outstanding shares of the Company.



|Exhibit  Number | Description
|--------------- | -----------

|1.1 | By-laws
of Net Serviços de  Comunicação  S.A.,  as amended on October 30, 2002,  together with an
                    English-language   translation  thereof   (incorporated  by
 reference  to  Exhibit  1.1  of  the                     Registrants  annual  report on
Form 20-F (No.  0-28860)  for the Fiscal Year ended  December 31,
                    2002, filed with the U.S. Securities and Exchange Commission).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.1 | Indenture,
 dated as of June 18,  1996,  among  Multicanal  Participações  S.A.  (predecessor  in
                    interest to Net Serviços de  Comunicaçâo  S.A.),  as Issuer,  the
Guarantors  named  therein,  as                     Guarantors,  and The Chase  Manhattan
 Bank N.A.,  as Trustee,  with  respect to Net  Serviços de                     Comunicação
 S.A.s issuance of its US$185 million Senior Guaranteed Notes due 2004 (incorporated
                    by reference to Exhibit 2.1 of the Registrants  annual report on
Form 20-F (No. 0-28860) for the                     fiscal year ended December 31, 2001,
filed with the U.S. Securities and Exchange Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Indenture,
 dated as of October  31,  1997,  among Net Sul TV a Cabo e  Participações  Ltda.,  as
                    Issuer,  the Guarantors  named therein,  as Guarantors,  The Chase
 Manhattan  Bank, New York, as                     Trustee,  The Chase Manhattan Bank,
New York, as Registrar and Paying Agent,  The Chase Manhattan                     Bank,
London Branch, as Transfer Agent,  Calculation Agent and Paying Agent, Chase Manhattan
Bank                     Luxembourg,  S.A., as Paying Agent, and Chase Trust Bank, as
Principal Paying Agent (incorporated                     by reference to Exhibit 2.2 of
the Registrants  annual report on Form 20-F (No. 0-28860) for the
                    Fiscal Year ended December 31, 2002, filed with the U.S. Securities
and Exchange Commission).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 | First
 Supplemental  Indenture,  dated as of December 18,  1998,  to the  Indenture,  dated as
of                     October  31,  1997,  among  Net Sul  Comunicações  S.A.  (formerly
 known  as Net Sul TV a Cabo e                     Participações  Ltda.),  as Issuer,
 the  Guarantors  named  therein,  as Guarantors and The Chase
                    Manhattan Bank, as Trustee  (incorporated by reference to Exhibit 2.3
of the Registrants  annual                     report on Form 20-F (No.  0-28860) for
the Fiscal Year ended  December  31, 2002,  filed with the                     U.S.
Securities and Exchange Commission).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.4 | Second
 Supplemental  Indenture,  dated as of August  30,  2000,  to the  Indenture,  dated as
of                     October 31, 1997, as amended and restated on December 18, 1998,
among Net Sul  Comunicações  S.A.                     (formerly  known as Net Sul TV a
Cabo e Participações  Ltda.),  as Issuer,  the Guarantors  named
                    therein,  as Guarantors and The Chase  Manhattan Bank, as Trustee
 (incorporated  by reference to                     Exhibit 2.4 of the  Registrants
 annual  report on Form 20-F (No.  0-28860)  for the Fiscal Year
                    ended December 31, 2002, filed with the U.S. Securities and Exchange
Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.5 | Third
 Supplemental,  dated as of October 31,  2000,  to the  Indenture,  dated as of October
31,                     1997,  as amended and  restated on December  18, 1998 and further
 supplemented  as of August 30,                     2000,  among  Net Sul  Comunicações
 S.A.  (formerly  known as Net Sul TV a Cabo e  Participações                     Ltda.),
 as Issuer the Guarantors  named therein,  as Guarantors and The Chase Manhattan Bank, as
                    Trustee  (incorporated by reference to Exhibit 2.5 of the Registrants
annual report on Form 20-F                     (No.  0-28860) for the Fiscal Year ended
 December 31, 2002,  filed with the U.S.  Securities and                     Exchange
Commission).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.6 | Fourth
 Supplemental,  dated as of October 31, 2000,  to the  Indenture,  dated as of October
31,                     1997,  as amended and  restated on December  18, 1998 and further
 supplemented  as of August 30,                     2000 and October 31, 2000 among Net
Sul Comunicações S.A.  (formerly known as Net Sul TV a Cabo e
                    Participações  Ltda.),  as Issuer,  the  Guarantors  named  therein,
 as Guarantors and The Chase                     Manhattan Bank, as Trustee
 (incorporated by reference to Exhibit 2.6 of the Registrants  annual
                    report on Form 20-F (No.  0-28860) for the Fiscal Year ended
 December  31, 2002,  filed with the                     U.S. Securities and Exchange
Commission).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.7 | Letter
 Agreement,  dated as of August 28, 2003, among Net Sul Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.8 | Letter
Agreement,  dated as of January 13, 2004, among Net Sul Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.9 | Letter
 Agreement,  dated as of April 13, 2004, among Net Sul  Comunicações  Ltda, the
Guarantors                     named therein,  as Guarantors,  Televisão a Cabo.  Cricuma
Ltda., as Guarantor,  Wells Fargo Bank                     Minnesota,  National
Association, as Trustee, JPMorgan Chase Bank, as Registrar and Paying Agent,
                    JPMorgan Chase Bank, as Transfer  Agent,  Calculation  Agent and
Paying Agent,  J.P.  Morgan Bank                     Luxembourg  S.A.,  as Paying Agent
and J.P.  Morgan Trust Bank,  as Principal  Paying  Agent,  in
                    respect of the Net Sul Seies A Floating Rate Notes due 2005 and Put
Option.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.10 | Form
of Commitment Letter among Net Serviços de Comunicação S.A. and its creditor.
|---- | ----------------------------------------------------------------------------------

|4.1 | Shareholders   Agreement,
  dated  as  of  July  11,  2002,  among  Distel  Holding  S.A.,  Roma
                    Participações  Ltda.,  Bradesplan  Participações S.A., BNDES Participações
S.A.,  Microsoft B.V.,                     RBS Participações  S.A., Zero Hora Editora
 Jornalistica S.A., and,  furthermore,  as Intervening                     Parties,  Net
Serviços de Comunicação S.A.s,  Globo Comunicações e Participações S.A., Bradespar
                    S.A.  and  Microsoft   Corporation,   together  with  an
 English-language   translation  thereof                     (incorporated  by reference
to Exhibit 4.1 of the  Registrants  annual  report on Form 20-F (No.
                    0-28860)  for the Fiscal  Year ended  December  31,  2002,  filed
 with the U.S.  Securities  and                     Exchange Commission).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 | Programming
Agreement (Contrato de Comissão),  dated as of June 27, 2004, between Net Brasil S.A.
                    and Net Serviços de Comunicaçâo S.A.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|4.4 | Protocol
 of  Recapitalization  of Globo  Cabo S.A.,  dated as of April 10,  2002,  among  Distel
                    Holding S.A.,  Globo  Comunicações e Participações  S.A., Roma
 Participações  Ltda.,  Globo Cabo                     S.A., Bradesplan  Participações
S.A., Bradespar S.A., RBS Participações S.A., BNDES Participações
                    S.A., and, as intervening  consenting party, Net Brasil S.A.,
 together with an  English-language                     translation  thereof
 (incorporated by reference to Exhibit 4.6 of the Registrants annual report
                    on Form 20-F (No.  0-28860)  for the fiscal year ended  December  31,
 2001,  filed with the U.S.                     Securities and Exchange Commission).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.5 | First
 Amendment to the Protocol of  Recapitalization  of Globo Cabo S.A.,  dated as of April
30,                     2002,  among Distel Holding S.A.,  Globo  Comunicações e Participações
 S.A., Roma  Participações                     Ltda., Globo Cabo S.A.,  Bradesplan
 Participações S.A.,  Bradespar S.A., RBS Participações S.A.,                     BNDES
 Participações  S.A., and, as intervening  consenting party, Net Brasil S.A., together
with                     an  English-language  translation  thereof  (incorporated  by
 reference  to  Exhibit  4.7 of the                     Registrants  annual  report on
Form 20-F (No.  0-28860)  for the fiscal year ended  December 31,
                    2001, filed with the U.S. Securities and Exchange Commission).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6 | Second
 Amendment  to the  Protocol  of  Recapitalization  of Net  Serviços de  Comunicaçâo
 S.A.                     (formerly  Globo  Cabo  S.A.),  dated as of June 14,  2002,
 among  Distel  Holding  S.A.,  Globo                     Comunicações e Participações
 S.A., Roma  Participações  Ltda., Net Serviços de Comunicaçâo S.A.,
                    Bradesplan  Participações S.A., Bradespar S.A., RBS Participações
S.A., BNDES Participações S.A.,                     and,  as  intervening  consenting
 party,  Net Brasil  S.A.,  together  with an  English-language
                    translation  thereof  (incorporated by reference to Exhibit 4.8 of
the Registrants annual report                     on Form 20-F (No.  0-28860)  for the
fiscal year ended  December  31,  2001,  filed with the U.S.
                    Securities and Exchange Commission).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8.1 | List
of Net Serviços de Comunicação S.A.s Subsidiaries.
|--- | --------------------------------------------------------

|12.1 | Certification
 of  Francisco  Tosta  Valim  Filho,  Chief  Executive  Officer of Net  Serviços de
                    Comunicação S.A., pursuant to 15 U.S.C.  Section 78(m), as adopted
pursuant to Section 302 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12.2 | Certification
of Leonardo  Porciúncula Gomes Pereira,  Chief Financial Officer of Net Serviços de
                    Comunicação S.A., pursuant to 15 U.S.C.  Section 78(m), as adopted
pursuant to Section 302 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.1 | Certification
 of  Francisco  Tosta  Valim  Filho,  Chief  Executive  Officer of Net  Serviços de
                    Comunicação S.A.,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to Section 906 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13.2 | Certification
of Leonardo  Porciúncula Gomes Pereira,  Chief Financial Officer of Net Serviços de
                    Comunicação S.A.,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant to Section 906 of the                     Sarbanes-Oxley Act of 2002.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We hereby agree to
furnish to the Securities and Exchange Commission copies of any of our other long term
debt instruments and agreements as the Commission requests.